Gujarat High Court
Khukri Packaging Private Ltd. And Anr. vs State Of Gujarat And Ors. on 4 April, 1995
Author: C.K. Thakker
Bench: C.K. Thakker
JUDGMENT C.K. Thakker, J.
1. This petition is filed by the petitioners for a declaration that the provisions of section 47(4-A) of the Gujarat Sales Tax Act, 1968 (hereinafter referred to as "the Act") are ultra vires articles 14, 19(1)(g) and 300-A of the Constitution of India. A prayer is also made to quash and set aside the revised eligibility certificate dated April 27, 1988, an order of amendment dated February 16, 1989 and notice dated February 24, 1989 being illegal, contrary to law, arbitrary and ultra vires. It is also prayed that eligibility certificate and exemption certificate issued by respondent No. 2 and the Assistant Commissioner of Sales Tax, respondent No. 3 are legal, valid and are in force.
2. It is the case of the petitioners that petitioner No. 1 is a private limited company incorporated under the Companies Act, 1956. Petitioner No. 2 is the managing director of petitioner No. 1 and a shareholder of the company. The factory of the petitioner is in the State of Gujarat at A1-3502, GIDC, Sachin, District Surat. The company manufactures corrugated boxes for packing and selling them. It is also a dealer registered under the Act. According to the petitioners, the company tempted to establish a small-scale industry in a backward area at Sachin, District Surat by investing huge amount on account of being informed by resolutions, dated August 27, 1980 and March 18, 1982 issued by the Industries, Mines and Power Department and Finance Department respectively of the first respondent-State. A scheme of the sales tax incentive from June 1, 1980 was introduced for a period of five years by which sales tax exemption incentives had been granted vide entry No. 118 as per notification dated February 5, 1981 issued under sub-section (2) of section 49 of the Act. The petitioner took steps to obtain factory shed of Gujarat Industrial Development Corporation, a Government of Gujarat undertaking at Sachin by obtaining possession thereof and by incurring expenses of Rs. 1,71,145. Thereafter it invested huge amount of more than Rs. 15 lacs. According to the petitioner, it started production from February 15, 1981. It is asserted that the area of the factory shed of the petitioner is situated beyond 10 kms. of the municipal limits of Surat as such the petitioner is entitled to get exemption of payment of sales tax in accordance with the notification issued by the respondents. As per that notification the petitioner would be entitled to incentives by way of 50 per cent of the investment or Rs. 70 lacs whichever is less. It is the case of the petitioner that it had complied with all conditions making it eligible for sales tax exemption and incentives envisaged by the above notification. The petitioner, therefore, made an application on May 12, 1986 for grant of eligibility certificate. Necessary documents were also submitted along with the application pointing out that the shed of the petitioner was situated beyond 10 kms. of the municipal limits of Surat. A copy of that certificate issued by GIDC is also annexed to the petition. According to the petitioner, respondent No. 2 made necessary inquiries, visited factory premises of the petitioners, collected necessary information and after verifying facts, he was satisfied that the factory of the petitioner was situated in the area beyond 1 kms. of the municipal limits of Surat and hence on October 29, 1987 granted eligibility certificate by which the petitioner is entitled to sales tax exemption to the extent of Rs. 8,15,696. A Certificate granted in favour of the petitioner is also produced by the petitioner. But after everything was over for the reasons best known to the respondents, they have revised that eligibility certificate on April 27, 1988 and exemption which was granted for 50 per cent to the extent of Rs. 8,15,696 was reduced to 25 per cent (Rs. 4,07,848). It is this action which is challenged by the petitioner in the present petition.
3. Rule was issued by this Court and the matter was ordered to be heard along with Spl.C.A. Nos. 7138 of 1988 to 7141 of 1988. After hearing the parties, interim relief was granted. Today, when the matter was called out for final hearing, Mr. Pathak, learned counsel for the petitioner, frankly conceded that point regarding constitutional validity of section 47(4-A) of the Act has been decided by the Division Bench of this court and the validity is upheld by the Bench in the case of Ashapura Mineral Company v. State of Gujarat [1993] 89 STC 289. He, therefore, stated that question now does not survive.
4. On merits, Mr. Pathak submitted that on the basis of the notification issued in exercise of power under section 49(2) of the Act, the petitioner is entitled to get tax exemption to the extent of 50 per cent. Initially, it was granted and the order was passed in his favour. That action was in consonance with law. The respondent-authorities had no power, authority or jurisdiction to cancel or modify or withdraw the said benefit. Now, the notification issued under section 49(2) of the Act, inter alia, provides for grant for tax exemption benefit by amending earlier notification dated April 29, 1970. The notification on which reliance is placed by Mr. Pathak was issued on February 5, 1981 and in the Schedule, after entry No. 117, entry No. 118 was added. Entry No. 118(3) stipulates that benefit will be given to those new industries and manufacturers who have obtained eligibility certificate from Industries Commissioner or General Manager of the District Industries stating therein that new industry has been commissioned on the date specified therein, being any date during the period commencing on June 1, 1980 and ending on May 31, 1985 "in any of the designated areas".
Mr. Pathak also invited our attention to expression "designated areas" which is defined in clause (d) which reads as under :
"(d) The expression 'designated areas' means -
(i).............
(i) an area beyond 10 kilometres from the cities of Surat and Rajkot as constituted under the Bombay Provincial Municipal Corporations Act, 1949, or from the municipal Boroughs of Bhavnagar and Jamnagar constituted or deemed to have been constituted under the Gujarat Municipalities Act, 1963."
Mr. Pathak submitted that it is the case of the petitioner that it is new industry established by the petitioner-firm. It is situated beyond 10 kms. from the city of Surat and that it has complied with all conditions set out in the notification. When all these conditions have been satisfied, there is no reason to deprive the petitioner-unit from the said benefit which has been made to other units. The respondent-authorities were satisfied that the petitioner-unit was entitled to such benefits and accordingly they have been extended. It is because of illegal action that the said benefits have been subsequently withdrawn considerably. He, therefore, submitted that the order by which the said benefits have been revoked is contrary to law and requires interference by this Court.
5. An affidavit-in-reply is filed by one A. J. Patel, General Manager and Joint Commissioner of Industries, Surat, supporting the action taken by the respondent-authorities. It is, inter alia, stated in the counter that the petitioners are entitled to certain incentives in accordance with Government declared policy of providing incentive to persons establishing new industries in the backward area in the State. From time to time such benefits have been extended by the Government to all the persons similarly situated. The incentives relating to exemption from sales tax is granted through statutory notification under section 49(2) of the Act which empowers the State Government to exempt any specified class of sales or of specified sales or purchases from payment of the whole or any part of the tax payable under the provisions of the Act. Such exemption, however, would be subject to such conditions as Government would impose. Regarding entry No. 118, it is the case of the department that to give effect to the sales tax exemption envisaged in the Government resolution dated August 27, 1980 and in exercise of the power under section 49(2), it was inserted wide notification dated April 29, 1970. One of the conditions specified in the said entry No. 118 was that the specified manufacturer claiming benefit of exemption must have obtained an eligibility certificate from the Commissioner of Industries or General Manager of District Industries Centre. In para (B), it is stated as under :
"(B) At this stage, it would be pertinent to note that for the purpose of determining eligibility for incentive, and the extent thereof, what is material is the distance of growth centre from the municipal limits of certain specified cities (generally known as the banned distance) and not that of the concerned unit. In the case of Surat, such banned distance is 10 kms. In para (1), the deponent has stated that the question had arisen as regards the extent of incentives which an industrial unit located in a growth centre which falls partly within and partly outside the banned distance, would be entitled to. By a letter dated June 15, 1982 addressed to the Industries Commissioner, the Government clarified even if a portion of a growth centre falls within a banned distance, the whole of it should be treated as falling within the banned distance. In para (K) it was stated that since portion of the industrial estate of Sachin where the unit of the petitioner is located falls within the distance of 10 kms from Surat, as per the Government resolution the petitioners were not entitled to get exemption to the tune of 50 per cent but was entitled to 25 per cent only. It was, therefore, stated :
I say that initially the petitioner was erroneously granted the eligibility certificate certifying that the petitioner was entitled to the benefit of sales tax exemption to the extent of Rs. 8,15,696. The said eligibility certificate was granted on the footing that the petitioner was entitled to such incentive at the rate of 50 per cent of the fixed capital investment. Subsequently, when it was realised that by virtue of the location of the petitioner's unit being in the Sachin Industrial Estate of Surat, the petitioner would be entitled to the benefit of sales tax exemption at the rate of 25 per cent of the fixed capital investment and not at the rate of 50 per cent of such investment, the eligibility certificate issued earlier was amended and the exemption facility was reduced from Rs. 8,15,848."
Thus, according to the respondents, at earlier point of time, the department had committed mistake in granting exemption of 50 per cent in favour of the petitioner. Such mistake could have been corrected by the department and accordingly it was corrected. The petitioner cannot make any grievance of such correction. Mr. Mehta, Assistant Government Pleader, therefore, submitted that there is no substance in the petition and the petition requires to be dismissed.
6. Having gone through the record and relevant documents, in our opinion, the petition requires to be allowed. It is undisputed fact that notification is issued in exercise of the powers under section 49(2) of the Act. Sub-section (2) of section 49 provides that subject to such conditions as it may impose, the State Government may, if it considers it necessary so to do in the public interest, by notification in the official gazette, exempt any specified class of sales or purchases from payment of the whole or any part of the tax payable under the provisions of this Act. Even according to the respondents, notification was statutory Government notification under the Act. The real question, therefore, is as to whether the respondent-authorities are right in depriving the petitioner of that benefit available under the statutory notification on the ground that Sachin is situated within 10 kms. from Surat and, hence the petitioner is not entitled to the benefit of the notification. In our opinion, the submission of the learned counsel for the petitioner is well-founded that the relevant query is not as to whether or not Sachin situated within 10 kms from Surat but as to where the unit of the petitioner is located. It is not even the case of the respondent-authorities that other conditions under notification have not been fulfilled by the petitioner. In our view under the notification what is required to be seen for getting benefits under the notification is whether new industry has been commissioned in any of the "designated areas". The notification makes it clear that as to what designated area means. It defined "designated area" as an area beyond 10 kms. from the city of Surat. It is the case of the petitioners which is not disputed and really there is sufficient evidence on record including the certificate issued by the Deputy Executive Engineer, GIDC, Sachin at annexure A/3-A dated April 25, 1987 that the shed No. A1/3502 in GIDC of the petitioner is situated beyond 10 kms. boundary line from Surat city. Thus, as per the definition of "designated area" and the notification granting exemption, the petitioner can be said to be eligible to get benefits. When such benefits have already been granted in favour of the petitioner, it should not have been modified by the department, on the ground that Sachin is situated within 10 kms. from the city of Surat. In our opinion, therefore, action taken by the respondent-authorities is unlawful and all consequential orders require to be quashed and set aside.
7. In this connection, Mr. Pathak, drew our attention to a decision of the Division Bench of this Court in Jai Laminart Ltd. v. State of Gujarat, Special Civil Application No. 8803 of 1988 decided on October 21, 1994 to which one of us (Rajesh Balia, J.) was a party. In that case also, it was contended that village Bavala was situated within 24 kms. from Municipal Corporation limit of city of Ahmedabad and, hence the petitioner was not entitled to tax exemption benefits. Holding the notification as statutory and considering the fact that industry of the petitioner was situated beyond 24 kms. from the city of Ahmedabad, this Court held that the petitioner was entitled to tax exemption benefits and the action of the respondent-authorities of not granting exemption was illegal. The respondents no doubt, submitted that Bavala was stated to be one of the areas beyond 24 kms. from the municipal limits of Ahmedabad and that fact was mentioned in the notification itself. Be that as it may, in our opinion, when, notification grants such benefits in favour of new industries situated in "designated area" and the said expression is defined as 10 kms. from the city of Surat and when it is not disputed that the unit of the petitioner is situated beyond 10 kms. In our opinion, the action of the respondent-authorities in curtailing tax benefits, to the extent of 25 per cent is clearly illegal and contrary to law. From the reply, it is apparent that the respondents want to read the eligibility of scheme to a new industrial unit situated in an area in a "growth centre" situated beyond banned distance instead of an area situated beyond banned distance from "municipal limits" differently. That, in our opinion, is not open to them.
8. There is one more reason also on which the petition should be allowed. Admittedly, the notification A/3 is "statutory" in character. That statutory notification defined "designated area" as an area beyond 10 kms. from the city of Surat. The said definition must hold the field and should be given effect until it is clarified, modified or amended by issuing a similar notification under section 49(2) of the act. It is not open to the Government by a letter (executive fiat) to "clarify" the expression "designated area" when it has been defined statutorily. The so-called clarification of the Government in view of the settled legal position cannot override statutory definition and the case must be decided on the basis of notification of February 5, 1981. It is pertinent to note in this connection that according to the respondents that the definition of "designated area" under the scheme was understood by all concerned in the same way as discussed above and in fact benefit thereof was allowed to all concerned who had, taken effective steps to set up anew industrial unit before June 15, 1982, as per clarificatory letter, dated May 16, 1982, annexure III to the affidavit-in-reply. Definition of "designated area" has not been altered in the scheme. Without amending the scheme which is in the nature of subordinate legislation, the meaning of definition cannot be altered by executive fiat.
9. For the aforesaid reasons, the petition requires to be allowed and is accordingly allowed. Rule is made absolute. The impugned orders revising eligibility certificate and of curtailing tax benefits are hereby quashed and set aside and it is directed that the respondent-authorities will grant benefit in tax exemption in accordance with law to the petitioner. There will be no order as to cost.
10. Petition allowed.