TaxTMI 
TaxTMI 
2006 (5) TMI 177
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore. The appellant-company set up a soft drink manufacturing unit in Jammu. The claim of the appellant was negatived by the State Government, which led to the filing of two writ petitions before the High Court of Jammu and Kashmir. A learned single Judge of the High Court dismissed the writ petitions holding that the petitioner was not entitled to the incentives claimed under the aforesaid Industrial Policy, as it did not validly acquire the status of a "prestigious unit". Aggrieved thereby the appellant preferred a Letters Patent Appeal which was dismissed in limine by the judgment and order of the High Court dated October 4, 2004. To appreciate the issues involved, it would be necessary to notice the background facts giving rise to this controversy. The facts are as under: Pursuant to the cabinet decision of May 15, 1998, sanction was accorded to the new Industrial Policy 1998-2003 as per annexures "A" and "B" to the package of incentives appended to G. O. No. 202 IND of 1998, dated May 27, 1998. A package of incentives was offered for the development of large/ medium/small and tiny industries in the State of Jammu and Kashmir. Paragraph 6 of G. O. No. 202 of 1998 provided that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....have the option to avail a power tariff freeze at the rate of Rs. 1.50 per unit for a period of five years from the date of commercial production. For purposes of paras 7, 8, 9 and 10 above, all the new units shall also have the option to count the period of 5 years from the date of production or from the succeeding financial year." On August 20, 1998, a notification was issued by the Government of Jammu and Kashmir exempting "prestigious units" from payment of general sales tax and Central sales tax for a period of 5 years from the date of production or until such amount of exemption reaches the level of 150 per cent of capital investment in the project, whichever occurs earlier. The notification is reproduced below for the sake of convenience: "S.R.O. No. 247. In exercise of the power conferred by section 5 of the Jammu and Kashmir General Sales Tax Act, 1962 (XX of 1962), and read with sub-section (5) of section 8 of the Central Sales Tax Act, 1956 (Act No. 74 of 1956), the Government of Jammu and Kashmir hereby direct that the prestigious units, i.e., those having capital investment of Rs. 25 crores or above, shall have the option to avail of full exemption from payme....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the company should be given the benefit of incentives. A memorandum of understanding (for short, "MOU") for this purpose had to be executed by and between Jammu and Kashmir SIDCO and the appellant-company. The proposal had the concurrence of the Finance Minister whereafter a memorandum was submitted to the Cabinet which was approved vide Cabinet decision No. 7/2 dated January 19, 2000. Accordingly, SIDCO, respondent No. 7, signed a MOU with the appellant- company on the above lines. The MOU signed on February 1, 2000, recites the fact that the appellant- company had applied to the State Government to give permission to set up a soft beverages bottling plant and that the State Government had agreed to grant permission to it and authorize its nodal agency respondent No. 7 SIDCO to enter into a memorandum of understanding. It is also noticed that the unit proposed to be set up by the appellant involved capital investment of around Rs. 27.50 crores. The other relevant parts of the MOU read as under: "And whereas the State Government has agreed to grant incentives and subsidies to JBPL which are applicable to the prestigious units as per new Industrial Policy (1998-2003) right from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stigious units" in pursuance of the Industrial Policy as published on May 27, 1998, from the date of the commercial production. Pursuant to the MOU, on February 17, 2000, the SIDCO executed a deed of lease in favour of the appellant-company granting to it leasehold rights in respect of land measuring 133.6 kanals for a period of 90 years. On April 25, 2000, the SIDCO issued a certificate to the effect that the appellant was entitled to avail of incentives as a prestigious industry from the date of its commercial production in accordance with the Industrial Policy 1998-2003. The certificate reads as under: "TO WHOMSOEVER IT MAY CONCERN This is to certify that a memorandum of understanding has been signed by Jammu and Kashmir State Industrial Development Corporation (SIDCO) with M/s. Jai Beverages P. Ltd. (JBPL) to set up a bottling plant having an installed capacity of 800 BPM with a capital investment of more than 25 crores. This is pursuant to the cabinet decision No. 7.2 dated January 10, 2000. As per memorandum of understanding, executed with Jammu and Kashmir SIDCO on February 1, 2000, JBPL will avail of incentives as prestigious industry right from the date of commercial p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tember 30, 2000, failing which they will refund the incentives availed of with interest. The S.R.O. 247 dated August 20, 1998, issued vide No. FD/ST/163/98 governing release incentives to prestigious units reads as under: 'The Government of Jammu and Kashmir hereby direct that the prestigious unit, i.e., having capital investment of Rs. 25 crores or above shall have the option to avail of exemption from payment of general sales tax/Central sales tax for a period of 5 years from the date of production or until such amount of exemption reaches the level of 150 per cent of capital investment of the project whichever occurs earlier.' In the light of the above JBPL is entitled to avail of incentives as a prestigious unit from the date of commercial production. (Devinder K. N.) IAS Director of Industries and Commerce, Jammu and Kashmir Government, Srinagar." By order of December 12, 2000, the Director of Industries and Commerce, Government of Jammu and Kashmir, declared the appellant-unit a "prestigious unit". The relevant part of the order is as follows: "Whereas M/s. Jai Beverages P. Ltd. have submitted a certificate from the chartered accountants M/s. O. P. Bagla and Co., Kal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt authority had not agreed to grant exemption from payment of sales tax/toll tax to the appellant. Aggrieved thereby, the appellant filed the first writ petition before the High Court being OWP No. 613 of 2002 praying for quashing of the letter dated July 4, 2002, and for issuance of a writ of mandamus commanding the respondents to allow exemption from payment of sales tax and toll tax to the appellant in respect of its prestigious industrial unit in accordance with the Government order dated May 27, 1998, S.R.O. No. 247 dated August 20, 1998, and MOU dated February 1, 2000. The appellant also prayed for other ancillary reliefs. On October 25, 2002, a communication was issued by the Department of Industries and Commerce to the effect that the orders issued by the Directorate of Industries and Commerce according prestigious status to the units named therein had been kept in abeyance till the cases were considered by the competent authority, i.e., State Level Committee-I. One of the units mentioned therein is that of the appellant. This decision of the Government was also challenged before the High Court in OWP No. 1166 of 2002. Both the writ petitions were heard together and dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s or more, it was granted the status of a "prestigious unit" and was eligible for the incentives available to a "prestigious unit". The appellant had invested a sum of over Rs. 27 crores within the period prescribed in the memorandum of understanding and, therefore, it was entitled to be regarded as a "prestigious unit". So far as the negative list was concerned, it was the case of the appellant herein that the negative list was only applicable to medium and large scale industrial units and not to "prestigious units" having a capital investment of Rs. 25 crores or more. It was also submitted that the decision to enter into a memorandum of understanding was taken at the highest level, namely, at the cabinet level, and the period for making the investment of Rs. 25 crores or more was prescribed in the said memorandum of understanding, factually it could not be disputed that by September 30, 2000, the investment made by the appellant was more than Rs. 27 crores. The appellant had, therefore, fulfilled all the conditions laid down by the Government for acquiring the status of a "prestigious unit". Necessary certificates had been issued by the concerned departments of the Government an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in limine by order dated October 4, 2004. Having regard to the facts and circumstances of the case and the findings recorded by the High Court, principally two questions fall for our consideration. Firstly, whether the industrial unit set up by the appellant fulfilled all the necessary conditions for being declared a "prestigious unit". In this connection it has to be considered whether the appellant had made the necessary investment of Rs. 25 crores or more within the period prescribed. Secondly, whether the negative list appended to S.R.O. No. 249 applies to "prestigious units" as well. If it is held that the industrial unit set up by the appellant fulfilled all the conditions of eligibility for being considered to be a "prestigious unit", and if the negative list appended to S.R.O. No. 249 is not applicable to the "prestigious units", it must follow that the appellant is entitled to the package of incentives promised to the "prestigious units" under the notifications issued by the State pursuant to its Industrial Policy. It is not of much consequence as to whether the declaration, that the industrial unit set up by the appellant is a "prestigious unit", was issued by the SIDCO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayable, equivalent to 150 per cent of the total capital investment made by the unit or for a period of 5 years from the date of production whichever occurs earlier subject to the conditions specified therein. It is not necessary for us to notice the conditions specified therein, but the proviso to paragraph 6 of the notification is to the effect that the exemptions granted under S.R.O. No. 249 shall not apply to goods specified in the Schedule. Thus no exemption was permissible to medium and large scale industrial units for the manufacture of goods mentioned in the Schedule, which includes "soft drinks". It was, therefore, submitted by Mr. Venugopal that the negative list contained in S.R.O. No. 249 is applicable only to "medium and large scale industrial units" and not to "prestigious units" contemplated by S.R.O. No. 247. Both the S. R. Os., namely, 247 and 249, were issued on the same date, i.e., August 20, 1998. Whereas S.R.O. No. 249 contains the negative list and confines its application to medium and large scale industrial units, there is no such limitation in S.R.O. No. 247. Moreover annexure "B" to Government Order No. 202 of 1998, particularly paragraphs 8 and 9 thereof r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ory of medium or large scale industrial unit. Therefore, it was not reasonable to exclude the "prestigious units" while applying the negative list to medium and large scale industrial units. The submission is not tenable. This is a matter of policy, and if the Government decides as a matter of policy to treat the "prestigious units" on a different footing than medium and large scale industrial units, the courts will not interfere unless it is shown that there is something arbitrary or unreasonable in such classification. A large industrial undertaking provides greater employment opportunities and makes a large contribution to the State exchequer by way of revenue, and this may very well be a reason for according a special status to "prestigious units". It is worth noticing that while the Government's Industrial Policy deals with tiny, small, medium and large scale industrial units, the negative list is made applicable by S.R.O. No. 249 only to medium and large scale industrial units. Obviously tiny and small-scale industrial units have been excluded so far as S.R.O. No. 249 is concerned. Under paragraphs 8(i) and 8(ii) of G. O. No. 202 of 1998, the negative list is made applicable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndustrial unit set up by the appellant qualifies as a "prestigious unit" in terms of S.R.O. No. 247 dated August 20, 1998. We have earlier reproduced the aforesaid notification. The notification contemplates a "prestigious unit" as being one which has a capital investment of Rs. 25 crores or more. Neither the aforesaid notification nor the Industrial Policy itself prescribes the date by which the investment of Rs. 25 crores must be made. It is not the case of the State that if the commercial production commenced by September 30, 2000, by which date Rs. 27 crores and odd had been invested, the unit set up by the appellant would not have been entitled to be reckoned as a "prestigious unit". The objection taken is that on the date of the unit coming into production, the investment was below Rs. 25 crores, though the investment was to the tune of over Rs. 27 crores by September 30, 2000. It will be seen from the memorandum of understanding that the appellant was to start manufacture of soft beverages in the existing built up accommodation by the end of March, 2000, and complete the minimum capital investment of Rs. 25 crores or more latest by September 30, 2000. Mr. Rohtagi, learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the Government took this decision after full discussion on all aspects of the matter, and in particular by reference to the date by which the appellant was required to invest Rs. 25 crores in the industrial unit being set up by it. The State cannot be permitted to ignore its own conscious decision to permit the appellant to invest a sum of Rs. 25 crores or more by September 30, 2000. The appellant acted on the basis of the decision taken by the State Government and incorporated in the memorandum of understanding. The fact that Rs. 25 crores were invested by September 30, 2000, was not disputed in the several counter-affidavits filed before the High Court. In view of the voluminous evidence on record the State cannot dispute the fact that a sum of over Rs. 27 crores was invested by the prescribed date, i.e., by September 30, 2000. In this background, the State cannot be allowed to say that the incentives cannot be extended to the industrial unit set up by the appellant because the amount of Rs. 25 crores or more was not invested by the date the unit went into commercial production, though the amount of Rs. 27 crores was invested within the period prescribed by the Government a....