Court restores Certificate of Entitlement, deems cancellation illegal. Refund directed, promissory estoppel applied.

The court quashed the order canceling the Certificate of Entitlement, restoring it due to the retrospective cancellation of the registration certificate being deemed arbitrary and illegal. The government was directed to calculate the refund owed to the petitioners up to the registration certificate's cancellation date and offset it against outstanding tax liabilities. The court emphasized the application of promissory estoppel, obligating the government to honor commitments made under the textile policy, and stressed interpreting policy provisions liberally to achieve policy objectives.

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Issues Involved:
1. Retrospective cancellation of the Certificate of Entitlement.
2. Non-disbursement of refund under the Gujarat Textile Policy.
3. Compliance with the conditions of the Gujarat Value Added Tax Act (GVAT Act).
4. Financial hardship due to delayed refunds and tax liabilities.
5. Validity of the cancellation of the registration certificate.
6. Application of the principle of promissory estoppel.
7. Interpretation of the Gujarat Textile Policy and related notifications.

Detailed Analysis:

1. Retrospective Cancellation of the Certificate of Entitlement:
The petitioners challenged the retrospective cancellation of their Certificate of Entitlement, arguing that it was arbitrary and illegal. The court noted that the cancellation was based on the alleged tax arrears, which were a result of the government's inaction in releasing the refund due under the textile policy. The court found that the cancellation order dated 12.12.2017 suffered from non-application of mind and was based on incorrect facts, making it unsustainable.

2. Non-disbursement of Refund under the Gujarat Textile Policy:
The petitioners argued that they were entitled to a refund under the textile policy, which was not released timely by the Industries and Finance Departments. The court observed that the petitioners had made substantial investments based on the government's promise of timely refunds. The court emphasized that the government is bound by the principle of promissory estoppel and cannot resile from its promise without gross prejudice to public interest.

3. Compliance with the Conditions of the GVAT Act:
The respondents contended that the petitioners had breached the conditions under the GVAT Act by not paying the tax dues. The court noted that the petitioners' inability to pay the tax dues was due to the non-release of the refund by the government. The court held that the government cannot use such default to deny the benefit of the incentive scheme, especially when the breach occurred due to the government's inaction.

4. Financial Hardship Due to Delayed Refunds and Tax Liabilities:
The petitioners faced severe financial hardship due to the delayed refunds and the tax liabilities imposed on them. The court acknowledged the petitioners' financial difficulties and noted that the government's failure to release the refund had exacerbated their situation. The court directed the respondents to work out the refund amount due to the petitioners and adjust it against the outstanding tax dues.

5. Validity of the Cancellation of the Registration Certificate:
The petitioners' registration certificate was canceled prospectively from 1.6.2016. The court found that the retrospective cancellation of the Certificate of Entitlement based on the prospective cancellation of the registration certificate was mechanical, arbitrary, and illegal. The court quashed the order canceling the Certificate of Entitlement and restored it.

6. Application of the Principle of Promissory Estoppel:
The court applied the principle of promissory estoppel, holding that the government is bound by its promise to grant incentives under the textile policy. The court cited the Supreme Court's decision in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, emphasizing that the government cannot resile from its promise if the promisee has altered their position based on that promise.

7. Interpretation of the Gujarat Textile Policy and Related Notifications:
The court held that the provisions of the textile policy and the notifications issued thereunder should be read liberally to further the objectives of the policy. The court cited the Supreme Court's decision in State of Jharkhand v. Tata Cummins Ltd., stating that exemption notifications under an industrial policy should be read liberally, keeping in mind the policy's objectives.

Conclusion:
The court allowed the petition to the extent that the impugned order dated 12.12.2017 was quashed and set aside, and the Certificate of Entitlement was restored. The respondents were directed to work out the refund amount due to the petitioners till the date of cancellation of the registration certificate and adjust it against the outstanding tax dues. The court emphasized the need for a balanced approach to ensure that the government recovers its dues while allowing the petitioners to continue their business.

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