TMI Blog2006 (2) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... f any two or all of such yarns;" 'Village industry' is defined under section 2(h) of the above Act as follows: (h) Village industry means, - (i) any industry located in a rural area which produces any goods or renders any service with or without the use of power and in which the fixed capital investment per head of an artisan or a worker does not exceed fifteen thousand rupees or such other sum as may, by notification in the Official Gazette, be specified from time to time by the Central Government. Provided " In the Schedule, khadi and village industries are specified. Kerala State enacted Kerala Khadi and Village Industries Board Act, 1957. Under section 2(v), "village industries " are defined as follows: " 'Village Industries' means all or any of the industries specified in the Schedule to the Khadi and Village Industries Commission Act, 1956 (61 of 1956), and includes any other industry declared by the Government under section 3 to be a village industry." On getting representations and on considering various conditions, so far, about 115 industries, including the one covered under the Central Act Schedule, were declared by the State Government, under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it was further contended that there is no justification for discriminating 21 KV industries with other industries. All industries under KV sector should also be given exemption which was given to 21 KV industries and classification and distinction made between those industries are illegal. The learned single Judge, after considering the matter, found that there is clear discrimination in giving different treatment to 21 industries to "nil" rate of sales tax and four per cent sales tax to other KV industries. The learned single Judge based on the decision of the apex Court in Khadi and Village Soap Industries Association v. State of Haryana [1994] 95 STC 355 and of this Court in Hotel Elite v. State of Kerala [1988] 69 STC 119, held that levying of tax based on annual turnover is valid, it should not be enforced as it remained only for a short period and it was modified by Notification No. 291 of 2000 and even if Notification No. 291 of 2000 is set aside, Notification No. 1090 of 1999 should not be enforced and held as follows: " Since S.R.O. No. 1090 of 1999 providing for levy of tax on KV industries with turnover of rupees ten lakhs and above survived for only three months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of KV industries on any proper and reasonable basis. In view of the fact that tax involved is from April 1, 2000 onwards, the petitioners are granted time till August 31, 2003 to file returns and remit tax. I make it clear that in view of the pendency of the original petitions, and stay granted by this Court, there will be no liability for the petitioners to pay penal interest under section 23(3) of the K.G.S.T. Act, if the tax is paid along with the returns before August 31, 2003. However, if tax is not paid before August 31, 2003 then waiver of penal interest will not be applicable to the defaulters and tax and interest will be recovered from them in accordance with law." 4.. Aggrieved by the above judgment, State filed Writ Appeal Nos. 1724 and 1740 of 2003 contending that there was no reason for setting aside the Notification S.R.O. No. 291 of 2000 and setting aside the benefit granted to 21 industries. It was also pointed out that in other States also, the abovementioned 21 industries are getting full exemption from sales tax. Petitioner and similarly placed assessees filed Writ Appeal Nos. 1485 of 2003 and 746 of 2004 contending that even though notification was set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver. (2) Any exemption from tax, or reduction in the rate of tax, notified under sub-section (1), (a) may extend to the whole State or to any specified area or areas therein, (b) may be subject to such restrictions and conditions as may be specified in the notification. (3) The Government may by notification in the Gazette, cancel or vary any notification issued under sub-section (1)." Because of the mandates of the above statutory provision, Government is vested with power to exempt or reduce tax liability or withdraw all the notifications issued by it granting exemption or reducing of any tax payable under the Act. Therefore, the Government has the power by statute to withdraw or restrict the exemption granted to KV industries. The counsel for the petitioner argued based on the decision in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42 (SC); (1979) 2 SCC 409, that the doctrine of promissory estoppel is not really based on the principle of estoppel, but, it is a doctrine evolved by equity in order to prevent injustice. For attracting the doctrine of promissory estoppel, there should be a promise which was altered to its position, but, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple enunciated in High Tree's case [1956] 1 ALL ER 256, was recognised by the House of Lords in Tool Metal Mfg. Co. Ltd. v. Tungsten Electric Co. Ltd. [1955] 2 ALL ER 657. The principle was adopted by U.S. also. The U.S. Restatement (Second) on Contracts, states: "a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise." 6.. The above principle of promissory estoppel was accepted by the courts in India. This principle was adopted by the Supreme Court in Union of India v. Indo-Afghan Agencies AIR 1968 SC 718. The apex Court dealt with the doctrine of promissory estoppel at great length in Motilal Padampat Sugar Mills' case [1979] 44 STC 42 (SC); (1979) 2 SCC 409, and held that the promissory estoppel need not be restricted as a defence, but, it can be as a cause of action also. In the above case, based on the promise of the Government that State of Uttar Pradesh has decided to give exemption from sales tax for a period of three years under section 4-A of the U.P. Sales Tax Act, 1948 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been given it can be withdrawn at any time and no time-limit should be insisted upon before it was withdrawn. The rule of promissory estoppel can be invoked only if on the basis of the representation made by the Government, the industry was established to avail of the benefit of exemption." In Punjab Communications Ltd. v. Union of India AIR 1999 SC 1801, the court held that the change in policy which can be justified on "Wednesbury reasonableness" can defeat the claim based on promissory estoppel. Based upon the above observation, in Bannari Amman Sugars case [2005] 139 STC 86 (SC); (2005) 1 KLT 601 (SC), it was further observed as follows: ".....It is, therefore, clear that the choice of policy is for the decision-maker and not the court. The legitimate substantive expectation merely permits the court to find out if the change of policy which is the cause for defeating the legitimate expectation is irrational or perverse or one which no reasonable person could have made. A claim based on merely legitimate expectation without anything more cannot ipso facto give a right. Its uniqueness lies in the fact that it covers the entire span of time; present, past and future. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KGST Act. By Notification S.R.O. No. 1090 of 1999 dated December 31, 1999 Government restricted the benefit of exemption to those industrial units whose sales turnover does not exceed Rs. 10 lakhs. But, by S.R.O. No. 291 of 2000, this notification was further amended and total exemption was introduced in respect of products of KV industries listed in the notification. In other words, all other industrial units except those 21 units mentioned in the list were liable to pay sales tax like other dealers. S.R.O. No. 292 of 2000 provided concessional rate of tax at four per cent on the products of all types of KV industrial units. Therefore, 21 listed KV industries in S.R.O. No. 291 of 2000 were not liable to pay sales tax, but, other KV industries are liable to pay tax at the concessional rate of four per cent. According to the petitioner, this was clear discrimination without any reasonable basis and violative of article 14 of the Constitution. The learned single Judge accepted the above contention and found as follows: "On going through the above list, I do not find anything common to bring these industries under one class. While some industries are only engaged in processing of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the classification of 21 KV industries for the purpose of exemption while providing for tax for the rest of the KV industries I do not go into the decisions cited by both sides. Therefore I hold that S.R.O. No. 291 of 2000 is arbitrary and discriminatory and is therefore violative of article 14 of the Constitution of India." 10.. It is contended by the State that all 115 industries declared as KV industries under the State Act are doing separate and distinct basis. Different industries produced different products by different materials and all 115 industries are separate classes by themselves though all KV industries are situated in rural areas. The 21 industries mentioned therein were industries mentioned in the Schedule to the Khadi and Village Industries Commission Act, 1956 (Central Act No. 61 of 1956) whereas the other industries are declared in terms of the Kerala Khadi and Village Industries Board Act, 1957. Further, it was submitted that the Government decided to restrict the benefit only to 21 industries which were originally included in the Schedule of Central Act as in other States also such industries were getting full exemption and total exemption from sales tax was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual position. In other words, the Government first thought to withdraw the full exemption to KV industries as a policy, but, then to avoid competition and taking into the fact that 21 industries are getting full exemption in the other States very same exemption was given in the State also. With regard to the other 94 industries, concessional rate was granted. It cannot be stated that except that all are village industries, these 94 industries have anything common with the other 21 industries. Each industry is a class by itself producing different products and there is no material to show that there is unreasonable classification. For example, the fact that no tax is levied for manufacture of matches carried out by a khadi and village industry covered by 21 industries in S.R.O. No. 291 of 2000 will not affect an industry engaged in the manufacture of candle covered by 94 industries which were not given total exemption though it is also manufacturing in KV sector. In taxation matters, power of classification by the State is very wide and article 14 of the Constitution of India has to be applied in an elaborate manner giving State wide discretion. 11.. The American Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mination to discharge the above burden of proving that it is not possible in equality. The apex Court further held that: " .the burden for proving discrimination is always heavy on the person who alleges discrimination and heavier still when a taxing statute is under attack. That the State can validly pick and choose one commodity for taxation and the same is not open to attack under article 14 on the ground that the same result must follow when the State picks out one category of goods and subjects it to the taxation." 12.. In Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36 (SC); AIR 1980 SC 286, a Constitution Bench of the Supreme Court observed as follows: "Even so, taxing statutes have enjoyed more judicial indulgence. This Court has uniformly held that classification for taxation and the application of article 14, in that context, must be viewed liberally, not meticulously." It was held in Murthy Match Works v. Assistant Collector of Central Excise (1974) 4 SCC 428; AIR 1974 SC 497 that classification of match box industry into mechanised and non-mechanised sector and a further classification was held to be valid. The apex Court held as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in appeal was affirmed in W.A. No. 1436 of 2003, filed from one of the original petitions. The learned Special Government Pleader submitted that a review petition is pending. We have gone through the judgment in W.A. No. 1436 of 2003. It is seen that in that appeal without challenging the finding of discrimination by the learned single Judge, the contention raised was that in the circumstances of the case, full exemption should have been given to all small-scale industries. The above writ appeal was also filed by a petitioner who was granted only concessional rate of four per cent. While setting aside the notification, the learned single Judge directed that four per cent tax should be paid by all industries in KV sector. The contention of the appellant in the above case was that since 21 KV industries were given full exemption, other KV industries also shall be granted exemption as the learned single Judge found that there is discrimination. But, that contention was rejected in the writ appeal and the division Bench did not consider the question of discrimination and appellant has to pay four per cent tax. In fact, none of the persons Reported as Shjan Kurian v. State of Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X
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