TaxTMI 
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2025 (8) TMI 1549
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....ision Bench, vide decision dated 17.04.2002, in Government of Tamil Nadu and Others Vs. Ponni Sugars and Chemicals Ltd. and others (and another case)(129 STC 30). As against this order, the assessee filed an appeal before the Hon'ble Supreme Court which, vide judgment dated 22.11.2004 in Bannari Amman Sugars Ltd. Vs. Commercial Tax Officer and others(139 STC 86), remanded the matter to this Court for re-consideration. 3. Three submissions were raised by the assessee before the Hon'ble Supreme Court. The first submission was on promissory estoppel and on this point, the appeal has been dismissed. At paragraph 21 of the STC report, the Supreme Court holds that the doctrine of promissory estoppel has no application to the facts of the case, since at the time when the manufacturing units had been set up and commercial production started, the State has not extended any assurance or promise to which they could be held. 4. They also found no substance in the plea that the beneficiary was to be heard by grant of opportunity prior to the amendment of a policy decision or alteration of a promise indicated in a particular Notification. This was extended even to a circumstance where the ....
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.... there would be no recovery of the excess disbursement that had been made prior to 01.09.1988. 10. On 28.12.1988, an amendment was issued to G.O.Ms.No.989 dated 01.09.1988, and paragraph 4 was inserted reading 'This orders issued in paragraph 2 and 3 above shall come into force with retrospective effect from 01.04.1988'. A representation made by the assessee for re-consideration of G.O.Ms.No.989 dated 01.09.1988 had been rejected. 11. The said rejection was challenged in W.P.No.1099 of 1989, with a consequential direction sought for refund of a sum of Rs. 92,85,227/- which had been paid by the assessee under protest, towards purchase tax, along with interest thereupon at 18% per annum from date of payment till date of refund or adjustment of the aforesaid amount towards future purchase tax liability. 12. The Writ Petition was transferred to the Tamil Nadu Taxation Special Tribunal and ultimately came to be allowed on 26.11.1997, as against which, the present Writ Petition has been filed by the State. 13. Mr.Haja Nazirudeen, learned Additional Advocate General assisted by Mr.C.Harsha Raj, learned Special Government Pleader would assail the order of the Tribunal pointing ....
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....ated 01.09.1988 is illegal and contrary to the principles of legitimate expectation, apart from being unfair and unwarranted. Fuel was added to the fire by way of letter No.515342/MIS.1/88- 1 dated 28.12.1988, where G.O.Ms.No.989 dated 01.09.1988 was brought into force with retrospective effect from 01.04.1988. Even assuming without conceding, that, as a policy, the State is entitled to revoke the relief granted earlier, such withdrawal or reversal can only be prospective and not retrospective. 19. He relies on the following decisions: 1.State of Bihar and another Vs. Usha Martin Industries Ltd. [65 STC 430] 2.Usha Martin Industries Ltd. V. The Additional Superintendent of Commercial Taxes, Jamshedpur Circle, Jamshedpur and others. [55 STC 380] 3.Pournami Oil Mills V. State of Kerala and another. [(1987) 65 STC 1] 4.Union of India and others Vs.Hindustan Development Corporation and others. [(1993)3 SCC 499] 5.Bejgam Veeranna Venkata Narasimloo and others Vs. State of A.P. and Others. [(1998) 1 SCC 563] 6.Honest Corporation V. State of Tamil Nadu. [(1999) 113 STC 26] 7.State of Tamil Nadu V.Kannapiran Steel Re-rolling....
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....e in the form of an annual subsidy equivalent to the Sales Tax on cane due from these sugar factories for a period of five years from the date of their going into production. 3. M/s Ponni Sugars and Chemicals Limited, Pallipalayam, Salem District have set up a 1250 TCD Sugar Mill in private sector at Odapalli Village, Pallipalayam, Tiruchengode Talk in Salem District. The Sugar Mill has commenced crushing operation in January 1984. The above sugar mill has requested the Government to extend to it, the concession granted in G.O.Ms. No.1294, Industries, dated 24.10.75 in view of the following reasons: a. Sugar factory is set up at a high cost of about Rs. 1,000 lakhs; b. Due to high cost of investment, the depreciation charge and the interest on Term Loan along works out to Rs. 150 lakhs per annum; c. Financial Institutions do not allow any moratorium for repayment of term loan by new sugar factories; loan repayment is to commence in the very first year of the operation of the Mill; d. If the concession is not extended the viability of the project may be affected; e. The sugar mill will contribute, substantial revenue to state Exc....
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....ustries (Mid.I) Department, dated 26.12.1984, the benefit granted earlier was enhanced, in that, the grant of subsidy was extended to 5 years from the date of the company going into production as against two years, as originally granted. The assessee had, as would have any prudent commercial entity, invested substantial sums of money and effort in setting up the units having regard to the benefit that was set out in the aforesaid Government Orders. 23. G.O.Ms.No.1497, Industries (Mid.I) Department, dated 26.12.1984 reads as follows: GOVERNMENT OF TAMILNADU ABSTRACT INDUSTRIES - Sugars - Messers. Ponni Sugars and Chemicals Limited Pallipalayam, Salem District - Sanction of subsidy equivalent to purchase tax payable by the mills for five years - Orders - Issued. ---- INDUSTRIES (MID.I) DEPARTMENT G.O.Ms.No.1497. Dated the 26th December 1984. Rakthakshi, Margazhi-11 Thiruvallurvarandu-2015. Read: G.O.Ms.No.1414, Industries, date....
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....dustrial development, the Government had sanctioned a scheme of Interest Free Sales Tax Loan for an initial period with a certain ceiling and that scheme was being modified to one of tax deferral. Hence, they preferred that the special benefit of purchase tax subsidy also be modified to one of deferral of purchase tax in order to bring about uniformity in the type of assistance extended to industrial units. 25. G.O.Ms.No.989 dated 01.09.1988 reads as follows: GOVERNMENT OF TAMILNADU ABSTRACT Industries - Sugar - New Sugar Factories - Relief from Purchase TaxSubsidy - Orders modified. ---- INDUSTRIES (MID.I) DEPARTMENT G.O.Ms.989, Date : 1-9-1988 (Avani-16th Vibhavan-2018, Thiruvallurvarandu) Read the following: 1. G.O.Ms.No.1294, Industries dated 24.10.75 2. G.O.Ms.No.1497, Industries dated 26.12.84 3. G.O.Ms.No. 268, Industries dated 16.4.87. ORDER 1. In the G.O.first read above the Government sanctioned the grant of reliefs to the new sugar factories in co-operative and public sector in the ....
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.... and the deferment will be restricted within the period of 4 years from the date of commencement of production to only those years in which dividend is not declared. No subsidy will be granted hereafter to any new sugar mill. 3. In the case of mills already established and which have been granted purchase tax subsidy under G.O.'s read above, while the scheme of subsidy will continue and the condition relating to dividend will not apply, the ceilings be as follows:" =================================== Capacity of the Mills/ Ceiling for a Year/ Ceiling for 5Years =================================== (Rs.in lakhs) 1250/1500 TCD 70.00 300.00 2500 TCD 125.00 550.00 =================================== The above ceilings will be further restricted to the purchase tax leviable for the cane actually drawn from the reserved areas. If subsidy has been disbursed for one or more years, the subsidy for the subsequent years upto the limit of 5 years will be disbursed annually with reference to the ceiling for a year as fixed above but such that the 5 years' ceiling is not exceeded. In case the mills have already been di....
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....ssessee had been enjoying for the period till 30.09.1988. Challenging the aforesaid, the assessee has approached the Tribunal and succeeded, as against which the State is before us. 28. The Tribunal in its order dated 26.11.1997 considered the background in which the scheme of subsidy had been initiated. The petition was allowed by the Tribunal applying the theory of promissory estoppel holding that G.O.Ms.No.989 dated 01.08.1988 will have no application to the case of the petitioner/assessee. That argument is no longer available to them in light of the judgment of the Supreme Court. 29. One of the arguments taken by the assessee is that the impugned notifications have been issued by the Industries Department and not by the Commissioner, Commercial Taxes Department. While they state that the Notifications have not been notified/gazetted, the State objects, pointing out that the Government Orders have been gazetted. However, and admittedly, communication dated 28.12.1988 making the levy retrospective, is a letter simplicitor. 30. The State had relied upon the case of KP Joseph (supra), that arose from the Mysore High Court and related to re-fixation of the pay of a combatan....
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.... is itself challenged, we are in no doubt that the method by which it has been retrospectively withdrawn, that too by way of a letter, cannot be accepted. 35. We now come to the argument on legitimate expectation. Learned AAG has argued that the assessee could not have had any legitimate expectation as regards the grant of subsidy or the continued grant thereof. The grant of a tax benefit of the withdrawal thereof, including the mode of withdrawal, is within the domain of the Legislature. In Madras City Wine Merchants'Association (supra), paragraph 48 has been cited to say that there are some situations where the principle of legitimate expectation would not stand attracted. 36. In that case, the Court was concerned with the argument of legitimate expectation in the context of a change in policy relating to sale of liquor. Several cases have been taken note of such as Supreme Court Advocates -on-record Assn. V. Union of India Supreme Court Advocates -on-record Assn. V. Union of India [(1993) 4 SCC 441], Kumari Shrilekha Vidyarthi V. State of U.P. [(1991) 1 SCC 212], Council of Civil Service Unions V. Minister for the Civil Service [(1984) 3 All ER 935](All ER pp.943-44), Hals....
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....s of natural justice, the grant of an opportunity would not have changed the matters in any material sense. Hence the exercise of grant of opportunity would be an exercise in futility. 42. The same view was taken in Escorts Farms Ltd. V. Commr. [2004 4 SCC 281], which reiterated the position that rules of natural justice are necessarily to be followed for doing substantial justice. However, if it were to amount to a mere ritual of hearing without any possibility of change in the decision on merits, then such an opportunity was of no use. 43. Learned AAG has argued that there is limited scope of judicial review in matters relating to economic and fiscal regulatory issues, relying upon the judgement in Small Scale Industrial Manufactures Association (Registered) (supra). Three Hon'ble Judges of the Supreme Court cautioned that Judges are not experts in such areas and must exercise restraint in impugning the judgment of experts and their policy decisions, arrived at after pain-staking examination of all parameters involved. 44. Hence, unless the Court has satisfied that there is a rank illegality in the decision itself or if the policy could be faulted on the ground of malafi....
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.... - consumption or captive use (i.e. in respect of power being used by the plant) from the date of its commissioning". 50. The relief was eventually granted under Notification dated 08.01.2015 only after a writ petition had been filed by another assessee. However, the relief was made effective only from the date on which it was issued i.e., prospectively. Hence, and seeing as under the Industrial Policy 2012, an assessee was granted exemption for a period of five years, the argument before the Supreme Court was that the Exemption Notification ought not to have been prospective as it curtailed the benefit by three years and ought to have been retrospective, so that assessee's could have availed the benefit of all five years. 51. The High Court has accepted the assessee's case, specifically noting that the Exemption Notification had been issued only in 2015 when the policy had been announced in 2012. They concluded that it is nothing but the lethargic approach of the State that was responsible for the delay. 52. Defending the order of the High Court before the Supreme Court on the principle of legitimate expectation, the judgment in National Buildings Construction Corporation....
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....aim promissory estoppel in the teeth of the notifications issued under the relevant statutory powers. Alternatively, the Appellants are trying to make a case under the doctrine of legitimate expectations. The basis of this doctrine is in reasonableness and fairness. However, it can also not be invoked where the decision of the public authority is founded in a provision of law, and is in consonance with public interest." 55. The concept was refined even further in Union of India v P.K.Choudhary [(2016) 4 SCC 236], where they say that the doctrine of legitimate expectation cannot be claimed as a right in itself, but can only be used where there is a denial of legitimate expectation leading to violation of Article 14 of the Constitution. The juxtaposition of this relationship between the doctrine of legitimate expectation and Article 14 was discussed in Food Corpn. Of India V. Kamdhenu Cattle Feed Industries [(1993) 1 SCC 71], and one of the fulcrums on which the judgment rested was the ground of arbitrariness. 56. Hence the Bench said that a mere expectation, albeit a reasonable or a legitimate one, would not be a distinct enforceable right, but failure to consider and give due....
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....tes the march of law on this aspect and useful reference may be made to paragraphs 28 and 29 extracted below:- '28.In R. V. North and East Devon Health Authority, ex p Coughlan, the Court of Appeal laid down the test of abuse of power to determine whether a public authority can resile from a prima facie legitimate expectation. It was held that frustration of a substantive legitimate expectation by public authorities would be unfair and amount to abuse of power. Importantly, it was held that abuse of power constitutes a ground for the courts to exercise judicial review of executive actions. 29.In R. (Nadarajah) v. Secy. of State for the Home Deptt. the Court of Appeal added another facet to the doctrine of substantive legitimate expectation by grounding it in the principles of good administration. Importantly, the Court identified that consistency and probity are tenets of a good administration. Laws, L.J. explained the principles underlying the doctrine of legitimate expectation in the following terms: "68. The search for principle surely starts with the theme that is current through the legitimate expectation cases. It may be expressed thus. Where a publ....
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.... to this case. 63. The recommendation for purchase tax subsidy emanated from the Sampath Committee Report dated 05.04.1974. That Committee had been constituted to examine matters relating to economic viability of new sugar factories. Under the caption 'incentives' at clause 21 of that Report, the Committee considers the deficits liable to be suffered in the establishment and operation of new sugar factories and hence recommended suitable incentives. 64. The incentives were in the nature of capital subsidy, allowing a larger percentage of free sale sugar, high level sugar price in the case of new sugar factories, allowing a rebate on excise duty and remission of purchase tax imposed by different State Governments. The last recommendation reads thus: 'No.F.27(6)/74.ST/ Government of India Ministry of Agriculture (Department of Food) Directorate of Sugar and Vanaspati 'Krishi Bhavan' New Delhi, the 5th April 1974 To Sub: Constitution of a Committee to examine the matters relating to economic viability of new sugar factories ............. 28.0 Remission of Purchase Tax: Purchase Tax on sugarcane is levied by different state Gover....
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....ative and public sectors. It has been decided that this relief will be in the form of an annual subsidy equivalent to the quantum of purchase tax on cane due from those sugar factories for a period of five years from the date of their going into production. 4) This order issues with the concurrence of the Finance Department - Vide its U.O.No.2302/FS/P/75-1 Dated 22.9.75. (BY ORDER OF THE GOVERNOR) A.PADMANABHAN Secretary to Government 66. The Government Orders issued in 1984 specific to the assessee, and extending purchase tax subsidy is the result of a detailed study on the subject after a Committee constituted for the subject. The subsidy was originally granted for 2 years and then extended to 5 years. The impression created was that the subsidy would play out the entire period for which it had been issued and there was absolutely no inkling that it would be abruptly terminated/withdrawn. 67. The test to determine the legality of such withdrawal as per the test in the case of C.T.Sivanandan's case is as to whether any justification or explanation has been given for the withdrawal. Thus, even granting that the State could withdraw an incentive, abruptly and....
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....idy due for other mills. The Government, astonished by the enormous amount claimed by BS sought for certain clarifications from the Director of Sugar. As per the report of the Director of Sugar dated 23.7.1987 Bannari Amman Sugars Limited purchased sugar cane worth Rs. 1,66,75,878.07 upto 31.3.1986 i.e. for 68 days for which the purchase tax worked out to Rs. 22,09,554/-. During the year 1986-87 i.e. upto 31.3.1987 BS purchased sugar cane for about Rs. 9,48,93,922.79 for which the purchase tax liability worked out to Rs. 1,28,10,680/-. It was also pointed out that Bannari Amman Sugars Limited started its production on 22.1.1986 and they crushed 68,000 tonnes of sugar cane upto 31.3.86 and during 1986-87 a quantity of 442389.185 MTs of sugar cane was crushed by it. The Director of Sugar further pointed out that if 1250 TCD capacity mill crushes sugar cane for 172 days (optimum capacity) in a year it may crush about 2,15,000 MTs of cane and if the mill pays a price of Rs. 240/- per MT as in the case of Bannari Amman Sugars Limited the total payment will come to Rs. 516 lakhs and the purchase tax at 13.5% will come to Rs. 69.66 lakhs, but the first respondent company had surpassed all....
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....d that the allegation in para 26 and 27 of the additional counter affidavit filed on behalf of the first respondent-company in respect of the supporting affidavit of the first petitioner that the first respondent irretrievably altered its position based on the promise of the first petitioner is not correct. The further allegation in para 30 and 34 of the counter affidavit that higher crushing was undertaken by the company with a view to reduce the scarcity of sugar resulting in additional expenditure to the sugar mill by way of transport charges, service charges, additional labour cost acting on the promise in G.O.Ms.No.1414 Industries Department dated 30.11.1984 thereby irretrievably altering its position is not correct. The further allegation in para 35 that drawing of large part of cane from such long distance with attendant high cost was rendered commercially feasible only because of the availability of incentive benefits is not correct. It is submitted that the first respondent company procured large quantity of cane from various places other than the reserved area with a view to keep their operation and to earn more profit. The extensive procurement of cane only resulted in t....