TMI Blog2022 (4) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... ine being prescribed, such a time line in our opinion, cannot be imported from the 1994 government order - Furthermore, Sales tax in the State of Kerala is chargeable under Section 5 of the KGST Act which makes it obligatory upon the State to realize the tax in respect of sales transaction. Section 10 deals with the power of exemption and sub-Section (3) thereof confers the power to have the order of exemption varied or modified , in the manner specified. The benefit of exemption to tax must therefore be traceable to powers conferred under the KGST Act and such benefits could not have been granted in terms of the BIFR Scheme dated 17.01.2005 giving effect to the Government Order issued on 20.3.2004. In the 2006 Government Order withdrawing the benefits, the government has specifically adverted to Section 10 of KGST Act and as such the non-mentioning of the provisions of Section 10(1) of the KGST Act in the 2004 Government Order, would not assist the appellant in any significant measure. The present dispute pertinently is only with regard to the exemption relatable to sales tax/works contract tax and it is nobody s case that past arrears of sales tax/works contract tax payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -straits and the crucial financial assistance indispensable to the said process is not forthcoming from the State. The expression class of persons in Section 10 of the State Act, no doubt, acts as a limitation on the power of the state in exercise of its power. It also is an indication of the extent of the power. Then the question would arise as to whether a class of persons includes a single person. To break it down, whether the words persons is capable of comprehending a single person. Would the plural include the singular? - The High Court has proceeded on the basis that the power under Section 10(1) can be exercised in favour of only a class of persons and not qua an individual unit like the appellant. It has also proceeded on the basis that had the exemption been made applicable to all sick industrial units which is in the activity of bleaching etc, there would have been force in the contention that the appellant would form a class by itself. The sick company, which falls to be dealt with under Section 17(3) read with Section 18 and finally Section 19, is clearly distinct from the generality of sick companies both under the definition of a sick company and even those wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngst the stakeholders and various concessions were offered to the appellant. 4.1 In tune with the recommendation of the Empowered Committee constituted for the purpose, the Government Order was issued on 20.3.2004 whereby the recommendations of the Committee were accepted. The relevant clause incorporating the measures relating to Sales Tax/Works Contract Tax, are as under:- Sales Tax/Works Contract Tax (a) The past arrears of Sales Tax/Works contract tax will be completely waived. (b) Works contract Tax on processing of Fabrics like bleaching and dyeing etc. will be exempted in the State 4.2 In furtherance of the 2004 Government Order, the revival proposal envisaged the taking over by the appellant entire assets of the sick unit for a sum of ₹ 10 crores and the BIFR Sanctioned Scheme dated 17.01.2005 mentioned the relief measures under clause 7.2.1 pertaining to sales tax/works contract tax. They read as follows:- 7.2.1 Sales Tax/Works Contract Tax (a) To waive past arrears of Sale Tax Works Contract Tax completely (b) To exempt works contract tax on processing of fabrics like bleaching and dyeing etc. in future. 5. The appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion granted by the State under the Scheme, is binding on the State under the provisions of Section 19(3) of SICA and the State must be held accountable to their promise. It was the say of the appellant that the incentives were not granted under Section 10(1) of the KGST Act, and therefore the tax exemption could not have been withdrawn by invoking the powers under Section 10(3) of the same Act. The appellant unequivocally rejected a suggestion by this Court that the appellant might not constitute a unique class of one, in whose favour a tax exemption under Section 10(1) KGST Act can be granted legally. The appellant however failed to point out any other provision in any statute, which empowered the State Government to grant such tax exemptions. While reviving the sick unit, the appellant earned profit in 2015, but incurred loss in subsequent three years. The recent years i.e., 2019 and 2020 are however profitable years for the appellant. 7. The respondents, on the other hand, contend that the 20.03.2004 Government Order confers various benefits, and the exemption from sales tax/works contract tax is only one of those benefits offered for revival of the sick unit. According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Empowered Committee with due discussion amongst the stakeholders, and those were with specific reference to the concessions to be extended to new promoters for revival of sick units, in light of the government order dated 25.11.1994. 11. It was noted by the learned Single Judge upon perusal of the 1994 Government Order that there are two separate channels of benefits/reliefs i.e. (a) nonfiscal; and (b) fiscal, and under item no. 2, the exemption was granted for works contract tax on processing of fabrics like bleaching, dyeing etc. 12. The above would show that the fiscal measures refer to exemption/deferment of sales tax, purchase tax, electricity dues for two years, but not exceeding five years or till the date, the net worth of the company became positive, whichever is earlier. Thus, the outer cap of five years was specified in the 1994 Government order and the benefits could not have been intended to continue without limit. 13. Even though the 2004 Government Order, and the BIFR Sanctioned Scheme of 2005 were enacted in furtherance of 1994 Government Order, both these documents do not specify the time line for tax exemptions prescribed in the 1994 government order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2005 giving effect to the Government Order issued on 20.3.2004. In the 2006 Government Order withdrawing the benefits, the government has specifically adverted to Section 10 of KGST Act and as such the non-mentioning of the provisions of Section 10(1) of the KGST Act in the 2004 Government Order, would not assist the appellant in any significant measure. 18. In Pournami Oil Mills and Others vs. State of Kerala and Anr. 1986 (Supp) SCC 728, Justice Ranganath Misra, as he was then, opined as follows:- 6 It is a well settled principle of law that where the authority making an order has power conferred upon it by statute to make an order made by it and an order is made without indicating the provision under which it is made, the order would be deemed to have been made under the provision enabling the making of it . The present understanding finds support from the above proposition of law laid down by this Court in Pournami Oil Mills (supra). 19. Insofar as the benefits of tax exemption from the works contract on processing of fabrics, being in conformity with the stipulations under paragraph 7.2.1 of the BIFR Scheme dated 17.01.2005, it must be noticed that Sub-claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sick unit is seen. 23. As earlier discussed, Section 10(1)(ii) of the KGST Act enables the State to grant exemption from sales tax only with respect to any specific class of persons in regard to the whole or any part of their turnover and since the 2004 Government Order benefitted only a single unit i.e. the appellant, it is difficult to accept that the solitary industrial unit which was being revived under the BIFR Scheme, would form a class by itself. Therefore, contention to the contrary by the appellant is considered and rejected with the reasoning that the exemption by 2004 Government Order was not made applicable to all sick industrial units of the state, engaged in the like activities of bleaching, dyeing etc. 24. It is also relevant to point out that the government order dated 25.11.1994 clearly reflected the government s intention to consider each sick industrial unit on a case to case basis. 25. Next, the Court must examine whether the appellant can raise contention on the validity of 2006 Government Order in the context of the sanctioned scheme of restriction approved by the BIFR and the binding nature of the scheme under Section 19(3) of SICA. This quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to law. Justice P. N. Bhagawati for the Division Bench wrote the following:- 28 It may also be noted that promissory estoppel cannot be invoked to compel the Government or even a private party to do an act prohibited by law 29. The above judgment in Motilal Padampat(Supra) was followed in the case of Amrit Banaspati Co. Ltd. Vs. State of Punjab Anr. (1992) 2 SCC 411 wherein, this Court carved out unlawful/illegal promise as an exception to the principle of promissory estoppel. But, the observation in this case in reference to an unlawful promise was not laid down as a ratio, but at best an Obiter dicta. 30. In the later case of Bangalore Development Authority Vs. R. Hanumaiah (2005) 12 SCC 508 , it was however specifically declared that the equitable principle of promissory estoppel cannot be invoked for condoning or enforcing a promise, expressly prohibited by a statute. This Court speaking through Justice Ashok Bhan pronounced as under: 34. In absence of any provision in the Act or the Rules framed thereunder authorizing BDA to reconvey the land, direction cannot be issued to BDA to reconvey a part of the land on the ground that it had promised to do so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest sum was payable after 7 years in lump sum. Dealing with the challenge to the government decision, this Court by a short order upheld the Government Order dated 18.08.1995 with the observation that the interest was imposed under relevant provisions of AP General Sales Tax Act, 1957 (APGST Act). Further, even though the payment of sales tax was deferred for 7 years vide Government Order dated 20.01.1994 and the BIFR sanctioned scheme dated 04.04.1994, both pertinently were silent on the interest aspect. Hence, this Court held that as there was no express waiver of interest, the provisions of APGST Act would prevail over the BIFR scheme. 35. In the case at hand, the government order dated 20.03.2004, as well as the BIFR sanctioned scheme, are silent on the duration of tax exemption for the works contract. In any case the tax exemptions cannot continue indefinitely. Hence, the ratio in Voltas Ltd. (Supra) involving a BIFR scheme and a government decision which diminishes the incentives for the company, do lend support for the impugned decisions of the High Court. In other words, the Kerala government, notwithstanding the BIFR scheme for the sick company was entitled to withdraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es from the definition of manufacture . The same in effect extinguished the tax exemptions granted vide the 1993 government order. By another Notification dated 31.12.1999, the Kerala government notified that the exemptions sanctioned before 01st January, 2000 in furtherance of 1993 government order would continue for full period of 7 years. In this background, the authorities issued a demand notice, seeking to levy purchase tax from 15.01.1998, relying on the 15.1.1998 government order. When this was challenged and the matter eventually came to this Court, the Division Bench speaking through Justice Ashok Bhan, held that the state authority s demand for purchase tax under KGST Act from 15.01.1998, is barred by principle of promissory estoppel since the state cannot renegade its earlier promise of tax exemption for 7 years until 29.12.2003. This Court held that the state s action of retrospectively amending its 1993 government order, by subsequent order dated 15.01.1998 was arbitrary and unreasonable. The 1998 government order was found to be discriminatory and hit by the principles of Article 14 of the Constitution. Thus, holding the state bound to its promise, MRF was found to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thers (1997) 7 SCC 251 where it was propounded that if the state, in exercise of its sovereign powers, grants any tax exemptions for a specified period, the principle of promissory estoppel does not bar the grantor from prematurely withdrawing such exemptions, if such measure is necessitated for protecting public interest. In other words, public interest would outweigh the interest of the individual grantee. 43. While reflecting upon the element of public interest as enunciated in Pawan Alloys (supra), in granting or refusing relief on the principle of promissory estoppel, the last public address of the lawyer statesman Abraham Lincoln who served as the 16th President of USA, intrudes into our thought process. Taking a strong stand in support of Black suffrage, Abraham Lincoln, soon after winning the Civil War, refused to give in to his earlier promise of reconstruction to the state of Louisiana, with the following resounding words:- But, as bad promises are better broken than kept, I shall treat this as a bad promise, and break it, whenever I shall be convinced that keeping it is adverse to the public interest. But I have not yet been so convinced. Taking a cue from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under sub-section(1). 3. In order to appreciate whether the exemption in favour of the appellant would be ultra vires Section 10 of the State Tax Law and whether there is merit in the case of the appellant that actually the exemption was not given under Section 10, I may briefly evaluate the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to as the Act . The Act defined Sick Industrial Company w.e.f. 01.02.1994 as follows: 3(o) sick industrial company means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Explanation: For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993, registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company; 4. The Act envisaged a Board and also an appellate authority. Section 15 contemplated a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that behalf, review such order and modify the order in such manner as it may deem appropriate. 5. It is clear that under Section 17(3) if the Board decided that it is not practicable within a reasonable time to make the company s net worth exceed the accumulated losses, a scheme may be provided as provided under Section 18. Section 18, therefore, dealt with the circumstances obtaining under Section 17(3) to prepare and sanction the scheme. Section 18 provided in detail as to what could be provided for in the scheme. It reads as follows: - 18. Preparation and sanction of schemes. - (1) Where an order is made under sub-section (3) of section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely:- (a) the financial reconstruction of the sick industrial company; (b) the proper management of the sick industrial company by change in, or take over of, management of the sick industrial company; (c) the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or rights which the shareholders have in the sick industrial company to such extent as the Board considers necessary in the interests of the reconstruction, revival or rehabilitation of the sick industrial company or for the maintenance of the business of the sick industrial company; (g) the allotment to the shareholders of the sick industrial company of shares in the sick industrial company or, as the case may be, in the [transferee company] and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder the payment of cash to those shareholders in full satisfaction of their claims- (i) in respect of their interest in shares in the sick industrial company before its reconstruction or amalgamation; or (ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced; (h) any other terms and conditions for the reconstruction or amalgamation of the sick industrial company; (i) sale of the industrial undertaking of the sick industrial company free from all encumbrances and all liabilities of the company or other such encumbrances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther than the sick industrial company. (4) The scheme shall thereafter be sanctioned, as soon as may be, by the Board (hereinafter referred to as the sanctioned scheme ) and shall come into force on such date as the Board may specify in this behalf: Provided that different dates may be specified for different provisions of the scheme. (5) The Board may on the recommendations of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines as may be specified in the order, to prepare a fresh scheme providing for such measures as the operating agency may consider necessary. (6) When a fresh scheme is prepared under subsection (5), the provisions of sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under sub-section (1). (6A) Where a sanctioned scheme provides for the transfer of any property or liability of the sick industrial company in favour of any other company or person or where such scheme provides for the transfer of any property or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government, bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation [or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given]. (3) Where in respect of any scheme the consent referred to in sub-section (2) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular company which is at the centre stage of the final scheme being entitled to be treated in terms thereof. 9. Therefore, on the scheme of the Sick Industrial Companies Act, the law contemplated concessions, and sacrifices inter alia being undertaken by the State Government inter alia in terms of financial assistance. Section 19(4) appears to indicate that if consent is not given to any person, the Board is free to adopt other measures including winding up of the sick industrial company. A sick industrial company is defined in the Act. In terms of the definition, it is undoubtedly true that there may be more than one sick industrial companies operating in the same business or rather dealing in the same goods and services. The scheme of Section 17 appears to be that such sick industrial companies that could be nursed back to health under section 17(1) and 17(2), did not go on to be dealt with under Section 18 and 19. It is in regard to a sick industrial company which fell within the four walls of Section 17(3) that the special provisions under sections 18 and 19 were applicable. It is such a company on account of the acuteness of the problem that cried out to be dealt wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g all parties to proceed on the basis that a company would be redeemed from its financial dire-straits and the crucial financial assistance indispensable to the said process is not forthcoming from the State. The aforesaid interpretation placed in para 11 hereinbefore would harmonise the Central and the State Act. It will also give life to the Sick Companies Act as it would clearly further the object of the law. Therefore, the exemption granted can be understood as springing from the provisions of Section 19(3) read with 19(1) in this regard. Thus, the exemption is not to be treated as falling under Section 10 of the State Act. In other words, Section 10 cannot be treated as the sole repository of power to grant exemption. 13. The Government of Kerala, had in fact issued G.O.M.S. dated 25th November 1994. It, inter alia, deals with the aspect of benefits given under the Act. In fact, the said order provided for guidelines in the model package which is appended to be followed by government while formulating rehabilitation scheme within the purview of the Sick Industrial Companies (Special Provisions) Act, 1985. Relief and concessions were to be extended on a case-to-case basis, k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein. The second respondent was a Government Company. We notice the following observations: 27. . Apart from that, we are of the opinion taking into account that the second respondent is a Government company, and, it is established in a centrally notified backward area, and it provides employment opportunities to those people in that area and it is a new entrant in the filed, the concession shown to the second respondent is clearly sustainable as the second respondent unit constitutes a class by itself and the classification so made in its favour is justified with the object in view as stated above. 17. A sick industrial company which is the subject matter of the sanctioned scheme may constitute a class by itself. However, it is not necessary to explore this aspect further as the exemption granted to the sick company covered by Section 19(3) is safely anchored in Section 19 of the Act. 18. The question would arise as to whether on the said view the appellant should be granted relief? There is merit in the view that the exemption does not envisage any outer time limit. But it is obvious that it could not be an unending bonanza even after the company breaks even and e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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