2025 (5) TMI 636 - HC - VAT / Sales Tax

Violation of doctrine of promissory estoppel - Tax exemption benefits promised under the earlier Industrial Policy and Schemes validity of the amendments and the non-issuance of appropriate order by the Finance (Taxation) Department for extension of the period of eligibility - extensions have been granted to other similarly situated industries while similar benefits have been denied to the writ petitioners - hostile discrimination - HELD THAT - In Dai Ichi Karkaria Ltd Vs. Union of India Ors 2000 (4) TMI 42 - SUPREME COURT referring to the earlier precedents in Kasinka Trading 1994 (10) TMI 64 - SUPREME COURT and Shrijee Sales Corporation 1996 (12) TMI 61 - SUPREME COURT the Apex Court held that the law in respect of promissory estoppels is well settled and that even in respect of exemptions made by the Government the doctrine of promissory estoppel will not be applicable if the change in the stand of the Government is made on account of public policy. Coming to the facts of the present proceedings there is no doubt that the benefits under the Industrial Policy of 2008 was sought to be given effect to by the Scheme of Assam Industrial (Tax Exemption) Scheme 2009. The scheme itself makes it very clear that these benefits for exemption of VAT is till the currency of the VAT Act. Subsequent to the GST regime the Assam Industries (Tax Reimbursement for Eligible Units) Scheme 2017 was introduced for extension of the period for granting customized tax incentives under the Industrial Policy of 2008 although only in respect of the States share of the GST paid by such industries - The contention of the petitioners that under the Industrial Policy of 2008 the promise of 100% VAT exemption and which came to be implemented by the Tax Exemption Scheme of 2009 must be continued to be extended even under the GST regime to include the Central Share of GST paid by the industries/units of the petitioners in view of the earlier promise or representation made under the Industrial Policy of 2008 read with the erstwhile Tax Remission Scheme of 2009 and failure to do so as hit by the doctrine of promissory estoppels. Such contention of the writ petitioners cannot be accepted and are therefore rejected. The notification dated 30.12.2019 whereby the Government notified the Assam Industries (Tax Reimbursement for Eligible Units) (Amendment) Scheme 2020 reflects the policy decision taken by the Government. The Respondents have taken a stand that this is the policy adopted by the Government in view of the financial hardships which has been faced by the Government for various reasons. There is no gain saying that constitutional courts in exercise of the powers of judicial review can interfere with statutes or Rules or even schemes if the same are found to be unconstitutional. However the Courts while exercising judicial power do not ordinarily interfere with policy decisions of the Executive unless the policy decision can be faulted on grounds of malefide unreasonableness or arbitrariness or unfairness etc. In the facts of the present case the case projected by the petitioners is that the Amendment to the reimbursement scheme of 2020 by which the powers conferred on the finance department to grant extension of benefits has been taken away is premised on the ground of violation of the doctrine of promissory estoppel and legitimate expectation - It is well settled that change in law is in furtherance of public policy. The challenge to the amendments brought in by the impugned Notification dated 30.12.2019 to the Assam Industries (Tax Reimbursement for Eligible Units) Scheme 2017 has been assailed on the ground of violation of Article 14 as it is contended that the government has resorted to unreasonable classification by which the petitioners have been ignored while other similarly situated units have been given due benefit. It is also settled that where a vires of a statute is under challenge courts must adopt every possibility to arrive at an interpretation that will not render the legislation otiose or unconstitutional. This Court therefore holds that the projection of the respondents that in extending the benefit to Varun Beverages while the application of the petitioners remained unconsidered was based upon reasonable classification cannot be accepted in the absence of any materials placed before this Court as to how this reasonable classification was arrived at - While considering such representation the Respondents will give due consideration to all the attending facts and circumstances as have been done in cases of other similarly situated units or industries. Since this Court has come to a finding that the case of the petitioners deserve consideration by the Respondents in the same manner as other similarly situated units were given their consideration prior to impugned amendment there is no necessity to interfere with the impugned amendment brought in. If the consideration as directed by the Respondents is given by taking into all relevant materials and the yardsticks applied to other similarly situated units then this Court is of the view that the same will adequately redress the grievances of the petitioners. This Court therefore directs the respondent authorities to consider the claims of the petitioners by applying the same yardstick as have been done in other similarly situated units and instances of which is placed before the Court by referring to orders passed in case of one Varun Beverages. If on the facts and circumstances as applicable to the writ petitioners their cases are found to be similarly situated as the other units or industries who have been given the benefit of extension for the period of exemption of taxes then similar benefits must be granted to the writ petitioners. The respondent authorities will consider the claims of the writ petitioners in the light of the directions granted above within a period of 60 days from the date of receipt of certified copy of this order. Conclusion - i) While the State was entitled to adapt its tax exemption schemes to the new GST regime and public interest considerations the Amendment Scheme 2020 s withdrawal of extension power was valid as a policy decision. However the failure to consider the petitioners pending applications for extension while granting extensions to other similarly situated units was arbitrary and violative of Article 14. ii) The doctrine of promissory estoppel did not apply to compel extension beyond the statutory limits or reimbursement beyond the State s share of GST given the change in law and public interest. iii) The petitioners did not have vested rights to the benefits beyond the statutory and policy framework in force post-GST. Petiiton allowed in part.

Summary

The core legal questions considered by the Court in these writ petitions are:

1. Whether the amendment to the Assam Industries (Tax Reimbursement for Eligible Units) Scheme, 2017 by the Assam Industries (Tax Reimbursement for Eligible Units) (Amendment) Scheme, 2020, which withdrew the power of the Finance (Taxation) Department to extend the period of eligibility for tax exemption benefits, is arbitrary, illegal, and violative of Article 14 of the Constitution of India.

2. Whether the withdrawal of extension of the period of eligibility violates the doctrine of promissory estoppel and legitimate expectation, given the petitioners' investment decisions based on the Industrial Policy of Assam, 2008, and the Assam Industries (Tax Exemption) Scheme, 2009.

3. Whether the classification made by the Amendment Scheme, 2020, which allowed extension of eligibility only for units whose extension orders were passed prior to the amendment but rejected all pending applications, amounts to unreasonable classification and discrimination violating Article 14.

4. Whether the petitioners have any vested or accrued rights in the tax exemption benefits promised under the earlier Industrial Policy and Schemes which cannot be curtailed or withdrawn by subsequent amendments.

5. Whether the State's action in withdrawing the extension power is justified on grounds of public interest, fiscal constraints, and the introduction of the GST regime.

6. Whether the petitioners' applications for extension of eligibility were arbitrarily kept pending and subsequently deemed rejected by a delegated legislation without due consideration, thus violating principles of natural justice and constitutional guarantees.

Issue-wise Detailed Analysis:

Issue 1: Validity of the Amendment Scheme, 2020 withdrawing extension power and its compatibility with Article 14

The legal framework includes the Industrial Policy of Assam, 2008, the Assam Industries (Tax Exemption) Scheme, 2009, the Assam Industries (Tax Reimbursement for Eligible Units) Scheme, 2017, and the Amendment Scheme, 2020. The 2009 Scheme granted VAT exemption for 7 years subject to monetary ceilings. The 2017 Scheme was introduced post-GST to continue tax reimbursement limited to the State's share of GST and empowered the Finance Department to extend eligibility by up to 5 years if genuine reasons existed for underutilization.

The Amendment Scheme, 2020 omitted the proviso empowering extension and declared all pending applications as deemed rejected, while validating prior extension orders.

The petitioners argued this amendment is arbitrary and discriminatory, violating Article 14, as it treats similarly situated units differently without reasonable basis. The State contended that classification is valid, based on fiscal constraints and public interest, and that the amendment applies uniformly to all pending cases.

The Court examined the principles of reasonable classification under Article 14, requiring intelligible differentia and rational nexus to the object of the law. The State failed to demonstrate any rational basis or criteria for selectively granting extensions to some units while rejecting others with pending applications, especially when the petitioners' applications were filed prior to the amendment and similar to those granted extension.

The Court held that such unexplained differential treatment amounts to hostile discrimination and arbitrariness, violating Article 14.

Issue 2: Applicability of the Doctrine of Promissory Estoppel and Legitimate Expectation

The petitioners relied on the doctrine of promissory estoppel, asserting that they invested heavily relying on the clear promise of 7 years VAT exemption under the Industrial Policy of 2008 and the 2009 Scheme. They contended that the withdrawal of extension power and denial of benefits frustrates their legitimate expectations and is inequitable.

The Court considered the well-established legal principles from Apex Court precedents which require three conditions for promissory estoppel: (1) a clear and unequivocal promise by the Government, (2) reliance on the promise by the promisee altering their position, and (3) resulting prejudice if the promise is not honored.

The Court acknowledged that the petitioners had altered their position by investing in industrial units based on the promise. However, the Court also noted that the doctrine of promissory estoppel is subject to overriding public interest and cannot be invoked against a statute or where the Government acts within its legislative powers or changes policy in public interest.

The Court observed that the introduction of the GST regime was a statutory change subsuming VAT and other taxes, altering the tax structure fundamentally. The State continued to provide tax reimbursement limited to its share of GST under the 2017 Scheme, which was a reasonable adaptation to the new legal regime.

The withdrawal of extension power by the 2020 Amendment Scheme was a policy decision taken in public interest, considering fiscal constraints and the changed tax environment. The Court held that the State has not resiled from its promise but adapted its scheme to the changed statutory regime, and therefore, the doctrine of promissory estoppel does not apply to compel reimbursement beyond the State's share of GST or to extend eligibility beyond the prescribed limits.

Issue 3: Whether the petitioners have vested or accrued rights in the tax exemption benefits

The petitioners claimed vested or accrued rights to the exemption benefits based on the Industrial Policy of 2008 and the 2009 Scheme. The Court analyzed the concept of vested rights and legitimate expectation in the context of public policy and statutory changes.

The Court held that the benefits under the 2009 Scheme were expressly stated to be available only as long as the Assam VAT Act, 2003 remained in force. With the repeal of VAT and introduction of the GST regime by valid legislation, the earlier benefits ceased to operate in their original form.

The State's continuation of benefits under the 2017 Scheme, limited to the State's share of GST, was a substantial performance of its promise under the changed legal framework. Thus, the petitioners did not acquire vested rights to benefits beyond what the law now permits.

Issue 4: Whether the petitioners' applications for extension were arbitrarily kept pending and deemed rejected by delegated legislation

The petitioners submitted that their applications for extension were filed before the 2020 Amendment and ought to have been considered on merits, especially since other similarly situated units' applications were considered and granted extensions.

The State contended that the delay was due to the lengthy verification process and financial constraints, and the amendment was a policy decision effective from 30.12.2020.

The Court found that the petitioners' applications were not considered while other units were granted extensions, and the amendment's deeming provision rejected pending applications without any individual consideration or reasons. The State failed to justify the classification or provide reasons for differential treatment.

The Court held that such non-consideration and blanket rejection without due process violates principles of natural justice and Article 14, as it results in arbitrary and unfair treatment.

Issue 5: Whether the State's action is justified on grounds of public interest and fiscal constraints

The State argued that the amendment was necessitated by financial hardships, especially during the COVID-19 pandemic, and to safeguard public revenue. It also submitted that the 2009 Scheme did not provide for extension of eligibility and the petitioners had already availed benefits for the prescribed 7 years.

The Court recognized that public interest and fiscal considerations are legitimate grounds for policy changes and that courts generally do not interfere with such decisions unless malafide or irrationality is shown.

However, the Court emphasized that public interest does not justify arbitrary or discriminatory treatment and that the State must apply policies fairly and transparently.

Issue 6: Reasonableness of classification under Article 14

The Court analyzed the classification made by the Amendment Scheme, 2020, which validated extension orders passed before the amendment but rejected all pending applications. The State failed to demonstrate any intelligible differentia or rational nexus to justify this classification.

The Court applied the tests laid down in precedents that classification must be based on real and relevant differences and must not be arbitrary or hostile discrimination.

The Court held that the classification was unreasonable and violated Article 14, as it resulted in similarly situated units being treated unequally without justification.

Conclusions:

The Court concluded that while the State was entitled to adapt its tax exemption schemes to the new GST regime and public interest considerations, the Amendment Scheme, 2020's withdrawal of extension power was valid as a policy decision. However, the failure to consider the petitioners' pending applications for extension, while granting extensions to other similarly situated units, was arbitrary and violative of Article 14.

The doctrine of promissory estoppel did not apply to compel extension beyond the statutory limits or reimbursement beyond the State's share of GST, given the change in law and public interest.

The petitioners did not have vested rights to the benefits beyond the statutory and policy framework in force post-GST.

The Court directed the respondent authorities to consider the petitioners' applications for extension on merits, applying the same yardstick as used for other similarly situated units, within 60 days, and to pass reasoned orders.

Significant Holdings:

"The doctrine of promissory estoppel being an equitable doctrine, it must yield when the equity so requires. But 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."

"Where the Government acts in 'public interest' and neither any fraud or lack of bona fides is alleged, much less established, it would not be appropriate for the court to interfere with the same."

"Article 14 forbids class legislation but permits reasonable classification for the purpose of legislation which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational relation to the object sought to be achieved by the statute in question."

"The State must apply policies fairly and transparently and non-consideration of claims of petitioners while granting similar benefits to similarly situated units without justification is arbitrary and violative of Article 14."

"The State cannot be compelled to reimburse the Central share of GST paid by industries merely because earlier VAT exemption was promised; the promise was limited to the State's tax regime then in force."

"The Court will not interfere with policy decisions of the Executive unless the policy decision can be faulted on grounds of malafide, unreasonableness or arbitrariness or unfairness."

"The petitioners' applications for extension of period of eligibility shall be considered by the respondent authorities applying the same yardstick as applied to other similarly situated units, and appropriate orders passed within 60 days."