As per the case facts, a company that acquired a sick industrial unit received a tax exemption under the Sick Industrial Companies Act, 1985 (SICA) for its revival. This exemption ...
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2830 OF 2022
(Arising out of SLP(C)No. 24288 OF 2018)
Augustan Textile Colours Limited Appellant(s)
(Now Augustan Textile Colours Pvt Limited)
VERSUS
Director of Industries & Anr. Respondent(s)
J U D G M E N T
Hrishikesh Roy, J.
Leave granted.
1. Heard Mr. Ritin Rai, the learned Senior Counsel
representing the appellant. Also heard Mr. C.K. Sasi,
the learned counsel representing the respondents.
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2. The issue to be considered here is whether the
benefit of tax exemption in respect of works contract
granted in the process of reviv al of the industry,
under the relevant provisions of the Sick Industrial
Companies Act, 1985 ( for short “the SICA”) based on the
Kerala Government communication dated 20.3.2004 (Ext.
P-2) can be withdrawn , by the subsequent government
order dated 21.11.2006 (Ext. P -3).
3. It was the appellant’s say that they had taken over
a sick industrial unit by the name of M/s Teak Tex
Processing Complex Ltd. , which was engaged in dy eing 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 assessin g the possibility of revival
of the unit. At that stage, the appellant offered to
make investment for revival of the company following
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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, t he
revival proposal envisaged the tak ing over by the
appellant entire assets of the sick unit for a sum of
Rs.10 crores and the BIFR Sanctioned Scheme dated
17.01.2005 mentioned the relief measures under clause
7.2.1 pertaining to sales tax/works contract tax . They
read as follows:-
“7.2.1 Sales Tax/Works Contract Tax
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(a) To waive past arrears of Sale Tax
Works Contract Tax completely
(b) To exempt works contract tax on
processing of fabrics like bleaching
and dyeing etc. in future.”
5. The appellant availed the waiver benefit of past
tax arrears of the sick unit on the basis of the BIFR
Sanctioned Scheme dated 17.01.2005 (Ext. P -1) which
assured waiver of Works Contract Tax on processing of
fabrics like bleaching and dyeing etc. After about 30
months of such arrangement, the Government issued
another Order on 21.11.2006 exercising the power under
Section 10(3) of the Kerala General Sales Tax Act, 1963
(for short “the KGST Act”) where it was said that the
benefit of exemption can only be granted to a specified
class of goods or a particular class of persons , and
the appellant who is one among st several industrial
units doing similar nature of work within the State of
Kerala, cannot be allowed the benefits o f exemption of
Works Contract Tax. After issuance of G.O. order dated
21.11.2006, withdrawing the concession in question, on
1.10.2007, the Government has withdrawn
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G.O.No.110/06/1D dated 21.11.2006, as the concession
was one already allowed in the rehabi litation scheme of
the BIFR of the company. However, on 29.02.2008 again,
the Government in the Tax Department requested to
cancel the GO dated 01.10.2007 as it did not have any
legally binding effect and thereupon GO dated
01.10.2007 in turn was cancelled with immediate effect.
Accordingly, it was decided to withdraw the tax
waiver/exemption granted to the appellant which
prompted them to file the W.P.(C) No. 5677 of 2007
before the High Court of Kerala.
6. It was contended by the appellant that they
attempted to revive and nurse back a sick company under
BIFR and with due deliberations and the recommendations
of the Empowered Committee, the incentive measures to
be offered to the appellant , have been worked out and
finalized as per the scheme . The appellant is actively
working in the process of revival of the sick unit and
at that stage, it was not open to the State of Kerala
to resile from their promise by issuing the Government
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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 SI CA 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 favo ur a tax
exemption under Section 10(1) KGST Act can be granted
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legally. The appellant however failed to point out any
other provision in any statute, which empowered the
State Government to grant such tax exemptions. While
reviving the sick unit, the appellant earned profit in
2015, but incurred loss in subsequent three years . The
recent years i.e., 2019 and 2020 are however profitable
years for the appellant .
7. The respondents, on the other hand , contend that
the 20.03.2004 Government Order confers various
benefits, and the exemption from sales tax/works
contract tax is only one of those benefits offered for
revival of the sick unit. According to the learned
Government Counsel, the source of power to grant tax
exemption is traceable only to Section 10(1) of the
KGST Act and merely because the 20.03.2004 Government
Order does not specifically refer to the source of
power, the same c annot aid the appellant, a s specific
reference is made to Section 10 (3) of the KGST Act ,
while withdrawing the exemption. The learned government
advocate further argues that when exemption is given,
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it is always open for the government to cancel, vary or
modify the same, bearing the public interest in mind,
and since no time limit was specified on the liability
in respect of sales tax/works contract tax, the
withdrawal of benefit by the Government Order dated
21.11.2006, is well within the power and competence of
the government.
8. The records available would show that the following
benefits/concessions were extended to the appellant for
revival of the sick unit :
“1) Sales Tax/Works Contract Tax
2) Electricity Dues
3) Water Charges
4) Pollution Control Water Cess
5) Panchayat Taxes and Levies
6) The ownership of land”
9. It is further seen that the benefits offered , inter
alia, were waiver of past arrears particularly under
the Sales Tax/Works Contract Tax . For other charges
like electricity dues, water charges, Pollution Control
Water Cess, the principal amount in the arrears were to
be paid without the obli gation to bear the inter est or
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penalty burden, from the date of commencement of the
commercial production . Specifically for the Sales
Tax/Works Contract Tax, under clause 1(b), it is not
very clear as to whether the benefit intended for
process of fabrics like bleaching, dyeing etc. will be
available individually to the appellant or was intended
to be availed by this class of industries, many of
which are operating 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,
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and those were with specific reference to the
concessions to be extended to new promoters for revival
of sick units, in light of the g overnment 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 o f benefits/reliefs i.e. (a) non -
fiscal; and (b) fiscal, and under item no. 2, the
exemption was granted for works contract tax o n
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
became positive, whichever is earlier. Thus, the outer
cap of five years was specified in the 1994 Government
order and the benefits could not have been intended to
continue without limit.
13. Even though the 2004 Government Order, and the BIFR
Sanctioned Scheme of 2005 w ere enacted in furtherance
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of 1994 Government Order, both these documents do not
specify the time line for tax exemptions prescribed in
the 1994 government order .
14. Recently this Court in the case of State of Gujarat
Vs. Arcelor Mittal Nippon Steel India Ltd.
1
has held
that exemption provisions and notifications are to be
strictly interpreted in accordance with legislative
intent without any addition or subtraction. A Division
Bench of this Court speaking through Justice M. R. Shah
held that:
“14.2 It is settl ed law that the
notification has to be read as a whole. If
any of the conditions laid down in the
notification is not fulfilled, the party is
not entitled to the benefit of that
notification. An exception and/or an
exempting provision in a taxing statute
should be construed strictly and it is not
open to the court to ignore the conditions
prescribed in industrial policy and the
exemption notifications.
14.3 The exemption notification should be
strictly construed and given meaning
according to legislative in tendment. The
Statutory provisions providing for
exemption have to be interpreted in the
light of the words employed in them and
1
(2022) SCC OnLine SC 76.
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there cannot be any addition or subtraction
from the statutory provisions.
14.4 As per the law laid down by this
Court in catena of decisions, in the taxing
statute, it is the plain language of the
provision that has to be preferred, where
language is plain and is capable of
determining defined meaning. Strict
interpretation to the provision is to be
accorded to each case on hand. Purposive
interpretation can be given only when there
is an ambiguity in the statutory provision
or it alleges to absurd results, which is
so not found in the present case.”
15. Accordingly, in the present matter, the 2004
government order granting tax exemptions should be read
as a whole and in absence of any time line being
prescribed, such a time line in our opinion, cannot be
imported from the 1994 government order.
16. Furthermore, Sales tax in the State of Ke rala is
chargeable under Section 5 of the KGST Act which makes
it obligatory upon the State to realiz e 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.
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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 O rder 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.
2
, 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 made under the provision
enabling the making of it ….”
2
1986 (Supp) SCC 728
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The present understanding finds support from the
above proposition of law laid down by this Court in
Pournami Oil Mills (supra).
19. Insofar as the benefits of tax exemption from the
works contract on processing of fabrics, being in
conformity with the stipulati ons under paragraph 7.2.1
of the BIFR Scheme dated 17.01.2005, it must be noticed
that Sub-clause (b) of paragraph 7.2.1 is not exactly
the same as paragraph 1(b) of the 2004 Government
Order, as in the latter case, it is with reference to
proposed plan of action, to provide exemption to
similar units within the state of Kerala.
20. What is of significance is that similarly situated
fabric processing units in the state are obliged to
meet their tax obligation for the Works Contract Tax
and that is why in the 2006 Government Order , it was
specifically stated that exemption for such taxable
events, cannot be confined to the appellant alone. The
gap between the 2004 Government Order and the
Government Order dated 21.11.2006 shows that the
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appellant was enjoying the benefit for a fair duration.
Significantly, the power to grant such tax benefit is
not seen in any other State Legislation but only in
Section 10(1) of the KGST Act. The power to grant
exemption under Section 10(1) is however in respect of
a class of persons and was never intended for an
individual industrial unit like the appellant. When
this aberration was noticed and it was seen that
amongst similarly engaged units in the same business ,
the appellant was the only one enjoying the benefit of
exemption, the 2006 government order was issued
withdrawing the exemption granted on 20.3.2004.
21. Undoubtedly, the government was empowered under
Section 10(3) to withdraw the exemption at any time and
therefore, it cannot be said that the principle of
promissory estoppel by itself, will facilitate the
appellant to challenge the 2006 Government O rder. It
must be pointed out that a number of concessions were
offered to the appellant under the 2004 Government
Order and it is discernible that payments under several
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heads were not set apart for the appellant ,
notwithstanding their role in revival of the sick unit.
22. 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 th at 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 o f 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
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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 order dated 25.11.1994 clearly reflected the
government’s intention to consider each sick industrial
unit on a case to case basis.
25. Next, the Court must examine whether the appellant
can raise contention on the validity of 2006 Government
Order in the context of the sanctioned scheme of
restriction approved by the BIFR and the binding nature
of the scheme under Section 19(3) of SICA . This
question arises since the contentions in this regard
were earlier argued and rejected by the learned Single
Judge, and the judgment , dated 13.3.2012 in Writ
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Petition No.5677 of 2007 has worked itself out with the
representations submitted by the appellant pursuant to
the Writ Court’s judgment and the speaking order passed
thereafter by the government on 5.10.2012 rejecting the
appellant’s representation. Significantly, the speaking
order was not challenged . Instead, the appellant filed
the Writ Appeal against the lear ned Single Judge’s
order, granting limited relief of enabling them to file
a representation and directing the State to pass a
speaking order after affording hearing to the
appellant. As the appellant had presented their
representation on the strength of th e order of the Writ
Court and thereby have accepted the judgment, the
appellant cannot thereafter in our view, challenge the
said judgment through a Writ Appeal when an adverse
order is passed against them , by the government.
26. One is certain that it wou ld be legally
impermissible to g rant tax exemption, contrary to the
provisions of the KGST Act. The special exemption is
provided to a single unit under the BIFR proceeding and
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the State cannot in our opinion be compelled to act
contrary to the provisions of the KGST Act , on the
strength of binding nature of the scheme under Section
19(3) of SICA.
27. On the argument of the appellant based on the
principles of promissory estoppel, as earlier noted,
the tax exemption in the present matter was not given
to a class of persons and the appellant is made the
sole beneficiary. This is contrary to Section 10 of
the KGST Act. The 21.11.2006 withdrawal order was
therefore issued, when it was discovered that this was
a case of exemption to an individual unit and that is
impermissible 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 w ould 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
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Padampat Sugar Mills Vs. State of Uttar Pradesh & Ors.
3
In the same very case, it was however observed that the
legal principle can not be invoked to compel anyone to
do anything, contrary to law. Justice P. N. Bhag awati
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.
4
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
5
, it was however specifically
declared that the equitable principle of promissory
3
(1979) 2 SCC 409.
4
(1992) 2 SCC 411.
5
(2005) 12 SCC 508.
21
estoppel cannot be invoked for condoning or enforcing a
promise, expressly prohibited by a statute. This Court
speaking through Justice Ashok Bhan pronounced as
under:
“34. …In absence of any provision in the
Act or the Rules framed thereunder
authorizing BDA to reconvey the land,
direction cannot be issued to BDA to
reconvey a part of the land on the ground
that it had promised to do so. The rule of
promissory estoppel cannot be availed to
permit or condone a breach of law. It
cannot be invoked to compel the Government
to do an act prohibited by law. It would
be going against the statute. The
principle of promissory estoppel would
under the circumstances be not applicable
to the case in hand.”
31. From the above reading of the relevant judgments,
it is abundantly clear that the equitable principle of
promissory estop pel cannot be invoked for enforcing
promises in the teeth of the provisions of law. Having
concluded that the Government Order (20.03.2004),
granting Sales Tax/ Works Contract Tax exemption was
ultra vires the Section 10(1) of the KGST Act, the
promise, in furtherance of Government Order , in the
22
form of BIFR Scheme dated 17.01.2005 being unlawful,
cannot in our view, be enforced on equitable
consideration.
32. Further, in Arcelor Mittal Nippon Steel (Supra)
this Court has held that:
“22….The principle of promissory estoppel
shall not be applicable contrary to the
Statute. Merely because erroneously and/or
on misinterpretation, some benefits in the
earlier assessment years were wrongly
given, cannot be a ground to continue the
wrong and to gra nt the benefit of
exemption though not eligible under the
exemption notification. ”
33. In the case at hand , even though the appellant was
granted benefit of tax exemptions under the 2004
government order, this was ultra vires the Section 10
KGST Act. Such exemption cannot be continued for
further assessment years, as that would amounts to
perpetuating and condoning a wrong, which is opposed to
public policy.
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34. It would be apposite now to advert to Voltas Ltd.
Vs. State of A.P.,
6
where a BIFR proceeding was being
considered and the ratio therein will shed some 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 Unders tanding 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 inter est 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
6
(2004) 11 SCC 569.
24
(APGST Act). Further, even though the payment o f sales
tax was deferred for 7 y ears 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 pr ovisions 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. In any case the tax exempt ions cannot
continue indefinitely. Hence, the ratio in Voltas Ltd.
(Supra) involving a BIFR scheme and a gov ernment
decision which diminishes the incentives for the
company, do lend support for the impugned decisions of
the High Court. In other words, the Kerala government,
notwithstanding the BIFR scheme for the sick company
was entitled to withdraw the tax exemptions, by issuing
the government order dated 21.11.2006 under Section
10(3) of the KGST Act.
25
36. Justice H. L. Gokhale, in his concurring judgment
in the case of Monnet Ispat & Energy Ltd. Vs. Union of
India,
7
highlighted the difference between the doctrine
of promissory estoppel and the doctrine of legitimate
expectation:
“289. As we have seen earlier, for
invoking the principle of promissory
estoppel there has to be a promise, and on
that basis the party concerned must have
acted to its prejudice…
290…. 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…”
37. While the equitable principle of promissory
estoppel requires a valid promise, based on which the
promisee has changed its position, it is necessary to
observe that the principle of legitimate expectation
does not take into account such considerations.
7
(2012) 11 SCC 1.
26
Instead, it is rooted in fundamental ideas like
reasonableness, fairness and non -arbitrariness.
38. In the case of MRF Ltd., Kottayam Vs. Asst.
Commissioner (Assessment) Sales Tax & Ors.
8
the Kerala
government in order to incentivize investment and
industrial growth, entered into a Memorandum of
Understanding on 06.10.1993, under which tax incentives
were offered to the company if they invested above Rs.
50 crores for expanding the existing industrial unit in
the State. In the government order dated 03.11.1993
issued under Section 10 of KGST Act, exemptions were
provided for 7 years for all expanding industrial
units. An addendum to the Memorandum of Understanding
was executed on 10.04.1996, explicitly stating that the
industry was eligible for tax ex emptions 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
8
(2006) 8 SCC 702.
27
10.11.1997, granting tax exem ption 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 01
st
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 promis e of tax
28
exemption for 7 years until 29.12.2003. This Court held
that the state’s action of retrospectively amending its
1993 government order, by subsequent order dated
15.01.1998 was arbitrary and unreasonable. The 1998
government order was found to be discriminatory and hit
by the principles of Article 14 o f the Constitution.
Thus, holding the state bound to its promise, MRF was
found to be entitled for tax exemptions for the 7 year
period, in terms of government order dated 03.11.1993.
39. But, the above judgment of this Court in the case
of MRF Ltd., Kottayam(Supra) is distinguishable from
the facts in the present case. In the above case, the
government order granting tax exemptions, clearly
mentioned a period of 7 years, before which the tax
exemptions could not have bee n revoked. But, in th is
case, no such time period was explicitly prescribed.
Neither did the state seek to revoke the exemption
retrospectively. The appellant here , enjoyed the
benefit of exemptions for a considerable period and is
now in profit. Hence, it is not open for the appellant
29
to claim legal entitlement to tax exemption for the
period of 5 years.
40. The learned Division Bench of the Kerala High Court
has given categorical findings in reference to the
20.03.2004 government order i.e. a) the said government
order is issued only in the appellant’s favor; b) It
was not contended that similar concessions were
accorded to any other sick industry engaged in
activities of bleaching, dyeing, etc.; c) Vide the 1994
government order, the state has simp ly promised to
consider other sick industries for similar exemptions.
41. Based on the above findings, the learned Division
Bench concluded that the appellant does not form a
separate class of its own. Hence, the 2004 government
order was held to be ultra vires the Section 10(1) of
the KGST Act. The appellant has failed to bring to our
attention, any intelligible differentia, based on which
it can be said that they constitute a unique, separate
class of its own. In absence of such differentiating
factor, the benefit of tax exemptions being granted to
30
the appellant, to the exclusion of all other si ck
industries involved in 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 non-
arbitrariness. 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
9
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
9
(1997) 7 SCC 251
31
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 16
th
President of USA, intrudes into our thought process.
Taking a strong stand in support of Black su ffrage,
Abraham Lincoln, soon after winning the Civil War,
refused to give in to his earlier promise of re -
construction to the state of Louisiana, with the
following resounding words:-
“But, as bad promises are better broken
than kept, I shall treat this a s a bad
promise, and break it, whenever I shall be
convinced that keeping it is adverse to
the public interest. But I have not yet
been so convinced.”
Taking a cue from above, and bearing in mind that
the appellant here has already availed the exemption
32
benefits for a substantial period and was the only one
of its category which enjoyed such advantage in the
State of Kerala and also regard being had for the fact
that now the appellant is out of the red and more
importantly in a situation where enforcing the promise
against the State is likely to affect public interest,
we find supplementary support for our present
conclusion, in the above quoted insightful words of
Abraham Lincoln.
44. In view of the foregoing discussion, this Court,
with the additional reasoning in the preceding
paragraphs, is persuaded to uphold the impugned
judgment of the High Court. Accordingly, the appeal
stands dismissed without any order on cost.
……………………………………………………J.
[HRISHIKESH ROY]
NEW DELHI
APRIL 8, 2022
1
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2830 OF 2022
(Arising out of SLP (CIVIL)NO.24288/2018)
AUGUSTAN TEXTILE COLOURS LIMITED
(NOW AUGUSTAN TEXTILE COLOURS P VT LTD) ..APPELLANT(S)
VERSUS
DIRECTOR OF INDUSTRIES & ANR. ..RESPONDENT(S)
J U D G M E N T
K.M. JOSEPH, J.
1. While I am in agreement with the final conclusion
reached by my esteemed and learned brother that the
appeal must be dismissed, in the nature of the
questions which arise and the reasoning which appeal s
to me, I am inclined to author a separate though
concurring judgment.
2. The facts have been set out by my learned brother.
The principal contention of the appellant is that
Section 10 of the Kerala General Sales Tax Act, 1963
2
(hereinafter referred to as ‘the State Act’) does not
exhaust the power to grant exemption inter alia.
Section 10 of the State Act reads as follows:
“10. Power of Government to grant
exemption and reduction in rate of tax: -
(1) The Government may, if they consider
it necessary in the public interest, by
notification in the Gazette, make an
exemption or reduction in rate, either
prospectively or retrospe ctively in
respect of any tax payable under this Act,
(i) on the sale or purchase of any
specified 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 sub -
section (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 spec ified 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
3
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 Act, 1993,
registered for not less than five
years and having at the end of any
financial year accumulated losses
equal to or exceeding its entire net
worth, shall be deemed to be a sick
industrial company;”
4. The Act envisaged a Board and also a n appellate
authority. Section 15 contemplate d a reference by the
Board of Directors of Sick Compan ies. The Board under
the Act was to conduct an inquiry as to whether any
industrial unit had become a sick industrial company.
4
Section 17 contemplated, inter alia, suitable orders
being passed on completion of inquiry. Section 17 reads
as follows: -
“17. Powers of Board to make suitable order on the
completion of inquiry. — (1) If after making an
inquiry under section 16, the Board is
satisfied that a company has become a sick
industrial company, the Board shall, after
considering all the relevant facts and
circumstances of the case, decide, as soon as
may be by order in writing, whether it is
practicable for the company to [make its net
worth exceed the accumulated losses] within a
reasonable time.
(2) If the Board decides under sub -section (1)
that it is practicable for a sick industrial
company to make its net worth positive within
a reasonable time, the Board, shall, by order
in writing and subject to such restrictions or
conditions as may be specified in the order,
give such time to the company as it may deem
fit to [make its net worth exceed the
accumulated losses].
Sub-Section (3) of Section 17 deal t with a
different class of sick company:
(3) If the Board decides under sub -section (1)
that it is not practicable for a sick
industrial company to [make its net worth
exceed the accumulated losses] within a
reasonable time and that it is necessary or
expedient in the public interest to adopt all
or any of the measures specified in section 18
in relation to the said company it may, as soon
as may be, by order in writing, direct any
operating agency specified in the order to
prepare, having regard to such guidelines as
5
may be specified in the order, a scheme
providing for such measures in relation to such
company.
Section 17 further provide d:
(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 follows: -
“18. Preparation and sanction of schemes . — (1)
Where an order is made under sub -section (3)
6
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 one or more of the
following measures, namely:—
(a) the financial reconstruction of the sick
industrial company;
(b) the proper management of the sick
industrial company by change in, or take
over of, management of the sick industrial
company;
(c) the amalgamation of —
(i) the sick industrial company with any
other company, or
(ii) any other company with the sick
industrial company;
(hereafter in this section, in the case of
sub-clause (i), the other company, and in the
case of sub-clause (ii), the sick industrial
company, referred to as “transferee company”;
(c) the sale or lease of a part or whole of
any industrial undertaking of the sick
industrial company;
(da)the rationalisation of managerial
personnel, supervisory staff and workmen in
accordance
with law;
(d) such other preventive, ameliorative and
remedial measures as may be appropriate;
(f) such incidental, consequential or
supplemental measures as may be necessary or
expedient in connection with or for the
7
purposes of the measures specified in clauses
(a) to (e).
(2) The scheme referred to in sub -section (1)
may provide for any one or more of the
following, namely: —
(a) the constitution, name and registered
office, the capital, assets, powers, rights,
interests, authorities and privileges, duties
and obligations of the sick industrial company
or, as the case may be, of the [transferee
company];
(b) the transfer to the transferee company of
the business, properties, assets and
liabilities of the sick industrial company on
such terms and conditions as may be specified
in the scheme;
(c) any change in the Board of Directors, or
the appointment of a new Board of Directors,
of the sick industrial company and the
authority by whom, the manner in which and the
other terms and conditions on which, such
change or appointment shall be made and in the
case of appointment of a new Board of Directors
or of 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;
8
(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 amalgamation of the sick
industrial company;
(i) sale of the industrial undertaking of the
sick industrial company free from all
encumbrances and all liabilities of the company
or other such encumbrances and liabilities as
may be specified, to any person, including a
co-operative society formed by the employees
of such undertaking and fixing of reserve price
for such sale;
(j) lease of the industrial undertaking of the
sick industrial company to any person,
including a co-operative society formed by the
employees of such undertaking;
9
(k) method of sale of the assets of the
industrial undertaking of the sick industria l
company such as by public auction or by
inviting tenders or in any other manner as may
be specified and for the manner of publicity
therefor;
(l) transfer or issue of the shares in the sick
industrial company at the face value or at the
intrinsic value which may be at discount value
or such other value as may be specified to any
industrial company or any person including the
executives and employees of the sick industrial
company;
(m) such incidental, consequential and
supplemental matters as may be necessary to
secure that the reconstruction or amalgamation
or other measures mentioned in the scheme are
fully and effectively carried out.
(3) (a) The scheme prepared by the operating
agency shall be examined by the Board and a
copy of the scheme with modification, if any,
made by the Board shall be sent, in draft, to
the sick industrial company and the operating
agency and in the case of amalgamation, also
to any other company concerned, and the Board
shall publish or cause to be published the
draft scheme in brief in such daily newspapers
as the Board may consider necessary, for
suggestions and objections, if any, within such
period as the Board may specify;
(b) The Board may make such 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:
10
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 fo r
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 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 sub -
section (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 of any property or liability of the
sick industrial company in favour of any other
company or person or where such scheme provides
for the transfer of any property or liability
of any other company or person in favour of
the sick industrial company, then, by virtue
11
of, and to the extent provided in, the sche me,
on and from the date of coming into operation
of the sanctioned scheme or any provision
thereof, the property shall be transferred to,
and vest in, and the liability shall become the
liability of, such other company or person or,
as the case may be, the sick industrial
company.
(7) The sanction accorded by the Board under
sub-section (4) shall be conclusive evidence
that all the requirements of this scheme
relating to the reconstruction or
amalgamation, or any other measure specified
therein have been complied with and a copy of
the sanctioned scheme certified in writing by
an officer of the Board to be a true copy
thereof, shall, in all legal proceedings
(whether in appeal or otherwise) be admitted
as evidence.
(8) On and from the date of the coming i nto
operation of the sanctioned scheme or any
provision thereof, the scheme or such provision
shall be binding on the sick industrial company
and the transferee company or, as the case may
be, the other company and also on the
shareholders, creditors and guarantors and
employees of the said companies.
(9) If any difficulty arises in giving effect
to the provisions of the sanctioned scheme, the
Board may, on the recommendation of the
operating agency or otherwise, by order to
anything, not in consistent with such
provisions, which appears to it to be necessary
or expedient for the purpose of removing the
difficulty.
(10) The Board may, if it deems necessary or
expedient so to do, by order 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
12
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 provide 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 a ssistance 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,
13
as may be allowed by the Board, and if no
consent is received within such peri od or
further period, it shall be deemed that consent
has been given].
(3) Where in respect of any scheme the consent
referred to in sub -section (2) is given by
every person required by the scheme to provide
financial assistance, the Board may, as soon
as may be, sanction the scheme and on and from
the date of such sanction the scheme shall be
binding on all concerned.
(3A) On the sanction of the scheme under sub -
section (3), the financial institutions and the
banks required to provide financial assistance
shall designate by mutual agreement a financial
institution and a bank from amongst themselves
which shall be responsible to disburse
financial assistance by way of loans or
advances or guarantees or reliefs or
concessions or sacrifice s agreed to be provided
or granted under the scheme on behalf of all
financial institutions and banks concerned.
(3B) The financial institution and the bank
designated under sub -section (3A) shall
forthwith proceed to release the financial
assistance to the sick industrial company in
fulfilment of the requirement in this regard.
(4) Where in respect of any scheme consent
under sub-section (2) is not given by any
person required by the scheme to provide
financial assistance, the Board may adopt such
other measures, including the winding up of the
sick industrial company, as it may deem fit. ”
(Emphasis supplied)
7. Section 20 provide d for winding up. Even though
the Sick Industrial Companies (Special Provisions)
14
Repeal Act, 2003 was passed repealing the Act, it was
not enforced, and it is only with effect from 1.12.2016
when the IBC came into force that the Act was repealed.
8. The definition of Sick Industrial Company has been
noticed. It is to be further noti 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 co nsent is granted or there
is deemed co nsent 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 u nder
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
15
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 c ould 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 f ell within the four
walls of Section 17(3) that the special provisions
under sections 18 and 19 were applicable. It is such a
company on account of the acuteness of the problem that
16
cried out to be dealt with, as contemplated in Sections
18 and 19. The law contemplated the deliberat ive
process involving all parties having a stake. Draft
scheme may give way to a final one. Section 19 dealt
with a scheme envisag ing financial assistance. Having
regard to Section 19(1) , which, inter alia ,
contemplated financial assistance in the form of
concessions or sacrifice s from the State Government,
it may be incongruous to not read the words ‘reliefs
or concessions or sacrifices’ as not meaning a tax
exemption or a reduction in the rate of tax. It is only
when the State gave consent or there was deemed consent
under Section 19(2), that Section 19(3) kicked in, and
the scheme on being sanctioned by the Board was binding
on all concerned.
10. There is the aspect of fairness involved. An
exemption under Section 10 cannot ordinarily be claimed
as a legal right. The provisions of Section 19 of the
Act made an inroad into the said principle . In other
words, when to a scheme under Section 19 of the Act the
State Government has given consent or its deemed
consent, the law command ed the State Government to
17
honour its consent. In this regard we may notice that
under Section 19(4), if consent is not given, the Board
was left free to take appropriate steps including the
winding up of the company. To give consent and to allow
the State to renege on its consent and defy the binding
nature of the sanctioned scheme would enable the State
to frustrate the scheme. In fact, if consent is refused
at the early and appropriate stag e, as contemplated
under Section 19(4), then the Board is left free to
take action 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 stat e, 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 statu te.
18
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 indispen sable 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 s ole
repository of power to grant exemption.
13. The Government of Kerala, had in fact issued
G.O.M.S. dated 25
th
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
19
government while formulating rehabilitation scheme
within the purview of the Sick Industrial C ompanies
(Special Provisions) Act, 1985. Relief and concessions
were to be extended on a case-to-case basis, keeping
in view all relevant factors by the government in the
Industries Department. Therein, under the heading
‘fiscal’, the following is relevant:
“FISCAL
1. Exemption/deferment of sales tax,
purchases tax and electricity duty for
two years but not exceeding 5 years or
the date the net worth of the company
become positive, which ever is earlier.
The deferment will be intere st
free/simple interest not exceeding 12 per
cent per annum. Dues deferred repayable
in, say, 36 monthly instalments,
repayment commencing after one/two years’
moratorium from date of sanction of
B.I.F.R. scheme.”
14. This again fortifies the view that no resort to
Section 10 of the State Act is necessary. The
Government Order dated 25.11.1994 provides support to
the working of the scheme .
15. The expression ‘class of persons’ in Section 10 of
the State Act, no doubt, acts as a limitation on the
20
power of the state in exercise of its power. It also
is an indication of the extent of the power. Then the
question would arise as to whether a class of persons
includes a single person. To break it down , whether the
words ‘persons’ is capable of comprehending a single
person. Would the plural include the singular?
16. The High Court has proceeded on the basis that the
power under Section 10(1) can be exercised in favour
of only a class of persons and not qua an individual
unit like the appellant. It has also proceeded on the
basis that had the exemption been made applicable to
all sick industrial units which is in the activity of
bleaching etc, there would have been force in the
contention that the appellant woul d 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 general ity 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
21
notice the decision of Andhra Pradesh High Court in
Mahindra and Mahindra Limited and Ors. vs. State of
Andhra Pradesh and Ors.
1
. 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, 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
1
1986 (63) STC 274
22
aspect further as the exemption granted to the sick
company covered by Section 1 9(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 is obvious that it could
not be an unending bonanza even after the company
breaks even and even made profits.
19. It is quite clear that the appellant cannot pitch
its case higher than at the limit under Order dated
25.11.1994 referred to in paragraph -14. Therefore,
exemption of sales tax is contemplated for a period of
two years. However, it further provides that it cannot
be for more than five years or beyond the date the net
worth of the company becom es positive whichever is
earlier. Therefore, the maximum period in any case is
5 years. In the case of the appellant , the appellant
enjoyed the benefit of the exemption till it was
withdrawn on 21.11 2006. The said order in turn was
withdrawn on 01.10.2007. It is no doubt true that on
29.02.2008, the order dated 01.10.2007 came to be
23
withdrawn. The writ petition was filed by the
appellant. It would appear that for a period of nearly
4 years, the appellant enjoyed the benefit of exemption
in all. No doubt, the learned counsel for the appellant
did point out that there is no exercise carried out to
find out as to when the net worth has turned positive.
The conduct of the appellant submitting a
representation in terms of the judgment of the learned
judge has been noticed by my learned brother.
20. As noted in the Judgment of my learned Brother,
appellant is a company which is out of the woods and
making profits. Therefore, I would concur with the
final conclusion that the appeal must fail though on
grounds as stated hereinbefore. The appeal will stand
accordingly dismissed, however, without any order as
to costs.
………………………………………….J.
[ K.M. JOSEPH ]
NEW DELHI,
DATED: 8
TH
APRIL, 2022
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