TaxTMI 
TaxTMI 
2016 (2) TMI 1
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....541, 11692 of 2009, 8603, 9685, 12084, 13175, 17804, 18156, 21031 of 2010, 1485, 2169, 8151, 14852, 15038, 24363, 24416 of 2011, 252, 1500, 9037, 16383 of 2012 with LPA No.1635 of 2010, involving common questions of law and facts. However, facts are being extracted from CWP No.8338 of 2009 titled V.K.Indrayan Vs. State of Punjab & another. 2. Challenge in these petitions has been raised to the notification dated 06.02.2009 (Annexure P30) whereby the One Time Settlement Scheme (for short, the 'OTS') for equity disinvestment in joint sectors/assisted sector companies, promoted by the respondent-Punjab State Industrial Development Corporation Ltd. (in short, the 'Corporation') and Punjab Agro Industries Corporation, has been amended. Clause 9.3.4 of the Punjab Government's Industrial Policy, 2003, has been amended by deleting the words "irrespective of the status of the unit" and which was to be read as "to collaborators/promoters of companies, other than profit making companies". Resultantly, the State Government withdrew the OTS, earlier given to the collaborators/promoters/profit making companies. Challenge has also been raised to the subsequent letter dated 28....
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....lended Yarn Project under the name and style of M/s Indian Yarn Ltd. The petitioner was the collaborator of the agreement which was set up for setting up the project which had initial capacity of 12,480 spindles, in pursuance of a Memorandum Of Understanding which had earlier been executed on 10.12.1993, for setting up the abovesaid project. The Corporation was to invest a sum of Rs. 3.54 crores in the equity capital in M/s Indian Yarn Ltd. out of the total equity of Rs. 13.26 crores. The petitioner was to contribute Rs. 3.32 crores out of the balance equity of Rs. 9.81 crores and the remaining Rs. 6.49 crores was to be raised from the public through a public issue. The said public issue did not materialize which led to a shortfall in the funds due to which only 6480 spindles were installed on 31.03.1996. The capacity was found unviable and the financial structure was changed and the promoters contributed additional amount of Rs. 90 lacs (petitioner:60 lacs and respondent-Corporation:30 lacs), for which a supplementary agreement was entered into. The capacity was reduced to 9720 spindles and the petitioner sought to raise more funds from his own resources through the Punjab Nationa....
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....isted sector companies by participating towards equity of funds entities based on an understanding with the promoter that after a specified number of years when the company was on stream, the promoter would buy back the equity stake of the investing Corporations at principal investment plus pre-agreed rate of interest. 9.3.2 In most cases, the promoters/collaborators have not been able to buy back shares which have become overdue. 9.3.3 A liberal One Time Policy for facilitating equity dis-investment in the promoted companies as also in those cases where arbitration proceedings have already started would be implemented to enable the units to settle obligations with PSIDC and PAIC. 9.3.4. The Policy will offer Single Tier carrying 10% simple rate of interest irrespective of the status of the unit. This OTS shall apply only to all the balance shares being held by the respective corporations in Joint Sector/Assisted Sector/Direct Subscription which have yet not been transferred back to the collaborator. 9.3.5 The above concessions would be subject to the following: a) The buy back amount under the OTS Policy as per above shall be calculated as on 31 st March 2003 and th....
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....tion and started to make payment and paid a sum of Rs. 77,74,096/- on 29.06.2004. It is the case of the petitioner that he had got the amount from the third parties on the assurance that the equity share holdings to be transferred by the respondent-Corporation, would be further transferred to them. As per the terms of the agreement, the petitioner, accordingly, wrote another letter dated 09.08.2004 (Annexure P10) to the Corporation asking for the transfer of the shares on proportionate basis. Thereafter, another sum of Rs. 1,20,000/- was deposited on 17.09.2004 and request was made to transfer the equity shares in various names. The petitioner was informed to give postdated cheques with the balance amount payable within the overall limit of 3 years in equal quarterly instalments for the balance of the OTS payable. On account of the non release of the shares on pro rata basis, a communication dated 13.04.2005 (Annexure P13) was addressed and a protest was raised against the demand of the respondent- Corporation to submit postdated cheques and the supplementary agreement which was asked to be entered into vide decision dated 24.03.2005. 10. The Corporation vide letter dated 06.05.20....
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....l the decision of the case and the encashing of the cheques would not bind the Corporation. Accordingly, a demand was made to make the balance payment of the dues so as to enable the Corporation to process the matter. Subsequently, vide letter dated 29.06.2007 (Annexure P24), the balance payment was demanded as per the OTS policy, subject to the draft undertaking upto 30.06.2007 and the amount was quantified on 30.06.2007 at Rs. 9,04,57,238/-. The petitioner, on 04.07.2007 (Annexure P26), wrote back to the Corporation that he had already made the entire payment and the conditions of the letters dated 22/29/30/06.2007 were not applicable to him and that the non-delivering of the shares was putting him in a very difficult financial situation. 12. The petitioner, thereafter, filed CWP No.10322 of 2007, seeking a writ of mandamus for directing the respondents to transfer his equity share-holdings of M/s Indian Yarn Ltd. to him and his nominees and for quashing of the demands raised. The said writ petition was opposed by the respondents on account of the pendency of the public interest litigation. It was concluded by a Division Bench of this Court that once the payment had been receive....
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.... the unit" would be read as "to collaborators/promoters of companies other than profit making companies." 3. In view of the above, the Governor of Punjab is further pleased to withdraw the OTS offer earlier given to the collaborators/promoters of profit making companies." 14. CWP No.10322 of 2007, filed by the petitioner, was disposed of on 10.02.2009 by the Division Bench (Annexure P31) by directing that the Corporation would take a fresh decision in the light of the changed circumstances within 6 weeks from the receipt of the copy of the order. The petitioner was given liberty to seek appropriate redressal in case the Corporation takes a decision adverse to it. Thereafter, on 28.04.2009 (Annexure P32), the Corporation took the stand that since the OTS stood withdrawn on the ground of change of policy it was not to extend the OTS to profit making companies. Since M/s Indian Yarn Ltd. was a profit making company as on 31.03.2004, as per the audited balance sheet, therefore the amount of Rs. 9,63,42,275/-, paid by the petitioner as a collaborator, stood adjusted against the dues owed in terms of the FCA dated 24.05.1995. A balance amount of Rs. 993.97 lacs (subject to audit) wa....
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..... The rectification had been done by way of amendment after due deliberation and considering all the financial aspects. Reference was made to the report of the Comptroller & Auditor General of India and its observations wherein loss of Rs. 26.58 crores was made by settling the OTS scheme by the respondent-Corporation with two industrial establishments namely, M/s Rana Polycot and M/s Malwa Industries Ltd. That even an application had been filed for permission to allow the respondent-Corporation to withdraw the OTS to the profit making companies but no order had been passed in the public interest litigation. Thereafter, the Council of Ministers, on 02.12.2008, had decided to withdraw the OTS granted to the collaborators. 16. In the written statement filed by respondent No.2- Corporation, the factual matrix was not disputed including the fact of the deliberations by the Disinvestment Committee. That the Corporation was left with no option but to effect speedy recovery of the dues owed to it on account of the illegal withholding of the same by the collaborators. The power of the Government to issue directions regarding the matter of policy and annul any directive, was defended under ....
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.... buy-back the equity but did not do so. The funds of the Corporation were lying blocked because of such wilful default and profit making companies were under legal obligation to pay back under the FCA. Accordingly, prayer was made that the writ petition be dismissed. 17. Having noticed the factual matrix, which is very clear, this brings us to decide the three legal issues, which arise for consideration, as noticed above. Issue No.1: Whether the State was permitted to alter the terms of the OTS on the ground that it being a public policy, could be modified? 18. In our opinion, this issue needs to be necessarily answered in favour of the State, regarding the right of the State to frame a policy and revise or rescind or modify the same on the ground of public interest. There is no denying the fact that the benefit of the OTS was being granted to one and all under initial OTS dated 26.03.2003 (Annexure P3) irrespective of the status of the unit and whether it was earning profit or not. There is no denying the fact that a report from the Comptroller & Auditor General of India was received regarding the financial prudence of the State's decision to give the benefit of the OTS ....
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....hange its policies and was well within its jurisdiction. 21. For the said legal proposition, one can go back for support upon the judgment of the Apex Court in Amrit Banaspati Company Ltd. & another Vs. State of Punjab & another 1992 (2) SCC 411. The issue in the said case was whether the company was entitled to the refund of the sales tax and the interstate sales tax on the assurance held out by the Government without the competent authority taking a decision on the same. A single Bench of the High Court had granted the said benefit which was reversed on appeal by the Division Bench. The order of the Division Bench was upheld by the Apex Court on the ground that the appellant therein was never intimated that the Government had changed its policy regarding the refund of the sales tax and the said promise being contrary to law and against public policy, could not be enforced in the Court of law. It was, accordingly, held that taxation was the sovereign power and a promise to refund the tax which was due under the Act, would be a fraud under the Constitution of India and a breach of faith of the people and could not be enforced in law. Relevant portion of the judgment reads as under....
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.... itself in enhancing the profit margin of the manufacturer and the sales tax stood converted into income of the appellant. Such contrivance of law even though bona fide is legally unenforceable." 22. In Kaniska Trading & Industry Vs. Union of India (1995) 1 SCC 274, the issue arose as to the withdrawal of the time-bound exemption notification issued under the Customs Act, 1962. The said notification was sought to be withdrawn before the prescribed period and was challenged on the ground that the appellants had placed order for the import of PVC resin on the understanding that it was exempt from Customs duty. The plea was rejected by the High Court, which was the subject matter of challenge before the Apex Court. It was held that the modification and alteration was in supersession of an earlier policy, in the larger interest and cannot be reviewed by the Courts except where it could be shown that the subsequent act of the Government was not in public interest. It was, accordingly, held that the Government could not be made the slave of its policy for all times to come and it was concluded that individual interest must yield in societal interest and accordingly, the appeals filed w....
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.... promise which is sought to be enforced must be shown to be an unequivocal promise to the other party intended to create a legal relationship and that it was acted upon as such by the party to whom the same was made. A notification issued under Section 25 of the Act cannot be said to be holding out of any such unequivocal promise by the Government which was intended to create any legal relationship between the Government and the party drawing benefit flowing from of the said notification. It is, therefore, futile to contend that even if the public interest so demanded and the Central Government was satisfied that the exemption did not require to be extended any further, it could still not withdraw the exemption." 23. In State of Punjab Vs. Ram Lubhaya Bagga 1998 (4) SCC 117, the right of the State to change its policy, from time to time, under changing circumstances, was held not to be illegal. Financial constraints were held to be relevant consideration, which could weigh with the Government. The dispute was regarding the entitlement towards medical expenses of the Punjab Government employees and the pensioners which was admissible to them at the same scale in non-governmental h....
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....rsons was to be given to the persons affected by the Government policy decisions and principles of natural justice would not come into play. The wisdom of advisability of the economic policies could not be held to be amenable to judicial review, except on the ground that they were constitutionally invalid. The issue in question, in the above-said case, was regarding the disinvestment and the transfer of the 51% shares of M/s Bharat Aluminum Company Ltd., which was a Government of India undertaking. The disinvestment being made in the company was challenged by the employees union which was rejected by the High Court. On the valuation done, the bid of M/s Sterlite Industries was considered which led to the initiation of further legal proceedings. The question which arose was whether the decision was amenable to judicial review and as to what were its parameters and extent. The defence of the State was accepted that the same was not amenable to judicial review. It was held that the process of disinvestment involves complex economic factors and merely because the workman had the protection of Articles 14 & 16, it would not mean that the Government had to give the workers a prior notice....
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....e in public interest, while taking into account the principle of legitimate expectations. It was held that policy could be changed where the person's legitimate expectations had not been fulfilled by taking a decision. It was also held that the decision maker has the choice in balancing the pros and cons relevant to the change in policy. The legitimate expectations only permitted the Court to find out whether the policy was irrational or perverse and would depend upon the facts and recognized principles of administrative law. The public interest being a superior equity could override the individual equity and the Government was free to take a call provided it was necessary to do so, in public interest. Relevant observation reads as under: "17. Reasonableness of restriction is to be determined in an objective manner and from the standpoint of interest of the general public and not from the standpoint of the interests of persons upon whom the restrictions have been imposed or upon abstract consideration. A restriction cannot be said to be unreasonable merely because in a given case, it operates harshly. In determining whether there is any unfairness involved the nature of the r....
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....dicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Nor are the courts inclined to strike down a policy at the behest of a petitioner merely because it has been urged that a different policy would have been fairer or wiser or more scientific or more logical. Wisdom and advisability of economic policy are ordinarily not amenable to judicial review. In matters relating to economic issues the Government has, while taking a decision, right to "trial and error" as long as both trial and error are bona fide and within the limits of the authority. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts. Normally, there is always a presumption that the Governmental action is reasonable and in public interest and it is for the party challenging its validity to show that it is wanting in reasonableness or is not informed with public interest. This burden is a heavy one and it has to be discharged to the satisfaction of the court by proper and adequate material. The court cannot lightly assume that the action taken by the Government is unreasonable or against public int....
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....l the property by public auction or by inviting tenders. But as noted earlier, this is not a case of sale of property by the State. Though public auction or inviting of tenders is the ordinary rule in case where the State Government proposes to dispose of a property, it is not an invariable rule. There may be situations where there are compelling reasons necessitating departure from the rule, the reasons indicated in this case for the departure are shown to be rational and are not suggestive of discrimination. The Government is entitled to make pragmatic decisions and policy decisions which may be necessary or called for under the prevalent peculiar circumstances." 29. Resultantly, question no. 1 is answered in favour of the State that it has power to alter or modify the scheme once it comes to a conclusion that it was against the financial interest of the State and no fault can be found as such or any challenge can be raised to the withdrawal of the OTS to a certain category of industries who are profit making. Issue No. 2: If question no. (i) is decided in favour of the State, whether the said decision could be with retrospective effect in the absence of any statutory provis....
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.... to have a retrospective effect. It is a well recognized rule of interpretation that in the absence of express words or appropriate language from which retrospectivity, may be inferred, a notification takes effect from the date it is issued and not from any prior date. The principle is also well settled that statutes should not be construed so as to create new disability or obligations or impose new duties in respect of transactions which were complete at the time the Amending Act came into force. (See Mani Gopal Mitra v. The State of Bihar, (1969) 2 SCR 411." 31. The Apex Court in I.T.C. Bhadrachalam Paperboards and another vs. Mandal Revenue Officer, A.P. and others, 1996 (Sup5) SCR 643, negatived the contention wherein, challenge had been raised to the demand of assessment on non-agricultural lands. The claim was based on the ground that there was an exemption notification. It was accordingly held that publication in the gazette is the final confirmation for making such an order or Rule and the version printed in the gazette is final. The relevant portion reads thus:- "13.......The object of publication in the Gazette is not merely to give information to public. Official Gaz....
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.... official gazette would be the date when the notification came into force and there was no reason to depart from the same. The issue in question was the exemption notification of 02.08.1976 being withdrawn on 04.02.1987 on account of which duty was levied on the goods imported by the respondent in the said case in which the bill of entry was made on 05.02.1987. The Bombay High Court had allowed the writ petition on the ground that the notification was not duly published and was not made available. It was accordingly held that the method and mode provided is by notification bringing the same into operation and no further publication is contemplated. The discordant note in Collector of Central Excise vs. New Tobacco Company, 1998 (8) SCC 250 followed in Garware Nylons Ltd. vs. Collector of Customs and Central Excise, Pune, (1998) 8 SCC 282 was held not laying down correct law. The view taken in M/s. Pankaj Jain Agencies vs. Union of India, (1994) 5 SCC 198, was held to be correct exposition of law. The relevant observations read thus:- "12. In our view, as noted above, in Pankaj Jain Agencies case, the Court directly dealt with a similar contention and after relying upon the decisi....
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....fect but has no power to change a judgment of court of law either retrospectively or prospectively. The Constitution clearly defines the limits of legislative power and judicial power. None can encroach upon the field covered by the other. The laws made by the legislature have to conform to the constitutional provisions. Submissions have also been made on behalf of the petitioners that by enacting law with retrospective effect, the legislature has no power to take away vested rights. The contention urged is that the rights created as a result of issue of writ of mandamus cannot be taken away by enacting laws with retrospective effect. On the other hand, it was contended on behalf of the respondent-State that the power of the legislature to enact law with retrospective effect includes the power to take away vested rights including those which may be created by issue of writs." 34. The Apex Court in Mahabir Vegetable Oils (P) Ltd. & another Vs.State of Haryana & others (2006) 3 SCC 620, examined the issue of the exemption from payment of sales tax and held that a retrospective operation has to be seen from the terms which arise by necessary and distinct implications. 35. In Kusuma....
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....lso entitled to change or alter the economic policies. Appellants do not have any vested right to enjoy the concessions granted to them forever, particularly when the Board is constituted and incorporated under the provisions of Electricity (Supply) Act, 1948. Any policy decision adopted by the State would not be binding on the Board, save and except provided for in the Act. The Board being an independent entity, the duties and functions of the Board vis-a-vis the State are enumerated in the Act. The Board, however, would be bound by any direction issued by the State Government on questions of policy. A dispute which may arise as to whether a question is or not a question of policy involving public interest, Central Government is the final arbiter. The policy decision adopted by the State on the basis whereof the Board felt obligated to grant electrical connection in favour of the appellants on the basis of industrial tariff must, therefore, be understood in the context of Section 78A of the 1948 Act. What is binding on the Board is the policy of the State. The direction of the State was to apply a particular category of tariff to the appellants. Such directions could have been wit....
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....ts, could have brought its financial stringency to the notice of the State. It did so. But the State could not have taken a unilateral decision to take away the accrued or vested right. The Board's order dated 11.10.1999 in law could not have been given effect to. The Board itself kept the said notification in abeyance by reason of order dated 8.11.1999. 38. The appellants, indisputably, continued to derive the benefits in terms of the original order. They obtained certificates of classification. It is on the aforementioned context, the question as regards construction of the impugned notification dated 26.9.2000 arises. Ex facie, the said policy decision could not be given a retrospective effect or retroactive operation. The State was not exercising the power under any statute to grant or withdraw the concession. It was exercising its statutory power of issuing direction. It is, therefore, a statutory authority. The 1948 Act does not authorize the State to issue a direction with retrospective effect. The Board, therefore, could only give prospective effect to such directions in absence of any clear indication contained therein. By reason of withdrawal of concession with ret....
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....e receipt of minimum payment of Rs. 20 lacs transfer would be made as per the OTS value of the shares, as calculated upto the date of transfer of shares. The Corporation had also agreed that in case the amounts were not paid as per the OTS, the Corporation would be entitled to claim the payments, as per the FCA. The resultant amendment, subsequently, would not and could not have been done, with retrospective effect. The withdrawal of the OTS offer earlier given would not apply with retrospective or retroactive effect. The amendment by way of notification could only be from the date of the decision so notified and the date could not have been preponed to a earlier point of time, to the prejudice of the petitioner who had acted upon the offer given. 39. Thus, from the above discussion, it can be safely concluded that under the strength of public policy, the State is well within its vested right to review its earlier decision and restrict the benefit of the OTS which was a mere concession to a limited set of eligible persons on a valid criteria as to whether it was a profit making industry or not but not with retrospective effect. Issue No. (iii): Whether the State and the Corpora....
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....ity was, thus, read in and once the party had acted upon the policy of the Government, it was bound to carry out its promise. 43. In Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh 1979 (2) SCC 409, the said principle was further expounded. In the said case, the petitioner's factory had been exempted from payment of sales tax for a period of 3 years from commencement of production and accordingly, it was held that the principle of promissory estoppel would be in all the three fields, whether contractual, administrative or statutory. 44. In State of Punjab Vs. Nestle India Ltd. & another (2004) 6 SCC 465, the plea of the State that there was no formal notification of the exemption from tax, was rejected. It was noticed that the Chief Minister and the Council of Ministers and the Finance Minister had decided to abolish the same w.e.f. 01.12.1996 and various advertisements had also been issued. This Court had held that the State Government was bound by its promise and even in the absence of formal notification, bound down the Government. The said decision was upheld by the Apex Court by noting that the disagreement note in Jit Ram & others Vs. State of Haryana &....
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....ilal Sugar Mills case, they could have referred Jeet Ram's case to a larger Bench, but we do not think it was right on their part to express their disagreement with the enunciation of the law by a coordinate Bench of the same Court in Motilal sugar Mills case. We have carefully considered both the decision in Motilal Sugar Mills and Jeet Ram's case and we are clearly of the view that what has been laid down in Motilal sugar Mills case represents the correct law in regard to the doctrine of promissory estoppel and we express our disagreement with the observations in Jeet Ram's case to the extent that they conflict with the statement of the law in Motilal Sugar Mills case and introduce reservations cutting down the full width and amplitude of the prepositions of law laid down in that case. Of course we must make it clear and that is also laid down in Motilal Sugar Mills case (supra), that there can be no promissory estoppel against the legislature in the exercise of its legislative functions nor can the Government or public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It is equally true that promissory estoppel cannot be used to c....
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....o make investment by way of industrial development of the backward areas or the hill areas, and thereafter the entrepreneurs on the 13 representations so made bona fide make investment and thereafter if the State Government resiles from such benefits, then it certainly is an act of unfairness and arbitrariness. Consideration of public interest and the fact that there cannot be any estoppel against a statute are exceptions." 47. In similar circumstances, in State of Bihar & others Vs. Kalyanpur Cement Ltd. (2010) 3 SCC 274, the respondents had set up a cement plant which had gone under losses and sales tax exemption had been granted under the Industrial Policy and the claim of the petitioner had been rejected. The High Court had allowed the writ petition and directed the State Government to take a decision. The defence of the State was that Clause 22.3 barred exemptions to sick and closed industrial units which had availed such facilities in the past. Various meetings had been held and there were repeated assurances given by the State Government but the notification was not forthcoming. The Industrial Policy provided that an apex body had to be constituted to revive the sick small....
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....ack on the terms of the OTS which had already been offered and accepted by the collaborators/petitioners. The said persons had made payments in pursuance of the OTS and entered into agreements and acted on the promise held out by the State and the Corporation and the State was, thus, bound by the OTS agreement entered into. Having acted upon the said agreement, the petitioners had paid the amounts and were thus, entitled for the benefits of the lesser interest rate as per the OTS scheme. The said petitioners might not have taken offer of making the payment and the Corporation would have been left with litigation in hand by way of arbitration and for enforcement of the buy back agreements. However, after having given the offer and the petitioners having accepted the same and the Corporation having received the payments in satisfaction of the contract entered into, could not turn around and submit that they were not bound by the terms of the OTS. The pendency of the public interest litigation and the decision therein would not be of any assistance to the State since the writ petition was disposed of that the Corporation would take appropriate decisions in view of the modified policy.....