Kerala General Sales Tax Act,1963 – s.10 – Sick Industrial Companies (Special Provisions) Act, 1985 – ss.17,18, 19 and 20 – Tax exemption – The case involves the withdrawal of tax exemption benefits granted to the appellant, who had revived a sick industrial unit under the Sick Industrial Companies Act – Government by exercising its power under Section 10(3) of the KGST Act, 1963 by an order of 2006 withdrew the exemption granted earlier – This prompted the appellant to file a petition in the High Court challenging the 2006 order – The High Court doubted whether the exemption could have been extended to the appellant alone instead of a class of industries and upheld the order of Government – The appellant approached the Supreme Court – Held: (Per Hrishikesh Roy, J.) : The power to grant exemption u/s 10(1) is in respect of a class of persons and was never intended for an individual industrial unit like appellant – When this aberration was noticed and it was seen that amongst similarly engaged units in the same business, the appellant was the only one enjoying the benefit of exemption, the 2006 government order was issued withdrawing the exemption granted – Even though appellant was granted benefit of tax exemptions, it cannot be continued for further assessment years, as that would amount to perpetuating and condoning a wrong, which is opposed to public policy – Benefit of equitable doctrine of estoppel cannot be extended to the appellant as in that case the State Authority would be obligated to act in a manner which is contrary to legislative mandate – Judgment of High Court was upheld – (Per K.M Joseph, J.) (concurring): Appellant cannot pitch its case higher than at the limit under Order dated 25.11.1994 – Exemption of sales tax is contemplated for a period of two years – Maximum period in any case is 5 years – In the case of the appellant, the appellant enjoyed the benefit of the exemption till it was withdrawn on 21.11 2006 – Appellant enjoyed the benefit of exemption for nearly 4 years – Appellant is a company which is making profits – Appeal must fail.
Dismissing the appeal, the Court
HELD:
Per Hrishikesh Roy, J.:
1.The gap between the 2004 Government Order and the Government Order dated 21.11.2006 shows that the appellant was enjoying the benefit for a fair duration. Significantly, the power to grant such tax benefit is not seen in any other State Legislation but only in Section 10(1) of the Kerala General Sales Tax Act, 1963. The power to grant exemption under Section 10(1) is however in respect of a class of persons and was never intended for an individual industrial unit like the appellant. When this aberration was noticed and it was seen that amongst similarly engaged units in the same business, the appellant was the only one enjoying the benefit of exemption, the 2006 government order was issued withdrawing the exemption granted on 20.3.2004. [Para 20][115-G-H; 116-A-B]
2. Undoubtedly, the government was empowered under Section 10(3) to withdraw the exemption at any time and therefore, it cannot be said that the principle of promissory estoppel by itself, will facilitate the appellant to challenge the 2006 Government Order. It must be pointed out that a number of concessions were offered to the appellant under the 2004 Government order and it is discernible that payments under several heads were not set apart for the appellant, notwithstanding their role in revival of the sick unit. [Para 21][116-B-C]
3. 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 payable by the sick units, were completely waived. Factoring this, the writ court as well as the Division Bench opined that subclause (1)(b) of 2004 Government Order relating to waiver of tax in the State is of such wide amplitude that the same must be seen as uncertain and vague. Also importantly, such exemption cannot continue indefinitely and particularly not beyond the point at which the revival of the sick unit is seen. [Para 22][116-D-E]
4. 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. [Para 23][116-E-G]
5. On the argument of the appellant based on the principles of promissory estoppel, as earlier noted, the tax exemption in the present matter was not given to a class of persons and the appellant is made the sole beneficiary. This is contrary to Section
10 of the KGST Act. The 21.11.2006 withdrawal order was therefore issued, when it was discovered that this was a case of exemption to an individual unit and that is impermissible under Section 10 of the KGST Act. Such being the position, the benefit of the equitable doctrine of estoppel cannot be extended for the appellant as in that case the State authority would be obliged to act in a manner which is contrary to the legislative mandate. [Para 27][117-E-G]
6. The equitable principle of promissory estoppel cannot be invoked for enforcing promises in the teeth of the provisions of law. Having concluded that the Government Order (20.03.2004), granting Sales Tax/ Works Contract Tax exemption was ultra vires the Section 10(1) of the KGST Act, the promise, in furtherance of Government Order, in the form of BIFR Scheme dated 17.01.2005 being unlawful, cannot in our view, be enforced on equitable consideration. [Para 31][118-F-G]
7. Even though the appellant was granted benefit of tax exemptions under the 2004 government order, this was ultra vires the Section 10 KGST Act. Such exemption cannot be continued for further assessment years, as that would amounts to perpetuating and condoning a wrong, which is opposed to public policy. [Para 33][119-B-C]
8. The Division Bench concluded that the appellant does not form a separate class of its own. Hence, the 2004 government order was held to be ultra vires the Section 10(1) of the KGST Act. The appellant has failed to bring to our attention, any intelligible differentia, based on which it can be said that they constitute a unique, separate class of its own. In absence of such differentiating factor, the benefit of tax exemptions being granted to the appellant, to the exclusion of all other sick industries involved in similar activities, do not appear to be reasonable and should be seen as arbitrary. The 2004 government order was not only ultra vires Section 10(1) of KGST Act, but also falls short by principle of reasonableness, fairness, and non arbitrariness. The 2006 government order withdrawing the tax exemption was in fact issued to remedy this very mischief. Hence, the appellant cannot invoke the principle of legitimate expectation against the 2006 government order. [Para 41][122-B-D]
State of Gujarat vs. Arcelor Mittal Nippon Steel India Ltd. (2022) SCC OnLine SC 76 (14); Pournami Oil Mills and Others vs. State of Kerala and Anr. 1986 (Supp) SCC 728 : [1987] 1 SCR 654 (18); M/s. Motilal
20 Padampat Sugar Mills vs. State of Uttar Pradesh & Ors. (1979) 2 SCC 409 : [1979] 2 SCR 641 (28); Amrit Banaspati Co. Ltd. vs. State of Punjab & Anr. (1992) 2 SCC 411 : [1992] 2 SCR 13 (29); Bangalore
Development Authority vs. R. Hanumaiah (2005) 12 SCC 508 : [2005] 3 Suppl. SCR 901 (30); Voltas Ltd. vs. State of A.P. (2004) 11 SCC 569 : (34); Monnet Ispat & Energy Ltd. vs. Union of India (2012) 11 SCC
1 : [2012] 7 SCR 644 (36); Pawan Alloys & Casting Pvt. Ltd., Meerut vs. U.P. State Electricity Board and Others (1997) 7 SCC 251 : [1997] 3 Suppl. SCR 266
(42) – referred to.
MRF Ltd., Kottayam vs. Asst. Commissioner (Assessment) Sales Tax & Ors. (2006) 8 SCC 702 : [2006] 6 Suppl. SCR 417 (38) – distinguished.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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