2012 (1) TMI 47 - SC - VAT and Sales Tax

Supreme Court rules Essar Oil ineligible for Sales Tax incentive due to missed production deadline.

State of Gujarat & others Versus Essar Oil Limited and another

The Supreme Court set aside the High Court's judgment, ruling that Essar Oil Limited was not eligible for the Sales Tax incentive under the Government of ... Doctrine of restitution - Sales Tax incentive under the Government of Gujarat 'Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000' being opted by Essar – commencement of commercial production got delayed due to writ petition in the nature of PIL filed before the High Court - Government extended the time upto 15.08.2003 – request for further extension by company got denied - writ petition filed by company in High Court on ground that delay in commencement of commercial production was on account of the injunction granted by the High Court - High Court extended the time limit for commencement of commercial production from 15.08.2003 to 02.04.2007 - firstly on the principle of restitution and secondly, that the company cannot be made to lose the benefit under the Sales Tax Waiver Scheme, for an act of Court – Government argued that impugned judgment is not by consent – Held that:- The concept of restitution is a remedy against unjust enrichment or unjust benefit. Equity demands that if one party has not been unjustly enriched, no order of recovery can be made against that party. In present case, the State has not at all gained or received any benefit as a result of the stay orders passed by the High Court on the second PILs. Therefore, the principle of restitution cannot be applied against the State. The judgment of the High Court to that extent is erroneous.Regarding second principle that the company cannot be made to lose the benefit, for an act of Court - Held that:- Mere mistake or error committed by Court cannot be a ground for restitution. This Court held that the principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, does not apply to the construction of an exception or an exempting provision, as the same have to be construed strictly. Further this Court also held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubt or ambiguity, benefit of it must go to the State. Therefore, judgement of High Court is set aside. Issues Involved:1. Eligibility for Sales Tax Incentive under the Government of Gujarat 'Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000'.2. Extension of the date for commercial production.3. Application of the principle of restitution.4. Application of the principle 'actus curiae neminem gravabit' (an act of the court shall prejudice no man).Detailed Analysis:1. Eligibility for Sales Tax Incentive:The main issue revolves around whether Essar Oil Limited (Essar) was eligible for the Sales Tax incentive under the Government of Gujarat's 'Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000'. The scheme aimed to accelerate the development of backward areas and create large-scale employment opportunities. Essar, categorized as a premier unit, was entitled to a sales-tax deferment incentive for a period of 17 years from the date of commercial production. However, Essar faced delays due to various legal and environmental hurdles. The High Court of Gujarat had granted Essar the benefit of the Sales Tax incentive by extending the time limit for commencement of commercial production from 15.08.2003 to 02.04.2007.2. Extension of the Date for Commercial Production:The Scheme required units to go into commercial production within its operative period (16.08.1995 to 15.08.2000). Essar faced delays due to environmental clearances and legal challenges, including PILs and injunctions. The High Court extended the date for commercial production, acknowledging that the delays were beyond Essar's control and were due to orders of the court. The High Court excluded the period from 13.07.2000 to 27.02.2004 (the period of injunction) in calculating the time limit for commencement of commercial production.3. Application of the Principle of Restitution:The High Court's decision was partly based on the principle of restitution, which aims to restore parties to their original position before an erroneous court order caused them loss. The principle is rooted in equity and aims to prevent unjust enrichment. The Supreme Court, however, found that the principle of restitution did not apply in this case because the State did not receive any unjust benefit or enrichment from the delay. The Court emphasized that restitution applies when a party has been unjustly enriched due to an erroneous court order, which was not the case here.4. Application of the Principle 'Actus Curiae Neminem Gravabit':The High Court also applied the principle 'actus curiae neminem gravabit,' which means an act of the court should not prejudice any party. The High Court reasoned that Essar should not lose the benefit of the Sales Tax Waiver Scheme due to the court's injunction. The Supreme Court, however, clarified that this principle applies when a court's order is rendered per incuriam (through lack of care) or is erroneous. In this case, the Supreme Court found that the High Court's injunction was not per incuriam and thus, the principle did not apply.Conclusion:The Supreme Court set aside the High Court's judgment, emphasizing that the exemption scheme must be construed strictly. Essar failed to meet the deadline for commercial production, and the High Court's adjustments to the exemption scheme were unwarranted. The principle of restitution and 'actus curiae neminem gravabit' did not apply as the State did not gain any unjust benefit, and the injunction was not per incuriam. The appeal was allowed, and the High Court's judgment was overturned.