State of Gujarat vs Arcelor Mittal Nippon Steel India Limited

255 vide two notifications – Under the said three Notifications, main requirements was that the eligible unit furnishes to the selling dealer a certificate in Form No. 26 declaring 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, for the manufacture of goods in its industrial unit as per the conditions provided under the three notifications – Said exemption made available to steel manufacturing units and the units/entities engaged in generating electricity placed in the list of industries “Not Eligible” for this incentive – Natural Gas and Naphtha purchased by the ESL, against declarations in Form No.26 were sold to EPL and EPL utilized the Natural Gas and Naphtha purchased from ESL for the purpose of generating/manufacturing electricity, which came to be sold to the ESL by the EPL – Assessee dealer seeking exemption from payment of the purchase tax as per the original Entry No.255(2) vide notification dated 05.03.1992 – Entitlement to – Held: As per the declaration furnished in Form No.26, the eligible unit-ESL was required to actually use the goods by him within the State of Gujarat as raw materials, for manufacture of goods by him – Power producing companies were specifically put in the list of ‘ineligible’ industries for any exemption from sale/purchase tax on procurement of raw materials – Transfer of Naphtha and Natural Gas by the eligible unit ESL to EPL, after availing the exemption from payment of purchase tax and not using the raw material for its own use is in violation of the eligibility criteria/condition mentioned in the Original Entry No. 255(2) – Basic eligibility condition that the eligible unit “shall actually use the goods” remain the same in amended Entry No.255(2) vide notifications dated 14.11.2002 and 16.01.2002 – Subsequent amended Entry can be said to be clarificatory and expanding the scope of eligibility as it was – It cannot said to be taking away the rights available to the eligible unit under the original Entry No.255(2) dated 05.03.1992, or in anyway in conflict with the first/parent notification/Entry No.255(2) – Thus, there was breach of the declaration given in Form No.26 (Entry No.255) by the assessee dealer – Demand of the purchase tax on and after 14.11.2000, not hit by the principle of promissory estoppel – ESL not entitled to the exemption from payment of the purchase tax as per the original exemption notice – It was a case of false and wrong claim of exemption, thus, levy of penalty justified – Assessee dealer, liable to pay the penalty not exceeding one and one-half times.

Interpretation of statutes: Exemption notifications under taxing statutes – Construction /Interpretation of – Held: Exemption notification should be strictly construed and given meaning according to legislative intendment – It is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications – If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification – Gujarat Sale Tax Act, 1969 Doctrines: Doctrine of promissory estoppel – Applicability of, in taxing statutes – Held: Doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case and not straitjacketed into pigeonholes – There cannot be any hard and fast rule for applying the doctrine of promissory estoppel but the doctrine has to evolve and expand itself so as to do justice between the parties and ensure equity between the parties – In taxing matters, the doctrine of promissory estoppel as such is not applicable and the Revenue can take a position different from its earlier stand in a case with established distinguishing features – Rules of promissory estoppel and estoppel by conduct may not be applied to alter or amend the specific terms and against statutory provisions.

Allowing the appeals, the Court

HELD: 1. The respondent-the eligible unit was not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) dated 05.03.1992, firstly, on the ground that it did not fulfill the eligibility criteria/conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and secondly that there was a breach of declaration in Form No.26 furnished by the respondent – eligible unit – ESL. The order passed by the Assessing Officer levying the demand of purchase tax and imposing the penalty is hereby restored. [Para 24][760-D-F]

2.1 The original Entry No.255(2) dated 05.03.1992 does not provide that the eligible unit after purchase of the raw materials instead of using the same by itself or himself can transfer/sold to another unit and the another unit can use the said raw materials. If it is accepted, in that case, it would be varying the conditions imposed in the original Entry No.255(2) and it shall tantamount to adding something more than what is not provided in the exemption notification/original entry, which is not permissible. The original notification does not at all permit such transfer and use of the raw materials after availing the exemption for use of another unit, who, as such is otherwise not entitled to any exemption as per the incentive policy. [Para 11.1][752-F-G]

2.2 As per the incentive policy, the actual benefit of exemption was available to certain industries as per the list of ‘eligible’ industries. The power producing companies were specifically put in the list of ‘ineligible’ industries for any exemption from sale/purchase tax on procurement of raw materials. Thus, the EPL being a power producing company was not eligible at all for any exemption from sale/purchase tax on procurement of raw materials. Therefore, as such, by such transfer and sale of raw materials by ESL to EPL, EPL got the benefit of exemption, which otherwise being a power producing company was not eligible for such an exemption. [Para 12][752-H; 753-AB]

2.3. Transfer of Naphtha and Natural Gas by the eligible unit - ESL to another unit – EPL, after availing the exemption from payment of purchase tax and not using the Naphtha and Natural Gas (raw materials) for its own use for manufacture of the goods so manufactured by it, it can be said to be violating the eligibility criteria/condition mentioned in the original Entry No.255(2) dated 05.03.1992 and it can be said that the respondent -ESL committed a breach of the declaration given in Form No.26. Therefore, the High Court has committed an error in holding that the respondent did not commit any breach of any of the conditions mentioned in the original Entry No.255(2) dated 05.03.1992. [Para 14][753-D-F]

2.4. While the exemption notification should be liberally construed, beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise. It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. An exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications. The Statutory provisions providing for exemption have to be interpreted in the light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions. Eligibility clause, it is well settled, in relation to exemption notification must be given effect to as per the language and not to expand the scope deviating from the language. There is a vast difference and distinction between a charging provision in a fiscal statute and an exemption notification. [Para 14.1-14.3, 14.6][753-G-H; 754-A-B,G]

2.5. In the instant case, the intention of the State to provide the incentive under the incentive policy was to give benefit of exemption from payment of purchase tax was to the specific class of industries and, more particularly, as per the list of ‘eligible industries’. Exemption was not available to the industries listed in the ‘ineligible’ industries. It was never the intension of the State Government while framing the incentive policy to grant the benefit of exemption to ‘ineligible industries’ like the power producing industries like the EPL, which as such was put in the list of ‘ineligible’ industries. [Para 14.5][754-D-E]

2.6. Second notification dated 14.11.2000/the amended Entry No.255(2), is clarificatory in nature and there is no change in the basic eligibility criteria/conditions mentioned in the original Entry No.255(2). As per the original Entry No.255(2) dated 05.03.1992 and even as per the Form No.26 appended thereto, the eligible unit was required to actually use the raw materials purchased. In the subsequent notification, it is made explicitly clear that the raw materials so purchased are to be used by the eligible unit in its industrial unit. Therefore, the basic requirement that the eligible unit has to actually use such raw materials purchased by him is in no way modified and/or amended. On the contrary, the subsequent amended Entry No.255(2) dated 14.11.2000 can be said to be expanding the scope of eligibility as it was. Earlier the eligible unit was required to actually use the goods purchased within the State of Gujarat and as per the subsequent amended Entry No.255(2) dated 14.11.2000 even if such goods are used by it outside the State of Gujarat in that case also such eligible unit was held to be eligible for exemption. Even as per the condition No.6 in the amended Entry No.255(2) dated 14.11.2000, it is specifically mentioned that the eligible unit shall actually use the goods purchased, which was the requirement in the first notification also. Therefore, the subsequent amended Entry No.255(2) vide notification dated 14.11.2000 can be said to be clarificatory and/or expanding the scope of eligibility, but in no case, it can be said to be taking away any right under the original Entry No.255(2) dated 05.03.1992. Similarly, even the third amended Entry No.255(2) dated 16.01.2002 also cannot be said to be taking away any right available under the original Entry No.255(2) dated 05.03.1992. [Para 15.1, 16][755-B-G]

2.7. Subsequent amended Entry No.255(2) vide notification dated 16.01.2002 also can be said to be expanding the scope of eligibility and in no way can be said to be taking away the rights available to the eligible unit under the original Entry No.255(2) dated 05.03.1992. The eligibility criteria/condition that the eligible unit “shall actually use the goods” remain the same even in the said amendedEntry No.255(2) dated 16.01.2002. Therefore, the subsequent notifications/amended Entries cannot be said to be in any way in conflict with the first/parent notification/Entry No.255(2). [Para 16.1][755-H; 756-A-B]

2.8. Even under the first/ original Entry No.255(2) dated 05.03.1992 and even as per the declaration furnished in Form No.26, the eligible unit – respondent – ESL was required to actually use the goods by him/within the State of Gujarat as raw materials, for manufacture of goods by him. But by actually not using the raw materials so purchased by which it got the benefit of exemption from payment of purchase tax, sold the said raw materials, which in fact were required to be used by him, to another unit/entity, which another unit used it for manufacture of its goods – generating the electricity and which in turn the EPL sold to the ESL. Thus, the ESL– eligible unit did not comply with and/or fulfilled the eligibility criteria/conditions even as per the original Entry No.255(2) and therefore, was/is not entitled to the exemption from payment of the purchase tax as per the exemption notification dated 05.03.1992 vide original Entry No.255(2). Therefore, even assuming that the subsequent amended Entries vide second and third notifications are not to be made applicable in that case also the respondent -Essar Steel Ltd. being eligible unit was required to comply with and/or fulfill all the eligibility criteria/conditions mentioned in the original Entry No.255(2), by not actually using the raw materials by himself and transferring/selling the same to the non-eligible unit, the respondent was not entitled to avail the benefit of exemption even under the original Entry No.255(2). [Para 17][756-C-F]

2.9. Even as per Form No. 26 (Entry No.255), as per the declaration filed by the respondent, being ‘eligible’ unit while purchasing goods for use in manufacturing goods, it was declared that the raw materials so purchased will be used by it in the manufacture of goods for sale. Thus, by not using the raw materials so purchased by it, the respondent – eligible unit – ESL has violated the declaration given in Form No.26. Therefore, the respondent was not entitled to the exemption even under the first/parent notification. [Para 18][756-G]

2.10. In the instant case, first of all, the principle of promissory estoppel to the exemption sought ought not to have been applied at all. Each assessment year/period is independent. Even otherwise, in the facts and circumstances of the case, the principle of promissory estoppel shall not be applicable. In the instant case, the respondent – eligible unit as such was not entitled to the exemption even under the first notification as it violated the declaration given in Form No.26 as well as did not comply with and/or fulfilled the eligibility criteria/conditions required to be fulfilled while availing benefit of exemption. The respondent did not actually use the raw materials purchased by him/it and availed the exemption and after availing the exemption sold the said raw materials to ‘ineligible’ unit - EPL and the EPL used the same for manufacture of its goods – generating the electricity, which subsequently again sold to the ESL – eligible unit on payment of sale consideration. [Para 19][757-A-C]

2.11. As per the incentive policy declared by the State Government, the power generating company was put in the list of ‘ineligible industries’ and thus, independently was not entitled to the exemption under the original Entry No.255(2). Thus, by such a transfer/sale from the eligible unit to another unit the benefit of exemption is availed by the ‘ineligible’ industry, which is wholly impermissible and that cannot be said to be the intention of the Government while providing the incentive in the form of exemption from payment of purchase tax. Such a benefit of exemption was available only to eligible units/industries and the steel industry of which ESL belonged being one of the eligible industries. Therefore, there was no question of applicability of principle of promissory estoppel. [Para 20][757-D-E]

2.12. ESL had furnished wrong and false declarations. In the original notification/entry, it was not provided that even if the raw materials so purchased is not used by itself after availing the exemption, the same can be sold to another entity, which is ‘ineligible’ industry. It did not provide that in such a situation also and despite the fact that raw material is not actually used by the eligible unit, which was required to be used even as per the declaration in Form No.26, such eligible unit shall be entitled to the exemption. No such promise was given. The wordings and the language used in the exemption notifications are very clear, simple and unambiguous. Therefore, when there was no such promise and/or representation, the demand cannot be said to be hit by the principle of promissory estoppel as observed and held by the Tribunal as well as the High Court in the impugned judgment and order. [Para 20.1][757-F-H; 758-A]

2.13. The doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case and not straitjacketed into pigeonholes. There cannot be any hard and fast rule for applying the doctrine of promissory estoppel but the doctrine has to evolve and expand itself so as to do justice between the parties and ensure equity between the parties. In the present case, the principle of promissory estoppel shall not be applicable. [Para 20.2][758-B-C]

2.14. In taxing matters, the doctrine of promissory estoppel as such is not applicable and the Revenue can take a position different from its earlier stand in a case with established distinguishing features. The rules of promissory estoppel and estoppel by conduct may not be applied to alter or amend the specific terms and against statutory provisions. All the terms and conditions contained in the exemption notification shall prevail and the person claiming the exemption has to fulfil and satisfy all the eligibility criteria/conditions mentioned in the exemption notification. [Para 20.3, 20.4][758-C-E]

2.15. The Scheme of the Statute does not in any manner indicate that the incentive provided has to continue for the consecutive years irrespective of the fulfilling of the eligibility conditions. Applicability of the incentive is directly related to the eligibility and not dehors the same. If it is found that the industrial undertaking does not fulfil the eligibility criteria, it cannot claim the incentive/exemption. The submission that as in the earlier assessment years benefit of exemption was granted to the respondent and, therefore, in the subsequent assessment years also, despite the fact that it is found that the respondent was/is not eligible for the benefit of exemption under the original Notification/Entry No.255(2) cannot be accepted. If such a submission is accepted in that case it will be perpetuating the illegality and granting the benefit of exemption to ‘ineligible industry’, who did not fulfill and/or comply with the eligibility criteria/conditions mentioned in the exemption notification. The principle of promissory estoppel shall not be applicable contrary to the Statute. Merely because erroneously and/or on misinterpretation, some benefits in the earlier assessment years were wrongly given, cannot be a ground to continue the wrong and to grant the benefit of exemption though not eligible under the exemption notification. [Para 21.1, 22][758-G-H; 759-A-C]

2.16. The penalty is leviable under Section 45 and such a penalty is leviable under sub-sections (5) and (6) of Section 45 of the Act, 1969 and the penalty is leviable on purchase tax assessed. It provides that if the difference of tax paid and tax leviable/assessed is more than twenty- five percent, in that case, the dealer shall be deemed to have failed to pay the tax to the extent of the difference between the amount so assessed/re-assessed and the amount paid and, in that case, there shall be levied on such dealer a penalty not extending one and one-half times the difference as per sub-section (5). Therefore, there being difference of more than twenty five percent, penalty to the said extent shall be leviable. This is a clear case of false and wrong claim of exemption, as the exempted goods were transferred to a third person and used in an ‘ineligible’ industry. This is a case of deliberate violation and evil doing. [Para 23][759-D-E]

2.17. As the difference between total tax paid and the purchase tax is more than twenty-five percent, the respondent is deemed to have failed to pay the tax as per sub-section (5) of Section 45 and, therefore, liable to pay the penalty not exceeding one and one-half times. The words used in sub-section (6) of Section 45 is “there shall be levied on such dealer a penalty not exceeding one and one-half times the difference”. In the instant case, the modus operandi which was adopted by the respondent warrants a penalty. Though, the raw material was required to be used by itself for the manufacture of their goods, after availing the exemption as eligible unit and instead of using the same for itself/himself, the ESL sold the raw materials to an ‘ineligible’ entity – EPL, who used it for manufacture of its own goods – generating the electricity, which again came to be sold to ESL under the power purchase agreement. [Para 23.1][759-F-H; 760A]

2.18. As such the EPL, under the incentive scheme, was not eligible at all for exemption from payment of purchase tax as in fact power generating companies were put in the list of ‘ineligible industries’. Therefore, by such a modus operandi, the benefit, which was not available to the EPL was made available by such transfer of raw materials by the ESL to EPL. There is a breach of declaration in Form No.26 also. Therefore, in the facts and circumstances of the case, the levy of penalty is justified and warranted. [Para 23.2][760-B-C]

2.19. The impugned common judgment and order passed by the High Court as well as that of the Tribunal quashing and setting aside the demand of purchase tax from the respondent are hereby quashed and set aside. [Para 24][760-D]

Commissioner of Central Excise, Bangalore-1 v. Bal Pharma Limited, Bangalore and Ors., (2011) 2 SCC

620 – relied on.

Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and Others, (2018) 9 SCC 1 : [2018] 7 SCR 1191; Union of India and Anr. Etc. Etc. v. V.V.F. Limited and Another, Etc. Etc., (2020) SCC Online SC 378; Bengaluru Development Authority v. Sudhakar Hegde and Ors., (2020) 15 SCC 63; Kothari Industrial Corporation Limited v. Tamil Nadu Electricity Board and Anr., (2016) 4 SCC 134 : [2016] 1 SCR 564 ; Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors., (2020) 8 SCC 531 : [2019]

16 SCR 275; Assistant Commissioner (CT) LTU and Anr. v. Amara Raja Batteries Limited, (2009) 8 SCC 209 : [2009] 11 SCR 953; Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627 : [1970] 1 SCR 753; Excel Crop Care Limited v. Competition Commission of India and Anr., (2017) 8 SCC 47 : [2017] 5 SCR 901 referred to.