TaxTMI 
TaxTMI 
2009 (5) TMI 529
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....rala for manufacturing soft drinks under the brand name "Pepsi". Such a decision was taken purported to be relying on or on the basis of a policy decision taken by the State of Kerala to grant exemption from payment of sales tax with a view to attract more investment in the State. The said policy decision was issued by way of a Notification bearing S.R.O. No. 1729 of 1993 issued under section 10 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to for the sake of brevity as, "the said Act") providing for exemption to new industrial units set up in the State of Kerala, the relevant clauses whereof read as under: "4. In the case of new industrial units under medium and large scale industries, there shall be an exemption for a period of seven years from the date of commencement of commercial production- (a) in respect of the tax payable by such units under the Kerala General Sales Tax Act, 1963- (i) on the turnover of sale of goods manufactured and sold by them within the State; and (ii) on the turnover of goods, taxable at the point of last purchase in the State, which are used by such units for manufacturing other goods for sale within the State or inter-St....
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....e sector are eligible for exemption from sales tax, purchase tax, surcharge and Central sales tax for a period of seven years, up to aggregate financial limit of up to 100 per cent of the value of fixed capital investments of the unit. Soft drinks has been notified as a thrust industry in the list of food processing industries notified by the Government. We request your confirmation that the proposed greenfield unit, which will be set by the company directly, or through a nominee entrepreneur, will be eligible for sales tax exemption. 2.. Allotment of land for setting up new unit In our discussions with the honourable Finance Minister and the State Industries Development Corporation, we were assured that the Government would speedily allocate land (approximately 25 to 30 acres) with adequate water supply, power, etc. in Kerala. The preferred location for us is Walayar or Kanjikode. Kindly confirm that we can get possession of land within four weeks, as we propose to put up the plant in nine months from the date of land allocation." A meeting took place by and between the representatives of the appellant and the authorities concerned. By a letter dated May 12, 1999, the Kerala....
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....industrial unit at Kanjikode in the district of Palakkad on Decem-ber 28, 1999. For the aforementioned purpose, a sum of Rs. 2,77,64,000 towards the amount of consideration for acquisition of the said land was paid on December 24, 1999 by a demand draft. It furthermore took steps for procurement of machinery, etc., being: (a) Filed IEM with SIA vide SIA ACK/2655/SIA/IMO/1999 dated December 28, 1999. (b) Obtained the necessary consent from the Kerala State Pollution Control Board on December 20, 1999. (c) Placed firm orders for supply of large number of plant and machinery and in some cases made advance payments through cheques. The fact that in cases where advance payments were made, the payment was credited prior to January 1, 2000 which was confirmed by Deutsche Bank by their letter dated September 29, 2000. This included the following, apart from several others: -Pet conveyor systems on December 28, 1999. -Blow moulder, including installation and commissioning thereof, on December 20, 1999. -Paramix plant, deaeration plant, mixing plant, beverage chilling plant, carbonation plant and switch and control unit and frame on December 28, 1999. The aforemention....
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....mmences commercial production on or before the 31st day of December, 2001'. (ii) in sub-clause (iii), for the words, figures 'acquired necessary plant and machinery' and equipment before the first day of January 2000, provided that such units 'commences commercial production under such diversification, expansion or modernization on or before the 31st day of December 2000', the following shall be substituted, namely:- '(a) or acquired necessary plant and machinery and/or equipment or (b) has owned or acquired or has been allotted land and has applied for loan from any regular financial institution and/or (c) has placed firm orders for the purchase of such plant and machinery and equipments before the 1st day of January 2000 provided that such unit commences commercial production of such diversification, expansion or modernization on or before the 31st day of December, 2001. A unit shall be deemed to have placed firm orders for the purchase of plant, machinery and equipment if such unit had made any advance payments therefor by means of demand draft or cheque which has been credited to the account of the seller prior to 1st January, 2000. The onus of proving that an industri....
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..... It is made clear that exhibit P7 order will be subject to the orders passed by the second respondent on exhibit P6 application. Till such time orders are passed by the second respondent, interim order passed by this court will continue." Pursuant thereto or in furtherance thereof, the matter was placed before the Special Secretary (Taxes) who by reason of a letter dated November 15, 2001 addressed to the Commissioner of Commercial Taxes clarified that the appellant was eligible for grant of sales tax exemption. The Principal Secretary (Industries) also wrote a letter to the Director of Industries and Commerce on or about December 21, 2001 reconfirming that it was eligible for sales tax exemption. Yet again, the said authority by a letter dated July 25, 2002 informed the Director of Industries and Commerce stating that the term "necessary plant and machinery" need not be the entire plant and machinery and further that the appellant could be held to have taken effective steps as per the said notifications. The Director of Industries and Commerce, however, could not pass an appropriate order in terms of the direction of the learned single judge and sought for an extension w....
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....he appellant being O.P. No. 8563 of 2003 Reported as Pepsico India Holding Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker).. In coming to its conclusion, the learned judge took into consideration the averments contained in paragraphs 6, 7, 8, 9, 12 and 13 of the counter-affidavit filed on behalf of the State that the appellant had not complied with the essential conditions for grant of exemption from payment of sales tax as advance payment in the specified manner had not been made by it before January 1, 2000 having regard to the fact that the notification required such payments in respect of "necessary plant and machinery and/ or equipments" and not to any or "certain or a small portion of the plant and machinery necessary for the project", to hold: "31. The latter part of sub-clause (iii) which is applicable to sub- clauses (ii) and (iii) alike is a deeming provision as per which if any advance payments are made by means of demand drafts or cheque for the purchase of plant, machinery and equipments which have been credited to the account of the seller prior to January 1, 2000, it shall be deemed that firm orders have been placed by the unit for the purchase of such pl....
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....rned judge furthermore opined that the doctrine of promissory estoppel shall be applicable in a case of this nature. Respondents preferred a writ appeal thereagainst which was dismissed by the Division Bench of the said court by an order dated June 15, 2004 Reported as State of Kerala v. Pepsico India Holding Pvt. Ltd. [2006] 144 STC 442. A Special Leave Petition being S.L.P. No. 17308 of 2004 filed there against has also been dismissed. The Director of Industries and Commerce thereafter granted an eligibility certificate to the appellant stating that it was also eligible for grant of sales tax exemption. Despite the same, however, the Deputy Commissioner (General) Commercial Taxes denied the grant of benefit of sales tax exemption on the premise that it had failed to take effective steps in terms of the relevant notifications by an order dated January 5, 2007. Another writ petition being W.P. (C) No. 3115 of 2007 was filed by the appellant. By an order dated November 30, 2007 Reported as Pepsico India Holdings Pvt. v. State of kerala [2009] 20 VST 433 (Ker)., the said writ petition was dismissed. An intra court appeal preferred thereagainst has been dismissed by reason....
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.... as Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker)., the writ appeal and the special leave petition whereagainst were dismissed, the State could not have taken a contrary stand. (iv) The State having regard to the promises made to the appellant pursuant whereto it altered its position was bound thereby. (v) The amended notifications and in particular the notification dated March 31, 2000 being benevolent ones, the same should have been construed liberally. (vi) Appellant, pursuant to or in furtherance of the promise, having not collected any tax from its consumers, a purposive interpretation to the said notification should have been rendered by the High Court. Mr. Dushyant Dave, learned Senior Counsel appearing on behalf of the respondents, on the other hand, would contend: (i) A finding of fact having been arrived at by the authorities that the appellant had not placed firm orders of necessary plant and machinery within the meaning of the provisions of exemption notification which having been affirmed by both the learned single judge as also the Division Bench of the High Court, no interference therewith is warranted. (ii) The judgme....
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....axes, the Director of Industries and Commerce was the appellate authority; on the other, the latter's decision was made subject to the ultimate grant of exemption by the former. The effect of such a dichotomy merits serious consideration. It stands admitted that the contention raised by the respondents herein in the first round of litigation that the investment in the plant and machinery must be substantial was for all intent and purport rejected. Interpreting clauses (a), (b) and (c) of the notification, it was held that the conditions imposed thereby are not absolute. Clauses (b) and (c) of the notification were read together. It was furthermore held that the term "any" referring to advance payment is linked up with all the clauses. The said writ application had to be filed by the appellant as the Director of Industries refused to grant the eligibility certificate in its favour. The Deputy Commissioner (General), Commercial Taxes was a party thereto. It has been stated before us that he had not filed any affidavit in the said proceedings. Only the Director of Commerce and Industries did. Even the special leave petition was filed by the Industries Department and not by th....
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....ecessary plant and machinery required for starting commercial production in the unit. It, therefore, shows that plant and machinery costing Rs. 3105.13 lakhs were not paid of any advance to machinery suppliers prior to January 1, 2000 and they all were acquired on different dates after January 1, 2000. During May 2000, amendments were made by the unit in the earlier placed purchase orders to accommodate in the purchase/ supply orders additional machineries as well as items varying in specifications/with different capacities than the particular ones for which orders were placed prior to January 1, 2000. As per this amendment, the total value of the machinery for which the advance payment was made changes from Rs. 105 lakhs to Rs. 285.80 lakhs. It shows that final 'firm orders' even for the items for which advances were paid prior to January 1, 2000 were placed (along with firm orders for certain new items) only on different dates in May 2000. This may be kept in mind while proceeding further, if found necessary." The Deputy Commissioner (General), Commercial Taxes reopened the entire issue. He, despite the fact that the contention of the State raised in O.P. No. 8563 of 2003 R....
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....e said notification to the four categories mentioned in paragraph 21 supra. These exceptions, as already noted, are based on the principle of promissory estoppels as considered by the Supreme Court in Mahaveer Oil Industries' case [1999] 115 STC 29. The circumstances under which a unit can be considered to have taken effective steps were incorporated in Notifications S.R.O. Nos. 1092 of 1999 and 295 of 2000 only as a measure to help the units which have taken effective steps for setting up the industrial unit based on Notification S.R.O. No. 1729 of 1993. I have also observed that the notification itself gives sufficient clues regarding the meaning to be given to the expression 'have taken effective steps' in paragraph 33 supra. According to me sub-clauses (ii) and (iii) of clause 1 of Notification S.R.O. No. 1092 of 1999 as amended by Notification S.R.O. No. 295 of 2000 have to be considered and understood in the above background. If the latter part of sub-clause (iii) of clause 1 of Notification S.R.O. No. 1092 of 1999 inserted by Notification S.R.O. No. 295 of 2000 is understood in the above background, the use of the expression 'any' preceding the expression 'advance payments' ....
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.... (2) That at any rate, the petitioner had taken effective steps for setting up a new industrial unit prior to the first day of January, 2000, being a self-financing unit it had placed firm orders for the purchase of necessary plant and machinery before January 1, 2000. It has commenced commercial production before December 31, 2001. (3) The finding in exhibit P24 that the activity carried on by the petitioner does not tantamount to manufacture is fundamentally erroneous." We are herein concerned with contention Nos. 1 and 2. So far as contention No. 1 is concerned, he determined the said question in paragraph Nos. 21 to 32, inter alia, stating: "24.... Should the certificate of eligibility issued by the competent authority necessarily be a certificate of exemption. Firstly, clause 10(d) states that the eligibility certificate referred to in clause (b) shall contain the date of commencement of commercial production and the monetary limit of exemption the unit is eligible for. In my view clause 10(d) indicates what should necessarily be contained in the eligibility certificate issued under clause 10(b). This therefore could also be indicative of the parameters of the auth....
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.... (v) Exhibit P24 is therefore upheld subject to the finding in para (i) above, viz., the activity carried on by the petitioner in its unit for the production of soft drinks is a manufacturing activity within the meaning of S.R.O. No. 1729 of 1993." It was opined: "... In my view exhibit P2 judgment See [2006] 144 STC 409 (Ker). obviously cannot be con- strued as conferring authority on the second respondent to decide the question of eligibility entitlement of the petitioner for sales tax exemption. If the direction issued in exhibit P2 judgment See [2006] 144 STC 409 (Ker). is construed in such a fashion, it will amount to altering the scheme for tax exemption as provided in the statutory application." Although a contention has been raised before us that despite opportunities granted, the appellant had not adduced the additional evidence to establish compliance of the conditions precedent for grant of eligibility certificate, it has not been denied or disputed that even in the first round of litigation, the requisite documents formed part of the writ petition. The Deputy Commissioner (General), Commercial Taxes, therefore, in our opinion, even it be assumed that he was ....
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....achineries by means of demand draft or cheques and the same has been credited to the account of the seller prior to the first day of January, 2000. It is also of some significance to notice that the exemption notification appears to have been drafted having regard to the decision of this court in State of Rajasthan v. Mahaveer Oil Industries [1999] 4 SCC 357 See [1999] 115 STC 29 (SC). . A comparative chart placed before us by Mr. Billimoria may be noticed: Mahaveer oil See [1999] 115 STC 29 (SC). This court's observation Notification No. 1092 of 1999 as amended The respondent-firm got its provisional registration certificate on February 15, 1990 This is merely a provisional registration issued by the Directorate of Industries Mere registration would be good enough for SSI units. They applied for allotment of land and land was allotted to them by RICO Limited, by its letter dated February 19, 1990. Possession of the land was handed over on March 7, 1990 and lease agreement was executed in March, 1990. For this land a very small amount was paid If you bought or were allotted land and had merely applied for a loan from a regular financial institution/Government, ....
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....d not consider this aspect of the matter. Although payment of advance in respect of some machinery and plant would subserve the requirements for the purpose of obtaining the eligibility certificate, the learned single judge read the word "any" to be synonymous to the word "all", whereas the Division Bench considered it to be "substantial". It is in that view of the matter the opinion of the learned single judge in O.P. No. 8563 of 2003 Reported as Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker). assumes importance wherein, as noticed hereinbefore, it was categorically held See page 431 of [2006] 144 STC.: "... Regarding the third situation, it is stated that a unit shall be deemed to have placed firm orders for the purchase of plant, machinery and equipment if such units had made any (emphasis supplied) The aforementioned comparative chart throws a light on the legislative intent and deliberate dilutions of the rigours as to what effective steps would merit consideration of the application for grant of exemption by an entrepreneur. It is also of some significance that the said notification was withdrawn by a notification dated Decembe....
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.... well known that even a right under a mandatory provision can be waived. (See Babulal Badriprasad Varma v. Surat Municipal Corporation).See [2008] 12 SCC 401; [2008] 8 SCALE 206. If it had made a representation pursuant whereto or in furtherance whereof a consumer of electrical energy had altered its position, the doctrine of promissory estoppel shall apply. The doctrine of promissory estoppel, it is now well-settled, applies also in the realm of a statute." An exemption notification and a notification withdrawing the benefit granted would, however, stand on different footings. For the said purpose, the industrial policy is required to be kept in mind. It must also be taken into consideration for the purpose of construing the exemption notification. In A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala [2007] 2 SCC 725, this court held: "32. The general principles with regard to construction of exemption notification are not of much dispute. Generally, an exemption notification is to be construed strictly, but once it is found that the entrepreneur fulfils the conditions laid down therein, liberal construction would be made. ... 34.. A question as to whether, in a gi....
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....fication as required by the statute was issued, the State Government cannot resile from its decision to exempt milk and raise a demand for the aforesaid assessment year. However, the same principle of estoppel was not invoked after assessment year 1996-97. The court enforced the principle of estoppel. All the earlier cases on the subject were reviewed by the court and ultimately it was concluded as follows: (SCC pages 481-82, para 47 See page 56 of [2004] 136 STC, para 47) '47. The appellant has been unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against the State Government. The representation was made by the highest authorities including the Finance Minister in his budget speech after considering the financial implications of the grant of the exemption to milk. It was found that the overall benefit to the State's economy and the public would be greater if the exemption were allowed. The respondents have passed on the benefit of that exemption by providing various facilities and concessions for the upliftment of the milk producers. This has not been denied. It would, in the circumstances, be inequitable to allow the St....