TaxTMI 
TaxTMI 
2016 (12) TMI 424
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....arry 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 first time, on or after 1st April, 1996 or undert....
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....I 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 Attorney/copy of resolution by the Board, whichever is applicable. - Certificate regarding FCI as appraised by the financial institution/scheduled bank. ii) General Man....
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.... 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, Ludhiana on 31.1.2002 which was sanctioned vide letter dated 5.9.2002. Order for the supply of machinery was placed with M/s Laxmi Machine Works Ltd., Coimbatore in May 2001 and order for setting up for the plant was given to M/s ....
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.... 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 sufficient collective step for the purpose of granting Sales Tax Exemption/ Deferment as above. (iv)Industrial units which have already been granted exemption/deferment under the Industrial Policy of the State Government will continue for the benefit till the expiry of the concession period. (v)....
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....h 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 had taken the following effective steps by 30th April, 2000. (a) Registration with the Department of Industries and Commerce or with any other designated Department including, in the case of licensed items, the obtainment of such industrial license, (b) Purchase of land for the project; (c) Submit loan application with the financial institu- tion.....
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....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 to 8 crores. In the light of these, it was requested that the petitioner's case be treated separately and the time for commencement of production for availing the incentive, in its case, be extended till 31.12.2002. This representation was rejected on 24.9.2002 stating that the petitioner was not eligible for sales tax exemption in terms of notification dated 17.06.2002 wherein the cut off-date for start of product....
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....lt 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 six months of the date of starting commercial production. It was only vide the notification dated 24.6.2000 that it was specified that the sales tax exemption or sales tax deferment would be available in the case of units, which took the following three effective steps, before 30.4.2000 namely (a) registration with the department of Industry and Commerce (b) purchase of land for the project and (c) submission of loan applica....
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....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 taken after January, 2002. Moreover, it submitted its application for grant of credit/loan facility to Oriental Bank of Commerce OBC on 31.1.2002, which was sanctioned on 5.9.2002. He further stated that as the unit started production on 21.10.2002 i.e., after the notifications dated 17.6.2002 and 12.9.2002, its case would be governed by these notifications. 26. Heard Ld. Counsel for the parties and perused the record. 27. The law ....
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....ng 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. But it is necessary to point out that since the doctrine of promissory estoppel is an equitable doctrine, it must yield when the equity so requires. If it can be shown by the Government that having regard to the facts as they have transpired, it would be inequitable to hold the Government to the promise made by it, the Court would not raise an equity in favour of the promisee and enforce the promise against the Government. The doctrine of pro....
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....cide 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 possible for the promisee to restore status quo ante. If, however, the promisee cannot resume his position, the promise would become final and irrevocable. Vide Emmanuel Avodeji Ajaye v. Briscoe." Recently, this view was reiterated by Hon'ble the Supreme Court in Manuelsons Hotels's case (supra) , as under: "19. In fact, we must never forget that the doctrine of promissory estoppel is a doctrine whose foundation is that an uncons....
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....ut 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 reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted. In cases falling within Category (a), a critical consideration will commonly be that the allegedly estopped party kne....
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.... 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 is that the law will not permit an unconscionable departure by one party from the subject-matter of an assumption which has been adopted by the other party as the basis of a course of conduct which would affect the other party if the assumption be not adhered to. The assumption may be of fact or law, present or future. And two, that the relief that may be given on the facts of a given case is flexible enough to remedy injustice wherever it is found. And this would include the relief of acting on the basis that a future as....
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....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 from April 1, 1988 to March 31, 1997 wherein, besides other in- centives, sales tax exemption was to be given to the industries set up in backward areas in the State. Rules 28A to 28C to the Haryana General Sales Tax Rules, 1975 (for short "the Rules") specified the class of industries, period and other conditions for exemption/deferment from payment of tax. As per these Rules the operative period was from 1st April, 1988 to 31st March, 1997. Schedule III contained a negative list of industries. Solvent extraction plant was not ....
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....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 entitled to alter his position pursuant to or in furtherance of the promises or representations made by the State. The State accepted that equity operated in favour of the entrepreneurs by issuing Note 2 to the notification dated 16-12-1996 whereby and where under solvent extraction plant was for the first time inserted in Schedule III i.e. in the negative list. 39. Both the provisions contained in Schedule III and Note 2 formed part of subordinate legislation. By reason of the said note, the State did not deviate from its professed obj....
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....ons 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 of commencement of production. If in response to such an order and in consideration of the concession made available, promoters of any small-scale concern have set up their industries within the State of Kerala, they would certainly be entitled to plead the rule of estoppel in their favour when the State of Kerala purports to act differently. Several decisions of this Court were cited in support of the stand of the appellants that in similar circumstances the plea of estoppel can be and has been applied and the leading authority on this point is the case ....
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....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 unable to accept the submission that the decisions dated 6-1-2001 and 5-3-2001 had been taken due to the change in the national policy. This was sought to be justified by Dr. Dhavan on the basis of the Conferences of Chief Ministers/Finance Ministers. It is settled law as noticed by Bhagwati, J. in Motilal Padampat 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 cla....
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....iod. 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 SCC 702, the action of the State Government to withdraw the benefit of tax exemption granted in terms of the Industrial policy was held to be arbitrary and unreasonable. : "39. MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sales tax for a period of seven years. It was granted the eligibility certificate. The exemption order had also been passed. It is not open to or permissible for the State Government to seek to deprive MRF of the benefit of tax exemption in respect of its substantial inv....
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....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 the industrialist considers several factors and thereupon takes several decisions like place of business, capacity at which production should be made, type of raw material, etc. After considering all these factors, a final decision is taken with regard to setting up of an industry. For a new entrepreneur, such a decision is of vital importance because if he fails in his estimates or in consideration of all the relevant factors, there are all chances that he would fail not only in his business but he would completely ruin himself. Thus, one can very well appreciate that the appe....