SEZ Company & Director entitled to tax exemption under Kerala VAT Act

WAVES ELECTRONICS (P) LTD., P.I. CHACKO Versus GOVERNMENT OF KERALA, THE ASSISTANT COMMISSIONER SPECIAL CIRCLE (1), THE DY. COMMISSIONER (APPEALS) COMMERCIAL TAXES, ERNAKULAM.

WAVES ELECTRONICS (P) LTD., P.I. CHACKO Versus GOVERNMENT OF KERALA, THE ASSISTANT COMMISSIONER SPECIAL CIRCLE (1), THE DY. COMMISSIONER (APPEALS) ... Issues:
Applicability of exemption under Kerala Value Added Tax Act, 2003 to a Private Limited Company and its Managing Director situated in a Special Economic Zone.

Analysis:
The petitioners, a Private Limited Company and its Managing Director, sought a declaration that they are not liable to pay sales tax under the Kerala Value Added Tax Act, 2003 (VAT Act). The petitioners' unit, engaged in manufacturing electrical control systems in a Special Economic Zone, had been enjoying exemption from sales tax under the KGST Act, 1963. However, the VAT Act came into force in 2005, replacing the KGST Act. The petitioners believed they were eligible for exemption until 2011-12 based on a policy that exempted industrial enterprises in SEZs from tax for ten years. Despite the policy, no notification was issued granting the exemption, leading to assessment orders imposing sales tax on the petitioners.

The petitioners argued that the Government was bound to grant them the exemption promised in the policy. They relied on judgments emphasizing that once a benefit is announced, the Government must implement it, even if there is a delay in issuing the necessary notifications. The Government contended that the notifications providing the exemption under the KGST Act ceased to exist with the enactment of the VAT Act, and the policy could not be implemented without a corresponding notification under the VAT Act.

The Court noted that the Government had not filed a counter affidavit, and the policy in question had not been withdrawn. It held that the benefits ordered in the policy should be granted as per the declaration. The Court emphasized that the Government could not deny the benefit declared in the policy merely due to the absence of a notification. Referring to previous judgments, the Court reiterated that Government Departments are obligated to implement Government policies and cannot speak in two voices.

The Court ruled that the petitioners were entitled to the benefit of the exemption declared in the policy, clarifying that other aspects of the assessment orders were not considered in this judgment. It rejected the argument that the remedy for the petitioners was not under Article 226 of the Constitution, stating that statutory authorities could not address the petitioners' claim against the Government for policy implementation.

In conclusion, the Court declared that the petitioners should receive the exemption as per the policy, emphasizing the importance of implementing Government policies and honoring promises made to promote entrepreneurship and economic development.