TMI Blog2006 (9) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... s "the MRF"). Facts: MRF is a company incorporated under the Companies Act, 1956 and its registered office is at 124, Greams Road, Chennai. One of its industrial units is located at Vadavathoor near Kottayam, in the State of Kerala. MRF is engaged in the manufacture of automotive tyres, tubes, compound rubber, tread rubber, flaps, pre-cured tread rubber, etc., at its industrial unit at Vadavathoor. The Government of Kerala has from time to time declared and introduced several incentives to promote industrial growth and expansion in the State of Kerala by granting exemptions, concessions or reduction in sales tax, electricity duty and electricity tariff, etc., to new industries as well as to existing industrial units undertaking substantial expansion, diversification or modernisation. Accordingly, the Government of Kerala has been issuing notifications from time to time to give effect to its declared policy for industrial promotion. Acting on the incentives, concessions and benefits held out by the Government of Kerala, MRF approached the Government of Kerala with its proposal to make substantial expansion and diversification of its industrial unit at Vadavathoor. A Memora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions and Restrictions (i) . . . (iv) In the case of existing, medium and large scale industrial units, other than public sector undertakings, which undertake expansion, modernisation or diversification, the aggregate exemption in respect of sales tax, purchase tax, surcharge and Central sales tax shall not exceed 100% of the additional fixed capital investment made for such expansion, modernisation or diversification.. . . 10.. (b) Eligibility certificate for medium and large scale industries assisted by the Kerala State Industrial Development Corporation or the Kerala Financial Corporation will be issued by the Corporation which render assistance and in other cases by the Director of Industries and Commerce, on application by such units and orders of exemption will be issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram. (c) Eligibility certificate and orders on exemption will be issued by the authorities mentioned in sub-clause (b) above, if the unit is eligible for exemption or deferment of taxes and the unit satisfies the conditions for the exemptions or deferment of taxes. (d) The eligibility certificate referred to in sub-clause (b) above shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified products. In accordance with the provisions of S. R. O. No. 1729/93 the eligibility certificate evidencing the MRF's entitlement to the exemption and benefits was to be issued by the Director of Industries and Commerce, Government of Kerala. MRF applied for the said eligibility certificate and the Director of Industries and Commerce, inspected the factory and verified the manufacturing process of goods for which expansion and diversification was undertaken by the MRF. After considering the application and all relevant facts and materials, and, on being satisfied that the MRF was entitled to the exemption, concessions and benefits under S. R. O. No. 1729/93 issued the eligibility certificate on November 10, 1997. Eligibility certificate in form 4 set out the details of fixed capital investment of MRF of the aggregate amount of Rs. 74,12,77,528.51. MRF commenced its production on December 31, 1996. Director of Industries and Commerce forwarded the eligibility certificate and his report to the Board of Revenue for its consideration for issuance of certificate of exemption. The Board of Revenue vide exemption order No. C 4/40588/97/Tx-MRF dated June 30, 1998 having found the MRF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of seven years with effect from December 31, 1996 to December 29, 2003. The proceedings initiated by the Assistant Commissioner were dropped by the Assistant Commissioner's letter/order stating that: "Ref: 1. This office notice dated January 17, 2000. 2. Reply No. M. 199/SGMK/A1204/4.2.2000. Referring to the above I am to inform that further action in this matter is dropped as the expansion has been completed on December 30, 1996." This order was never revoked or withdrawn. The Assistant Commissioner of Sales Tax, Kottayam issued another set of notices dated December 19, 2001 proposing to impose penalty under section 45A of the Act for availing of purchase tax exemption under S. R. O. No. 1729/93 and for not paying the purchase tax. MRF sent its reply on January 10, 2002 raising its objection regarding the jurisdiction of the Assistant Commissioner of Sales Tax to issue such notice in view of the earlier order passed by the Assistant Commissioner dropping the proceedings initiated and in view of the eligibility certificate issued by the Director of Industries and Commerce and the exemption order passed by the Board of Revenue (Taxes). The Assistant Commissioner vide or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to statutory notification. In support of this submission he cited case laws as well. It is further submitted that plea of promissory estoppel is in the nature of an equitable plea and must be determined in the facts and circumstances of each case. That the principle underlying legitimate expectation is based on article 14. Any action taken by the State which goes against the rule of fairness is liable to be struck down. Any administrative or executive action of the State which is arbitrary or unjust cannot be sustained as it violates article 14 of the Constitution of India. It is also contended that in any event the State Government did not have the power to make a retrospective amendment to S. R. O. No. 1729/93 affecting the rights already accrued to the appellant under the said notification. It is further contended by him that the High Court has misconstrued and misunderstood the true purpose and meaning of the Notifications bearing Nos. S. R. O. 1729/93, S. R. O. 38/98 and S. R. O. 1092/99. Lastly, it is contended that in any event it is a well-settled principle that the authorities under the Act could not sit in judgment over or ignore the order granting exemption from payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted by S. R. O. No. 1729/93, it cannot be said that S. R. O. No. 38/98 has taken away any vested right, more particularly because it is made expressly prospective. Regarding the Board of Revenue order dated June 30, 1998 it is submitted that the same has to be read in conjunction with S. R. O. No. 1729/93 as amended by S. R. O. No. 38/98. That the Board of Revenue could not have granted a benefit which was not otherwise available to the appellant under the prevailing notifications. According to him, so far as S. R. O. No. 1092/99 is concerned, it did not confer any new right. It only preserved the existing right. By the said order what the Government did was to change the industrial policy and to do away with exemptions which were otherwise being given to new/existing industrial units, which was taken away with effect from January 1, 2000. At the same time, the units which had been set up pursuant to the incentives granted by the earlier notifications had to be protected and accordingly it was provided that such units will continue to enjoy the incentives for their full term. The finding recorded by the High Court that "there is no factual foundation" for the plea of promis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stalled capacity increased manifold. The difference of the annual installed capacity before and after expansion- cum-diversification as shown in the order granting exemption as under: Sl. No. Items Before expansion-cum-diversification After expansion-cum-diversification 1. Compound rubber 33984 MT 77760 MT 2. Tubes 5640 MT 11400 MT 3. Repair materials 876 MT 1620 MT 4. Tread rubber 5040 MT 8100 MT 5. Tyres 636000 Nos. 6. Flaps 780000 Nos. 7. Pre-cured tread rubber 10440 MT In exemption order dated June 30, 1998 the appellant was found eligible for sales tax exemption to the tune of Rs. 74,12,77,529 for the period of seven years from December 30, 1996 to December 29, 2003. The finding thus recorded by the High Court that the appellant had not made any investment is erroneous in the teeth of the facts, enumerated above. The appellant had made additional fixed capital investment on expansion-cum- diversification entitling him to seek exemption under S. R. O. No. 1729/93. On a conjoint reading of S. R. O. No.1729/93, S. R. O. No. 38/98 and S. R. O. No.1092/99 the intention of the Government does not seem to take away the benefits of exemption in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of units which have already commenced commercial production or taken up effective steps to set up industrial units prior to January 1, 2000 will be allowed benefit of exemption or deferment granted as per notification S. R. O. No. 1729/93. Petitioner therefore would get only the benefits available under S. R. O. No. 1729/93 and nothing more and nothing less. Exhibit P5 in our view would not come to the rescue of the petitioner even by the application of clause 2 of S. R. O. No. 1092/99. We reiterate the order passed by the Board of Revenue cannot override the statutory notification issued by the Government. The observations made by the High Court that clause 2 of S. R. O. No.1092/99 would not come to the rescue of the appellant is wrong. It is clearly stated in clause 2 of S. R. O. No. 1092/99 that the industrial unit which had commenced production before the 1st day of January, 2000 shall continue to enjoy the concession for the full period covered by the order of exemption/deferment. S. R. O. No. 1092/99 has not been withdrawn or modified till this date. In any case MRF's accrued right to exemption was not taken away or in1 any way affected by the amending notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the Legislature to affect existing rights, it is deemed to be prospective only nova constitutio futuris formam imponere debet non praeteritis . In the words of Lord Blansburg, provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment. (See Delhi Cloth General Mills Co. Ltd. v. Income-tax Commissioner AIR 1927 PC 242, at p. 244). Every statute, it has been said , observed Lopes, L. J., which takes away or impairs vested rights acquired under existing laws, or creates a new obligation or imposes a new duty, or attaches a new disability in respect of transactions already past, must be presumed to be intended not to have a retrospective effect. (See Amireddi Raja Gopala Rao v. Amireddi Sitharamamma [1965] 3 SCR 122). As a logical corollary of the general rule, that retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication, there is a subordinate rule to the effect that a statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on October 21, 1980 the State of Kerala withdrew the exemption relating to the purchase tax and confined the exemption from sales tax to the limit specified in the proviso of the said notification. While quashing the subsequent notification, it was observed: . . . If in response to such an order and in consideration of the concession made available, promoters of any small-scale concern have set up their industries within the State of Kerala, they would certainly be entitled to plead the rule of estoppel in their favour when the State of Kerala purports to act differently. Several decisions of this court were cited in support of the stand of the appellants that in similar circumstances the plea of estoppel can be and has been applied and the leading authority on this point is the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 2 SCC 409. On the other hand, reliance has been placed on behalf of the State on a judgment of this court in Bakul Cashew Co. v. Sales Tax Officer, Quilon [1986] 2 SCC 365. In Bakul Company s case [1986] 2 SCC1 3652, this court found: That there was no clear material to show any definite or certain promise had been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to claim exemption from payment of tax under the said rule. If the Government grants exemption to a new industry and if on the basis of the representation made by the Government an industry is established in order to avail the benefit of exemption, it may then follow that the new industry can legitimately raise a grievance that the exemption could not be withdrawn, except by means of legislation having regard to the fact that promissory estoppel cannot be claimed against a statute. . . " Answering the question as to whether the Board is restrained from withdrawing the rebate prematurely before the completion of three/five years period by virtue of doctrine of promissory estoppel, this court in Pawan Alloys Casting Pvt. Ltd. v. U. P. State Electricity Board [1997] 7 SCC 251, held: "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 the equitable doctrine of promissory estoppel in cases where because of their representation the party claiming estoppel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that exemption have been fulfilled, then the withdrawal of the exemption during that fixed period cannot effect the already accrued right. Of course, overriding public interest would prevail over a plea based on promissory estoppel, but in the present case there is not even a whisper of any overriding public interest or equity. Notification S. R. O. No. 38/98 was an amendment and not a clarification of S. R. O. No. 1729/93 and was expressly made prospective with effect from January 15, 1998. Besides, a plea of promissory estoppel is in the nature of an equitable plea and must be determined in the facts and circumstances of each case where it is raised. In the case of Rom Industries [2005] 7 SCC 348 See [2006] 147 STC 575 (SC)., the deciding factor was that the exemption notification in question had been itself held to be unconstitutional in an earlier case as violative of articles 301 and 304 of the Constitution of India and, therefore, could not form the basis of any right. The observation made in para 8 of that judgment have to be read in that context. Besides, the State Government in that case had no option except to withdraw the notification. It is so observed in that judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in Kasinka Trading [1995] 1 SCC 274 has been distinguished in the later decision by this court in State of Punjab v. Nestle India Ltd. [2004] 6 SCC 465 See [2004] 136 STC 35 (SC)., on the ground of the inherent nature of an exemption notification issued under section 25 of the Customs Act. Even in respect of a notification under section 25 of the Customs Act this court has taken the view that the withdrawal even of such a notification must not be "arbitrary" or "unreasonable" (see Dai-Ichi Karkaria Ltd. v. Union of India [2000] 4 SCC 57). The principle underlying legitimate expectation which is based on article 14 and the rule of fairness has been re-stated by this court in Bannari Amman Sugars Ltd. v. Commercial Tax Officer [2005] 1 SCC 625 See [2005] 139 STC 86 (SC). It was observed in paras 8 and 9: "A person may have a 'legitimate expectation' of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice. The doctrine of legitimate expec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness." (emphasis supplied) MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sales tax for a period of seven years. It was granted the eligibility certificate. The exemption order had also been passed. It is not open to or permissible for the State Government to seek to deprive MRF of the benefit of tax exemption in respect of its substantial investment in expansion in respect of compound rubber when the State Government had enjoyed the benefit from the investment made by the MRF in the form of industrial development in the State, contribution to labour and employment and also a huge benefit to the State exchequer in the form of the State's share, i.e., 40 per cent of the Central excise duty paid on compound rubber of Rs. 177 crores within the State of Kerala. The impugned action on the part of the State Government is highly unfair, unreasonable, arbitrary and, therefore, the same is violative of article 14 of the Constitution of India. The action o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d retrospectively. This is the view taken by the Kerala High Court in M. M. Nagalingam Nadar Sons v. State of Kerala [1993] 91 STC 61, where the learned single Judge of the High Court has stated as under: "Power is thus given under sub-section (1) to make an exemption or reduction in rate either prospectively or retrospectively in respect of any tax payable under the Act. Sub-section (3) enables the Government to cancel or vary any such notification issued under sub-section (1). Significantly, sub-section (3) is silent about retrospectivity for any notification issued under it. Thus while sub-section (1) authorises the grant of an exemption or reduction in rate with retrospective effect in respect of any tax payable under the Act, sub-section (3) does not provide for any cancellation or variation retrospectively. In issuing notifications under section 10, the Government is exercising only delegated powers. While the Legislature has plenary powers to legislate prospectively and retrospectively, a delegated authority like the Government acting under the powers conferred on it by the enactment concerned, can exercise only those powers which are specifically conferred. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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