TaxTMI 
TaxTMI 
2022 (4) TMI 558
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.... Complex Ltd., which was engaged in dyeing of clothes. The Kerala based unit was not operational for a considerable period when attempt was made, for revival of the unit under SICA. In the proceedings that were pending before the Board for Industrial and Financial Reconstruction (for short "BIFR"), the authorities were assessing the possibility of revival of the unit. At that stage, the appellant offered to make investment for revival of the company following which, discussions were held amongst the stakeholders and various concessions were offered to the appellant. 4.1 In tune with the recommendation of the Empowered Committee constituted for the purpose, the Government Order was issued on 20.3.2004 whereby the recommendations of the Committee were accepted. The relevant clause incorporating the measures relating to Sales Tax/Works Contract Tax, are as under:- "Sales Tax/Works Contract Tax (a) The past arrears of Sales Tax/Works contract tax will be completely waived. (b) Works contract Tax on processing of Fabrics like bleaching and dyeing etc. will be exempted in the State" 4.2 In furtherance of the 2004 Government Order, the revival proposal envisaged the taking over....
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....dated 21.11.2006. According to the appellant, the exemption granted vide the 2004 Government Order was issued as a "package deal" in course of revival of the sick unit in conformity with the relevant provisions of the SICA and once consent was given and proceedings were finalized in terms of Section 19(1) or 19(2), the same would be binding upon all the stakeholders as is provided under Section 19(3) of SICA. It was therefore argued that the benefit of tax exemption granted by the State under the Scheme, is binding on the State under the provisions of Section 19(3) of SICA and the State must be held accountable to their promise. It was the say of the appellant that the incentives were not granted under Section 10(1) of the KGST Act, and therefore the tax exemption could not have been withdrawn by invoking the powers under Section 10(3) of the same Act. The appellant unequivocally rejected a suggestion by this Court that the appellant might not constitute a unique class of one, in whose favour a tax exemption under Section 10(1) KGST Act can be granted legally. The appellant however failed to point out any other provision in any statute, which empowered the State Government to grant....
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....on 10 of the KGST Act. 10. Adverting to the mandate of Section 10 of the KGST Act, the learned Single Judge of the High Court doubted whether the exemption could have been extended to the appellant alone as opposed to a class of industries and the court commented that "such a course of exemption throughout the State was not brought about". The learned Judge observed that the 2004 Government Order was based on the recommendation of the Empowered Committee with due discussion amongst the stakeholders, and those were with specific reference to the concessions to be extended to new promoters for revival of sick units, in light of the government order dated 25.11.1994. 11. It was noted by the learned Single Judge upon perusal of the 1994 Government Order that there are two separate channels of benefits/reliefs i.e. (a) nonfiscal; and (b) fiscal, and under item no. 2, the exemption was granted for works contract tax on processing of fabrics like bleaching, dyeing etc. 12. The above would show that the fiscal measures refer to exemption/deferment of sales tax, purchase tax, electricity dues for two years, but not exceeding five years or till the date, the net worth of the company becam....
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.... State to realize the tax in respect of sales transaction. Section 10 deals with the power of exemption and sub-Section (3) thereof confers the power to have the order of exemption "varied or modified", in the manner specified. 17. The benefit of exemption to tax must therefore be traceable to powers conferred under the KGST Act and such benefits could not have been granted in terms of the BIFR Scheme dated 17.01.2005 giving effect to the Government Order issued on 20.3.2004. In the 2006 Government Order withdrawing the benefits, the government has specifically adverted to Section 10 of KGST Act and as such the non-mentioning of the provisions of Section 10(1) of the KGST Act in the 2004 Government Order, would not assist the appellant in any significant measure. 18. In Pournami Oil Mills and Others vs. State of Kerala and Anr. 1986 (Supp) SCC 728, Justice Ranganath Misra, as he was then, opined as follows:- "6......It is a well settled principle of law that where the authority making an order has power conferred upon it by statute to make an order made by it and an order is made without indicating the provision under which it is made, the order would be deemed to have been mad....
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....x payable by the sick units, were completely waived. Factoring this, the writ court as well as the Division Bench opined that sub-clause (1)(b) of 2004 Government Order relating to waiver of tax in the State is of such wide amplitude that the same must be seen as uncertain and vague. Also importantly, such exemption cannot continue indefinitely and particularly not beyond the point at which the revival of the sick unit is seen. 23. As earlier discussed, Section 10(1)(ii) of the KGST Act enables the State to grant exemption from sales tax only with respect to "any specific class of persons in regard to the whole or any part of their turnover" and since the 2004 Government Order benefitted only a single unit i.e. the appellant, it is difficult to accept that the solitary industrial unit which was being revived under the BIFR Scheme, would form a class by itself. Therefore, contention to the contrary by the appellant is considered and rejected with the reasoning that the exemption by 2004 Government Order was not made applicable to all sick industrial units of the state, engaged in the like activities of bleaching, dyeing etc. 24. It is also relevant to point out that the government....
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....would be obliged to act in a manner which is contrary to the legislative mandate. 28. The equitable principle of promissory estoppel was propounded by this Court in the case of M/s. Motilal Padampat Sugar Mills Vs. State of Uttar Pradesh & Ors. (1979) 2 SCC 409 In the same very case, it was however observed that the legal principle cannot be invoked to compel anyone to do anything, contrary to law. Justice P. N. Bhagawati for the Division Bench wrote the following:- "28...It may also be noted that promissory estoppel cannot be invoked to compel the Government or even a private party to do an act prohibited by law..." 29. The above judgment in Motilal Padampat(Supra) was followed in the case of Amrit Banaspati Co. Ltd. Vs. State of Punjab & Anr. (1992) 2 SCC 411 wherein, this Court carved out unlawful/illegal promise as an exception to the principle of promissory estoppel. But, the observation in this case in reference to an unlawful promise was not laid down as a ratio, but at best an Obiter dicta. 30. In the later case of Bangalore Development Authority Vs. R. Hanumaiah (2005) 12 SCC 508, it was however specifically declared that the equitable principle of promissory estoppe....
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....roval. The state government, for incentivizing the appellant, issued government order dated 20.01.1994 granting sales tax deferral for a period of 7 years. The said deferral was reflected in the BIFR Sanctioned Scheme dated 04.04.1994. Later, the state government issued another order on 18.08.1995, whereby 18% interest was levied on the sales tax component so deferred. The interest sum was payable after 7 years in lump sum. Dealing with the challenge to the government decision, this Court by a short order upheld the Government Order dated 18.08.1995 with the observation that the interest was imposed under relevant provisions of AP General Sales Tax Act, 1957 (APGST Act). Further, even though the payment of sales tax was deferred for 7 years vide Government Order dated 20.01.1994 and the BIFR sanctioned scheme dated 04.04.1994, both pertinently were silent on the interest aspect. Hence, this Court held that as there was no express waiver of interest, the provisions of APGST Act would prevail over the BIFR scheme. 35. In the case at hand, the government order dated 20.03.2004, as well as the BIFR sanctioned scheme, are silent on the duration of tax exemption for the works contract. I....
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....s for expansion, and then commenced operations on 31.12.1996. They were also issued the eligibility certificate on 10.11.1997, granting tax exemption from 31.12.1996 to 29.12.2003, by the Kerala government. Subsequently the government order was issued on 15.01.1998, amending its 1993 Order adding sub-clause (h) to the negative list. This excluded MRF's activities from the definition of 'manufacture'. The same in effect extinguished the tax exemptions granted vide the 1993 government order. By another Notification dated 31.12.1999, the Kerala government notified that the exemptions sanctioned before 01st January, 2000 in furtherance of 1993 government order would continue for full period of 7 years. In this background, the authorities issued a demand notice, seeking to levy purchase tax from 15.01.1998, relying on the 15.1.1998 government order. When this was challenged and the matter eventually came to this Court, the Division Bench speaking through Justice Ashok Bhan, held that the state authority's demand for purchase tax under KGST Act from 15.01.1998, is barred by principle of promissory estoppel since the state cannot renegade its earlier promise of tax exemption for 7 years u....
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....2006 government order withdrawing the tax exemption was in fact issued to remedy this very mischief. Hence, the appellant cannot invoke the principle of legitimate expectation against the 2006 government order. 42. Reverting now to another appropriate aspect as presented in Pawan Alloys & Casting Pvt. Ltd., Meerut Vs. U.P. State Electricity Board and Others (1997) 7 SCC 251 where it was propounded that if the state, in exercise of its sovereign powers, grants any tax exemptions for a specified period, the principle of promissory estoppel does not bar the grantor from prematurely withdrawing such exemptions, if such measure is necessitated for protecting public interest. In other words, public interest would outweigh the interest of the individual grantee. 43. While reflecting upon the element of public interest as enunciated in Pawan Alloys (supra), in granting or refusing relief on the principle of promissory estoppel, the last public address of the lawyer statesman Abraham Lincoln who served as the 16th President of USA, intrudes into our thought process. Taking a strong stand in support of Black suffrage, Abraham Lincoln, soon after winning the Civil War, refused to give in to....
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....ax, notified under subsection (1) - (a) may extend to the whole State or to any specified area or areas therein, (b) may be subject to such restrictions and conditions as may be specified in the notification (3) The Government may by notification in the Gazette, cancel or vary any notification issued under sub-section(1). 3. In order to appreciate whether the exemption in favour of the appellant would be ultra vires Section 10 of the State Tax Law and whether there is merit in the case of the appellant that actually the exemption was not given under Section 10, I may briefly evaluate the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to as 'the Act'. The Act defined 'Sick Industrial Company' w.e.f. 01.02.1994 as follows: "3(o) sick industrial company means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Explanation: For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment A....
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....rence in that behalf from any agency referred to in sub-section (2) of section 15 or on its own motion and pass a fresh order in respect of such company under sub-section (3); (b) if the operating agency specified in an order made under sub-section (3) makes a submission in that behalf, review such order and modify the order in such manner as it may deem appropriate." 5. It is clear that under Section 17(3) if the Board decided that it is not practicable within a reasonable time to make the company's net worth exceed the accumulated losses, a scheme may be provided as provided under Section 18. Section 18, therefore, dealt with the circumstances obtaining under Section 17(3) to prepare and sanction the scheme. Section 18 provided in detail as to what could be provided for in the scheme. It reads as follows: - "18. Preparation and sanction of schemes. - (1) Where an order is made under sub-section (3) of section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any on....
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....feree company of any action or other legal proceeding pending against the sick industrial company immediately before the date of the order made under sub-section (3) of section 17; (f) the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Board considers necessary in the interests of the reconstruction, revival or rehabilitation of the sick industrial company or for the maintenance of the business of the sick industrial company; (g) the allotment to the shareholders of the sick industrial company of shares in the sick industrial company or, as the case may be, in the [transferee company] and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder the payment of cash to those shareholders in full satisfaction of their claims- (i) in respect of their interest in shares in the sick industrial company before its reconstruction or amalgamation; or (ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced; (h) any other terms and conditions for the reconstruction or amalgama....
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....shareholders and no such scheme shall be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the shareholders of the company other than the sick industrial company. (4) The scheme shall thereafter be sanctioned, as soon as may be, by the Board (hereinafter referred to as the "sanctioned scheme") and shall come into force on such date as the Board may specify in this behalf: Provided that different dates may be specified for different provisions of the scheme. (5) The Board may on the recommendations of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines as may be specified in the order, to prepare a fresh scheme providing for such measures as the operating agency may consider necessary. (6) When a fresh scheme is prepared under subsection (5), the provisions of sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under sub-section (1). (6A) Where a sanctioned scheme provides for the transfer....
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....d for rehabilitation giving financial assistance. It reads as follows: "19. Rehabilitation by giving financial assistance.-(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government, bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation [or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further per....
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....final scheme under Section 19(3). The processes that are involved and the procedures that are undergone may result in the particular company which is at the centre stage of the final scheme being entitled to be treated in terms thereof. 9. Therefore, on the scheme of the Sick Industrial Companies Act, the law contemplated concessions, and sacrifices inter alia being undertaken by the State Government inter alia in terms of financial assistance. Section 19(4) appears to indicate that if consent is not given to any person, the Board is free to adopt other measures including winding up of the sick industrial company. A sick industrial company is defined in the Act. In terms of the definition, it is undoubtedly true that there may be more than one sick industrial companies operating in the same business or rather dealing in the same goods and services. The scheme of Section 17 appears to be that such sick industrial companies that could be nursed back to health under section 17(1) and 17(2), did not go on to be dealt with under Section 18 and 19. It is in regard to a sick industrial company which fell within the four walls of Section 17(3) that the special provisions under sections 18....
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....y and against public interest also, as it frustrates the object of law to allow a scheme to be sanctioned inducing all parties to proceed on the basis that a company would be redeemed from its financial dire-straits and the crucial financial assistance indispensable to the said process is not forthcoming from the State. The aforesaid interpretation placed in para 11 hereinbefore would harmonise the Central and the State Act. It will also give life to the Sick Companies Act as it would clearly further the object of the law. Therefore, the exemption granted can be understood as springing from the provisions of Section 19(3) read with 19(1) in this regard. Thus, the exemption is not to be treated as falling under Section 10 of the State Act. In other words, Section 10 cannot be treated as the sole repository of power to grant exemption. 13. The Government of Kerala, had in fact issued G.O.M.S. dated 25th November 1994. It, inter alia, deals with the aspect of benefits given under the Act. In fact, the said order provided for guidelines in the model package which is appended to be followed by government while formulating rehabilitation scheme within the purview of the Sick Industrial ....
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....ate Tax Law with which we are concerned. A reduction of tax was given to the second respondent therein. The second respondent was a Government Company. We notice the following observations: "27. .... Apart from that, we are of the opinion taking into account that the second respondent is a Government company, and, it is established in a centrally notified backward area, and it provides employment opportunities to those people in that area and it is a new entrant in the filed, the concession shown to the second respondent is clearly sustainable as the second respondent unit constitutes a class by itself and the classification so made in its favour is justified with the object in view as stated above." 17. A sick industrial company which is the subject matter of the sanctioned scheme may constitute a class by itself. However, it is not necessary to explore this aspect further as the exemption granted to the sick company covered by Section 19(3) is safely anchored in Section 19 of the Act. 18. The question would arise as to whether on the said view the appellant should be granted relief? There is merit in the view that the exemption does not envisage any outer time limit. But it ....