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PETITIONER:

STATE OF RAJASTHAN & ANR.

Vs.

RESPONDENT:

M/S. MAHAVEER OIL INDUSTRIES & ORS.

DATE OF JUDGMENT: 22/04/1999

BENCH:

Sujata V.Manohar, D.P.Mohapatra, R.C.Lahoti

JUDGMENT:

Mrs. Sujata V. Manohar, J.

At all material times the respondent was an industry

engaged in the business of oil extraction and manufacture in

the State of Rajasthan.

By a notification dated 23rd of May, 1987 issued in

the exercise of its powers under Section 4(2) of the

Rajasthan Sales Tax Act, 1954, the appellant - State of

Rajasthan notified a Sales Tax Incentive Scheme for

Industries, 1987 (hereinafter referred to as the "Incentive

Scheme") under which it exempted (inter alia) new industrial

units from payment of tax on the sale of goods manufactured

by them for sale within the State of Rajasthan in the manner

and to the extent and for the period as specified in that

notification. The operative period of the scheme under that

notification was from 5th of March, 1987 to 31st of March,

1992. It was subsequently extended to 31st March, 1997.

The incentive scheme was applicable, inter alia, to new

industrial units set up in areas mentioned in Annexure-A to

the notification. Annexure-B sets out a list of industries

which were not eligible for the benefit of the said

notification. Oil extraction or manufacture was not listed

in appendix- B. Hence this industry was eligible for

benefits under the scheme of 23rd of May, 1987.

By another notification dated 23rd of May, 1987 issued

under Section 8(5) of the Central Sales Tax Act the State

Government notified another sales tax incentive scheme for

industries exempting (inter alia) new industrial units from

payment of central sales tax on the inter- state sale of

goods manufactured by them within the State of Rajasthan.

Under this notification also it was provided that industries

listed in appendix-B would not be eligible for the benefit

of the scheme. Oil extraction or manufacture was not listed

in appendix-B to this notification. Hence oil extraction

units were eligible for exemption from central sales tax in

respect of inter-state sale of their goods.

By a notification dated 6th of July, 1989 issued under

Section 4(2) of the Rajasthan Sales Tax Act, 1954 the

appellants notified Sales Tax New Incentive Scheme for

Industries, 1989, to exempt industrial units from payment of

tax on sale of goods manufactured by them within the State

of Rajasthan in the manner and to the extent and for the

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period covered by that notification. The new Incentive

Scheme of 1989 was deemed to have come into operation with

effect from 5th of March, 1987 and was to remain in force

upto 31st of March, 1992. A similar notification of the

same date was issued in respect of the central sales tax

exemption for the said units under Section 8(5) of the

Central Sales Tax Act. Under this notification also

appendix-B contained a list of industries not eligible for

benefits under the said notification. Once again oil

extraction or manufacture was not listed in appendix-B in

either of the two notifications.

By two notifications dated 7th of May, 1990 - one

issued under the Rajasthan Sales Tax Act, 1954 and the other

issued under the Central Sales Tax Act, the notifications of

23rd of May, 1987 were amended. As a result, by amendment

of Annexure-B, oil extracting or manufacturing industry was

added as an entry, thus withdrawing the benefits of the

incentive scheme from oil extracting and manufacturing

industries both in respect of Rajasthan Sales Tax as also

Central Sales Tax. Thereafter by further notifications

dated 10.9.1990 issued under the Rajasthan Sales Tax Act,

1954 and the Central Sales Tax Act, it was further notified,

inter alia, that whenever an industry is included on any

date during the period of operation of the scheme in

Annexure-B, the units of such industry which have started

commercial production and whose applications for benefit

under the scheme are pending on the said date before the

appropriate screening committee will be entitled to claim

full benefit of the scheme.

Thus by reason of the notifications issued on 7.5.1990

the benefit of the incentive scheme was withdrawn from oil

extracting and manufacturing industries. Thereafter the

position was reviewed by the Finance Department and the

Industry Department of the State of Rajasthan. Ultimately

by a notification dated 26.7.1991 the benefit of exemption

from Central Sales Tax was restored to oil extracting and

jmanufacturing industry to the extent of 75% in the case of

new industries and to the extent of 60% in the case of

industries going for expansion or diversification. Thus new

industrial units established after 7.5.1990 and before

26.7.1991 alone were not entitled to the benefit of the

Incentive Scheme under the Central Sales Tax Act in respect

of inter-state sales of their goods.

The respondents commenced commercial production on

17th of February, 1991. Prior thereto, on 2.4.1991 they

applied for an eligibility certificate. The appellants sent

a reply dated 29.4.1991 pointing out that they were not

eligible for the benefit of the incentive schemes since the

benefit of the said schemes had been withdrawn with effect

from 7.5.1990 in respect of their industry. The application

of the respondents was finally rejected on 30.11.1991. The

respondents thereupon filed writ petition no.2529 of 1992

before the High Court challenging the two notifications of

7.5.1990 issued under the Rajasthan Sales Tax Act, 1954 and

the Central Sales Tax Act. Several such petitions were

filed between the years 1990 and 1992 by various oil

industries challenging the two notifications of 7.5.1990.

When the writ petition of the respondents came up for

hearing before a learned Single Judge, one such petition in

the case of Govardhan Oil Mills had already been decided by

the same High Court by a Single Judge quashing the

notifications of 7.5.1990. Relying on the said judgment the

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Single Judge granted relief to the respondents setting aside

the notifications of 7.5.1990 and directing the appellants

to issue an eligibility certificate to the respondents

within six weeks. An appeal filed by the appellant before

the Division Bench of the High Court has been dismissed by

the impugned judgment dated 14.8.1995.

During the pendency of the appeal before the Division

Bench in the present case, six other writ petitions filed by

various oil industries including Gopal Oil Mills were heard

by a Division Bench of the same High Court and decided on

12.1.1993. By the said judgment the High Court held that

the notifications of 7.5.1990 cannot be given effect to

where all necessary acts for setting up the new industry had

been done prior to 7.5.1990 and production had also started.

The High Court invoked the doctrine of promissory estoppel

and gave relief to the six industries before it, as also new

industries set up before 31.3.1992.

The appellants in those cases filed a special leave

petition before this Court in which this Court on 4.4.1994

granted an interim stay of the judgment of the High Court

dated 12.1.1993. Thereafter the appeals of Gopal Oil Mills

and other appeals were decided by this Court on 23.2.1995.

Before this Court, the respondents in those appeals only

pressed their claim for exemption from Central Sales Tax for

the period 7.5.1990 to 26.7.1991. This Court came to the

conclusion that there was no public interest in withholding

the benefit in respect of Central Sales Tax for the short

period 7.5.1990 to 26.7.1991. Therefore, it set aside the

notification of 7.5.1990 issued under the Central Sales Tax

Act and upheld the High Court judgment in respect of the

said notification issued under the Central Sales Tax Act.

The respondents in those appeals stated that they were not

pressing their challenge to the notification of 7.5.1990

issued under the Rajasthan Sales Tax Act, 1954. This Court,

therefore, by the impugned judgment set aside the order of

the High Court and upheld the validity of the notification

of 7.5.1990 issued under the Rajasthan Sales Tax Act, 1954.

However, it also held that prior to 4.4.1994, which was the

date when this Court stayed the judgment of the Division

Bench under challenge, any benefit availed of under the High

Court judgment could be retained by the said industry.

In the present case, the appeal before the Division

Bench was decided on 14.8.1995. The attention of the

Division Bench does not appear to have been drawn to the

decision of this Court in Gopal Oil Mills (Supra). The

Division Bench dismissed the appeal of the State of

Rajasthan, the present appellants, on the ground that the

respondent- industry had started its production much before

31.3.1992, relying on the earlier judgment of the Division

Bench of the High Court dated 12.1.1993.

We have to consider whether the respondents were

rightly given by the High Court the benefit of the said

incentive scheme in respect of exemption from Central Sales

Tax as also Rajasthan Sales Tax. The notification of

7.5.1990 issued under the Central Sales Tax Act withdrawing

the benefit of the scheme from oil extraction and

manufacturing industries in respect of inter-state sales

effected by them has already been quashed by this Court by

its judgment dated 23.2.1995 in State of Rajasthan & Anr.

v. Gopal Oil Mills & Anr. being Civil Appeal No.5738 of

1994. In view thereof, since the respondents have started

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commercial production on 17th of February, 1991 during the

subsistence of the said scheme, they are entitled to the

benefit of the said scheme pertaining to exemption from

Central Sales Tax from the date of starting their commercial

production. To this extent the judgment of the Division

Bench must be upheld.

However, the respondents contend that the judgment of

this Court in State of Rajasthan & Anr. v. Gopal Oil Mills

& Anr. (Supra) should not be applied to them in so far as

that judgment upholds the validity of the notification of

7.5.1990 withdrawing the benefit of the Incentive Scheme

under the Rajasthan Sales Tax Act. The respondents contend

that this Court did not consider the validity or otherwise

of the notification of 7.5.1990 issued under the Rajasthan

Sales Tax Act, on merit. This Court quashed the said

notification in the said judgment merely on the basis of a

concession made by the respondent - oil industries that they

were not challenging the validity of the notification of

7.5.1990 issued under the Rajasthan Sales Tax Act. The

respondents are right in contending that the validity or

otherwise of the notification of 7.5.1990 issued under the

Rajasthan Sales Tax Act has to be examined independently in

their case. They are also right in contending that its

validity must be considered independently of the validity of

the notification of 7.5.1990 issued under the Central Sales

Tax Act. The notification of 7.5.1990 issued under the

Central Sales Tax Act was withdrawn on 26.7.1991. In the

light of this fact, this Court said that there was no public

interest in withholding the benefit of the incentive scheme

granting exemption from Central Sales Tax from oil

industries for the short period 7.5.1990 to 26.7.1991. In

the case of the notification of 7.5.1990 under the Rajasthan

Sales Tax Act, no subsequent notification has been issued to

restore the benefit of the scheme to oil extraction

industries. The ratio, therefore, on the basis of which the

notification of 7.5.1990 under the Central Sales Tax Act was

set aside, is not available while considering the

notification of 7.5.1990 under the Rajasthan Sales Tax Act.

The appellant, State of Rajasthan, contends that it is

open to it in public interest to withdraw any concessions

which it may have granted to oil extraction industries under

the incentive scheme. In fact, the scheme itself provides

in Clause 8 that the scheme can be reviewed or amended from

time to time during the subsistence of the scheme. The

respondents, however, contend that by framing the said

incentive scheme the State of Rajasthan had held out a

promise that the benefit of the scheme would be available

for all new industries set up during the period 5.3.1987 to

31.3.1992. Relying upon this promise the respondents had

taken all effective steps to set up the new industrial unit

within that period. Hence the doctrine of promissory

estoppel would be attracted in the present case. It would

not be open to the State of Rajasthan to withdraw the

benefit of the scheme during the subsistence of the said

scheme by the notification of 7.5.1990.

Are the respondents justified in holding the State to

the promise made by it in the form of an incentive scheme

which is made available for a specified period of time, when

new industries are set up on the basis of that scheme

relying on the promise of benefits held out by it? Public

interest requires that the State be held bound by the

promise held out by it in such a situation. But this does

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not preclude the State from withdrawing the benefit

prospectively even during the period of the scheme, if

public interest so requires. Even in a case where a party

has acted on the promise, if there is any supervening public

interest which requires that the benefit be withdrawn or the

scheme be modified, that supervening public interest would

prevail over any promissory estoppel.

After examining a large number of authorities, this

Court in the case of Kasinka Trading and Anr. v. Union of

India and Anr. (1995 (1) SCC 274) held that when there was

a supervening public interest in withdrawing the promise

held out, the Government cannot be estopped from withdrawing

the benefit held out under an existing scheme. In the case

of Shrijee Sales Corporation and Anr. v. Union of India

(1997 (3) SCC 398), once again this Court after examining a

number of authorities has held that if any supervening

public interest so demands, the benefit under any incentive

scheme can be withdrawn. The same view has been again

reiterated in Union of India and Ors. v. Godhawani

Brothers and Anr. (1997 (11) SCC 173).

The State Government has, with the permission of this

Court, relied upon an affidavit in this connection which

they had filed in Civil Appeal No.5738 of 1994 State of

Rajasthan and Anr. v. Gopal Oil Mills and Anr. (Supra).

The appellant - State has pointed out that their experience

with regard to implementation of the said incentive scheme

during the years 1988 and 1989 revealed that the object of

having more new industries in the areas specified could not

be achieved, particularly in the case of oil industry and

cotton industry. On the contrary, the policy had adversely

affected existing units in the State. Since the tax

liability of new units was much less, and the tax liability

on the old units was high, old units gradually started

closing down while new units started coming up. As a

result, in the two years 1988 and 1989, 64 old units were

closed down and 74 new units were started. The closure of

old units and their replacement by new units resulted in

blocking of capital and funds invested in the old units.

Therefore, in effect, the incentive scheme as operating for

oil industries was resulting in closure of existing units

and substitution of the same by new units - which was never

the intention of the incentive scheme. It was, therefore,

decided to withdraw the benefit of the scheme in public

interest in respect of oil industry. The notification of

7.5.1990, therefore, was clearly issued on account of a

supervening public interest.

Secondly, in the present case the respondents do not

seem to have taken steps which can be considered as

effective steps for starting a new unit prior to the

notification of 7.5.1990, thereby entitling them to invoke

the doctrine of promissory estoppel. The respondents rely

upon the following for the purpose of invoking promissory

estoppel:

1. The respondent firm got its provisional

registration certificate on 15.2.1990. This is merely a

provisional registration issued by the Directorate of

Industries.

2. They applied for allotment of land and land was

allotted to them by RIICO Limited, by its letter dated

19.2.1990. Possession of the land was handed over on

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7.3.1990 and lease agreement was executed in March, 1990.

For this land, only an amount of Rs.30,849/was invested.

3. The respondent firm was registered as a

partnership firm with the Registrar of Firms on 6.3.1990.

4. On 2.4.1990 the respondent firm applied for

registration under the Rajasthan Sales Tax Act which was

granted on 17.4.1990.

5. A loan of Rs.7.5 lakhs was sanctioned by the

Rajasthan Financial Corporation in favour of the respondents

on 17.4.1990. It is not stated how much loan was actually

availed of by the respondents on or before 7th of May, 1990.

6. Construction of building was started by the

respondent on 20.4.1990 barely 3 weeks before the withdrawal

of the benefit under the said scheme.

7. The respondents claim that they placed orders for

machinery on 18.4.1990. It is, however, not stated whether

any amount either as earnest or advance for the purchase of

machinery was paid by the respondent to anybody before

7.5.1990. The respondents also claim to have applied for

power connection, to have installed a transformer and to

have invested about Rs.15 lakhs in installing the industrial

unit. However, there is no material to show that any of

this was done prior to 7.5.1990. In fact, the respondents

could commence commercial production only in February, 1991

long after the benefit of the incentive scheme had been

withdrawn. Their application for eligibility certificate

under the said scheme was made only on 2.4.1991 long after

the benefit of the scheme had been withdrawn in respect of

oil industry. In these circumstances, even if we were to

hold that the doctrine of promissory estoppel can be

invoked, the same cannot be invoked in the case of the

respondents.

In view of the withdrawal of the benefits under the

said incentive scheme by the notification of 7.5.1990 which

was issued in valid exercise of power by the appellant, the

respondents are not entitled to the benefit of the incentive

scheme pertaining to exemption from payment of sales tax

under the Rajasthan Sales Tax Act, 1954.

The respondents, however, contend that they were

granted a certificate of eligibility in respect of both

Central and State Sales Tax Schemes on 6.1.1993. They have

enjoyed the benefit of exemption from the State Sales Tax as

well as the Central Sales Tax throughout as a result of the

said certificate. Their unit has now closed down with

effect from 31st of July, 1997. In view of the exemption

granted by the appellant to the respondents under both the

schemes, the respondents have not collected sales tax in

respect of any of the transactions covered by the two

incentive schemes. Hence, now they should not be asked to

pay any amount by way of State Sales Tax on the transactions

of sale within the State during the period commencing from

6th of January 1993 (the date of grant of eligibility

certificate).

The respondents also rely upon a circular dated

27.1.1994 issued by the Directorate of Industries,

Rajasthan, Jaipur. This circular states that it is being

issued in view of the Rajasthan High Court's decision in the

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case of M/s. Goverdhan Oil Mills and M/s. Bindal Oil

Mills. Since there is some confusion, it has been clarified

that in view of the above judgment of the High Court all oil

manufacturing units which commenced production upto

31.3.1992 are entitled to the benefit under the 1987/1989

schemes under both the Rajasthan Sales Tax Act and the

Central Sales Tax Act. We fail to see how this circular of

27.1.1994 can help the respondents. The circular was issued

entirely on account of the decision of the Rajasthan High

Court and was meant for implementing that decision.

Appeals, however, from the judgments referred to in that

circular as also similar judgments pronounced in respect of

other oil industries, were filed by the State and have been

finally decided by this Court in the case of State of

Rajasthan and Anr. v. Gopal Oil Mills and Anr. (Supra).

A circular, therefore, which was issued entirely to give

effect to a judgment which was not accepted by the

department but was appealed against, cannot be considered as

conferring any permanent rights thereby. In the case of the

respondents, however, they were granted an eligibility

certificate on 6.1.1993 long prior to the said circular

entirely because of the directions contained in the judgment

of the Single Judge dated 27.11.1992 in their writ petition.

The respondents have been aware throughout that the judgment

of the Single Judge was appealed against. Even after the

Division Bench dismissed the appeal the matter was carried

further by filing the present special leave petition/appeal

before this Court. The respondents continued to enjoy the

benefits of the said two schemes since no stay was obtained.

Nevertheless, the question whether the respondents are

entitled to the said benefits, has been sub judice

throughout. Since the appeal is now being decided against

the respondents, they cannot claim the benefit of an

eligibility certificate which was granted entirely on

account of a judgment of a Single Judge in their favour

which is now being set aside.

The respondents, however, point out that this Court in

its judgment in State of Rajasthan and Anr. v. Gopal Oil

Mills and Anr. (Supra) allowed the respondent - oil

industries to retain the benefit they had obtained under the

scheme framed under the Rajasthan Sales Tax Act upto

4.4.1994. This was on the ground that the stay of the

impugned High Court judgment was granted by this Court only

on 4.4.1994. In the present case, the respondents cannot be

discriminated against. They should, therefore, be allowed

to retain the benefits they have enjoyed at least upto

4.4.1994, just as the other oil industries have been allowed

to retain benefits availed of upto 4.4.1994. Looking to the

benefits which other oil industries have enjoyed in view of

the judgment of this Court in State of Rajasthan and Anr.

v. Gopal Oil Mills and Anr. (Supra); we do not see any

reason why the respondents also should not have the same

benefit. They cannot, however, retain the entire benefit

they have received beyond 4.4.1994 or upto the date of this

judgment on the ground that no stay was granted by this

Court while admitting the special leave petition of the

appellants. The eligibility certificate, as far as the

respondents are concerned, was given entirely on account of

a judgment delivered in the course of the present

proceedings, which judgment has been set aside. Therefore,

the benefits, flowing from that certificate were clearly sub

judice throughout and were subject to the outcome of the

proceedings.

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In the premises, the judgment of the High Court, in so

far as it sets aside the notification of 7.5.1990 issued

under the Rajasthan Sales Tax Act, 1954 is set aside and the

notification of 7.5.1990 issued under the Rajasthan Sales

Tax Act, 1954 is upheld as valid. The respondents, however,

will be entitled to retain the benefits received by them

under the incentive scheme framed under the Rajasthan Sales

Tax Act upto 4.4.1994. The judgment of the High Court in so

far as it quashes the notification of 7.5.1990 issued in

respect of the incentive scheme under the Central Sales Tax

Act is upheld in the light of the decision of this Court in

the case of State of Rajasthan and Anr. v. Gopal Oil Mills

and Anr. (Supra). The appeal is disposed of accordingly.

There will, however, be no order as to costs looking to the

circumstances of the present case.