TaxTMI 
TaxTMI 
2016 (12) TMI 424
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....company incorporated with the objective to carry on business as manufacturer, processor, dealer, distributor, agent, buyer, seller, importer and exporter of hosiery goods, knitting yarn and fabrics of various kinds. 4. The Government of Punjab, Department of Industries had notified a Package of Incentives-1992 on 28.09.1992 for attracting fresh investment to boost growth of industries in the State. As these incentives did not yield the desired results, the State on 20.03.1996 notified `New Industrial Policy, 1996' (for short "Industrial Policy, 1996") offering fresh incentives to the industries. To implement the scheme of incentives set out in the `Industrial Policy 1996', the State Government on 01.06.1996 notified rules known as `Punjab Industrial Incentives Code under the Industrial Policy 1996' (for short "Incentives Code, 1996"). The eligibility, quantum of entitlement and procedure for grant of sales-tax exemption/deferment is prescribed in this Code as under:- "3. Commencement and applicability 3.1 These rules shall come into force with effect from 1st April, 1996. 3.2 These rules shall be applicable to such of the units which come into production for the....
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....concession shall be available from the date of commencement of commercial production "A" 300% of FCI 120 months "B" 150% of FCI 84 months In case of exemption, the quantum of benefit shall be worked out on additional fixed capital investment made for expansion. The amount of Sales Tax collected and retained by the unit under the deferment scheme shall be repaid by the unit to the Sales Tax Department in three equal annual installments in the 11th, 12th and 13th years or 8th, 9th and 10th year from the date of commencement of benefit as per applicability. xxxxxxxxxxxxxxxxxx c) Procedure: i) The applicant unit would apply to the District Officer within six months from the date of starting commercial production in form T-I alongwith the following documents. - Registration Certificate with the department of industries or any other competent authority, if applicable. - Attested copy of conveyance deed/lease/rent deed of the land/building under the unit, if applicable. - Sales Tax Registration Certificate. - Form "A" issued by Registrar of Firms and Societies/Special Power of Atto....
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....st 10 or 13 years of going into commercial production." 5. It is the case of the petitioner that in order to avail of the incentives provided by the Code, the petitioner - company was incorporated on 18.9.1997 and it obtained a certificate of Commencement of Business on 25.09.1997. For setting up the unit, it acquired land measuring 43,600 sq. yards on 24.10.1997 and 28.10.1997, at a cost of `20,50,000/-. Some additional land measuring 1,100 sq. yards was purchased in the year 2001. 6. As the company was to operate in the Medium Scale, it applied for grant of Industrial Licence under the Industries (Development and Regulation) Act, 1951 (for short " the 1951 Act") which was granted vide letter dated 10.7.1998. Permission was accorded to manufacture acrylic yarn with installed capacity of 12,672 spindles . The total cost of the unit was estimated at `1,761 lacs. 7. The petitioner - company applied for loan of `6.00 crores to Canara Bank Ludhiana in the year 1997, but the loan could not be availed because higher rate of interest was proposed to be charged which was not acceptable to the company. The petitioner thereafter applied for loan to Oriental Bank of Commerce, Ludhian....
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....les Tax Deferment : No sales tax based incentive i.e. Sales Tax Exemption or Deferment from the Sales Tax will be granted to any new industrial unit or existing unit undertaking expansion except the following:- (i) Information Technology units shall continue to get sales tax exemption/deferment as provided in the Information Technology Policy notified vide No.15/4/99 51B/2174 dated : 5.3.2000. (ii)In case there are recommendations by BIFR regarding Sales Tax Exemption/Deferment, the same shall be considered by the Empowered Committee for adoption not withstanding the abolition of Sales Tax Exemption/Deferment. (iii)Units which may have taken following effective steps or which may take the effective steps by 30th April, 2000 will also be eligible for grant of Sales Tax Exemption/Deferment, after coming into production :- a) Registration with Department of Industries & Commerce. b) Purchase of land for the project: c) Submit loan application with the Financial Institution. OR Units for which the industrial license is required, the grant of such industrial license by 30th April, 2000 will be considered....
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....Thus, as per the notification dated 17.6.2002, in addition to the earlier conditions of registration with the Department of Industries and Commerce, purchase of land for the project and submission of loan application with the financial institution, an additional condition was imposed viz. that the unit was required to have come into production by 30th June 2002. 14. To give effect to the above notification, the Punjab General Sales Tax (Deferment and Exemption) (Second Amendment) Rules, 2002 were notified on 12.9.2002, which are reproduced as under:- "Vide notification dated 12th September 2002, the Government of Punjab Department of Excise and Taxation the Punjab General Sales Tax (Deferment and Exemption) (Second Amendment) Rules, 2002 were notified whereby in the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991, in rule 3, after sub-rule (2), the following shall be added, namely:- '(3) Notwithstanding anything contained in any other provision of these rules, (i) no sales tax based incentives that is Sales Tax Exemption or Deferment from the sales tax will be granted to any new industrial unit or existing unit undertaking expansion except the unit which ....
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....ent of, or exemption from the payment of tax shall become admissible only after the issue of the certificate of eligibility in form ST(D and E). III by the prescribed authority in charge of the district in the department of Excise and Taxation." 15. Thus, before this amendment, apart from the conditions of applicability of these Rules as specified in Rule 1(3) namely that they would apply to units which came into production for the first time on or after the first day of April, 1989 or after the first day of October, 1992 or after the first day of April, 1996 etc. there was no condition of commencing production by a particular date to be eligible for sales tax exemption. 16. Meanwhile, the petitioner submitted representation dated 28.06.2002 (Annexure P-16) to the General Manager, District Industries Centre, Ludhiana informing that the petitioner had taken various steps like buying land, getting licence from the Government of India, availing credit facilities from the bank, applying for electric connection and certificate from the Pollution Control Board, placing orders for plant and machinery and also substantially completing the construction. It had already spent about `7 t....
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.... 1951 Act, on 10.7.1998. Its initial validity was three years which was subsequently extended up to 31.12.2002. It obtained registration under the Central and the State Act on 2.3.2002 and 21.3.2002, respectively. It obtained NOC from the Punjab Pollution Control Board on 10.7.1998, which was further extended till 10.9.2002. It got a temporary electric connection for 70 kilowatt for construction and applied for 1,425 kilovolt electric connection on 2.3.2002. It applied to the Canara Bank for availing credit / loan facility in the year 1998, but due to non-agreement on the rate of interest, the proposal did not fructify. Subsequently, the petitioner applied for availing loan from Oriental Bank of Commerce on 30.4.2002 and credit facility of `6.00 crore in shape of term loan and `4.00 crore as working capital was sanctioned on 27.8.2002. 22. As per the Incentives Code of 1996, the incentives including sales tax deferment/ exemption would be available to new industrial units that came into production or undertook expansion on or after 1.4.1996. There was no further condition regarding commencing production before a particular date. The industry could apply for the incentives within....
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....bir Vegetable Oils Pvt. Ltd. and another v. State of Haryana and others, (2006) 3 SCC 620 Manuelsons Hotels (P) Ltd. v. State of Kerala, (2016) 6 SCC 766 Devi Multiplex and another v. State of Gujarat and others, (2015) 9 SCC 132 25. On the other hand, Ld. State counsel argued that it was in pursuance of National Consensus arrived at in the meeting of the Empowered Committee of State Finance Ministers that no sales tax related incentives be granted after 30.4.2000 except to units in the pipeline, that the State of Punjab issued the notification dated 17.06.2002 and amended the Deferment & Exemption Rules, 1991 on 12.9.2002 that no sales tax based incentive would be granted to those units, which come into production after 30.6.2002. He further stated that it is always open for the State to withdraw any exemption or incentive offered earlier and there can be no claim that an incentive once given should continue forever. He further argued that the petitioner after purchase of land in the year 1997 did not take any effective steps to start production. It was only in May, 2001 that the petitioner placed order for the supply of machinery and other steps regarding construction were ....
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....ncies 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 gain social acceptance unless it accords with the moral values of the society and the constant endeavour of the Courts and the legislature, must, therefore, be to close the gap between law and morality and bring about as near an approximation between the two as possible. The doctrine of promissory estoppel is a significant judicial contribution in that direction. B....
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....equity of the case demands. 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. The Court would not act on the mere ipse dixit of the Government, for it is the Court which has to decide and not the Government whether the Government should be held exempt from liability. This is the essence of the rule of law. The burden would be upon the Government to show that the public interest in the Government acting otherwise than in accordance with the promise is so overwhelming that it would be inequitable to hold the Government bound by the promise and the Court would insist on a highly rigorous standard of proof in the discharge of this burden. But even where there is no such overriding public interest, it may still be competent to the Government to resile from the promise "on giving reasonable notice, which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position" provided of course it is....
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....l by conduct will involve an examination of the relevant belief, actions and position of that party. 4. The question whether such a departure would be unconscionable relates to the conduct of the allegedly estopped party in all the circumstances. That party must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party: (a) has induced the assumption by express or implied representation; (b) has entered into contractual or other material relations with the other party on the conventional basis of the assumption; (c) has exercised against the other party rights which would exist only if the assumption were correct; (d) knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so. Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by re....
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....revalence of equity in a Judicature Act system combine to give the whole doctrine a degree of flexibility which it might lack if it were an exclusively common law doctrine. In particular, the prima facie entitlement to relief based upon the assumed state of affairs will be qualified in a case where such relief would exceed what could be justified by the requirements of good conscience and would be unjust to the estopped party. In such a case, relief framed on the basis of the assumed state of affairs represents the outer limits within which the relief appropriate to do justice between the parties should be framed." (emphasis supplied) 20. The above statement, based on various earlier English authorities, correctly encapsulates the law of promissory estoppel with one difference-under our law, as has been seen hereinabove, promissory estoppel can be the basis of an independent cause of action in which detriment does not need to be proved. It is enough that a party has acted upon the representation made. The importance of the Australian case is only to reiterate two fundamental concepts relating to the doctrine of promissory estoppel-one, that the central principle of the doctrine ....
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....02. Most of the construction was completed in the first half of the year 2002. The unit finally commenced production on 21.10.2002. 30. Thus, it is clear that the petitioner had made substantial progress towards completion of the project before the issuance of the notification dated 17.6.2002 and the amendment dated 12.9.2002 to the Deferment & Exemption Rules, 1991. This is further evidenced by the fact that it was able to commence production within a short period after these notifications i.e., on 21.10.2002, and within four months of 30.06.2002, the date specified in these notifications. 31. In these circumstances, in our view, Ld. Counsel for the petitioner is right in urging that as the petitioner had irretrievably altered its position in pursuance of the promise of the Government and made substantial investment before the issuance of the later notifications, they could not operate to its detriment and it could not be denied the promised benefit. 32. A somewhat similar situation arose in Mahabir Vegetable Oils's case (supra). In that case the appellants were owners of solvent extraction plants. The State of Haryana had announced an Industrial Policy for the period....
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....e solvent extraction plants were included in the negative list with effect from 16-12-1996 and Note 2 was deleted vide notification dated 28-5-1997 deeming it to have been always omitted. 35. Hon'ble the Supreme Court held that the appellants were entitled to the benefit of Note 2. It held that by reason of Note 2, certain rights were conferred on the appellant. The amendments carried out in 1996 as also the subsequent amendments made prior to 2001, could not have taken away the rights of the appellant with retrospective effect The Court observed as under: "38. The promises/representations made by way of a statute, therefore, continued to operate in the field. It may be true that the appellants altered their position only from August 1996 but it has neither been denied nor disputed that during the relevant period, namely, August 1996 to 16-12-1996 not only have they invested huge amounts but also the authorities of the State sanctioned benefits, granted permissions. Parties had also taken other steps which could be taken only for the purpose of setting up of a new industrial unit. An entrepreneur who sets up an industry in a backward area unless otherwise prohibited, is e....
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....isputably were made keeping in view the industrial policy of the State. Such industrial policies by way of legislation or otherwise, subject of course to the provisions of the statute have been framed by several other States." 176. In Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. this Court rejected the plea of the State to the effect that in the absence of any notification issued under Section 4-A of the U.P. Sales Tax Act, the State was entitled to enforce the liability to sales tax imposed on the petitioners thereof under the provisions of the Sales Tax Act and there could be no promissory estoppel against the State so as to inhibit it from formulating and implementing its policy in public interest. 177. The question came up for consideration before this Court in Pournami Oil Mills v. State of Kerala wherein it was held: (SCC p. 732, para 7) "7. Under the order dated 11-4-1979, new small-scale units were invited to set up their industries in the State of Kerala and with a view to boosting of industrialisation, exemption from sales tax and purchase tax for a period of five years was extended as a concession and the fiveyear period was to run from the date ....
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....he right of the appellant new industries to get the development rebate of 10% for the unexpired period of three years from the respective dates of commencement of electricity supply at their units from the Board with effect from 1-8-1986 onwards till the entire three years' period for each of them got exhausted. This result logically follows for the appellants who have admittedly entered into supply agreements with the Board as new industries prior to 1-8-1986." 182. The question came up for consideration before this Court recently in State of Punjab v. Nestle India Ltd. wherein this Court surveyed the growth of the said doctrine and held the doctrine to be applicable to legislative action also. 38. In State of Bihar v. Kalyanpur Cement Ltd., (2010) 3 SCC 274, the Supreme Court rejected the justification of the State to deny the tax exemptions promised in the Industrial policy of 1995 based on a change in policy advocated at the Chief Ministers' Conference and held that the discontinuance of the sales tax exemptions w.e.f., 1.1.2000 could not have affected the rights of the respondent company under the Industrial Policy, 1995. It was observed as under: "79. We are also una....
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....the Company as no notification had been issued under Clause 24 cannot be accepted as the appellant State cannot be permitted to take advantage of its own wrong. The third reason given is that the State-Level Empowered Committee (SLEC) had not approved the rehabilitation package. This clearly is against the record which has been examined by us in the earlier part of the judgment. Not only was the exemption recommended by the competent Committees under the Industrial Policy, 1995, emphatic assurances were given that the notification will be issued within a very short period. The fourth reason with regard to the resolution passed at the Chief Ministers' Conference is equally extraneous to the issue. The Company had made the application for exemption at a much prior time in 1997. No material has been placed either before the High Court or before this Court about the legal enforceability of the resolutions passed at the Chief Ministers' Conference. In our opinion the decision-making process which culminated in passing of the Orders dated 6-1-2001 and 5-3- 2001 is seriously flawed, therefore, the same have been justifiably quashed by the High Court." 39. In MRF Ltd. v. CST, (2006) 8 S....
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....ation of the principles of promissory estoppel, besides being unfair and immoral on the part of the State not to act as per its promise. The Court pointed out that before setting up any industry, the industrialist considers several factors including the incentives offered by any State which factor must be kept in mind by the Court in deciding cases of this nature. "30. Before laying down any policy which would give benefits to its subjects, the State must think about pros and cons of the policy and its capacity to give the benefits. Without proper appreciation of all the relevant factors, the State should not give any assurance, not only because that would be in violation of the principles of promissory estoppel but it would be unfair and immoral on the part of the State not to act as per its promise. 31. In the instant case, the respondent State was conscious about the fact that there was a problem with regard to supply of electricity in the State of Kerala and possibly for that reason industries which depended much upon electricity as a source of power were not inclined to establish new industries in the State of Kerala. Before setting up an industry, the entrepreneur or th....