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TMI Blog2024 (1) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... Industrial Policy/ Rules/Notifications? - HELD THAT:- It is, thus, quite apparent that petitioner units had acted upon the promise extended to them by the State for investing in backward Panchayats of the State categorized as tax free zone. The promise being exemption from payment of VAT/CST for a period of ten years from the date of commencement of production. The petitioner units changed their position and invested in the State by setting up industrial units in backward areas/tax free zone. The doctrine of promissory estoppel is definitely applicable to the facts of the instant case. Having promised the petitioners exemption from payment of VAT/CST for a specific period, the respondents-State cannot be permitted to now assert that it is entitled to withdraw the tax concessions and to direct the industrial units to pay VAT/CST merely because in the subsequent years the Panchayats where the petitioners had set up their industrial units were de-notified and no longer carried the backward status. The growth of industrial sector can be said to be one significant factor in the development of an area. Doctrine of promissory estoppel is applicable in the facts of the cases and can certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Advocate General, Mr. Arsh Rattan & Mr. Sidharth Jalta, Deputy Advocate General and Mr. Rakesh Sharma, Assisting Counsel, for the respondents-State. JYOTSNA REWAL DUA, JUDGE All these petitions raise common questions of law and facts, hence are being taken up together for decision. For convenience, documents from CWP No. 9131 of 2013 are being referred to hereinafter. The core question around which all these petitions are centered, is whether tax incentives granted to the petitioner-industrial units under specific Rules and statutory Notifications framed & issued pursuant to the State Industrial Policy, 2004, could be withdrawn during the currency of the exemption period promised under the Industrial Policy/ Rules/Notifications. 2. Brief reference to facts : - 2(i) The respondent-State notified Industrial Policy, 2004 on 30.12.2004 (Annexure P-1). The policy aimed to attract entrepreneurs to set up their projects, inter-alia, in backward areas of the State and in return, promised off-setting to some extent capital cost for setting up the units in remote and difficult areas due to locational disadvantages in form of tax concessions. 2(i)(a) Clauses 8.1, 8.3 and 8.4 perta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfringement opinion. Fiscal Incentive by the State Government would also be provided to such companies so as to meet with the fees charged by the private lawyers/law firms located within the country having a reference from any Ministry/ Deptt. of Government of India of having successfully assisted such Companies in the country." 2(i)(b) Clause 18 of the 2004 Policy pertaining to State Taxes runs as under: - "18 State Taxes: "18.1. Introduction of VAT at the earliest to regulate, administer and Improve collection of taxes to be paid by Industry would be top priority of the Government. It would be a conscious effort of the State Government to design the VAT structure which is simple, based on floor rates agreed upon by the adjoining States and which are broad based. The State Government would make all out efforts to get the final draft of the Act approved by the State Legislature within the FY 2004-2005 as also have the draft of the Rules to be made under this Act finalized in advance before implementation so as to enable Industry to get adequate time to adjust to the new regime. For this adequate notice to allow a switchover and adjust to the new VAT regime would be allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hal Pradesh, 2004" (Annexure P-2). The Rules came into force w.e.f. 31.12.2004. 2(ii)(a) Under the Incentive Rules, 2004, area of the State was categorized into three categories i.e. 'A', 'B' and 'C'. Category 'C' areas (Tax Free Zone) included all Tribal Development Blocks as also the Development Blocks under this category and all the Backward Panchayats located in Blocks under 'A' and 'B' category areas. The categorization as done under Rule 5 is as under: - "5. CATEGORISATION OF THE STATE: a) The State is being now classified into three categories of Areas as "A", "B", C as per Annexure I of these Rules or as may be specified from time to time by the Government for the purpose of Incentives, depending upon its location; distance from the border of adjoining States; extent of industrial development; extent of overall backwardness of the block; resource availability and potential for employment generation for local people. The categorization into three Categories is as per Annexure-1 of these Rules. b) Category "A" Areas are areas under the Kanungo Circles falling within the respective development blocks but excludes any Backward Panchayats whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or under the 1999 Incentive Rules. This incentive will be admissible to New Industrial Units and or existing industrial units as on 7/01/2003 (for the purpose of this incentive only) which undertake substantial expansion after 7/01/2003. This incentive will be available to all eligible units listed in the negative List (Annexure-111) also. In other words, no Negative List will be applicable in Tax Free Zones for the purpose of this incentive. 10.4 The concessions provided under this rule will commence from the date of commencement of commercial production or from the date of notification issued by the Department of Excise and Taxation (wherever required), whichever is later." 2(ii)(d) Rule 19 laid down that all new industrial units set up in category 'C' areas shall be exempted from payment of any State Taxes and Duties (excluding levies in the shape of cess, fees, royalties etc.) for a period of ten years from the date of commencement of commercial production or the date of notification by the concerned department, whichever is later. The Rule runs as under: - "19. TAX INCENTIVES AVAILABLE TO UNITS IN CATEGORY "C" BLOCKS (TAX FREE ZONE) 19.1 All new industrial uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 Ms. S.P.A. and Surfactants 25.03.2010. CWP No. 30 of 2014 MS Manuspaa heritage Pvt. Ltd 16.10.2009. CWP No. 62 of 2014 MS Videotex International Pvt. 25.03.2010. CWP No. 63 of 2014 Ms. Ajanta Enterprises 16.10.2009. CWP No. 64 of 2014 Bright Metal Works 25.03.2010. CWP No. 75 of 2014 Ms. Anuja Foods International 16.10.2009. CWP No. 7537 of 2014 MS New Pulkit Industries 31.03.2010. CWP No. 2577 of 2015 Ms. Sai Refinery 30.03.2010. CWP No. 4802 of 2015 MKS Rail Coach Engineers 23.03.2010. CWP No. 911 of 2016 Ms. New Pooja Steel Industries. In the year, 2012 CWP No. 997 of 2016 Ms. Orelia Refiners Pvt. Ltd. 17.09.2008. CWP No. 101 of 2019 M/s. R.S. Industries 25.03.2010. CWP No. 1547 of 2019 M/s. Goyal Polymer 30.03.2012. CWP No. 1548 of 2019 M/s. Bright Moulding Works 27.03.2010. CWP No. 1549 of 2019 M/s. Anmol Industries 30.03.2012. CWP No. 3237 of 2019 M/s Pulkit Fibers 30.03.2012. CWP No. 7984 of 2021 M/s. B.N. Enterprises 14.07.2008. CWP No. 7320 of 2022 M/s. Sunshine Packaging 31.03.2010. CWP No. 7335 of 2022 M/s. Sunrise Packaging 12.07.2009. CWP No. 1927 of 2023 M/s. Shivam enterprises 12.06.2009. All the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation Department and also laid challenge to the Notification dated 30.03.2013 withdrawing backward status from 'Mangal' Panchayat. During pendency of the petition, the impugned 'de-notification' dated 30.03.2013 was withdrawn by the State vide notification dated 26.11.2014 with 'immediate effect'. Another notification was issued on 27.02.2015, de-notifying backward status of 'Mangal Panchayat', and re-notifying it as non-backward Panchayat with immediate effect. This was followed by yet another notification issued on 24.03.2015 deleting the words 'with immediate effect' from the notification dated 27.02.2015 and clarifying that 26.11.2014 notification would be deemed to be effective from 30.03.2013. The action of the respondents in going back and forth defies even common sense logic. Having realized that the impugned notification dated 30.03.2013, withdrawing backward status from 'Mangal' Panchayat, had not been issued in accordance with law, the respondents had withdrawn the same on 26.11.2014 with immediate effect. On 27.02.2015, respondents issued a fresh notification withdrawing backward status from 'Mangal' Panchayat with immediate effect. On 24.03.2015, a corrigendum was is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned communications, directing the petitioners to pay VAT/CST, were in contradiction to the Industrial Policy, 2004, the Incentive Rules, 2004 framed thereunder and the consequent notifications which granted them 100% exemption from such payment for ten years. The petitioners are entitled to enjoy the tax incentives till the enforcement of GST regime in the year, 2017. 3(ii) On behalf of the respondents-State, the factual position of individual cases as put forth in the petitions was not disputed by the learned Advocate General. The stand taken, however, was that the Panchayat areas where the petitioners had established their new industrial units had been de-notified as backward Panchayats. After the de-notification, the status of such Panchayats was no more that of backward areas. The areas in question having lost the status of backward Panchayats after the de-notification did not fall in the Tax Free Zone. Therefore, the petitioners were not entitled to any tax concessions. It was asserted that the impugned notifications and directions issued by the respondents to the petitioners to deposit VAT/CST after the de-notification of the Panchayats where the petitioners had set up thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stoppel. Withdrawal of exemptions in public interest is permissible. Hence, prayer was made for dismissing the writ petitions. 4. Consideration We have heard learned counsel on both sides and considered the case files. The pivotal question that needs to be adjudicated in these writ petitions is whether the respondents are estopped from directing the petitioners to pay VAT/CST during the currency of the exemption period promised to them under the Industrial Policy, 2004, the Incentive Rules, 2004 framed in furtherance of the Industrial Policy, 2004 and the statutory exemption notifications dated 30.03.2005 (HPGST), 30.03.2005 (CST) and 19.01.2006 (VAT) or in other words, whether in the given facts, the petitioners can successfully invoke the doctrine of promissory estoppel against the State for continuing to avail the tax concessions. 4(i) The contention raised on behalf of the State that Rule 4.2 of the Incentive Rules, 2004 debars the petitioners from laying any claim against the State is an unsustainable argument. The self-serving Rule framed by the State debarring the petitioners from enforcing the tax concession in a Court of law, cannot be held against the petitioners. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lute proposition that there can be no promissory estoppel against the Government in the exercise of its governmental, public or executive powers. That would have been in complete contradiction of the decisions of this Court in the Indo-Afghan Agencies case, Century Spinning and Manufacturing Co. case and Turner Morrison case and we find it difficult to believe that the Court could have ever intended to lay down any such proposition without expressly referring to these earlier decisions and overruling them. We are, therefore, of the opinion that the observation made by the Court in Ram Kumar case does not militate against the view we are taking on the basis of the decisions in the Indo-Afghan Agencies case, Century Spinning & Manufacturing Co. case and Turner Morrison case in regard to the applicability of the doctrine of promissory estoppel against the Government." Therefore, notwithstanding Rule 4.2, the petitioners can maintain writ petitions which are primarily based upon doctrine of promissory estoppel. This principle can be applied against State where it is necessary to prevent manifest injustice or fraud. The claim of the petitioners has to be judicially and judiciously exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are such as to render it inequitable to enforce the liability against the government. It is only if the Court is satisfied on proper and adequate material placed by the government that overriding public interest requires that the government should not be held bound by the promise but should be free to act unfettered by it, that the Court would refuse to enforce the promise against the government. The burden would be upon the government to show that the public interest in the government acting otherwise than in accordance with the promise, is so overwhelming that it would be inequitable to hold the government bound by the promise and the Court would insist on a highly rigorous standard of proof in discharge of this burden. The Court also held that the taxation is sovereign or governmental function, but no distinction can be made between the exercise of a sovereign or governmental function and a trading or business activity of the Government as far as doctrine of promissory estoppel is concerned. Whatever be the nature of the function, which the Government is discharging, the Government is subject to rule of promissory estoppel and if the essential ingredients of this rule are sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r certain promise had been made by the Minister to the concerned persons and there was no clear material also in support of the stand that the parties had altered their position by acting upon the representations and suffered any prejudice. On facts, there- fore, no case for raising the plea of estoppel has been made out. This Court proceeded on the footing that the notification granting exemption retrospectively was not in accordance with section 10 of the State Sales Tax Act as it then stood, as there was no power to grant exemption retrospectively. By an amendment that power has been subsequently conferred. In these appeals there is no question of retrospective exemption. We also find that no reference was made by the High Court to the decision in M.P. Sugar Mills' case (Supra). In our view, to the facts of the present case, the ratio of M.P. Sugar Mills' case directly applies and the plea of estoppel is unanswerable." 8. It is not disputed that the first Order namely, the one dated 11.4. 1979 gave more of tax exemption than the second one. The second notification withdrew the exemption relating to purchase tax and confined the exemption from sales tax to the limit spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts forth in the public realm. The State is bound to act fairly, in a transparent manner in its action. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts. The relevant paras of the judgment are extracted hereinafter: - "H.6 Expectations breached by the State of Jharkhand 43. Applying the abovementioned principles in the present case, we are unable to perceive any substance in the submission of the State which was urged in defense before the High Court. Not only did the State in the present case hold out a solemn representation, this representation was founded on its stated desire to encourage industrialization in the State. The policy document spelt out: (i) The nature of the incentives; (ii) The period during which the incentives would be available; and (iii) The time limit within which follow-up action would be taken by the State government through its departments for implementing the Industrial Policy 2012. 44. The State having held out a solemn representation in the above terms, it would be manifestly unfair and arbitrary to deprive industrial units within the State of their legitimate entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d made a representation to the respondent and similarly situated industrial units under the Industrial Policy 2012. This representation gave rise to a legitimate expectation on their behalf, that they would be offered a 50 per cent rebate/deduction in electricity duty for the next five years. However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated. Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and is violative of Article 14." 4(ii)(d) The riders on application of principle of promissory estoppel as explained in (1997)7 SCC 251, Pawan Alloys & Casting (P) Ltd. Vs. U. P. State Electricity Board & Ors, are:- "10. It is now well settled by a series of decisions of this Court that the State authorities as well as its limbs like the Board covered by the sweep of Article 12 of the Constitution of India being treated as 'State' within the meaning of the said Article, can be made subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy, 2004, provided framing of Rules to govern incentives, concessions and facilities as part of the Industrial Policy, 2004, which were to remain operative till the next Rules governing the incentives, concessions and facilities were announced or the Rules got amended. Clause 8.3 also stipulated that even in case of amendments, efforts would be made to enable the existing units to avail the incentives which they would be already availing for the periods they were entitled to. Clause 18.1 of the Policy provided for exemption from payment of CST/VAT/Sales Tax in terms of the Rules to be framed under the policy. 4(iii)(b) It is also not in dispute that the Incentive Rules, 2004 framed in furtherance of Industrial Policy, 2004 came into force w.e.f. 31.12.2004. Under these Rules, the backward Panchayats were categorized as 'C' category areas, which fell within the purview of Tax Free Zone as defined under rule 3(bb). Rule 10 of the Incentive Rules, 2004 provided exemption from payment of sales tax for a period of ten years to the new industrial units set up in category 'C' areas. Rule 19 provided that all new industrial units set up in category 'C' areas, notified from time to time, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of this notification. This incentive will be admissible to New Industrial Units and or existing industrial units (set up or commencing commercial production up to the date of this notification for the purpose of this incentive only) which commences commercial production (New Units) or undertake substantial expansion after the date of this notification, as per the provision made under rule 19 of these rules. This incentive will not be available to units listed in the negative List (Annexure-III) also. 19(13) Any dealer who was enjoying the benefit of exemption under the notification No. EXN-F(1)2/2004 (i) dated 30.03.2005 issued under Section 42 of the Himachal Pradesh General Sales Tax Act, 1968 and EXN-F(1)-5/2004 dated 19.01.2006 of the Himachal Pradesh Value added Tax, 2005 and who would have continued to be eligible for such exemption on the date of the commencement of this notification shall continue to avail the benefit of the exemption from payment of tax on the sale of manufactured goods for the unexpired period as per the conditions applicable vide the above said notifications." In the face of above provisions coupled with the fact that exemption notifications of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill have only prospective effect i.e. will be applicable to industries being set up/expanded after the date of withdrawal notifications. These cannot be applied retrospectively to the petitioner units which had already come into production by the time the backward areas status was withdrawn from such Panchayats. These Panchayats shall have to be construed as backward areas/ tax free zone for the purpose of grant of tax incentives to the petitioners for specific period as per the promise extended by the State. The three judgments cited by learned Advocate General are distinguishable on facts. In VVF Ltd. case, the Industrial Policy/ Notifications were issued to encourage setting up new industries in the area. It, however, turned out that exemptions meant to be granted to genuine manufacturers were being misused by unscrupulous manufacturers who had indulged in different types of tax evasion tactics etc. The Government then came out with subsequent notifications, policies allowing refund of excise duty only to the extent of duty payable on the actual value addition made by the manufactures undertaking manufacturing activities in the areas absolutely in consonance with the incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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