TaxTMI 
TaxTMI 
2022 (4) TMI 558
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....ial unit by the name of M/s Teak Tex Processing 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 ....
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....t open to the State of Kerala to resile from their promise by issuing the Government Order 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incentives were not granted under Section 10(1) of the KGST Act, and therefore the tax exemption could not have been withdrawn by invoking the powers under Section 10(3) of the same Act.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 ....
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....in the State of Kerala. It further raises questions in regard to the scope and extent of exemption that could be provided under Section 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....
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....from the 1994 government order. 16. Furthermore, Sales tax in the State of Kerala is chargeable under Section 5 of the KGST Act which makes it obligatory upon the 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 c....
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..... The present dispute pertinently is only with regard to the exemption relatable to sales tax/works contract tax and it is nobody's case that past arrears of sales tax/works contract tax 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 ....
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....mpermissible under Section 10 of the KGST Act. Such being the position, the benefit of the equitable doctrine of estoppel cannot be extended for the appellant as in that case the State authority 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 a....
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....light on the present matter. In that case, the Voltas Ltd. agreed to take over the refrigeration unit of 'Hyderabad Allwyn Ltd.' (A Sick Company) vide a Memorandum of Understanding with the state government, subject to BIFR approval. 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 provi....
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.... addendum to the Memorandum of Understanding was executed on 10.04.1996, explicitly stating that the industry was eligible for tax exemptions under government Order dated 03.11.1993. Pursuant to such encouragement, MRF Ltd. invested Rs. 80 Crores 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....
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....similar activities, do not appear to be reasonable and should be seen as arbitrary. The 2004 government order was not only ultra vires Section 10(1) of KGST Act, but also falls short by principle of reasonableness, fairness, and nonarbitrariness. The 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 ....
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....ed goods or class of goods, at all points or at a specified point or points in the series of sales or purchases by successive dealers, or (ii) by any specified class of persons in regard to the whole or any part of their turnover (2) Any exemption from tax, or reduction in the rate of tax, 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....
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....cheme providing for such measures in relation to such company. Section 17 further provided: (4) The Board may, - (a) if any of the restrictions or conditions specified in an order made under sub-section (2) are not complied with by the company concerned, 1 [or if the company fails to revive in pursuance of the said order,] review such order on a reference 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....
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....f any director, the period for which such appointment shall be made; (d) the alteration of the memorandum or articles of association of the sick industrial company or, as the case may be, of the transferee company for the purpose of altering the capital structure thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation; (e) the continuation by, or against, the sick industrial company or, as the case may be, the transferee 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 claim....
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....uch modifications, if any, in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the sick industrial company and the operating agency and also from the transferee company and any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies: Provided that where the scheme relates to amalgamation the said scheme shall be laid before the company other than the sick industrial company] in the general meeting for the approval of the scheme by its 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 ....
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....rder in writing, direct any operating agency specified in the order to implement a sanctioned scheme with such terms and conditions and in relation to such sick industrial company as may be specified in the order. (11) Where the whole of the undertaking of the sick industrial company is sold under a sanctioned scheme, the Board may distribute the sale proceeds to the parties entitled thereto in accordance with the provisions of section 529A and other provisions of the Companies Act, 1956 (1 of 1956). (12) The Board may monitor periodically the implementation of the sanctioned scheme." 6. Section 19 provided 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 author....
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....ced that not every sick industrial company becomes the subject matter of a scheme contemplated under Section 18 read with Section 19 of the Act. Not every sick industrial unit which becomes the subject matter of the draft scheme becomes the beneficiary of the final scheme or sanctioned scheme. The procedure by which it attains finality does involve affording an opportunity to every person required by the scheme to providing financial assistance. Either express consent is granted or there is deemed consent under Section 19(2). It may be possible to find that a sick industrial company as defined is different from a sick industrial company which is the subject matter of the 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 an....
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....tion including winding up the company as is considered appropriate. 11. There is merit in the contention of the appellant that the exemption granted initially, dated 20.03.2004, was not one which is premised under Section 10 of the Act. The exemption was granted in terms of the scheme under Section 19 of the Act. This is an exemption which was given under statutory provisions. In other words, consent being forthcoming from the state, a scheme being sanctioned under section 19 providing for financial assistance in the form of tax exemption, inter alia, the Government became obliged to honour its consent and the dictate of the statute. 12. It will be inequitable to the company 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 ob....
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....ntion that the appellant would form a class by itself. The sick company, which falls to be dealt with under Section 17(3) read with Section 18 and finally Section 19, is clearly distinct from the generality of sick companies both under the definition of a sick company and even those which are covered by Section 17(1) and 17(2) of the Act. Therefore, the question would arise as to whether the appellant would constitute a class by itself. In this regard, we may notice the decision of Andhra Pradesh High Court in Mahindra and Mahindra Limited and Ors. vs. State of Andhra Pradesh and Ors. 1986 (63) STC 274. Section 9 of the Andhra Pradesh General Sales Tax Act is similarly worded as Section 10 of the State 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, th....