The writ petitioner in the High Court has filed this appeal against the order passed by the Division Bench of the High Court of Kerala. The Division Bench by the impugned order has ...
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CASE NO.:
Appeal (civil) 1610 of 2006
PETITIONER:
MRF Ltd., Kottayam
RESPONDENT:
Assistant Commissioner (Assessment)Sales Tax & Ors.
DATE OF JUDGMENT: 21/09/2006
BENCH:
ASHOK BHAN & MARKANDEY KATJU
JUDGMENT:
J U D G M E N T
BHAN, J.
The writ petitioner in the High Court has filed this appeal
against the order passed by the Division Bench of the High
Court of Kerala. The Division Bench by the impugned order
has affirmed the decision of the Single Judge in dismissing the
writ petition filed by the appellant herein (hereinafter referred
to as the "MRF").
FACTS
MRF is a company incorporated under the Companies
Act, 1956 and its registered office is at 124, Greams Road,
Chennai. One of its industrial units is located at Vadavathoor
near Kottayam in the State of Kerala. MRF is engaged in the
manufacture of automotive tyres, tubes, compound rubber,
tread rubber, flaps, pre-cured tread rubber etc. at its
industrial unit at Vadavathoor.
The Government of Kerala has from time to time declared
and introduced several incentives to promote industrial growth
and expansion in the State of Kerala by granting exemptions,
concessions or reduction in sales tax, electricity duty and
electricity tariff etc. to new industries as well as to existing
industrial units undertaking substantial expansion,
diversification or modernization. Accordingly, the Government
of Kerala has been issuing notifications from time to time to
give effect to its declared policy for industrial promotion.
Acting on the incentives, concessions and benefits held
out by the Government of Kerala, MRF approached the
Government of Kerala with its proposal to make substantial
expansion and diversification of its industrial unit at
Vadavathoor. A Memorandum of Understanding was entered
between MRF and the State of Kerala on 6.10.1993, which
provided that the MRF had decided to make substantial
investment of Rs.50 crores for expansion/diversification of its
existing industrial unit at Kottayam for the manufacture of
various products and that the immediate plan of MRF was to
expand in the compound rubber manufacture and diversity
into new products like tyres, pre-cured tread rubber, flaps etc.
The said Memorandum of Understanding expressly provided
that MRF shall be entitled to tax exemptions available for
existing industries undertaking expansion/diversification.
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On 3.11.1993 Government of Kerala issued a Notification
SRO No. 1729/93 (relevant parts extracted below) in exercise
of its powers under Section 10 of Kerala General Sales Tax
Act. 1963 (for short "the Act") providing for tax exemption to
industrial units going in for expansion/diversification/
modernization in the State of Kerala:-
"(a) SRO No. 1729/93 \026 In exercise of the
powers conferred by Section 10 of the Kerala
General Sales Tax Act, 1968, (Act 15 of 1963)
and in supersession of the notifications
mentioned in the Schedule the Government of
Kerala having considered it necessary in public
interest so to do hereby make the following tax
exemption to industrial units and/or reduction
in the rate of tax payable on the sale or
purchase, as the case may be, of goods by
such industrial units, subject to the conditions
and restrictions specified herein namely:-
\005\005\005\005\005 \005\005\005\005\005\005 \005\005\005\005\005..
\005\005\005\005\005 \005\005\005\005\005\005 \005\005\005\005\005..
(b) 5. In the case of Existing Medium and
Large Scale Industrial Units which undertake
diversification, expansion or modernization on
or after the 1st April, 1993, there shall be an
exemption for a period of seven years from the
date on which such diversification, expansion
or modernization has been completed.
(a) In respect of the tax payable under the
Kerala General Sales Tax Act, 1963--
(i) On the turnover of sale of goods,
manufactured in excess of full rated capacity
of the unit prevailing immediately prior to such
diversification, expansion or modernization,
and sold by them within the State; and
(ii) On the turnover of goods taxable at the point
of last purchase in the State, which are used
by such units for manufacturing the goods
referred to in sub clause (i) above for sale
within the State or inter-State; and
\005\005\005\005.. \005\005\005\005. \005\005\005\005 \005\005\005
\005..
\005\005\005\005.. \005\005\005\005. \005\005\005\005 \005\005\005\005..
(c) 10. Conditions and Restrictions -
(i) \005\005\005\005.. \005\005\005\005. \005\005\005\005 \005
\005\005\005..
\005\005\005\005.. \005\005\005\005. \005\005\005\005 \005
\005\005\005..
(iv) In the case of Existing, Medium and Large
Scale Industrial Units, other than Public
Sector undertakings, which undertake
expansion, modernization or diversification,
the aggregate exemption in respect of sales tax,
purchase tax, surcharge and central sales tax
shall not exceed 100% of the additional fixed
capital investment made for such expansion,
modernization or diversification.
\005\005\005\005.. \005\005\005\005. \005\005\005\005 \005
\005\005\005..
\005\005\005\005.. \005\005\005\005. \005\005\005\005 \005
\005\005\005..
10. (b) Eligibility certificate for medium and large
scale industries assisted by the Kerala State
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Industrial Development Corporation or the
Kerala Financial Corporation will be issued by
the Corporation which render assistance and
in other cases by the Director of Industries and
Commerce, on application by such units, and
orders of exemption will be issued by the
Secretary, Board of Revenue (Taxes),
Thiruvananthapuram.
(c). Eligibility certificate and orders on
exemption will be issued by the authorities
mentioned in Sub-clause (b) above, if the unit
is eligible for exemption or deferment of taxes
and the unit satisfies the conditions for the
exemptions or deferment of taxes.
(d). The eligibility certificate referred to in Sub-
Clause (b) above shall contain the date of
commencement of commercial production and
the monetary limit of exemption the unit is
eligible for. The eligibility certificate issued in
respect of existing medium and large scale
industrial units which undertake expansion,
modernization or diversification shall also
contain the date of commencement as well as
the date of completion of such expansion,
modernization or diversification.
(d) 11. Explanation \026 For the purposes of
this notification,
(i) \005\005\005\005.. \005\005\005\005. \005\005\005\005 \005
\005\005\005..
\005\005\005\005.. \005\005\005\005. \005\005\005\005 \005
\005\005\005..
(ix) 'Manufacture' shall mean the use of raw
materials and production of goods
commercially different from the raw materials
used but shall not include mere packing of
goods, polishing, cleaning, grading, drying,
blending or mixing different varieties of the
same goods, sawing, garbling, processing one
form of goods into another form of the same
goods by mixing with chemicals or gas,
fumigation or any other process applied for
preserving the goods; in good condition or for
easy transportation. The process of producing
desiccated coconut out of coconut, shall be
deemed to be 'manufacture' for the purpose of
this notification."
With the object to ensure that the State of Kerala would
get the relevant proportion of excise duty, i.e., about 40% of
the excise duty paid within the State, amended SRO No.
1729/93 by issuing SRO No. 271/96 dated 13.3.1996
requiring the manufacturer claiming tax exemption under SRO
No. 1729/93 to pay central excise duty in the State of Kerala
on its manufactured products.
On 10.4.1996 an addendum to the Memorandum of
Understanding dated 6.10.1993 was executed between MRF
and Government of Kerala which specifically confirmed that
MRF Limited, a tyre manufacturing company within the State
is entitled to tax incentives and exemptions provided under
SRO No. 1729/93 dated 3.11.1993 as amended by SRO No.
271/96 dated 13.3.1996 in respect of rubber based goods like
tyres, flaps, pre-cured tread rubber etc. manufactured under
diversified facilities and rubber based goods manufactured
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pursuant to the expansion of the existing facility.
Pursuant to the Memorandum of Understanding entered
into between MRF and the State of Kerala and the SRO No.
1729/93 the MRF invested Rs. 80 crores and carried out
substantial expansion of its existing industrial unit and set up
new unit for manufacture of diversified products.
In accordance with the provisions of SRO No. 1729/93
the eligibility certificate evidencing the MRF's entitlement to
the exemption and benefits was to be issued by the Director of
Industries and Commerce, Government of Kerala. MRF
applied for the said eligibility certificate and the Director of
Industries and Commerce, inspected the factory and verified
the manufacturing process of goods for which expansion and
diversification was undertaken by the MRF. After considering
the application and all relevant facts and materials, and, on
being satisfied that the MRF was entitled to the exemption,
concessions and benefits under SRO No. 1729/93 issued the
eligibility certificate on 10.11.1997. Eligibility certificate in
Form 4 set out the details of fixed capital investment of MRF of
the aggregate amount of Rs. 74,12,77,528.51. MRF
commenced its production on 31.12.1996. Director of
Industries and Commerce forwarded the eligibility certificate
and his report to the Board of Revenue for its consideration for
issuance of certificate of exemption. The Board of Revenue
vide exemption order No. C 4/40588/97/Tx \026 MRF dated
30.6.1998 having found the MRF eligible for sales tax
exemption under SRO No. 1729/93 granted tax exemption of 7
years in the aggregate amount of Rs. 74,12,77,529.00
specifying the period of exemption to be from 30.12.1996 to
29.12.2003.
On 15.1.1998 the Government of Kerala issued SRO No.
38/98 (read with SRO No. 491/98) amending SRO No.
1729/93 by adding new sub-clause (h) to clause 11 (ix) which
provided that certain processes shall not be deemed to be
manufacture for the purpose of SRO No. 1729/93. Sub-clause
(h) reads as under:-
"(h) Conversion of rubber latex into centrifugal
latex, raw rubber sheet, ammoniated latex,
crepe rubber, crumb rubber, or any other item
falling under entry 110 of the First Schedule to
the Kerala General Sales Tax Act, 1963 or
treating the raw rubber in any form with
chemicals to form a compound of rubber by
whatever name called."
By notification SRO No. 1092/99 dated 31.12.1999 the
State of Kerala modified SRO No. 1729/93 so as to withdraw
tax exemption with effect from 1.1.2000 but with a proviso
that:-
"2. Industrial Unit which had been
sanctioned exemption/deferment as per
notification SRO No. 1729/93 before 1st day of
January, 2000 shall continue to enjoy the
concession for the full period covered by the
order of exemption/deferment."
[Emphasis supplied]
(This notification has not been withdrawn or
modified till date.)
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Assistant Commissioner (Assessment) issued a notice on
17.1.2000 proposing to levy purchase tax on the footing that
exemption under SRO No. 1729/93 dated 3.11.1993 was not
available with effect from 15.1.1998 by reason of amendment
by SRO No. 38/98 dated 15.1.1998 and stated:-
"Thus you have filed incorrect returns
and evaded payment of tax due. You are
therefore directed to show cause why action
should not be initiated to assess provisionally
and u/s 45A for the offence of filing incorrect
returns, within 7 days of receipt of this notice.
You are also given an opportunity to be heard
in person on that day, or at 11 a.m. on
27.1.2000."
MRF sent its reply to the above said notice on 14.2.2000
pointing out that MRF has already completed
expansion/diversification and had commenced commercial
production on 30.12.1996 and was thereafter entitled to tax
exemption for the full period of 7 years with effect from
31.12.1996 to 29.12.2003. The proceedings initiated by the
Assistant Commissioner were dropped by Assistant
Commissioner's letter/order stating that:-
"Ref: 1. This Office Notice dated 17.1.2000.
2. Reply No. M.199/SGMK/A1204/4.2.2000.
Referring to the above I am to inform that
further action in this matter is dropped as the
expansion has been completed on 30.12.96."
This order was never revoked or withdrawn.
Assistant Commissioner of Sales Tax, Kottayam issued
another set of notices dated 19.12.2001 proposing to impose
penalty under Section 45A of the Act for availing of purchase
tax exemption under SRO No. 1729/93 and for not paying the
purchase tax. MRF sent its reply on 10.1.2002 raising its
objection regarding the jurisdiction of the Assistant
Commissioner of Sales Tax to issue such notice in view of the
earlier order passed by the Assistant Commissioner dropping
the proceedings initiated and in view of the eligibility certificate
issued by the Director of Industries and Commerce and the
exemption order passed by the Board of Revenue (Taxes). The
Assistant Commissioner vide order dated 17.1.2002 rejected
the objections raised by the MRF.
MRF thereafter filed Writ Petition No. 3343 of 2000 in the
High Court of Kerala challenging the aforesaid notices issued
as being contrary to the eligibility certificate and exemption
order. It was prayed in the writ petition that a writ of
mandamus be issued to the respondents, restraining them
from taking any proceedings against MRF contrary to the
eligibility certificate dated 10.11.1997 issued by the Director of
Industries and Commerce and exemption order issued by the
Secretary, Board of Revenue dated 30.6.1998. The Single
Judge before whom the writ petition came up for hearing
dismissed the same and remanded the matter back to the
Sales Tax Authorities. Being aggrieved, the MRF filed the writ
appeal which has been dismissed by the order impugned in
this appeal.
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Mr. F.S. Nariman, learned senior counsel appearing
for the appellant has submitted that the High Court has erred
on facts as well as in law in dismissing the appeal filed by the
appellant. It is contended by him that the Division Bench of
the High Court has erroneously stated that "there is no
factual foundation" for the plea of promissory estoppel. The
averments of the writ petition clearly show that the plea of
promissory estoppel and legitimate expectation has been
specifically taken in the writ petition. Further, the finding of
the High Court that "there is nothing to show that the
petitioner MRF had effected huge investments" is also factually
incorrect. This is evident from the MOU dated 6.10.1993
between MRF and the State Government; the addendum dated
10.4.1996 to the MOU entered into between MRF and the
State Government wherein it is admitted by the State of Kerala
that the goods like tyres, flaps, pre-cured tread rubber etc.
were manufactured by the appellant under diversified facilities
pursuant to the expansion of the existing facilities; the
eligibility certificate dated 10.11.1997 as well as the exemption
order dated 30.6.1988 wherein it is stated that the appellant
had invested Rs. 74,12,77,529/-. That the High Court is
further erred in holding that the notification being statutory
and "no plea of estoppel will lie against a statutory
notification". The doctrine of promissory estoppel has been
repeatedly applied in the courts in India including the
Supreme Court in respect to statutory notification. In support
of this submission he cited case laws as well. It is further
submitted that plea of promissory estoppel is in the nature of
an equitable plea and must be determined in the facts and
circumstances of each case. That the principle underlying
legitimate expectation is based on Article 14. Any action taken
by the State which goes against the rule of fairness is liable to
be struck down. Any administrative or executive action of the
State which is arbitrary or unjust cannot be sustained as it
violates Article 14 of the Constitution of India. It is also
contended that in any event the State Government did not
have the power to make a retrospective amendment to SRO
1729/93 affecting the rights already accrued to the appellant
under the said notification. It is further contended by him
that the High Court has misconstrued and misunderstood the
true purpose and meaning of the Notifications bearing No.
SRO 1729/93, SRO 38/98 and SRO 1092/99. Lastly, it is
contended that in any event it is well settled principle that the
authorities under the Act could not sit in judgment over or
ignore the order granting exemption from payment of sales tax
by the highest tax authority, i.e., the Board of Revenue,
especially when the order passed by the Board of Revenue
granting exemption to the appellant has never been amended
or withdrawn.
As against this Shri T.L.V. Iyer, learned senior counsel
appearing for the State of Kerala has contended that having
regards to the facts of the case, no question of promissory
estoppel, legitimate expectation or violation of Article 14 of the
Constitution of India can arise. SRO 1729/93 itself has
specifically provided that the state will have the power to add
to the negative list. The appellant was therefore well aware
that the benefit of SRO 1729/93 was a precarious one liable to
be cancelled or varied at any time. In addition, Section 10(3)
of the Act also enables the State to withdraw or cancel any
exemption though prospectively. Therefore, according to him,
there has been no arbitrary action on the part of the State in
issuing SRO 38/98 with prospective effect. It was well within
their powers under Section 10(3) as well as under clause (g) of
the negative list in SRO 1729/93. Referring to the decisions of
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this Court in Kasinka Trading Vs. Union of India, 1995 (1)
SCC 274 and Sales Tax Officer Vs. Shree Durga Oil Mills,
1998 (1) SCC 572 it is contended that where public interest is
involved, no rule of promissory estoppel can bind the
Government. That the promissory estoppel does not operate
against a statute. That in view of the defeasible nature of the
right granted by SRO 1729/93, no right came to vested in the
appellant by reason thereof to justify the invocation of the
principle of promissory estoppel; nor could they have any
legitimate expectation that the exemption would be continued.
That SRO 38/98 was issued in public interest. Elaborating
the submission, it is contended by him that SRO 38/98 was
issued to clarify the doubt which had arisen with reference to
compound rubber in SRO 1729/93. A comparison of SRO
1729/93 and SRO 38/98 will show that the making of
compound rubber was not "manufacture" even under SRO
1729/93; nevertheless, the state has granted the exemption
till after the doubt was clarified on 15.1.1998 by SRO 38/98.
Since no right could have vested in the appellant because of
the precarious nature of the exemption granted by SRO
1729/93, it cannot be said that SRO 38/98 has taken away
any vested right, more particularly because it is made
expressly prospective. Regarding the Board of Revenue order
dated 30.6.1998 it is submitted that the same has to be read
in conjunction with SRO 1729/93 as amended by SRO 38/98.
That the Board of revenue could not have granted a benefit
which was not otherwise available to the appellant under the
prevailing notifications.
According to him, so far as SRO 1092/99 is concerned, it
did not confer any new right. It only preserved the existing
right. By the said order what the Government did was to
change the industrial policy and to do away with exemptions
which were otherwise being given to new/existing industrial
units, which was taken away w.e.f. 1.1.2000. At the same
time, the units which had been set up pursuant to the
incentives granted by the earlier notifications had to be
protected and accordingly it was provided that such units will
continue to enjoy the incentives for their full term.
The finding recorded by the High Court that "there is no
factual foundation" for the plea of promissory estoppel are
contrary to the averments made in the writ petition filed in the
High Court. The averments made in the writ petition clearly
show that the promissory estoppel and legitimate expectation
have been specifically pleaded. Paras 3, 4, 6 and grounds (D)
and (F) of the writ petition clearly demonstrate that the
appellant had taken the plea of promissory estoppel against
the State as well as legitimate expectation in its favour. In
para 3 of the writ petition it was pleaded that the appellant
acting on the promises, assurances and undertaking made by
the State of Kerala had invested more than Rs. 90 crores and
carried out substantial expansion of its existing industrial
unit. In Ground (F) of the writ petition the appellant has
clearly stated that "the respondents are barred by the rule
and principle of promissory estoppel to deprive or deny
exemption to the petitioner from tax on the purchase turnover
or rubber used in the manufacture of compound rubber in any
manner." Further, in the same paragraph it was pleaded by
the appellant that "respondents are barred and precluded from
taking any such proceedings by virtue of the principle of
promissory estoppel as well as legitimate expectation." The
finding recorded by the High Court that the appellant had not
taken the plea of promissory estoppel being contrary to the
facts of the case is set aside.
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The finding recorded by the Division Bench that there
was nothing to show that the MRF had effected huge
investments is also factually incorrect. The MOU dated
6.10.1993 between MRF and the State Government and the
addendum dated 10.4.1996 to the MOU dated 6.10.1993
clearly show that the appellant had made huge investment.
The eligibility certificate dated 10.11.1997 issued under SRO
1729/93 by the Director of Industries and Commerce after
investigation specified the details of the capital investment
made by the appellant and the capacities added to the MRF to
the tune of Rs. 74,12,77,529/-. The exemption Order dated
30.6.1998 also issued under SRO 1729/93 by the Board of
Revenue again specifically stated the capacities added and the
total amount of eligible investment made by the MRF.
According to the exemption certificate the appellant had made
additional fixed capital investment on expansion-cum-
diversification to the tune of Rs. 74,12,77,529/- and its
annual installed capacity increased manifolds. The difference
of the annual installed capacity before and after expansion-
cum-diversification as shown in the order granting exemption
as under:
Sl.No.
Items
Before expansion-
cum-diversification
After expansion-
cum-diversification
1.
Compound rubber
33984 MT
77760 MT
2.
Tubes
5640 MT
11400 MT
3.
Repair materials
876 MT
1620 MT
4.
Tread rubber
5040 MT
8100 MT
5.
Tyres
636000 Nos.
6.
Flaps
780000 Nos.
7.
Precured tread rubber
10440 MT
In exemption order dated 30.6.1998 the appellant was
found eligible for sales tax exemption to the tune of Rs.
74,12,77,529/- for the period of 7 years from 30.12.1996 to
29.12.2003. The finding thus recorded by the High Court that
the appellant had not made any investment is erroneous in
the teeth of the facts, enumerated above. The appellant had
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made additional fixed capital investment on expansion-cum-
diversification entitling him to seek exemption under SRO
1729/93.
On a co-joint reading of SRO 1729/93, SRO 38/98 and
SRO 1092/99 the intention of the Government does not seem
to take away the benefits of exemption in respect of
manufactured products including compound rubber after
15.1.1998 (the date on which SRO 38/98 was issued) where
commercial production had commenced prior to that date. By
virtue of the certificate of eligibility and by virtue of the
exemption order granted pursuant to SRO 1729/93 dated
3.11.1993, MRF Ltd. had acquired the right to avail of tax
exemption for a fixed period of 7 years from 30.12.1996 to
29.12.2003, in respect of products manufactured from raw
rubber, including compound rubber. In the eligibility
certificate and in the exemption order the date of
commencement of commercial production of all manufactured
products, including compound rubber is stated to be
30.12.1996. The Government had itself recognized that the
benefit of tax exemption for the fixed period of 7 years would
remain available to the units which have fulfilled the
prescribed conditions, and have obtained the eligibility
certificate etc. and have commenced commercial production
before the date of any amendment to SRO 1729/93. This had
been stated by the State of Kerala in its counter affidavit
before the High Court. The relevant portion of which reads:
"As per letter No. 21002/B2/GD dated
28.08.93 the Government had clarified
that the eligibility of an industrial unit for
exemption has to be decided with
reference to the notification existing on
the date of commencement of commercial
production. The petitioner had
commenced commercial production
under the expansion/diversification and
modernization programme on
30.12.1996."
In any case the doubt, if any, was set at rest by the
Government itself when, in Gazette Notification SRO 1092/99
dated 31.12.1999, it was stated that the benefit of exemption
under SRO 1729/93 would not be available after 1.1.2000
with a saving clause, reproduced earlier, to the effect that
industrial unit which had been sanctioned
exemption/deferment as per notification SRO 1729/93 before
the 1st day of January, 2000 shall continue to enjoy the
concession for the full period covered by the order of
exemption/deferment.
The Division Bench misread SRO 1092/99. The High
Court had recorded the following finding in regard to this in
para 14 of the judgment, which reads:
"But it has been specifically stated that in
the case of units which have already
commenced commercial production or
taken upon effective steps to set up
industrial units prior to 1.1.2000 will be
allowed benefit of exemption or deferment
granted as per notification SRO 1729/93.
Petitioner therefore would get only the
benefits available under SRO 1729/93
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and nothing more and nothing less. Ext.
P-5 in our view would not come to the
rescue of the petitioner even by the
application of clause 2 of SRO 1092/99.
We reiterate the order passed by the
Board of Revenue cannot override the
statutory notification issued by the
Government."
The observations made by the High Court that clause (2)
of SRO 1092/99 would not come to the rescue of the appellant
is wrong. It is clearly stated in clause (2) of SRO 1092/99 that
the industrial unit which had commenced production before
the 1st day of January, 2000 shall continue to enjoy the
concession for the full period covered by the order of
exemption/deferment. SRO 1092/99 has not been withdrawn
or modified till this date.
In any case MRF's accrued right to exemption was not
taken away or in any way affected by the amending
notification SRO 38/98; which merely applied to those units
which were established or expanded after 15.1.1998. If ann
industrial unit had been set up prior to 15.1.1998 and had
also commenced commercial production prior to 15.1.1998
then the amending notification SRO 38/98 would have no
retrospective application at all. The notification SRO 38/98 is
prospective in operation which is evident by its mere reading
as it specifically mentioned therein that:
"notification shall be deemed to have
come into force with effect from the 1st
day of January, 1998."
The provisions of the Act or notification are always
prospective in operation unless the express language renders
it otherwise making it effective with retrospective effect. This
Court in S.L. Srinivasa Jute Twine Mills (P) Ltd. Vs. Union
of India & Anr., 2006 (2) SCC 740, has held that it is a settled
principle of interpretation that:
"retrospective operation is not taken to
be intended unless that intention is
manifested by express words or necessary
implication; there is a subordinate rule to
the effect that a statute or a section in it
is not to be construed so as to have larger
retrospective operation than its language
renders necessary."
In the aforesaid case, the Employees Provident Fund Act
(as amended in 1988) provided that the Act would not apply
"to a newly set up establishment for a period of three years
from the date on which such establishment is set up." Section
16 (1)(d) was deleted by the Amending Act w.e.f. 22.9.1997
and the question was whether the initial exemption from
application of the Act would continue for the full period of
three years from the date of its establishment, even beyond
22.9.1997. Rejecting the contention, as pointed out earlier, it
was held that retrospective operation is not taken to be
intended unless that intention of the Legislature is projected
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by express words or necessary implication. Setting aside the
order of the High Court it was held:
"18. It is a cardinal principle of construction
that every statute is prima facie prospective
unless it is expressly or by necessary
implication made to have retrospective
operation. (See Keshvan Madhavan Memon v.
State of Bombay, 1951 SCR 228). But the rule
in general is applicable where the object of the
statute is to affect vested rights or to impose
new burdens or to impair existing obligations.
Unless there are words in the statute sufficient
to show the intention of the Legislature to
affect existing rights, it is deemed to be
prospective only 'nova constitutio futuris
formam imponere debet non praeteritis'. In the
words of Lord Blansburg,
"provisions which touch a right in
existence at the passing of the statute are
not to be applied retrospectively in the
absence of express enactment or
necessary intendment." (See Delhi Cloth &
General Mills Co. Ltd. v. CIT, AIR 1927 PC
242 at p. 244).
"Every statute, it has been said", observed
Lopes, L.J.,
"which takes away or impairs vested
rights acquired under existing laws, or
creates a new obligation or imposes a
new duty, or attaches a new disability in
respect of transactions already past,
must be presumed to be intended not to
have a retrospective effect." (See Amireddi
Raja Gopala Rao v. Amireddi
Sitharamamma, 1965 (3) SCR 122).
As a logical corollary of the general rule, that
retrospective operation is not taken to be
intended unless that intention is manifested
by express words or necessary implication,
there is a subordinate rule to the effect that a
statute or a section in it is not to be construed
so as to have larger retrospective operation
than its language renders necessary. (See Reid
v. Reid (1886) 31 Ch D 402). In other words
close attention must be paid to the language of
the statutory provision for determining the
scope of the retrospectivity intended by
Parliament. (See Union of India v. Raghubir
Singh, 1989 (2) SCC 754). The above position
has been highlighted in Principles of Statutory
Interpretation by Justice G.P. Singh. (10th
Edition, 2006 at pp 474 and 475).
Xxx xxx
20. Above being the legal position, the
judgments of the High Court are indefensible
and are set aside. The appellants shall be
entitled to the protection as had accrued to
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them prior to the amendment in 1997 for the
period of 3 years starting from the date the
establishment was set up irrespective of repeal
of the provision for such infancy protection."
The view that SRO 38/98 did not affect MRF's pre-
existing and accrued right to enjoy tax exemption from the full
period of 7 years w.e.f. 30.12.1996 to 29.12.2003 was
accepted and recognized by the assessing authority himself
which can be seen from the order of the assessing authority
dated 1.3.2000 whereby the proposal to deny tax exemption
was "dropped as the expansion has been completed on
30.12.1996". This order was passed in respect of notice dated
17.1.2000 issued to the appellant whereby the proposal to
continue tax was dropped. This order has been reproduced in
the earlier part of the judgment.
High Court in its judgment has recorded a finding that
the notifications being statutory "no plea of estoppel will lie
against a statutory notification". This finding of the High
Court is erroneous. The doctrine of promissory estoppel has
been repeatedly applied by this Court to statutory
notifications. Reference may be made to Pournami Oil Mills
Vs. State of Kerala, 1986 (Supp.) SCC 728. In the said case
the Government of Kerala by an order dated 11.4.1979 invited
small scale units to set up their industries in the State of
Kerala and with a view to boost industrialization, exemption
from sales tax and purchase tax was extended as a concession
for a period of five years, which was to run from the date of
commencement of production. By a subsequent notification
dated 29.9.1980, published on Gazette on 21.10.1980, the
State of Kerala withdrew the exemption relating to the
purchase tax and confined the exemption from sales tax to the
limit specified in the proviso of the said notification. While
quashing the subsequent notification, it was observed:
"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 is 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. Sales Tax Officer, Quilon, 1986 (2)
SCC 365. In Bakul Company's (supra)
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
representations and suffered any
prejudice. On facts, therefore, no case for
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raising the plea of estoppel was held to
have been made out. This Court
proceeded on the footing that the
notification granting exemption
retrospectively was not in accordance
with Section 10 of the State Sales Tax Act
as it then stood, as there was no power to
grant exemption retrospectively. By an
amendment that power has been
subsequently conferred. In these appeals
there is no question of retrospective
exemption. We also find that no reference
was made by the High Court to the
decision in M.P. Sugar Mills' case, 1979
(2) SCC 409. In our view, to the facts of
the present case, the ratio of M.P. Sugar
Mills' case directly applies and the plea of
estoppel is unanswerable.
Xxx xxxx
\005Such exemption would continue for the
full period of five years from the date they
started production. New industries set up
after 21.10.1980 obviously would not be
entitled to that benefit as they had
noticed of the curtailment in the
exemption before they came to set up
their industries."
[Emphasis supplied]
This decision was followed by a three-Judge Bench in the
case of State of Bihar Vs. Usha Martin Industries Ltd., 1987
(Supp.) SCC 710 where it was stated that the matter stands
concluded by the decision in Pournami Oils Mill's case
(supra). In Shri Bakul Oil Industries Vs. State of Gujarat,
AIR 1987 SC 142, it was observed in para 11:
" \005..The exemption granted by the
Government, as already stated, was only
by way of concession for encouraging
entrepreneurs to start industries in rural
and undeveloped areas and as such it
was always open to the State Government
to withdraw or revoke the concession. We
must, however, observe that the power of
revocation or withdrawal would be
subject to one limitation viz. the power
cannot be exercised in violation of the
rule of Promissory Estoppel. In other
words, the Government can withdraw an
exemption granted by it earlier if such
withdrawal could be done without
offending the rule of Promissory Estoppel
and depriving an industry entitled to
claim exemption from payment of tax
under the said rule. If the Government
grants exemption to a new industry and if
on the basis of the representation made
by the Government an industry is
established in order to avail the benefit of
exemption, it may then follow that the
new industry can legitimately raise a
grievance that the exemption could not be
withdrawn except by means of legislation
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having regard to the fact that Promissory
Estoppel cannot be claimed against a
statute\005".
Answering the question as to whether the Board is
restrained from withdrawing the rebate prematurely before the
completion of three/five years period by virtue of doctrine of
promissory estoppel, this Court in Pawan Alloys & Casting
Pvt. Ltd. Vs. U.P. State Electricity Board, 1997 (7) SCC
251, held:
"10. It is now well settled by a series of
decisions of this Court that the State
authorities as well as its limbs like the
Board covered by the sweep of Article 12
of the Constitution of India being treated
as 'State' within the meaning of the said
Article, can be made subject to the
equitable doctrine of promissory estoppel
in cases where because of their
representation the party claiming
estoppel has changed its position and if
such an estoppel does not fly in the face
of any statutory prohibition, absence of
power and authority of the promisor and
is otherwise not opposed to public
interest, and also when equity in favour
of the promisee does not outweigh equity
in favour of the promisor entitling the
latter to legally get out of the promise.
Xxx xxxx
24. \005..We, therefore, agree with the
finding of the High Court on Issue No. 1
that by these notifications the Board had
clearly held out a promise to these new
industries and as these new industries
had admittedly got established in the
region where the Board was operating,
acting on such promise, the same in
equity would bind the Board. Such a
promise was not contrary to any
statutory provision but on the contrary
was in compliance with the directions
issued under Section 78A of the Act.
These new industries which got attracted
to this region relying upon the promise
had altered their position irretrievably.
They had spent "large amounts of money
for establishing the infrastructure, had
entered into agreements with the Board
for supply of electricity and, therefore,
had necessarily altered their position
relying on these representations thinking
that they would be assured of at least
three years' period guaranteeing rebate of
10% on the total bill of electricity to be
consumed by them as infancy benefit so
that they could effectively compete with
the old industries operating in the field
and their products could effectively
compete with their products. On these
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well-established facts the Board can
certainly be pinned down to its promise
on the doctrine of promissory estoppel."
[Emphasis supplied]
In a recent judgment in the case of Mahabir Vegetable
Oils (P) Ltd. Vs. State of Haryana, 2006 (3) SCC 620, this
Court in para 25 observed that "it is beyond any cavil that the
doctrine of promissory estoppel operates even in the legislative
field." This was in connection with a statutory notification
under the Haryana General sales Tax Act.
In Kasinka Trading's case (supra) and Rom Industries
Vs. State of Jammu & Kashmir, 2005 (7) SCC 348, on which
reliance has been placed by the learned counsel for the
respondent do not disturb the settled position in law that
where a right has already accrued, for instance, the right to
exemption of tax for a fixed period and the conditions for that
exemption have been fulfilled, then the withdrawal of the
exemption during that fixed period cannot effect the already
accrued right. Of course, overriding public interest would
prevail over a plea based on promissory estoppel, but in the
present case there is not even a whisper of any overriding
public interest or equity. Notification SRO 38/98 was an
amendment and not a clarification of SRO 1729/93 and was
expressly made prospective w.e.f. 15.1.1998.
Besides, a plea of promissory estoppel is in the nature of
an equitable plea and must be determined in the facts and
circumstances of each case where it is raised. In the case of
Rom Industries (supra) the deciding factor was that the
exemption notification in question had been itself held to be
unconstitutional in an earlier case as violative of Articles 301
and 304 of the Constitution of India and, therefore, could not
form the basis of any right. The observation made in para 8 of
that judgment have to be read in that context. Besides, the
State Government in that case had no option except to
withdraw the notification. It is so observed in that judgment
in para 9:
"\005The State Government, in view of the
decision of this Court had no other option
but to place edible oils in the Negative
List. The questions whether Shree
Mahavir Oil Mills, 1996 (11) SCC 39 has
been rightly decided or not and whether it
is in conflict with the principles
enunciated in Video Electronics, 1990 (3)
SCC 87, are moot. But while the decision
stands, the State Government is bound to
comply with it."
In Kasinka Tading 's case (supra), the notification in
question was a customs exemption Notification for a fixed
period. The judgments in Pournami Oils Mills's case (supra)
and Shri Bakul Oil Industries's case (supra) were
distinguished in the said case on the ground that the
notifications in those cases were incentive notifications. It was
observed in para 27:
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" Again in Bakul Oil Industries (supra) it
was the incentive to set up industries in a
conforming area that the exemption had
been granted and the Court held that the
Government could withdraw an
exemption granted by it earlier only if
such withdrawal could be made without
offending the rule of promissory estoppel
and without depriving an industry
entitled to claim exemption for the entire
specified period for which exemption had
been promised to it at the time of giving
incentive. Both these cases therefore
cannot advance the case of the appellant
and are distinguishable on facts because
the exemption notification under Section
25 of the Act which was issued in this
case did not hold out any incentive for
setting up of any industry to use PVC
resins and on the other hand had been
issued in exercise of the statutory
powers, in public interest and
subsequently withdrawn in exercise of
the same powers again in public interest.
In our opinion, no justifiable prejudice
was caused to the appellants in the
absence of any unequivocal promise by
the Government not to act and review its
policy even if the necessity warranted and
the "public interest" so demanded. Thus,
in the facts and circumstances of these
cases, the appellants cannot invoke the
doctrine of promissory estoppel to
question the withdrawal notification
issued under Section 25 of the and Act."
[Emphasis supplied]
The decision in Kasinka Trading (supra) has been
distinguished in the later decision by this Court in State of
Punjab Vs. Nestle India Ltd., 2004 (6) SCC 465, on the
ground of the inherent nature of an exemption notification
issued under Section 25 of the Customs Act. Even in respect
of a notification under Section 25 of the Customs Act this
Court has taken the view that the withdrawal even of such a
notification must not be "arbitrary" or "unreasonable" (see Dai-
Ichi Karkaria Ltd. Vs. Union of India, 2000 (4) SCC 57).
The principle underlying legitimate expectation which is
based on Article 14 and the rule of fairness has been re-stated
by this Court in Bannari Amman Sugars Ltd. Vs.
Commercial Tax Officer, 2005 (1) SCC 625. It was observed
in paras 8 & 9:
" A person may have a 'legitimate
expectation' of being treated in a certain
way by an administrative authority even
though he has no legal right in private
law to receive such treatment. The
expectation may arise either from a
representation or promise made by the
authority, including an implied
representation, or from consistent past
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practice. The doctrine of legitimate
expectation has an important place in the
developing law of judicial review. It is,
however, not necessary to explore the
doctrine in this case, it is enough merely
to note that a legitimate expectation can
provide a sufficient interest to enable one
who cannot point to the existence of a
substantive right to obtain the leave of
the court to apply for judicial review. It is
generally agreed that 'legitimate
expectation' gives the applicant sufficient
locus standi for judicial review and that
the doctrine of legitimate expectation to
be confined mostly to right of a fair
hearing before a decision which results in
negativing a promise or withdrawing an
undertaking is taken. The doctrine does
not give scope to claim relief straightway
from the administrative authorities as no
crystallized right as such is involved. The
protection of such legitimate expectation
does not require the fulfillment of the
expectation where an overriding public
interest requires otherwise. In other
words, where a person's legitimate
expectation is not fulfilled by taking a
particular decision then the decision
maker should justify the denial of such
expectation by showing some overriding
public interest. (See Union of India and
Ors. v. Hindustan Development
Corporation and Ors. (AIR 1994 SC 988).
9. While the discretion to change the
policy in exercise of the executive power,
when not trammelled by any statute or
rule is wide enough, what is imperative
and implicit in terms of Article 14 is that
a change in policy must be made fairly
and should not give the impression that it
was so done arbitrarily or by any ulterior
criteria. The wide sweep of Article 14 and
the requirement of every State action
qualifying for its validity on this
touchstone irrespective of the field of
activity of the State is an accepted tenet.
The basic requirement of Article 14 is
fairness in action by the State, and non-
arbitrariness in essence and substance is
the heart beat of fair play. Actions are
amenable, in the panorama of judicial
review only to the extent that the State
must act validly for discernible reasons,
not whimsically for any ulterior purpose.
The meaning and true import and
concept of arbitrariness is more easily
visualized than precisely defined. A
question whether the impugned action is
arbitrary or not is to be ultimately
answered on the facts and circumstances
of a given case. A basic and obvious test
to apply in such cases is to see whether
there is any discernible principle
emerging from the impugned action and if
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so, does it really satisfy the test of
reasonableness."
[Emphasis supplied]
MRF made a huge investment in the State of Kerala
under a promise held to it that it would be granted exemption
from payment of sales tax for a period of seven years. It was
granted the eligibility certificate. The exemption order had
also been passed. It is not open to or permissible for the State
Government to seek to deprive MRF of the benefit of tax
exemption in respect of its substantial investment in
expansion in respect of compound rubber when the State
Government had enjoyed the benefit from the investment
made by the MRF in the form of industrial development in the
State, contribution to labour and employment and also a huge
benefit to the State exchequer in the form of the State's share,
i.e. 40% of the Central Excise duty paid on compound rubber
of Rs. 177 crores within the State of Kerala. The impugned
action on the part of the State Government is highly unfair,
unreasonable, arbitrary and, therefore, the same is violative of
Article 14 of the Constitution of India. The action of the State
cannot be permitted to operate if it is arbitrary or
unreasonable. This Court in E.P. Royappa Vs. State of
Tamil Nadu, 1974 (4) SCC 3, observed that where an act is
arbitrary, it is implicit in it that it is unequal both according to
political logic and constitutional law and is therefore violative
of Article 14. Equity that arises in favour of a party as a result
of a representation made by the State is founded on the basic
concept of "justice and fair play". The attempt to take away
the said benefit of exemption with effect from 15.1.1998 and
thereby deprive MRF of the benefit of exemption for more than
5 years out of a total period of 7 years, in our opinion, is
highly arbitrary, unjust and unreasonable and deserves to be
quashed. In any event the State Government has no power to
make a retrospective amendment to SRO 1729/93 affecting
rights already accrued to MRF thereunder.
Section 10 of the Act provides the power to the
Government to grant exemption and reduction in rate of tax.
Section 10 reads:
"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
retrospectively 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 specified in the
notification.
(3) The Government may by notification in the
Gazette, cancel or vary any notification issued
under Sub-section (1).
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Under Section 10(1) of the Act the State Government has
the power to make an exemption or reduction in rate either
prospectively or retrospectively in respect of any tax payable
under this Act. However, the power of Government under
Section 10(3) by notification in the Gazette to cancel or vary
any notification issued under Section 10(3) cannot be
exercised retrospectively. This is the view taken by the Kerala
High Court in M.M. Nagalingam Nadar Sons Vs. State of
Kerala, 1993 (91) STC 61, where the learned Single Judge of
the High Court has stated as under:
" Power is thus given under sub-section
(1) to make an exemption or reduction in
rate either prospectively or retrospectively
in respect of any tax payable under the
Act. Sub-section (3) enables the
Government to cancel or vary any such
notification issued under sub-section (1).
Significantly, sub-section (3) is silent
about retorpsectivity for any notification
issued under it. Thus while sub-section
(1) authorizes the grant of an exemption
or reduction in rate with retrospective
effect in respect of any tax payable under
the Act, sub-section (3) does not provide
for any cancellation or variation
retrospectively. In issuing notifications
under Section 10, the Government is
exercising only delegated powers. While
the legislature has plenary powers to
Legislate prospectively and
retrospectively, a delegated authority like
the Government acting under the powers
conferred on it by the enactment
concerned, can exercise only those
powers which are specifically conferred.
Therefore, if it is intended to confer on
the Government a power to
cancel/withdraw/vary an exemption or
reduction in rate of tax, with retrospective
effect, such a power has to be specifically
conferred, and in the absence of any such
specific conferment of power in sub-
section (3) of Section 10, the Government
cannot issue notifications there under
affecting a vested right or imposing an
obligation to act retrospectively. I have
already mentioned that this provision is
significantly silent on such a power.
Equally, the Government has also no
power to levy a tax with retrospective
effect. The retrospective cancellation/
withdrawal of an exemption or a
reduction in rate tantamounts to levy of a
tax, or tax at a higher rate from a date in
the past, for which the Government has
no power under sub-section (3)."
[Emphasis supplied]
This judgment of the learned Single Judge was approved
by a Division Bench of the Kerala High Court in Dy.
Commissioner (Law), Board of Revenue (Taxes) Vs. MRF
Ltd., 1998 (109) STC 306, by observing thus:
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"We are in full agreement with the view
taken by the learned Single Judge in
M.M. Nagalingam Nadar Sons vs. State of
Kerala, 1993 (91) STC 61 (Ker) that
Government has no power under Section
10(3) of the Act to issue a notification
with retrospective effect."
Before this Court the State of Kerala did not dispute
the above finding (See 2000(9) SCC 286) where the State's
appeal was dismissed. That Section 10(3) of the Keral General
Sales Tax Act did not confer the power to withdraw an
exemption with retrospective effect was not challenged by the
State Government and accordingly the finding regarding the
meaning and effect of Section 10(3) of the Act has become
final. In any event, the appeal preferred by the State of Kerala
was dismissed and the judgment of the High Court has
therefore become final. Accordingly, it was held that Section
10(3) does not confer the power to withdraw an exemption
with retrospective effect. Effect of this is that the amendment
notification SRO 38/98 has to be read so as not to take away
or disturb any manufacturer's pre-existing accrued right of
exemption for a period of 7 years. If SRO 38/98 is construed
as now contended by the respondent, then the inevitable
consequence would be that SRO 38/98 would itself be
rendered ultra vires Section 10(3) of the Act, and therefore,
illegal, bad in law and null and void.
We do not agree with the submission made by the
learned counsel for the respondent/State that subsequent
notification was classificatory in nature. That it only removed
the doubt which had arisen with reference to "compound
rubber" in the SRO 1729/93. Making of "compound rubber"
had been accepted to be "manufacture" in the Memorandum of
Undertaking entered between MRF and the Government on
6.10.1993 and the addendum dated 10.4.1996 to the
Memorandum of Undertaking dated 6.10.1993. It is further
recognized in the eligibility certificate issued by the Director of
Industries and Commerce after investigation and due
verification and the exemption certificate issued by the Board
of Revenue.
For the reasons stated above, the appeal is accepted,
order of the High Court is set aside. Writ of mandamus is
issued restraining the respondents from taking any
proceedings against MRF Ltd. contrary to or inconsistent with
the eligibility certificate dated 10.1.1997 and the exemption
order dated 10.6.1998. Parties shall bear their own costs.
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