2022 (7) TMI 918 - HC - VAT and Sales Tax

Petitioner denied VAT exemption on DTA sales under KVAT Act, promissory estoppel not applicable. Appeal rejected.

The court held that the petitioner was not entitled to exemption from VAT on Domestic Tariff Area (DTA) sales under the Kerala Value Added Tax (KVAT) Act. ... Levy of Sales Tax - deemed export to DTA - units in SEZs registered under the Kerala General Sales Tax Act 1963/VAT - entitlement to exemption from levy of sales tax because of the policy decision of the State Government declared for units established in SEZs in the State of Kerala - Sl. No.68 to the First Schedule of notification no. GO (P) No.179/99/TD dated 31.12.1999 - Doctrine of promissory estoppel - HELD THAT:-The writ petitioner, based on a promise in the form of a Policy document, did not establish the industry in CSEZ. On the contrary, in its pleading, it is averred that the writ petitioner established the industry in CSEZ in December 2002, i.e., prior to the Policy in Ext.P3. The Policy document and the exemption are dated 17.06.2003 and 13.02.2004. Between 01.04.2005 and 06.10.2008, there was no order of the State Government enabling the petitioner or similarly situated units to continue to claim the exemption granted from payment of sales tax by Ext.P3. The claim is invigorated with the amended Policy dated 06.10.2008 in Ext.P9. In this background, the petitioner claims declaratory relief. In Kasinka Trading v. Union of India [1994 (10) TMI 64 - SUPREME COURT] and Shabi Construction Co. v. City & Industrial Development Corporation [1995 (4) TMI 318 - SUPREME COURT], it has been considered whether promissory estoppel, which is based on a ‘promise’ contrary to the law, can be invoked. The decision laid down that the rule of promissory estoppel cannot be invoked for the enforcement of a ‘promise’ or a ‘declaration’ which is contrary to law or outside the authority or power of the Government or the person making that promise. Ext.P9 Policy grants exemption from payment of sales tax/VAT and the said Policy by itself is not an enforceable document since Ext.P9 envisages issuance of a notification for giving effect to the Policy decisions borne out by Ext.P9. It is at this juncture, that the absence of power for issuing exemption notification comes in the way of the declaratory relief sought by the petitioner. To say that the Government has the power to grant exemption from payment of VAT, and different departments in the Government have not acted in tandem and notification was not issued either for the continuation of benefit or extension of benefit, the State Legislature preferred to exercise discretion through legislation than by any mode in the matters of fiscal relaxation to units established in SEZ - The logic appears to be simple from the present mechanism, namely, to enable an SEZ located in the State to purchase raw materials etc., without the incidence of sales tax for achieving competitive prices for the products manufactured in the SEZ established in the State of Kerala. The declaratory relief as prayed for, on the Principle of Promissory Estoppel, is not made out or available to the petitioner. Appeal allowed - decided in favor of appellant. Issues Involved:1. Applicability of sales tax/VAT exemption on deemed exports to Domestic Tariff Area (DTA) for units in Special Economic Zones (SEZs).2. Validity of the Doctrine of Promissory Estoppel against statutory provisions.3. The impact of the Kerala Value Added Tax (KVAT) Act on previously granted exemptions under the Kerala General Sales Tax Act.Detailed Analysis:1. Applicability of Sales Tax/VAT Exemption on Deemed Exports to DTA:The primary issue raised by the petitioner (a company engaged in manufacturing electrical control systems in the Cochin Special Economic Zone) is whether sales tax can be levied on deemed exports to the Domestic Tariff Area (DTA). The petitioner claimed exemption based on the Kerala Special Economic Zone Policy dated 17.06.2003, which provided incentives including exemption from sales tax for units in SEZs. However, with the introduction of the KVAT Act in 2005, the petitioner was denied this exemption for the assessment years 2009-10 and 2010-11.The respondents argued that the KVAT Act, which replaced the Sales Tax Act, did not carry forward the exemptions previously granted. Section 6(7)(b) of the KVAT Act only exempts sales to SEZ units, not sales from SEZ units to DTA. The absence of a notification extending the exemption under the KVAT regime was a significant point of contention.2. Validity of the Doctrine of Promissory Estoppel Against Statutory Provisions:The petitioner invoked the Doctrine of Promissory Estoppel, arguing that the State Government was bound by its earlier policy promises and could not levy VAT on DTA sales. The respondents countered that promissory estoppel cannot override statutory provisions. The court considered precedents, including the Supreme Court's rulings in State of Punjab v. Nestle India Ltd. and Lloyd Electric and Engineering Ltd., which supported the application of promissory estoppel in certain circumstances.However, the court also noted that promissory estoppel cannot be applied to compel actions contrary to law or outside the authority of the government. The principle cannot be used to enforce a promise that contradicts statutory provisions, as established in cases like Kasinka Trading v. Union of India and Bangalore Development Authority v. R Hanumaiah.3. Impact of the KVAT Act on Previously Granted Exemptions:The court examined whether the exemptions granted under the Sales Tax Act continued to be valid under the KVAT Act. The KVAT Act, effective from 01.04.2005, did not include provisions for extending the exemptions granted under the Sales Tax Act. Section 32(1) of the KVAT Act explicitly states that exemptions granted under the Sales Tax Act ceased to exist with the commencement of the KVAT Act, except for deferment of tax payable.The court found that the petitioner's claim for continued exemption based on the 2003 policy and the 2004 notification was untenable under the KVAT regime. The absence of a statutory notification under the KVAT Act meant that the petitioner could not legally claim the exemption.Conclusion:The court concluded that the petitioner was not entitled to exemption from VAT on DTA sales under the KVAT Act. The Doctrine of Promissory Estoppel could not be invoked to override statutory provisions. The judgment under appeal, which granted declaratory relief based on promissory estoppel, was set aside. The writ appeal was allowed, and the petitioner's claim for exemption was denied.