TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 309
X X X X Extracts X X X X
X X X X Extracts X X X X
....bursement, as contemplated in paragraph-18.4 of IPR 2007. Background facts 2. The background facts are that Petitioner No.1 is stated to be operating cement manufacturing units in various States in India including a cement manufacturing unit in Jharsuguda District in Odisha. According to the Petitioners, the said unit is a state-of-the- art cement manufacturing industrial unit which, inter alia, utilizes intermediate products (clinker) and waste products (fly ash) generated by other industrial undertakings along with gypsum as a raw material to manufacture high quality cement. 3. It is stated that the cement manufacturing process undertaken by Petitioner No.1 is a controlled manufacturing process resulting in high value addition, employment generation and revenue augmentation. It is stated that the said manufacturing process requires substantial investment in high-end plant and machinery, monitoring and regulation through sophisticated electrical, mechanical and instrumentation systems by qualified technical personnel. IPR 2007 4. On 2nd March 2007, the Industries Department, Government of Odisha published the IPR 2007 with a view to reinforcing and expanding the policy framew....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Petitioner No.1 qualified as a downstream industry even according to the amended definition. 8. It is contended that IPR 2007 contemplated that existing cement manufacturing units which undertook expansion of installed capacity and satisfied the prescribed criteria for downstream "thrust sector" industrial units were entitled and eligible to avail financial incentives under IPR 2007 including Value Added Tax (VAT) reimbursement. 9. Paragraph-14 of the IPR 2007 provided for the eligibility criteria for availing "financial and other support measures" which stated that existing industrial units which take up expansion/modernization/diversification will be eligible for specific incentives as specified. 10. Paragraph 18.4 of IPR 2007 provided for "VAT Reimbursement". As per paragraph 18.4 (iii), new industrial units of the thrust sector were eligible for reimbursement of 75% of VAT paid for a period of 10 years from the date of starting commercial production. The quantum of such VAT reimbursement which could be availed was capped at 200% of the fixed capital investment subject to the condition that VAT reimbursement shall be applicable only to the net tax paid, after adjustment of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ged in its Jharsuguda unit. 14. Commercial production of the expanded unit commenced on 15th October 2013 within three years from the date of the first fixed capital investment as required under the IPR 2007. A commercial production certificate issued by the Director of Industries on 10th December 2014 specifying the above commercial production date is enclosed as Annexure-5 to the petition. 15. The Petitioners point out that there are 51 categories of industrial units listed out in the "negative list" (Annexure-II) appended to the IPR including "grinding and mixing units" listed at Sl No.51. These are not entitled to avail the financial incentives since they are small units with non-recurring and low capital investment. That downstream industrial units under the "thrust sector" would not come within the "negative list" was clarified at the 1st meeting of the Empowered Committee held on 4th December 2014. It was clarified that the negative list only applied to the small industrial units which did not involve any value addition and not to cement manufacturing units like Petitioner No.1. 16. Reliance is also placed by the Petitioners on the observation of the second meeting of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....decision taken at a meeting held on 5th September 2018 under the Chairmanship of the Chief Secretary, Odisha which purportedly decided that the Jharsuguda unit of Petitioner No.1 was "......a standalone cement grinding unit and attracts Sl No.51 of Annexure II of the Negative List under IPR-2007. Accordingly, it will not be eligible for VAT reimbursement under IPR-2007." Proceedings in this Court 20. The Petitioners then filed W.P.(C) No.12435 of 2019 in this Court questioning the aforementioned order dated 6th October, 2018 as being arbitrary and illegal. On 23rd July 2019, this Court admitted the writ petition directing that the payment of tax by Petitioner No.1 towards VAT/SGST would be subject to the outcome of the writ petition and in case Petitioner No.1 succeeded in the writ petition, the amount so deposited by it would be refunded to it along with interest. 21. By a letter dated 22nd May 2019, the Opposite Parties rejected the claims of Petitioner No.1 for VAT and SGST reimbursement for the financial year (FY) 2017-18. Further, the Opposite Parties refused to accept the reimbursement claims lodged by Petitioner No.1 for the current FY 2019-20 compelling it to send it by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nother cement manufacturing unit, M/s. Kapilash Cement Manufacturing Works (KCMW) similarly situated as Petitioner No.1 was eligible and entitled to avail incentives under IPR 2007 as a "Thrust Sector Industry" and did not fall within the scope of "grinding and mixing unit" specified at Sl. No.51 of the negative list. In reply to this, it is sought to be contended by the Opposite Parties that under paragraph-29 of the IPR 2007, the implementation of the policy was to be periodically reviewed by a High-Level Clearance Authority (HLCA) "for necessary facilitation and mid-course correction, wherever necessary". 26. A copy of the minutes of the meeting held on 5th September 2018 under the Chairmanship the Chief Secretary has been enclosed with the counter affidavit filed in W.P.(C) No.29253 of 2020 as Annexure-D/3. A perusal of the said minutes shows that the case of KCMW was specifically taken up for consideration and a comparison of KCMW with Petitioner No.1 was made. The justification given for treating KCMW differently is stated as under: "The committee went through the background information in respect of both cement manufacturing units i.e. KCMW, Cuttack & Ultratech Cement Ltd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the Cement Plants already started production and the Cement Manufacturing Units in pipeline, it is estimated that State Government has to sacrifice tentatively up to Rs. 918 crores net SGST per annum i.e. for 17.85 MMTPA from the FY 17-18 onwards. Looking into the financial burden on State exchequer, Government of Odisha has decided to stop the incentives for Cement Plants as a whole and there is no illegality involved in the same. Government has made an expenditure of Rs. 134.28/- Crore, Rs. 174.85/- Crore and Rs. 165.68 Crore for the years 2017-18, 2018-19 & 2019-20 respectively towards reimbursement of VAT only for Cement Manufacturing Units. A conscious decision has been taken in respect of all the Cement Manufacturing Units of the State and not in respect of the Petitioner-Unit only." 30. It is accordingly sought to be contended that the principle of promissory estoppel has no application and that "the State Government has never made any promise to the Petitioners regarding reimbursement of SGST." 31. The affidavit further seeks to explain that "the large unit" taken as a base was OCL India Limited, and on that basis, the above calculations have been arrived at. Submissio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of the VAT reimbursement of the Petitioners was completely illegal and arbitrary. (iv) An examination of the figures of VAT reimbursement made by the State Government, as stated in its additional affidavit dated 2nd December 2021, revealed that there was an admission by the State Government that VAT reimbursement had in fact been granted to the cement manufacturing units similarly situated as that of Petitioner No.1. Relying on the decision in State of U.P. v. Birla Corporation Limited (supra), it is submitted that revenue loss cannot be invoked as supervening public interest to deny the promised incentives to industrial units which have a vested and accrued right and have satisfied all the prescribed criteria. (v) The vested right of the Petitioners cannot be taken away by way of a retrospective amendment that too only by amending the heading of paragraph 18.4 of the IPR 2007 without any changes to be substantive provision thereof. Petitioner No.1 was entitled to the post production incentives as a 'thrust sector downstream industrial unit'. The entire manufacturing process and quality parameters of cement cannot be achieved by merely "mixing and grinding of raw material....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e State authorities are not denying that the Petitioner No.1 was in fact issued the eligibility certificate dated 3rd May 2016 under IPR 2007 by IPICOL after a "joint inspection of the Petitioners' Jharsuguda unit by Opposite Party No.3." There is no denial that subsequently there was a certificate of verification issued on 30th July 2016 stating that the Jharsuguda unit of Petitioner No.1 "was not included in the activity enlisted at Sl No.3 of Annexure-II of IPR 2007. 38. There is also no denial that a certificate acknowledging that the unit of PetitonerNo.1 was in the 'thrust sector' was issued on 1st September 2016, again by Opposite Party No.3. Therefore, it is plain that a detailed verification was undertaken of the activity of Petitioner No.1 and particularly its manufacturing process. To now contend, as is sought to be done by the Opposite Parties in the reply to the rejoinder, that since Petitioner No.1 was sourcing clinker from the cement units at Chhattisgarh, fly ash from certain units in Sambalpur and gypsum was imported from Iran, all that Petitioner No.1's unit was doing was to mix these at its unit for production of cement is completely contrary to what adm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... chosen for denial of SGST reimbursement and that too with retrospective effect, if in fact the idea was to revisit the incentive under IPR 2007 as a result of introduction of the GST regime. It will be recalled that the GST regime was introduced in the country with effect from 1st July 2017 whereas the retrospective amendment was made more than three years later on 18th August 2020 and that too only for cement manufacturing/grinding units and blast furnace slag-based units. In the absence of a convincing justification provided, a move directed at only a few thrust sector industries for denial of SGST reimbursement can only be termed irrational, arbitrary and discriminatory. 42. For reasons explained hereafter, the Court is of the view that the Petitioners have made out a case for striking down of the impugned decisions of the Opposite Parties on the ground of promissory estoppel. 43. The Court would first like to take up for discussion the decision of the Supreme Court of India in MRF Limited v. Assistant Commissioner (Assessment) Sales Tax (supra), which in the considered view of this Court is squarely applicable to the present case. The facts in the said decision were as follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....missory estoppel, but in the present case there is not even a whisper of any overriding public interest or equity....." "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 investment in expansion in respect of compound rubber when the State Government had enjoyed the benefit from the investment made by the MRF in the form of industrial development in the State, contribution to labour and employment and also a huge benefit to the State exchequer...............The impugned action on the part of the State Government is highly unfair, unreasonable, arbitrary and, therefore, the same is violative of Article 14 of the Constitution of India. The action of the State cannot be permitted to operate if it is arbitrary or unreasonable......Equity that arises in favour of a party as a result of a representation made by the State is founded on the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....considered view of the Court, the decision in MRF Limited (supra) would squarely apply to the facts of the present case. 45. The excuse of financial implication does not stand scrutiny in view of the observations of the Supreme Court in State of U.P. v. Birla Corporation Ltd. (supra). There the facts were as under: (a) The State of U.P. issued a Notification dated 18th June, 1997 (1st Notification) providing tax rebates for 10 years to industrial units which utilized prescribed percentages of fly ash for manufacturing goods in notified districts. By a further Notification dated 27th February, 1998 (2nd Notification), the 1st Notification was amended and the criteria for grant of tax rebates were modified. (b) The 1st Notification was challenged before UP High Court as inter alia being discriminatory. The High Court quashed and set aside the said Notification by its order dated 29th January, 2004. Thereafter by Notification dated 14th October, 2004 (3rd Notification), the 2nd Notification was rescinded by the State Government with effect from 14th October, 2004. On account of issuance of the 3rd Notification, State Government denied tax rebates even to those units which had ful....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommenced commercial production in respect of specified goods before 14th October, 2004, would continue to achieve the same objective as is specified in the Notification dated 27th February, 1998. In that, the concerned manufacturing units continue to manufacture specified goods by using fly ash purchased or produced from the thermal power stations situated within the State. As long as that activity is continued until the term specified under the notification dated 27th February, 1998, namely ten years from the date of commencement of commercial production, there is no tangible reason nor it is open to contend that the dominant purpose underlying notification dated 27th February, 1998 had ceased to exist or had become irrelevant in any manner, much less there are supervening circumstances qua such units which are so overwhelming that it would be inequitable for the State Government to be bound by the promise given in notification dated 27th February, 1998. 30. Indeed, the judgment rendered by the High Court and affirmed by this Court in interpreting the notification dated 27th February, 1998, at best, may have given rise to some logistical issues for the State including financial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctive effect to whittle down the accrued rights in favour of the Respondent units which were entitled to rebate as specified in 2nd Notification dated 27th February, 1998 for a period of 10 years from commencement of commercial production. 46. In the present case, no material whatsoever has been placed on record by the Opposite Parties to establish that the impugned resolution retrospectively amending the heading to paragraph 18.4 of IPR 2007 is in public interest. On the contrary, the State government appears to have done a U-turn without justification. It has sought to reverse the earlier determination, by its authorities, of the eligibility of the unit of Petitioner No.1 to receive the IPR 2007 incentives. As already pointed out, there was no justification in singling out cement manufacturing units for denial of the SGST reimbursement. 47. The reliance placed by the Petitioners on the decision Manuelsons Hotels Pvt. Ltd. v. State of Kerala (supra) also appears to be justified. The said decision was a distillation of the principle of promissory estoppel explained in the earlier decisions. The Supreme Court in the said case held as under: "20. There are .....two fundamental co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... act according to what it puts forth in the public realm. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts. A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest. 54. Therefore, it is clear that the State had made a representation to the respondent and similarly situated industrial units under the Industrial Policy 2012. This representation gave rise to a legitimate expectation on their behalf, that they would be offered a 50 per cent rebate/deduction in electricity duty for the next five years. However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated. Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and is violative of Article 14." 49. Turning now to the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ne of promissory estoppel had no application to the facts of the case at that stage". The case was remanded to the High Court for a fresh decision. Therefore, the said decision is also of no assistance to the Opposite Parties to avoid the liability. 52. The Court rejects the plea of the opposite Parties that it is being called upon in the present case to review a policy decision. The Court is in fact being asked to examine the reasonableness of the decision of the Opposite Parties to retrospectively take away the benefits already extended to an existing unit under IPR 2007. Consequently, none of the decisions relied upon by the Opposite Parties in the context of judicial review of policy decisions of the State have any applicability to the facts of the present case. 53. Lastly, the Court is not satisfied of the reasons given by the Opposite Parties for discriminating against Petitioner No.1 unit vis-à-vis KPCW which appears to be identically placed as Petitioner No.1. The HCLA at its meeting on 18th September, 2008 noted that KCMW was "a separate unit but part of integrated facility of OCL for manufacturing cement". In other words, KCMW was also a standalone unit. Further,....