TaxTMI 
TaxTMI 
2010 (7) TMI 921
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....d to avail of sales tax deferment for its project of expansion, modernisation and diversification of the petitioner's plant-which were programmed under what was termed as phase I and phase II, spread over the period 1994-2006. The base tax liability fixed was in a sum of Rs. 4.44 crores per annum. The petitioner however, envisaged a further expansion and modernisation of their existing unit and therefore, had approached the State Government for the grant of fresh incentives and concessions. The Government, by its order, dated April 26, 2000 granted the request. The said further expansion was identified by the petitioner as phase III. The Government of Karnataka had, pursuant to the order dated April 26, 2000, issued a notification dated June 5, 2000, extending the deferment of the taxes payable under the KST Act, in respect of the goods manufactured and sold by the petitioner in respect of phase III of the petitioner's plant for a period of twelve years from 2002 to 2014 subject to certain restrictions and conditions enumerated therein. And on similar terms, by another notification also dated June 5, 2000 extended the deferment of tax payable under the CST Act in respect....
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....of that State. It is contended that with the above amendment, if a dealer were to effect the inter-State sale of goods of the description referred to above, the rate of tax was at the rate of three per cent, with effect from April 1, 2007. Whereas, the rate of tax prior to that date was at four per cent. And according to the recommendations of the Empowered Committee on value added tax, the rate of tax payable under the CST Act would be progressively reduced by one per cent every year resulting in a Nil rate of tax as at April 1, 2010. Further in order to compensate any loss of revenue that the States would suffer, as regards collection of tax under the CST Act, a package was formulated to compensate the losses suffered by the States, by the Union Government. It is contended that the petitioner is entitled to the deferment of payment of tax both under the KST and the CST Acts for the period 2002-14 in respect of phase III of its project. The base tax liability, as already stated, under the Government order dated April 26, 2000, as amended from time to time, was to continue at Rs. 4.44 crores per annum for the period 2002-06. However, with effect from the date of commiss....
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....le to retain any amount by way of taxes under the CST Act. In the result, there is no incentive, in the form of taxes collected by the petitioner. The objective under the Government order dated April 26, 2000 is now illusory. Ironically, though the State Government is compensated for the loss of revenue suffered by it under the CST Act, the incentive which prompted the petitioner to make huge investments, is taken away. Faced with the above situation, a request was made vide letter dated June 23, 2007 to the Department of Finance, to modify the Government order dated April 26, 2000, by reducing the base tax liability consequent upon the reduction in the rate of tax payable under the CST Act. A request was also made to grant an interest-free sales tax loan to the extent of reduction insofar as liability under the CST Act as regards the expanded capacity of the petitioner's unit. The petitioner had also sought for a personal hearing before any order was made. However, the Department of Finance had, without affording a hearing to the petitioner, informed the Commissioner of Commercial Taxes that the request of the petitioner was rejected-in the following terms: "tax reforms ....
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....ales Tax v. Industrial Coal Enterprises [1999] 114 STC 365 (SC), (f) Panchalingal Carbonic Gas Pvt. Ltd. v. State of Andhra Pradesh [2005] 141 STC 161 (AP)[FB] (g) State of Jharkhand v. Tata Cummins Ltd. [2006] 145 STC 340 (SC) (h) Assistant Commissioner (CT), LTU v. Amara Raja Batteries Ltd. [2009] 24 VST 536 (SC). That from a reading of the above judgments, the principle of law that may be stated is that, while construing a provision granting exemption from taxation the ultimate object in providing the incentive becomes relevant and would have to be gathered from an overall conspectus of the scheme. Also, an exemption notification must be construed having regard to the purpose and object with which the notification seeks to achieve and an interpretation which makes the exemption illusory and has the effect of giving by one hand and taking away by the other should be avoided. It is contended that the Government order dated April 26, 2000 has fixed the base tax liability at Rs. 8.84 crores or Rs. 4.44 crores plus average tax liability of three years prior to September 2006, over and above Rs. 4.44 crores, whichever was higher. This being at a time when the rate of ta....
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....x shall be allowed on purchase of goods, specified in clauses (5) and (6) of subsection (a) of section 11, to the extent of the input tax charged at a rate higher than four per cent or any lower rate as may be notified by the Government." It is contended that pursuant to the progressive reduction of tax payable under section 8(1) of the CST Act, the Government of Karnataka issued notifications, reducing the notified rate prescribed under section 14 of the Act in tandem, with the notifications issued under the CST Act, which reads as follows: "Notification No. FD 507 CSL 2007(IX), Bangalore, dated 1st April, 2008 Karnataka Gazette, Extraordinary No. 328, dated April 1, 2008 In exercise of the powers conferred by section 14 of the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004), read with section 21 of the Mysore General Clauses Act, 1899 (Mysore Act III of 1899) and in supersession of the Notification No. FD 507 CSL 2007 (IV), dated 24th March, 2008, published in the Karnataka Gazette, Extraordinary, dated 24th March, 2008, the Government of Karnataka hereby notifies that deduction of input tax shall be allowed on purchase of goods specified in clauses (5) and (....
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....-2014 by Government order subject to the condition that the petitioner pays sales tax of Rs. 4.44 crores plus average tax liability of three years prior to commission of phase III of expansion program or Rs. 8.84 crores per annum whichever is higher. When phase III was commissioned, the base sales tax liability, was worked out at Rs. 11.21 crores per annum as per the Government order dated April 26, 2000 read with notification dated June 5, 2000 and connected Government orders and notifications. It is also contended that as a result of the introduction of the KVAT Act from April 1, 2005, the petitioner was eligible for deduction of input tax paid on purchases while calculating the net tax payable. But on that account, the base tax liability was not increased by the Government as it would have violated the terms and conditions of the Government order dated April 26, 2000 read with Government Notification dated June 5, 2000. It is submitted that having enjoyed tax deferment benefits from 1994-2007, the petitioner is not in a position to challenge the Government Order before this court, on the plea that palpable injustice has been done by the Government in rejecting his request ....
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....rnataka has not offered or promised to the petitioner interest-free loan to the extent of reduction of Central sales tax of expanded capacity. Therefore, the petitioner cannot seek any relief as a matter of right. By way of reply, it is pointed out by the counsel for the petitioner that the respondents are in error in stating that the total deferment of tax availed is in a sum of Rs. 75.57 crores whereas the actual sales tax deferred is at Rs. 66.68 crores and further Rs. 22.29 crores has been repaid to the State Government. It is contended that the respondents have reiterated the facts of the case and have broadly summarised some of the contentions taken by the petitioner in the writ petition and therefore it does not call for any rejoinder. But, it is pointed out that in view of the introduction of the Karnataka Value Added Tax Act, 2003, with effect from April 1, 2005, the petitioner is eligible for the deduction of input tax paid on purchases while calculating the net tax payable and consequently, on that account the base tax liability as fixed by the Government order dated April 26, 2010 was justifiable. It is urged that the Scheme of the Act provides for the deductio....
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...., 2005, the petitioner is eligible for the deduction of input tax paid on purchases while calculating the net tax payable and consequently, on that account the base tax liability as fixed by the Government order dated April 26, 2010 was justifiable. It is urged that the Scheme of the Act provides for the deduction of input tax while calculating the net tax payable. However, it is not a deduction which is specially made available to the petitioner, but is extended to all dealers registered under the Act, both in the case of deferment and exemption. Consequently, the respondents are in error in contending that the petitioner, has concluded as follows (pages 310 and 311 in 98 STC): "9. The following principles relating to interpretation of exemption provisions in taxation laws emerge from the decisions referred to above: (i) The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature. When the words used are plain and clear, they have to be construed in the ordinary sense. There is no occasion to resort to any interpretative process, if the words clearly, unambiguously and directly convey the meaning. ....
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....ourt has reviewed the law on the subject and has held as follows (pages 46-49 in 136 STC): "24. But first a recapitulation of the law on the subject of promissory estoppel. The foundation of the doctrine was laid in the decision of Chandrasekhara Aiyar, J., in Collector of Bombay v. Municipal Corporation of the City of Bombay AIR 1951 SC 469; 1952 SCR 43. There, in 1865, the Government of Bombay had passed a resolution authorising the grant of an area to the municipality rentfree for the purpose of setting up a market. Although possession of the site was made over to the then Municipal Commissioner no formal grant was in fact executed as required by the applicable statute. Acting on the resolution, the corporation spent considerable sums of money in building and improving the market and was in possession for 70 years during which period no revenue had been paid to or claimed by the Government. At this stage, a demand was sought to be raised on account of rent under the Bombay City Land Revenue Act, 1876. The corporation impugned the demand by filing a suit. The suit was dismissed. An appeal was preferred before the High Court. The High Court reversed the decision of the Trial Co....
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....mphasised, the representation sought to be enforced was legally invalid in the sense that it was made in a manner which was not in conformity with the procedure prescribed by statute. 26.. This principle was built upon in Union of India v. Indo-Afghan Agencies [1968] 2 SCR 366, where it was said (at page 385): 'Under our jurisprudence the Government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen.' 27. However, the superstructure of the doctrine with its preconditions, strengths and limitations has been outlined in the decision of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42 (SC); [1979] 2 SCC 409. Briefly stated-the case related to a representation made by the State Government that the petitioners factory would be exempted from payment of sales tax for a period of three years from the date of commen....
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....justice and fairness demand, prevent a person from insisting on strict legal rights, even where they arise, not under any contract, but on his own title deeds or under statute. (page 56 of STC) (page 424) . . . Whatever be the nature of the function which the Government is discharging, the Government is subject to the rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it. (page 83 of STC) (page 453)' (emphasis(1) supplied) 30.. So much for the strengths. Then come the limitations. These are: (1) Since the doctrine of promissory estoppel is on equitable doctrine, it must yield when the equity so requires. But it is only if the court is satisfied, on proper and adequate material placed by the Government, that overriding public interest requires that the Government should not be held bound by the promise but should be free to act unfettered by it, that the court would refuse to enforce the promise against the Government. (page 443) (2) No representation can be enforced which is prohibited by law in the sense that the person or authority making the representation or promi....
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....ns in the public interest. In a more recent decision in the case of Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector and E.T.I.O. AIR 2007 SC 1984, while dealing with the validity of the Tamil Nadu Tax on Consumption or Sale of Electricity Act, 2003 (hereinafter referred to as, "the 2003 Act", for brevity) and the application thereof in respect of electricity generating companies as also consumers of electrical energy and the Tamil Nadu Electricity Duty Act, 1939 (hereinafter referred to as, "the 1939 Act" for brevity), levying a duty on certain sales and consumption of electricity energy by the licensees under the State of Tamil Nadu and the State of Tamil Nadu Electricity (Taxation on Consumption) Act, 1962 (hereinafter referred to as, "the 1962 Act", for brevity), which provide for levy of tax on consumption of electrical energy in the State of Madras and the exemption from tax provided under the 1962 Act. Having regard to the 1939 Act and the 1962 Act having been repealed by the 2003 Act, which intended to consolidate and rationalise the levy of tax on consumption or sale of electricity, the provisions of the 2003 Act were in question before the court. &nb....
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.... and the reasoning afforded to reject the request of the petitioner proceeds on the footing that the petitioner had availed of sales tax concession granted in respect of its investment in phase III of its project, pursuant to the Government Order dated April 26, 2000 and corresponding notifications considering the average tax liability of three years prior to September 2006 and the base tax liability having been fixed at Rs. 11.21 crores per annum, which amount was to be paid by the petitioner to the State Government and any tax liability and tax collected exceeding that amount was to be retained by the company as deferment of tax under the KST, CST and KVAT Acts and while fixing the rate of tax under the CST Act in respect of inter-State sales was at four per cent. This rate continued till April 1, 2007 after which it was reduced to three per cent and then to two per cent with effect from June 1, 2008. The reduction in the rate of tax under the CST Act has reduced tax liability of the company under that Act and thereby, the amount of tax deferred and retained by the company also stood reduced. The amount which could be retained by the company and which could be used for its workin....
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....the facility of sales tax deferment for the period 2002-14 in respect of phase III of its expansion project. For the period prior to April 1, 2007 the sale of paper and paper boards effected by the petitioner in accordance with the inter-State trade against declarations in form C, to the extent of 62 per cent of its total sales as against its sale exigible to tax under the VAT Act. The rate of tax under section 8(1) of the CST Act was fixed at four per cent. It is however with effect from April 1, 2007 that the rate of tax under the CST Act was reduced to three per cent and reduced further in the succeeding assessment years. This was neither on account of any act of the State Government nor on account of any default on the part of the petitioner. The reduction in the rate of tax under the CST Act was a deliberate measure brought about by the Union Legislature to further tax reforms that were sought to be implemented and steps in respect of which, were taken over the years, culminating in the circumstance with which the petitioner was faced after April 1, 2007. The State Government was not unaware of the fact that such a prospect, where the tax imposed under the CST Act would be ....
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....rd to the petitioner. The principle as enunciated by this court in Sri Neelakanteshwar Oil Industries [1995] 98 STC 303, namely, that an interpretation which makes the exemption illusory and has the effect of "giving by one hand and taking away by the other" should be avoided, is therefore ignored by the State Government. While it is also to be noticed that the State Government is not averse to step in for industrial houses when the need has arisen. In similar circumstances, as pointed out by the learned counsel for the petitioner, the Government in exercise of its powers under section 19C of the KST Act had issued various notifications granting exemption or deferment of taxes payable under the Act in respect of various industrial units prior to April 1, 1965, namely, (i) Notification bearing No. FD 187 CSL 2000(1), dated June 5, 2000 in the case of ACC Limited; (ii) Notification bearing No. FD 188 CSL 2000(1), dated June 5, 2000 in the case of Jindal Vijayanagar Fertilisers Limited; and (iii) Notification bearing No. FD 279 CSL 99(1), dated June 5, 2000 issued in the case of Wipro Ltd. In the said notifications, the Government was pleased to extend concessions to....
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....tioner, therefore, has made out a case to claim that it should be bailed out in the circumstances, in such manner as the State Government may evolve as is thought fit in respect of other industrial units within the State who may be similarly placed as the petitioner. Or it may even be said that the petitioner is better placed to deserve the benefit, as the State Government has not thought it fit to withdraw the benefit that has been conferred on the petitioner. However, it is the play of circumstances as stated hereinabove which has resulted in the present debacle of the petitioner's State of financial management on account of the upset caused in view of the change in law by the Union Legislature. The measures are warranted in the light of the judgments of the apex court which are referred to hereinabove which have laid down the principles relating to promissory estoppel, and legitimate expectation. Though there is no promise by the State Government to take any corrective measures, with the reduction in the rate of tax under the CST Act resulting in the complete decimation of the incentive granted to the petitioner. The intention of the State Government to continuously provi....