TaxTMI 
TaxTMI 
2024 (1) TMI 509
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....2015, CWP No. 911 of 2016, CWP No. 997 of 2016, CWP No. 101 of 2019, CWP No. 1547 of 2019, CWP No. 1548 of 2019, CWP No.1549 of 2019, CWP No. 3237 of 2019, CWP No.7984 of 2021, CWP No.7320 of 2022, CWP No.7335 of 2022, CWP No.1927 of 2023 For the Petitioner(s): Mr. Vishal Mohan, Sr. Advocate with Mr. Praveen Sharma & Mr. Aditya Sood, Advocates; Mr. Amar Pratap Singh, Advocate & Mr. Goverdhan Lal Sharma, Advocate and; Mr. Janesh Gupta, Advocate, for the respective petitioner(s), in the respective petitions. For the Respondent(s): Mr. Anup Rattan, Advocate General with Mr. Rakesh Dhaulta & Mr. Pranay Pratap Singh, Additional Advocate General, Mr. Arsh Rattan & Mr. Sidharth Jalta, Deputy Advocate General and Mr. Rakesh Sharma, Assisting Counsel, for the respondents-State. JYOTSNA REWAL DUA, JUDGE All these petitions raise common questions of law and facts, hence are being taken up together for decision. For convenience, documents from CWP No. 9131 of 2013 are being referred to hereinafter. The core question around which all these petitions are centered, is whether tax incentives granted to the petitioner-industrial units under specific Rules and statutory Notifications ....
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....er to assure local industry with adequate back-up of Government in international markets and to encourage setting up of innovative industry based on local skills, local raw materials and employing local people, the State Government would give fiscal incentives to Companies set up and having their registered offices in H.P. for patenting their inventions and its commercialization, especially for activities such as drafting the patent application, filing the patent application In India, filing the patent application in Patent Tribunals, prosecution of the patent application outside India, maintenance fee of the granted patent application, and obtaining non-infringement opinion. Fiscal Incentive by the State Government would also be provided to such companies so as to meet with the fees charged by the private lawyers/law firms located within the country having a reference from any Ministry/ Deptt. of Government of India of having successfully assisted such Companies in the country." 2(i)(b) Clause 18 of the 2004 Policy pertaining to State Taxes runs as under: - "18 State Taxes: "18.1. Introduction of VAT at the earliest to regulate, administer and Improve collecti....
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.... adopting pro-active policies it would not only spur economic growth in the State but also contribute substantially to the overall economic prosperity and welfare of our people. It is with this clear and emphatic statement of intent that the State Government of Himachal Pradesh sincerely extends an invitation to entrepreneurs, from within and outside the country, to set up their projects in the State. The Government of Himachal Pradesh on behalf of its people assures investors in the State of their whole hearted support." 2(ii) In tune with the Industrial Policy, 2004, the respondents notified "Rules, Regarding Grant of Incentives, Concessions and Facilities to Industrial Units in Himachal Pradesh, 2004" (Annexure P-2). The Rules came into force w.e.f. 31.12.2004. 2(ii)(a) Under the Incentive Rules, 2004, area of the State was categorized into three categories i.e. 'A', 'B' and 'C'. Category 'C' areas (Tax Free Zone) included all Tribal Development Blocks as also the Development Blocks under this category and all the Backward Panchayats located in Blocks under 'A' and 'B' category areas. The categorization as done under Rule 5 is as under: - "5. CATEGORISATION OF THE....
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....available to all eligible units listed in the negative list also. The negative list framed by the State was not applicable in Tax Free Zone for the purpose of Sales Tax incentive. The relevant Rules 10.1 and 10.4 read as under: - "10.1 The following Sales Tax Incentives would be provided subject to their fulfilling the eligibility conditions as laid down elsewhere under these Rules: (1) Sales Tax incentives, that is, exemption from payment of C.S.T/G.S.T. for 10 years from the date of their commencement of production in the Tax Free Zone (now classified as Category 'C' areas under these Rules) shall be continued, as provided for under the 1999 Incentive Rules. This incentive will be admissible to New Industrial Units and or existing industrial units as on 7/01/2003 (for the purpose of this incentive only) which undertake substantial expansion after 7/01/2003. This incentive will be available to all eligible units listed in the negative List (Annexure-111) also. In other words, no Negative List will be applicable in Tax Free Zones for the purpose of this incentive. 10.4 The concessions provided under this rule will commence from the date of comm....
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....itioners have set up their new industries in Tax Free Zone pursuant to the above notified Industrial Policy, the Incentive Rules and the statutory Notifications issued to give effect to the Policy/the Rules. The petitioner-industrial units are covered by the exemption notifications referred to above from the dates of commencement of commercial production by them tabulated as under: - Writ Petition No. Name of the Petitioner Date of Commercial Production CWP No. 4599 of 2013 M/s Jaiprakash Associates Ltd. Date of commencement of Commercial Production is Clinker is 24.02.2010 Cement is 16.01.2012. CWP No. 9131 of 2013 Ms. Shiv Vani Electronics LLP 25.03.2010. CWP No. 24 of 2014 Ms. S.P.A. and Surfactants 25.03.2010. CWP No. 30 of 2014 MS Manuspaa heritage Pvt. Ltd 16.10.2009. CWP No. 62 of 2014 MS Videotex International Pvt. 25.03.2010. CWP No. 63 of 2014 Ms. Ajanta Enterprises 16.10.2009. CWP No. 64 of 2014 Bright Metal Works 25.03.2010. CWP No. 75 of 2014 Ms. Anuja Foods International 16.10.2009. CWP No. 7537 of 2014 MS....
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....tioners had set up their industrial units and the office letter dated 26.04.2013, directing the petitioners to pay VAT/CST. 2(vii) Additional Facts in CWP No. 4599 of 2013. 2(vii)(a) The petitioner unit was set up in 'Mangal' Panchayat, a notified backward Panchayat. On 30.03.2013, this Panchayat was denuded of its backward status. However, by this time, petitioner unit was not only established in this Panchayat but had also started its production as would be apparent from the table. Petitioner unit was eligible and was being allowed tax exemption in terms of Industrial Policy, 2004, the Incentive Rules, 2004 and the exemption notifications dated 30.03.2005 and 19.01.2006. After the withdrawal of backward status from 'Mangal' Panchayat, petitioner unit was directed to deposit CST/VAT etc. 2(vii)(b) Petitioner filed CWP No. 4599 of 2013 assailing actions of the State, the demand raised by the State Excise & Taxation Department and also laid challenge to the Notification dated 30.03.2013 withdrawing backward status from 'Mangal' Panchayat. During pendency of the petition, the impugned 'de-notification' dated 30.03.2013 was withdrawn by the State vide notification dated 26.11....
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.... estoppel was invoked by the petitioners to argue that based upon State's promise of tax incentives for a period of ten years in lieu of setting up industrial units in backward areas of the State called as Tax Free Zone, the petitioners had altered their positions and set up industrial units in such areas. Petitioners were eligible and were being allowed the promised incentives in form of specified tax exemptions. The incentives being granted to them could not be withdrawn during the validity/promised period. Further contention was raised that the impugned directions of the respondents to the petitioners to pay VAT/CST are without any legal force as no notification withdrawing the exemptions granted to the petitioner units from payment of VAT/CST was ever issued. The exemption notifications had not been withdrawn by the State for the units which had already commenced production prior to the date of de-notification. The impugned communications, directing the petitioners to pay VAT/CST, were in contradiction to the Industrial Policy, 2004, the Incentive Rules, 2004 framed thereunder and the consequent notifications which granted them 100% exemption from such payment for ten years. Th....
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....e incentives under these rules are provided under the discretionary powers of the State Government. They do not create any claim against the Himachal Pradesh Government enforceable in any court of law. The state Government in its wisdom may decide to amend, alter, delete or revise any or all the incentives notified under these rules and no claim on account of such a decision will be entertained." Placing reliance upon (2020) 20 SCC 59, Union of India and another vs. V.V.F. Limited and another with Barak Valley Cement Limited Versus Union of India and others; (2022) 5 SCC 62, Krishi Upja Mandi Samiti, New Mandi Yard, Alwar Versus Commissioner of Central Excise and Service Tax, Alwar and; 2019 (10) SCC 575, Union of India and others Versus Unicorn Industries, it was contended that promissory estoppel is an equitable doctrine, which can be moulded to suit a particular situation. That there is primacy of public interest over promissory estoppel. Withdrawal of exemptions in public interest is permissible. Hence, prayer was made for dismissing the writ petitions. 4. Consideration We have heard learned counsel on both sides and considered the case files. The pivotal question t....
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....ntal, public or executive powers. Relevant paras from the judgment is as under:- "33. This very passage was referred to in M/S Motilal Padampat Sugar Mills and was explained thus: "29 The next decision to which we must refer is that in Excise Commissioner U.P. Allahabad v. Ram Kumar This was also a decision on which strong reliance was placed on behalf of the State. It is true that, in this case, the Court observed that "19......it is now well settled by a catena of decisions that there can be no question of estoppel against the Government in the exercise of its legislative, sovereign or executive powers." But for reasons which we shall presently state, we do not think this observation can persuade us to take a different view of the law than that enunciated in the Indo-Afghan Agencies case. ... It will thus be seen from the decisions relied upon in the judgment that the Court could not possibly have intended to lay down an absolute proposition that there can be no promissory estoppel against the Government in the exercise of its governmental, public or executive powers. That would have been in complete contradiction of the decisions of this Court....
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....the promisee must have been led to act differently from what he would otherwise have done. All that is required is that the one should have acted on the belief induced by the other party. The doctrine is evolved by equity in order to prevent injustice. It must yield when equity so requires. If it can be shown by the government that having regard to the facts, it would be inequitable to hold the government to the promise made by it, the Court will not raise an equity in favour of the promisee. It will not be enough for the government just to say that the public interest requires that the government should not be compelled to carry out the promise or that the public interest would suffer if the government were required to honour it. For resisting liability, the government will have to disclose to Court the fact & circumstances on account of which the government claims to be exempted from liability and it would be for the Court to decide whether the facts and circumstances are such as to render it inequitable to enforce the liability against the government. It is only if the Court is satisfied on proper and adequate material placed by the government that overriding public interest req....
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....of industrialisation, exemption from sales tax and purchase tax for a period of five years was extended as a concession and the five-year 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 in the case of M.P. Sugar Mills v. State of U.P. On the other hand, reliance has been placed on behalf of the State on a judgment of this Court in Bakul Cashew Co. v. S.T.O.. In Bakul Cashew Co. case this Court found that there was no clear material to show any definite or certain promise had been made by the Minister to the concerned persons and there was no clear material also in support of the stand that the parties had altered their position by acting upon the representat....
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.... duty in terms of the representation held out by the State in its industrial policy 2012. It was contended that denial of exemption by the State government during the years 2011-2014 was contrary to the doctrine of promissory estoppel. The Hon'ble Apex Court traced out the origin and evolution of doctrine of promissory estoppel in several judicial precedents. The Court also traversed from doctrine of promissory estoppel to the doctrine of legitimate expectation and referred to various Judgments on the issue in the timeline. It was observed that the State had held out a solemn representation founded on its stated desire to encourage industrialization in the State. Having made a solemn representation, it was manifestly unfair and arbitrary to deprive industrial units of their legitimate entitlement. The State must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that the State will act according to what it puts forth in the public realm. The State is bound to act fairly, in a transparent manner in its action. This is an elementary requirement of the guarantee against arbitrary state action which Articl....
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....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. This conception of state power has been recognized by this Court in a consistent line of decisions. As an illustration, we would like to extract this Court's observations in National Buildings Construction Corporation (supra): "The Government and its departments, in administering the affairs of the country are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice." 46. 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 representatio....
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....ea of promissory estoppel. The questions as to whether this plea is available to them; whether the petitioners can hold on to the State to bind the latter invoking the doctrine of promissory estoppel, can be answered by discussing facts of the case in light of above legal position:- 4(iii)(a) It is not in dispute that the respondents-State issued Industrial Policy, 2004 to boost investment in its tribal and backward areas by making them tax free zones (category 'C'). The instrument was meant to boost the confidence of the investors and catalyze industrial expansion in the backward areas of the State. With that aim, tax exemptions were promised. The tax concessions were not only promised, but the duration of such concession was also laid out. It was also spelt out that the policy statement was an expression of Government's intent and commitment to accelerate growth of the industrial sector in backward areas. The State of Himachal Pradesh, on behalf of its people had assured the investors in the State of their wholehearted support. Clause 8.3 of the Industrial Policy, 2004, provided framing of Rules to govern incentives, concessions and facilities as part of the Industrial Poli....
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....ill the de-notification of the concerned Panchayats by the respondents. 4(iii)(f) Noticeably the statutory exemption notifications dated 30.03.2005 (HPGST), 30.03.2005 (CST) and 19.01.2006 (VAT) have not been withdrawn by the State even after the de-notification of Panchayat areas where the petitioner industrial units had been established. The Industrial Policy, 2004 was also not altered by the respondents. 4(iii)(g) One more significant factual facet that needs to be noticed is a notification issued by the respondents on 12.03.2015 (Annexure P-23 with CWP No. 4599 of 2013) whereby Incentive Rules, 2004 were amended. For deciding present issue, it will be appropriate to refer to following two rules as amended on 12.03.2015:- "10.1(1) For existing industrial units set up and commencing commercial production up to the date of this notification Sales Tax Incentives, that is, exemption from payment of CST/VAT for 10 years from the date of their commencement of production in the Category 'C' areas shall be provided as per the provision of the 2004 incentive rules as amended up to the date of this notification. This incentive will be admissible to New Industrial Units and ....
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.... said to be one significant factor in the development of an area. The petitioners who set up their industrial units in the then backward areas under the promise of tax exemption extended to them by the State for specific period cannot be penalized for the subsequent development of the area, by withdrawing tax exemptions from them during the promised period on the ground that with passage of time, the erstwhile backward areas had developed and were no more part of the tax free zone. Doctrine of promissory estoppel is applicable in the facts of the cases and can certainly be successfully invoked by the petitioners in such circumstances to compel the State to adhere to its side of bargain promised under the Industrial Policy, 2004 and the Rules framed thereunder. The action of the respondent in withdrawing tax concessions granted to the petitioner units is not in consonance with law. We have refrained from examining the validity of the notifications withdrawing backward area status of the concerned Panchayats. Nonetheless, the notifications withdrawing the backward area status from the concerned Panchayats will have only prospective effect i.e. will be applicable to industries bein....