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2016 (7) TMI 584 - GUJARAT HIGH COURT

2016 (7) TMI 584 - GUJARAT HIGH COURT - TMI - Principle of promissory estoppel - Levy of penalty - Scheme for Special Incentives to Prestigious Units 1990-95 - The respondent, in accordance with the eligibility certificate and exemption granted as aforesaid, availed of exemption from payment of purchase tax and sales tax. - Condition No.6 came to be amended with effect from 14th November, 2000 whereby it was provided that the goods were to be actually used by the eligible units as raw materials, .....

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Ltd. v. Tamil Nadu Electricity Board (supra) on which reliance has been placed by the learned counsel for the appellant is concerned, the said decision was rendered in respect of a case where the benefit of exemption was withdrawn and would have no applicability to the facts of the present case which relates to change in the conditions for availment of the benefit of exemption. Moreover, the contention regarding lack of jurisdiction on the part of the Tribunal to invoke the principle of promiss .....

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dvocate with Mr Keyur Gandhi, Advocate ORDER ( Per : Honourable Ms. Justice Harsha Devani ) 1. All these tax appeals arise out of a common order dated 29th January, 2015 passed by the Gujarat Value Added Tax Tribunal, Ahmedabad (hereinafter referred to as the Tribunal ) in Second Appeals No.420 to 423 of 2013 and hence the same were taken up for hearing together and are disposed of by this common judgment. 2. The appellant - State of Gujarat has called in question the order dated 29th January, 2 .....

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ujarat Sales Tax Act, 1969? (3) Whether the Hon ble Tribunal has erred in holding that the levy of penalty pursuant to the breach of conditions prescribed in Entry No. 255 is required to be deleted? 3. The respondent is a public limited company registered and incorporated under the Companies Act, 1956 and is engaged inter alia in the business of manufacture and sale of sponge iron, that is, Hot Briquetted Iron (HBI) and Hot Rolled Coil (HRC) at its two units situated at Hazira in Surat. The resp .....

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monetary limit of ₹ 237.59 crores. 3.1 The Government of Gujarat vide resolution dated 26th July, 1991 announced a scheme known as The Scheme for Special Incentives to Prestigious Units 1990-95 (modified) for attracting investment in core sector industries. Under the said scheme, a prestigious unit was eligible for incentives up to 90% of the fixed capital investment. Pursuant to the said scheme, the respondent undertook investment of approximately ₹ 5000 crores for manufacture of HR .....

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les tax. 3.2 Prior to 14th November, 2000, Condition No.6 of Entry 255 of the notification under section 49(2) of the Act required the eligible unit to actually use the goods purchased within the State of Gujarat as raw materials, processing materials, consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of goods so manufactured. Condition No.6 came to be amended with effect from 14th November, 2 .....

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obtained the eligibility certificate in the manufacture of goods for dispatch to another unit or division situated within the State of Gujarat or outside the State for use in the manufacture of other goods for sale by such other unit. On the commissioning of Unit No.2, natural gas and naphtha purchased by the respondent against declarations in Form 26 were converted into electricity through Essar Power Limited and utilized as input for the purpose of manufacturing HRC in the industrial unit of .....

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ere supplied by the respondent on 25th July, 2001, 26th July, 2001 and 6th August, 2001. Thereafter, the appellant raised a dispute inter alia regarding breach of declarations given in Form 26 while purchasing naphtha/natural gas having been committed by the respondent on the ground that the goods so purchased were transferred to Essar Power Limited for generation of electricity which was then used in Unit No.2 in the manufacture of HRC. In response thereto, the respondent made detailed represen .....

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the Commissioner of Sales Tax passed an order dated 16th August, 2002 holding inter alia that no breach had been committed by the respondent by transferring naphtha/natural gas to Essar Power Limited for generation of electricity. As a result of the said order, proceedings pursuant to the notice dated 30th June, 2002 were initiated. Thereafter, based on the above order, as also upon independent inquiry and verification, the Assessing Officer passed assessment orders in respect of Unit No.2 for .....

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eriod 1995-96 to 2005-06 on the ground that the respondent had contravened the provisions of the Act. The notice was resisted by the respondent by filing written submissions. However, apprehending that the Deputy Commissioner would pass orders pursuant to the said notice and raise a demand, the respondent approached this court by way of a writ petition challenging the notice/orders of the Deputy Commissioner. In the said writ petition, this court by an order dated 28th March, 2016 restrained the .....

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5 on 14th November, 2000, even if the purchased goods were used for manufacture at any place in the State of Gujarat, there was no breach of the conditions stipulated in Form 26 and thus, the purchase tax together with interest and penalty imposed had been set aside. The Joint Commissioner, accordingly, partly confirmed the orders levying purchase tax under section 50 of the Act in respect of the purchase of goods till 14th November, 2000 and confirmed the remaining part of the assessment order. .....

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ty on the disputed transactions. 4. Mr. P.K. Jani, learned Additional Advocate General for the appellant, vehemently assailed the impugned order by submitting that insofar as levy of tax is concerned, under section 3 of the Gujarat Sales Tax Act, 1969, every dealer is required to pay tax on his turnover of sales and purchases. The goods, being naphtha and natural gas, are taxable goods and are liable to be charged at the rate of 16 paise/20 paise in the rupee either for sale or purchase. Therefo .....

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tax at the rate prescribed under the statute. In the present case, so far as Unit No.2 is concerned, it had got exemption under the New Industrial Policy Scheme for special incentive to prestigious unit. In the absence of the Government of Gujarat s New Industrial Policy Scheme for special incentive to prestigious units 1990-1995 dated 16th October, 1990, the respondent would not have derived benefit of tax exemption. Referring to the incentive policy, it was pointed out that electricity generat .....

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in the form of sales tax deferment or exemption are available to the industries engaged in power generation. It was submitted that in the present case, the naphtha and natural gas which has been purchased by Unit No.2 of the respondent at concessional rates has been utilized by Essar Power Limited for the purpose of generation of electricity, whereas, Essar Power Limited is an industry engaged in power generation which is not eligible to get any concession. Referring to Entry 255 inserted on 5th .....

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ice of the State of Gujarat that there was an agreement dated 29th June, 1996 existing between Essar Steel Limited and Essar Power Limited and Fuel Management Agreement dated 18th October, 1996 between Essar Steel Limited and Essar Power Limited. It was submitted that under the incentive scheme, it was only Unit No.2 of Essar Steel Limited which was eligible for exemption and it was the said unit which was required to have a captive power plant to derive the benefit of tax exemption. Whereas in .....

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ity and permission, the said unit transported these goods in the form of naphtha and natural gas to Essar Power Limited which utilized such gas at concessional rates. It was submitted that Essar Power Limited thereafter generated electricity and transferred it/sold it under the Power Purchase Agreement to Essar Steel Limited. It was submitted that, thus, the real beneficiary of the Government s Scheme is Essar Power Limited despite the fact that power industries are not granted the benefit of th .....

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ited. Thus, what could not be achieved and what could not be derived by Essar Power Limited under the industrial policy of the State Government for getting tax benefit was achieved by Essar Power Limited because of the arrangement with the Unit No.2 of Essar Steel Limited which was contrary to the object and intention of the State Government s industrial policy. It was submitted that thus, there is a deliberate and calculated contravention of the conditions of the scheme by Unit No.2 of Essar St .....

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ions thereof have to be strictly adhered to and even a slightest breach or contravention would debar or disqualify the industrial unit from getting the benefit of exemption. It was submitted that in the present case, there are gross contraventions of the conditions of exemption in the notification and hence, the entire amount of benefit availed of by the respondent is liable to be recovered. 4.3 Referring to the impugned order, it was pointed out that the Tribunal while holding in favour of the .....

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ularly subsection (2) thereof, which provides that if the Commissioner has reason to believe that the seller or purchaser as the case may be, has incurred liability under sub-section (1), he shall serve notice upon him calling upon him to produce all evidence on which he relies in connection with the liability under the section and after considering the same, assess to the best of his judgment, the amount of tax due from him. it was submitted that an appeal being a continuation of the original p .....

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he notification dated 11/2000 as being contrary to promissory estoppel. It was submitted that the effect of the impugned order is that the notification under section 49 of the Act is rendered non est. It was argued that no such power is conferred on the Tribunal under section 50 of the Act. It was pointed out that the appeal before the Tribunal was under section 65(2) of the Act and that all that the Tribunal was required to do was to examine whether the case falls under section 50 of the Act an .....

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charge. It is a privilege granting an advantage not available to others. An exemption granted under a statutory provision in a fiscal statute has been held to be a concession granted by the State Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay under such statute. The recipient of a concession has no legally enforceable right against the Government to grant a concession except to enjoy the benefits of the concession .....

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itions under which the benefit of the scheme would be available to the respondent and that the doctrine of promissory estoppel would have no applicability to the facts of the present case. It was submitted that the findings recorded by the Tribunal are at variance with the findings recorded by the Assessing Officer and the first appellate authority, without recording any cogent finding as to how the findings recorded by the authorities below are erroneous. It was, accordingly, urged that the Tri .....

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that insofar as lack of jurisdiction on the part of the Tribunal to invoke the doctrine of promissory estoppel is concerned, such question not having been raised before the Tribunal, does not arise out of the impugned order. It was submitted that the question is, therefore, as regards the breach of eligibility condition. Reference was made to the New Industrial Policy-Scheme for Special Incentive to Prestigious Units - 1990-95 and more particularly paragraph 6 thereof, to submit that the same ha .....

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r sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of goods so manufactured. (ii) If the eligible unit fulfills the conditions specified hereunder and further conditions as may be laid down from time to time. It was submitted that the assurance under the scheme is very clear, namely that, if a unit is set up and the same fulfills the conditions specified thereunder, they will be entitled to the benefit under the scheme. The State has accepte .....

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ognise such crystallised right. It was submitted that in any case sub-para (ii) under column 4 to subentry (2) of entry 255 says that the unit shall be entitled to the benefit under the scheme if the eligible unit fulfills the conditions specified thereunder and further conditions as may be laid down from time to time. It was submitted that thus, what the policy envisages is specifying further conditions; however, the same does not contemplate amendment of the existing conditions. So while furth .....

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s no promise at all. 5.1 Reference was made to paragraph 42 of the impugned order to point out that it was contended on behalf of the respondent before the Tribunal that the Commissioner of Sales Tax had by his order dated 16.8.2002 accepted that the respondent had not committed any breach of the declarations given for the purchase of good viz. naphtha and therefore, the Deputy Commissioner of Sales Tax, being a subordinate officer did not have the jurisdiction to impose purchase tax under secti .....

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r (Assessment) Sales Tax, 2006 (148) STC 225, wherein it has been held thus: 30. The High Court in its judgment has recorded a finding that the notifications being statutory no plea of estoppel will lie against a statutory notification . This finding of the High Court is erroneous. The doctrine of promissory estoppel has been repeatedly applied by this Court to statutory notifications. Reference may be made to Pournami Oil Mills v. State of Kerala, 1986 Supp SCC 728. In the said case the Governm .....

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emption 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 smallscale 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 ci .....

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nister to the persons concerned 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, therefore, no case for raising the plea of estoppel was held to have 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 .....

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ction. New industries set up after 21-10-1980 obviously would not be entitled to that benefit as they had notice of the curtailment in the exemption before they came to set up their industries. 4. … We, therefore, agree with the finding of the High Court on Issue 1 that by these notifications the Board had clearly held out a promise to these new industries and as these new industries had admittedly got established in the region where the Board was operating, acting on such promise, the sa .....

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ir position relying on these representations thinking that they would be assured of at least three years period guaranteeing rebate of 10% on the total bill of electricity to be consumed by them as infancy benefit so that they could effectively compete with the old industries operating in the field and their products could effectively compete with their products. On these well-established facts the Board can certainly be pinned down to its promise on the doctrine of promissory estoppel. It was s .....

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ndent is now required to set up a captive power plant. 5.3 Referring to the impugned order, it was pointed out that in paragraph 56 thereof, the Tribunal has recorded the contention of the respondent that it has not committed any breach of the declarations given in form 26 merely because natural gas and naphtha were used for generation of electricity through Essar Power Ltd. which was ultimately used in the eligible unit and that condition of entry 255 does not require the use directly in manufa .....

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lodged, as being perverse. Moreover, proposed question No.1 does not arise out of the impugned order. Under the circumstances, the impugned order does not give rise to any question of law, warranting interference and that the appeals deserve to be dismissed. 6. This court has heard the learned counsel for the respective parties and has perused the orders passed by the authorities below as well as the record of the case as placed before it as well as the orders passed by the authorities below. 7. .....

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arding breach of the condition (1) under column 4 of sub-entry (2) of Entry No.255 as amended vide the notification dated 14th November, 2000 and Condition No.6 of the general conditions stipulated under Entry No.255, it may be germane to refer to the said conditions as amended from time to time. 8.1 Column (4) of Sub-entry (2) of Entry 255 as introduced with effect from 5th March, 1992 reads as under: (1) If the eligible unit furnishes to the selling dealer a certificate in Form 26 appended her .....

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r condition 1, the following came to be substituted: 1. If the eligible unit furnishes to the selling dealer a certificate in Form 26 appended hereto and obtained from the registering authority, declaring inter alia that the goods shall be used by it as raw materials, processing materials or consumable stores, in its industrial unit for which it has obtained the eligibility certificate, in the manufacture of goods for sale within the State of Gujarat or as packing materials in packing of the goo .....

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otification dated 14th November, 2000, the eligible unit was required to use the raw materials, processing material or consumable stores, in its industrial unit for which it has obtained the eligibility certificate. Since, the naphtha and gas purchased by the respondent at a concessional rate has not been directly used in its industrial unit, it is alleged that there is a breach of the above condition. 8.3 In this regard, a plain reading of sub-entry (2) of Entry 255 as inserted with effect from .....

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ctured. Under condition (2) of column 4, the eligible unit was required to fulfill the conditions specified thereunder and further conditions as may be laid down from time to time. On a plain reading of condition (2), it is apparent that what was contemplated thereunder was imposition of further conditions in addition to the conditions prescribed thereunder. However, as rightly observed by the Tribunal, the condition relating to use of goods purchased against declaration has been laid down in Co .....

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inasmuch as condition (2) of column 4 provides for imposition of further conditions in addition to the conditions prescribed thereunder, whereas condition (1) precedes condition (2) and is not a condition thereunder. Consequently, any change in condition (1) of column 4 of sub-entry (2) of entry 255 would not be applicable to the respondent, including any change in Form 26 appended thereto. Such, condition would be applicable prospectively to units set up after 14.11.2000. Therefore, the questio .....

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State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of the goods so manufactured. Explanation - For the purpose of this condition, sale outside the State of Gujarat, shall mean transportation of goods by the eligible unit to his own place of business or to the place of business of his agent, at any place within India but outside the Sta .....

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the packing of the goods so manufactured. 9.2 Correspondingly, in Form No.26, for the words within the State of Gujarat , the words in the industrial unit for which the eligibility certificate has been obtained , came to be substituted. 9.3 In view of the amendment in Condition No.6 of the General Conditions prescribed under Entry No.255, it has been alleged that there is a breach of such condition on the part of the respondent as naphtha and gas obtained at a concessional rate against the presc .....

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at the relevant time when the respondent was granted the benefit of Entry No.255 stipulated that the eligible unit shall actually use the goods purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of the goods so manufactured. It may be noted that Form 26 as appended to the condition (1) in Column 4 of sub-entry (2) .....

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Entry No.255, as existing at the relevant time, it appears that at the relevant time when the respondent was granted the benefit of the incentive scheme, it was required to satisfy the requirements of those conditions and other conditions prescribed thereunder at the relevant time and such further conditions as may be laid down from time to time. It is an admitted position that the respondent met with the conditions prescribed under Entry No.255 at the relevant time when it was granted the bene .....

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e manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of the goods so manufactured. According to the appellant, in view of the fact that the naphtha and gas purchased by the respondent at concessional rates has not been actually used by the respondent in its industrial unit for which it had obtained the eligibility certificate in the manufacture of goods, the respondent has committed breach of the amended Condition No.6 .....

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nd further conditions as may be laid down from time to time. On a plain reading of the said condition, it is clear that it provides that the eligible unit shall have to fulfill the conditions specified thereunder, which the unit admittedly fulfilled. The said condition also provides for laying down further conditions from time to time which the unit would be required to fulfill. In the present case, it is not the case of the appellant that any further condition has been breached, but that Condit .....

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that the unit shall have to fulfill the conditions specified thereunder and further conditions as may be laid down from time to time. Since Condition No.6 was in existence at the relevant time, it was the Condition No.6 in its original form which was required to be fulfilled by the respondent, inasmuch as, condition (2) in column 4 of sub-entry (2) of Entry 255, does not envisage the amended conditions to be applicable to a unit, but only further conditions as may be laid down from time to time .....

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he benefit thereunder, but only imposition of further conditions. There is logic behind this. In the present case, the respondent was granted the benefit of the scheme despite the fact that it had not put up a captive power plant but was using the electricity generated by a sister concern by using naphtha and gas obtained at concessional rates. This, even according to the appellant was in consonance with Condition No.6 of the General Conditions stipulated under entry 255. If such condition is pe .....

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ipulated at the time of permitting the respondent to avail of the benefit of the scheme cannot be changed to the detriment of the respondent. 9.7 As noticed hereinabove, it is an admitted position that insofar as the period prior to 14th November, 2000 is concerned, it is not the case of the appellant that there is any breach of Condition No.6 on the part of the respondent despite the fact that naphtha and natural gas provided at concessional rate have been supplied to M/s Essar Power Ltd. and t .....

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tion of the case of the respondent that there is a breach of Condition No.6 of Entry No.255 on the part of the respondent gets knocked off. 10. Assuming for the sake of argument that Condition No.6 as amended is applicable to the respondent, the question that next would arise for consideration is as to whether the Tribunal was justified in invoking the principle of promissory estoppel in the facts of the present case. It is the case of the respondent that the findings of fact recorded by the Tri .....

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that the condition which takes away such a benefit is hit by the doctrine of the promissory estoppel. It has been contended that the unit acted as per the assurance of the Government in entering into the power purchase agreement with M/s Essar Power Ltd. and supplied naphtha and natural gas obtained at a concessional rate to M/s Essar Power Ltd. and using the electricity generated thereby in the respondent unit. On the other hand, it is the case of the appellant that the original order having b .....

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ima Chowdhury v. Kalpana Mukherjee and another, (2014) 4 SCC 196, wherein the court has held thus: 34. The Co-operative Tribunal in its order dated 16.5.2002 had invoked the principle of estoppel, postulated in Section 115 of the Indian Evidence Act. The High Court affirmed the conclusions drawn by the Cooperative Tribunal. In addition to the above principle, the High Court invoked the principles of equity and fairness. Insofar as the latter principles are concerned, we shall delve upon them aft .....

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115 of the Indian Evidence Act is being extracted hereinabove:- 115. Estoppel.- When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing. Illustration A intentionally and falsely leads B to believe that certain land belongs to .....

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ng the rule of estoppel. (i) Firstly, one party should make a factual representation to the other party. (ii) Secondly, the other party should accept and rely upon the aforesaid factual representation. (iii) Thirdly, having relied on the aforesaid factual representation, the second party should alter his position. (iv) Fourthly, the instant altering of position, should be such, that it would be iniquitous to require him to revert back to the original position. Therefore, the doctrine of estoppel .....

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and did not in fact collect. We are, therefore, in any event, not inclined to make any order contrary to that of the Tribunal for this period. 6. However, for the period subsequent to February 22, 1990, the Tribunal proceeded only upon the basis of promissory estoppel. Promissory estoppel has to be pleaded and established. We find nothing in the application made by the respondent to the Tribunal which can be said to be a plea of promissory estoppel supported by the necessary factual particulars. .....

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efore the Tribunal, the Tribunal should have called for the same or sought a finding on this aspect from the tax authorities. 7. In these circumstances, it is appropriate that the appeal should be allowed in so far as it relates to the period subsequent to February 22, 1990 and that the order of the Tribunal should, to that extent, be set aside. The application made by the respondent to the Tribunal under Section 8 of the Rajasthan Taxation Tribunal Act, 1995 (Sales Tax Revision No. 94 of 1996) .....

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as upheld the invocation of the doctrine of promissory estoppel by the Tribunal. Under the circumstances, the contention that the Tribunal does not have powers akin to the writ jurisdiction of this court under Article 226 of the Constitution of India and cannot invoke the doctrine of promissory estoppel, does not merit acceptance. 11. As regards the merits of the said contention, from the record of the case it emerges that at the relevant time when the respondent unit was set up, it intended to .....

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sister concerns, that is, Essar Gujarat, Essar Steel Ltd. and Essar Oil, as a special case only. The fact that the availment of electricity from M/s Essar Power Ltd., by supplying naphtha and natural gas obtained by the respondent at concessional rates, has not been considered as a breach by the appellant prior to 14th November, 2000, that is, when the Condition No.6 of Entry No.255 came to be amended, goes to show that it was with the approval of the Government that the respondent was utilising .....

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nt did not intend to provide any incentive to an industry which was an electricity generating industry and that in effect and substance, diversion of naphtha and gas to M/s Essar Power Ltd. defeats the intent of the State Government of not including power generation within the industries which are entitled to incentives under the scheme, does not merit acceptance, inasmuch as, if for the period prior to 14th November, 2000, diversion of naphtha and gas to M/s Essar Power Ltd. does not defeat the .....

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ellant held out a promise to the respondent whereby, the respondent was permitted to utilize the electricity generated from Essar Power Limited by supplying naphtha and natural gas obtained by it at concessional rates to Essar Power Limited and utilizing the electricity generated thereby. Accordingly, based on such promise, the respondent instead of setting up a captive power plant as originally intended, (in view of the approval given by the State Government to commission a power plant, which i .....

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ably changed its position. It is settled legal position that the Government is subject to the rule of promissory estoppel if the essential ingredients of the doctrine are satisfied and can be compelled to carry out the promise made by it. In the present case, from the facts noted hereinabove, it is evident that all the essential ingredients of the doctrine of promissory estoppel are satisfied. 11.2 As can be seen from the impugned order, before the Tribunal, as many as fifteen objections had bee .....

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r generating company was formed. Secondly, fuel purchased against Form 26 was not diverted to the power generating company. The fuel was given to Essar Power Limited only for the limited purpose of converting it into electricity to be used by the respondent. Thus, the benefit of concession is retained by the respondent. The Tribunal clarified that to the extent electricity generated by Essar Power Limited by using fuel purchased by the respondent against Form-26, if any, was sold to GEB, the res .....

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s wholly justified in invoking the doctrine of principle of promissory estoppel and holding that the appellant was bound by the assurances given to the respondent and cannot change the conditions to the detriment of the respondent. Insofar as the decision of the Supreme Court in the case of M/s Kothari Industrial Corporation Ltd. v. Tamil Nadu Electricity Board (supra) on which reliance has been placed by the learned counsel for the appellant is concerned, the said decision was rendered in respe .....

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any condition of Entry 255, the question of imposition of any penalty does not arise. 13. A perusal of the impugned order further shows that the Tribunal, after appreciating the evidence on record has recorded findings to the effect that the benefit of concessional rate of tax on purchase of fuel was taken only to the extent of electricity used in Essar Steel Limited. The benefit of concessional rate of tax was enjoyed only by Essar Steel Limited and no such benefit was passed on to Essar Power .....

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