TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 561
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....sugarcane farms.. The demand for sugar in the country is continuously rising. The State of U.P. is spread over an area of 2.41 lacs sq.kms. having a population of around 18.00 crores and is the largest State in the country. The sugar industry is one of the most important industries in the State of U.P., with the sugar cane being the chief cash crop. The economy of the State being mainly agro-based, the sugar industry plays a pivital role in the economy of the State by creating livelihood for about 32.00 lacs farmers, 1.6 lacs industrial workers and one crore of people by way of indirect employment in the form of contract labour, cane harvesting labour, transport labour, etc. Nearly half of the India's sugarcane area is located in Uttar Pradesh. Uttar Pradesh is presently the highest sugarcane producing and second highest sugar producing State in the country sharing about 42% of the sugarcane and 28% of sugar production of the country. It is relevant to note that in U.P. 58.5% of the sugarcane produce is diverted to other industry for production of Gur, Khandsari, Rab, etc. Even though the demand of sugar in the country has increased manifold, the sugar industry in Uttar Prade....
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....e years in case where investment of Rs. 350.00 crores was made and ten years in case where investment was exceeding Rs. 500.00 crores. The policy further provided that the following exemption/incentives would be given to entrepreneurs who are eligible under the policy, namely: (a) exemption from entry tax on sugar (b) exemption from trade tax on molasses (c) exemption from Stamp duty and registration charges on purchase of land (d) exemption from purchase tax on sugarcane (e) reimbursement of Society commission on sugarcane (f) exemption from administrative charges on molasses (g) reimbursement of transport of sugar (h) reimbursement of additional cost on transport of sugarcane (i) capital subsidy of 10% on the investment made. The policy made further provision for exemption at two levels; (i) Firstly, with the minimum investment of Rs. 350 crores, the exemptions and incentives as given in the policy would be for a period of 5 years, and for those entrepreneurs who invest more than Rs. 500 crores, the exemptions and incentives shall be for a period of 10 years. (ii) The above was subject to the condition that the company/unit ensured direct employment of not less than ....
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....3.2007. Subsequently, by a Government Order No. 1965 dated 14.11.2006 the period was extended till 31.03.2008. Pursuant to the sugar policy, the relevant notification under the statutes were issued granting exemption/incentive. A notification dated 16.05.2006 was issued under Section 14(1) of the Uttar Pradesh Sugarcane (Purchase Tax) Act, 1961 (hereinafter referred to as the Act) for remission of purchase tax payable by such sugar mills as are eligible under the sugar policy, 2004. For facility, the said notification dated 16.05.2006 .is extracted hereunder: "No. 502/S.Chi.U.Anu.-1-06-2528-2004 Dated Lucknow, May 16, 2006 WHEREAS the State Government is satisfied that it is necessary so to do with view to encouraging the establishment of new sugar factories in the State; Now, Therefore, in exercise of the powers under sub-section (1) of section 14 of the Uttar Pradesh Sugar Cane (Purchase Tax) Act, 1961 (Act no. IX of 1961), the Governor is pleased to remit the purchase tax on sugar cane payable by such sugar mills as are eligible under the Chini Udyog Protsahan Niti, 2004 of the State Government for a period mentioned below:- (1) ten years for such companies/units as have in....
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.... as per the sugar policy such as exemption from entry tax for sale of non-levy sugar produce by the petitioner, exemption from U.P.Trade Tax on sale of molasses, exemption from administrative charges on molasses, reimbursement of charges of cane transportation, reimbursement of additional cost on transport of sugarcane etc. The aforesaid exemption was duly availed of by the petitioner in terms of the sugar policy. It is relevant to mention here, that the Sugar policy of 2004 was issued when the Samajwadi Party came into power. In 2007, the Bahujan Samajwadi Party into power on 30.05.2007, and within a few days issued a notification dated 04.06.2007 withdrawing the sugar policy with immediate effect. According to the petitioner, the discontinuation of the scheme which was operative till 31.03.2008 did not affect the petitioner's right as they had already availed the terms and conditions of the sugar policy and that the petitioners' right had been established, acknowledged and vested and further implemented in terms of the provisions of the various statutory notifications under various Acts, which benefits were availed of by the petitioner. Subsequently, the petitioner recei....
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....l contended that the action of the respondents in interpreting the Government Order of 04.06.2007 has caused serious prejudice to the petitioner since the entire investment was made by taking loans from various financial institutions and raising funds from the open market. It was submitted that the State Government was duty bound to provide all the benefits for the stipulated period as available under the policy and the action of the respondents in denying the facility, and on the other hand, issuing the demand notices were wholly arbitrary and violative of the principles of natural justice. The learned senior counsel contended that the policy of the State Government which was acted upon by the petitioner has created a legitimate expectation of the petitioner being treated in a fair manner and the denial by the respondents was not only violative of Article 14 of the Constitution but was also in gross violation of principles of promissory estoppel. The learned senior counsel further urged that initially the withdrawal of the policy by notification dated 04.06.2007 did not impact the petitioner in any manner, since the petitioner had already started availing the exemption facility bu....
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....unsel for the State further submitted that under the sugar policy, the exemption is for a particular unit where the investments are required to be made as per the sugar policy and that exemption is to be granted to a sugar unit and not to a Company. The learned counsel admitted that the remaining 07 units were granted the eligibility certificate but they were no longer entitled for any exemption after the policy was withdrawn on 04.06.2007 and, therefore, the demand notices issued for payment of sugarcane purchase tax was valid and justified. The learned counsel contended that when the sugar policy was withdrawn, the notifications issued under various statutes for granting exemption were automatically withdrawn and it was not necessary that a fresh notification is issued under each Act rescinding the exemption notification. The learned counsel submitted that on account of changed circumstances namely, that the policy was involving a loss to the public exchequer and that it was not in public interest to continue such policy, the State Government was justified to reconsider the matter and withdraw the benefit granter earlier. The learned counsel submitted that where a policy is withd....
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....ld to a high "standard of rectangular rectitude while dealing with its citizens"? There was a time when the doctrine of executive necessity was regarded as sufficient justification for the Government to repudiate even its contractual obligations, but let it be said to the eternal glory of this Court, this doctrine was emphatically negatived in the Indo-Afghan Agencies case and the supremacy of the rule of law was established. It was laid down by this Court that the Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. If the Government does not want its freedom of executive action to be hampered or restricted, the Government need not make a promise knowing or intending that it would be acted on by the promisee and the promisee would alter his position relying upon it. But if the Government makes such a promise and the promisee acts in reliance upon it and alters his position, there is no reason why the Government should not be compelled to make good such promise like any other private individual. The law cannot acquire legitimacy and ga....
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....s noticed by Bhagwati,J. in Motilal Padampat Sugar Mills Co.Ltd. Vs. State of U.P., 1979 (2) SCC 409 that the Government cannot claim to be exempt from the liability to carry out the promise on some indefinite and undisclosed ground of necessity or expediency. The Government is required to place before the Court the entire material on account of which it claims to be exempt from liability. Thereafter, it would be for the Court to decide whether those facts and circumstances are such as to render it inequitable to enforce the liability against the Government. Mere claim of change of policy would not be sufficient to exonerate the Government from liability. It is only when the Court is satisfied that the Court would decline to enforce the promise against the Government. However, the burden would be upon the Government to show that it would be inequitable to hold the Government bound by the promise. The Court would insist on a highly rigorous standard of proof in the discharge of this burden." In the instant case, the petitioner made a huge investment in the State of U.P. under a promise to it that it would be granted an exemption from payment of purchase tax, etc. under various stat....
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....g the affairs of the country, are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice. It was in this context that the doctrine of "legitimate expectation" was evolved which has today become a source of substantive as well as procedural rights. But claims based on "legitimate expectation" have been held to require reliance on representations and resulting detriment to the claimant in the same way as claims based on promissory estoppel." In Navjyoti Coop.Group Housing Society Vs. Union of India, (1992) 4 SCC 477 the decision of the House of Lords in Council of Civil Service Unions Vs. Minister for the Civil Service, 1985 AC 374 was followed and that decision was summarised in the following words: "It has been held in the said decision that an aggrieved person was entitled to judicial review if he could show that a decision of the public authority affected him of some benefit or advantage which in the past he had been perm....
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....te Government was availed of by the petitioner. The State Government, at this stage, cannot resile and contend that since the policy has been discontinued, the exemption would no longer be made available to the petitioner. Having acted on the promise made by the State Government , the action of the respondent in issuing the demand notice on the ground that no further exemption would be granted is wholly arbitrary and cannot be sustained. The petitioner has been benefited by the promise made by the State Government. The petitioner has been granted exemption which the petitioner availed of in the past. The petitioner should be permitted to continue to enjoy the exemption till the remainder of the period as per the original promise. This is part of the legitimate expectation which is reasonable and which has to be given due weight failing which the action of the respondents in denying the exemption would be unreasonable and arbitrary. The petitioner has a legitimate expectation of being treated in a certain way on account of the promise made by the State Government. A bonafide decision of the State Government would justify the requirement of non-arbitrariness and would withstand the ....
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....n its counter affidavit has justified the issuance of the sugar policy. The State Government in its counter affidavit stated: "The policy itself sets out, in its preface, elaborately the circumstances and the valid and genuine economic factors considered necessary to grant fiscal incentives/exemptions to new sugar industries established under the policy. The policy is in the best interest not only of the sugar industry but in the larger public interest as well. The state has extensively analyzed the pros and cons of the impugned policy before formulating it and the policy has been adopted not just keeping the short term benefit of the state but also guarding the long term growth of the Sugar sector and the economy of the State." At another place, the State Government took a stand that: "This will bring about over all development of the State and particularly in sugarcane intensive areas, the infrastructure development namely, roads, bridges, culverts etc. would be rapid and adequate. The farmers would get better remuneration of their cane. The drawl capacity of the mills shall increase from 40-42% at present to about and upto 60%. The new, proposed factories shall provide direc....
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.... Government, it is no longer open to the successive Government to take a contradictory stand without supporting it with any documentary evidence. The State Government may be relieved from the liability to carry out its promise on the ground of necessity or expediency. The burden to prove such ground is upon the State Government. The standard of proof required to discharge such burden is strict, heavy and rigorous which the State Government has failed miserably. The State Government has failed to show the material by which action was taken to withdraw the sugar policy. Consequently, we are of the opinion that the principle of promissory estoppel is fully attracted. The State Government has the competence to float a policy, modify it or to rescind it. That is the executive power given to it by law. The discretion to withdraw the policy is wide enough, but what is imperative is that the withdrawal of the policy must be fairly made on the ground of necessity or expediency and should not be arbitrary. Every action of the State has to tested on the touchstone of the basic requirement of Article 14, namely, fairness in the action by the State. We find, that in the instant case, the decis....
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....dent State is bound to provide exemption and benefit of purchase tax to the petitioner. The Government Order, by which the policy was withdrawn is an executive order. Such Government Order can only apply prospectively and at the same time cannot unsettle the vested right that has already accrued in favour of the petitioner. The promise made in the policy was changed from a purely executive order to a legislative measure. Once a legislative enactment is made by a notification under a statute, the same cannot be taken away by an executive order by revoking the policy. Such revocation of the policy does not affect the existence of the notification which will continue to remain operative till it is revoked. The submission of the learned standing counsel appearing for the State, in this regard, cannot be accepted. So long as the notifications are in force, the petitioner would be eligible to avail the benefits available therein. The action of the respondents in not allowing the benefits under the notification and raising a demand for payment of sugarcane purchase tax is wholly illegal. So long as a statutory notification exists, the same cannot be annulled by an executive order. In t....