State Taxation Tribunal - Tamil Nadu
Ponni Sugars And Chemicals Ltd. vs Government Of Tamil Nadu And Ors. on 26 November, 1997
Equivalent citations: [2002]127STC451(TRIBUNAL)
JUDGMENT
S. Ramalingam, J. (Chairman)
1. By consent of both parties the main petition itself is taken up for final disposal.
2. The prayer is for issue of a writ of certiorarified mandamus calling for the records of the Government of Tamil Nadu relating to the issue of G.O. Ms. No. 989, Industries, dated August 1, 1988 and to quash the same and further direct the respondents 2 to 4 to refund the amount of Rs. 92,85,227 with interest thereon at 18 per cent or to adjust the said sum towards future purchase tax liability.
3. It would be necessary to refer to certain factual details in order to appreciate the contention of the learned Senior Counsel for the petitioner based on the theory of promissory estoppel.
4. The Government of India constituted a committee called Sampath Committee to recommend fiscal incentives to new sugar mills since it was realised that sugar mills operate with very little viability. The committee so constituted recommend (a) exemption from supply of levy sugar during the initial period of five years for new sugar mills, (b) exemption from payment of purchase tax on sugar during the first five years from the date the new sugar mills go into production.
5. The Government of Tamil Nadu accepted the above recommendations of Sampath Committee and issued G.O. Ms. No. 1294, Industries, dated October 24, 1975 granting relief from payment of purchase tax for a period of five years to the new sugar mills set up in the co-operative and public sectors.
6. The petitioner established a sugar mill at Pallipalayam, Tiruchengode Taluk, in Salem District. In the affidavit it is stated that the petitioner was the first to be established in the State of Tamil Nadu in private sector. After finding that the benefits of G.O. Ms. No. 1294, Industries, dated October 24, 1975 are restricted to sugar industries in the co-operative or public sector, the petitioner made a representation on December 6, 1984 to the Government of Tamil Nadu to grant exemption from payment of purchase tax for a period of five years commencing from 1983-84, in pan materia with co-operative and public sector. In the said representation the petitioner made mention of the following points :
(1) For the first time in the sugar industry, the petitioners have installed a coal-fired boiler in place of conventional bagasse-fired boilers at a heavy cost thereby bagasse was saved which could be used as raw material in paper industries.
(2) The new unit was set up by borrowing heavily.
(3) Financial institutions granted loans to the company based on the company projecting future financial position specifically pointing out that it would obtain exemption from payment of purchase tax.
(4) There is no justification to deny purchase tax exemption to private sector sugar mills while extending such benefits to sugar mills established in the co-operative sector and public sector.
7. The Government of Tamil Nadu issued G.O. Ms. No. 1414, Industries, dated November 30, 1984, based on the representation received from the, petitioner. That order is strongly relied on by the petitioner and therefore it would be proper to extract at least three paragraphs from that Government Order :
"(1) The Government of India had constituted a committee to go into the question of viability of sugar factories of 1250 TCD. That committee had observed that sugar factories of 1250 TCD will lose heavily unless adequate relief as recommended by them is granted by the Central and State Governments.
(2) In G.O. Ms. No. 1294, Industries, dated October 24, 1975 Government ordered that new sugar mills set up in co-operative and public sectors should be granted relief from payment of purchase tax. This relief would be in the form of an annual subsidy equivalent to the sales tax on cane due from those sugar factories for a period of five years from the date of their going into production.
(3) The Government have carefully examined the request of Ponni Sugars and Chemicals Limited, Pallipalayam, Salem. After due consideration the Government have decided that Ponni Sugars and Chemicals Limited be granted relief in the form of annual subsidy equivalent to quantum of purchase tax on sugarcane due from it for a period of two years from the date of going into production."
8. The petitioner commenced production on January 27, 1984. The petitioner made a further representation on December 6, 1984 in which it requested the Government to extend the period from 2 years to 5 years and accordingly the Government passed orders in G.O. Ms. No. 1497, Industries (MID.I) Department dated December 26, 1984 reading as follows :
"In the Government order No. 1414, Industries, dated November 30, 1984, the Government ordered that Ponni Sugars and Chemical Ltd., be granted relief in the form of annual subsidy equivalent to the quantum of purchase tax on sugarcane due from it for a period of two years from the date of its going into production. However, Ponni Sugars and Chemicals Ltd., in their fetter dated December 5, 1984, have represented to the Government that the subsidy may be given for a period of five years. The Government have carefully examined the request of Ponni Sugars and Chemicals Limited and decided to accept it. Accordingly in partial modification of the orders issued in G.O. Ms. No. 1414, Industries (MID-1) dated November 30, 1984, the Government direct that Ponni Sugars and Chemicals Limited be granted relief in the form of a subsidy equivalent to the quantum of purchase tax of sugarcane due from it for a period of five years from the date of going into production."
9. The learned Senior Counsel on the above backdrop of facts submits that it was the policy of the Government of Tamil Nadu to encourage new industries and make them viable. New sugar mills established in the public sector, co-operative sector and also in private sector were to be given subsidies. In order to achieve that object Government held out a promise that new sugar mills would be eligible for purchase tax subsidy for a period of five years from the date of commencement of production. This decision apart from being general in character particularly was directed to the petitioner-sugar mills as is evident from G.O. Ms. No. 1414, Industries (MID.l) dated November 30, 1984 and G.O. Ms. No. 1497, Industries (MID.l) Department, dated December 26, 1984. This decision so made by the respondent was implemented and acted upon and the petitioner had arranged its affairs in such a manner that the said benefit would be available to them for a period of five years from the date of going into production.
10. The learned Senior Counsel submits that to the shock and surprise of the petitioner they were made aware of G.O. Ms. No. 989, Industries, dated September 1, 1988 effective from April 1, 1988 under the terms of which it was ordered as follows :
"In the case of sugar mills already established and which have been granted purchase tax subsidy under G.O. Ms. No. 1294, Industries, dated October 24, 1975 and G.O. Ms. No. 1497, Industries, dated December 26, 1984 the scheme of subsidy Will continue and the condition relating to dividend would not apply, the ceiling would be as follows :
'The capacity of the mill 1250/1500 TCD. Ceiling for five years 300.00 lakhs. The above ceiling would be further restricted to the purchase tax leviable for the cane actually drawn from the reserved areas. If subsidy has been disbursed for one or more years, the subsidy for the subsequent years up to the limit of five years will be disbursed annually with reference to the ceiling for a year as fixed above but such that the 5 years' ceiling is not exceeded. In case the mills have already been disbursed subsidy in excess of the 5 years' ceiling indicated above no further disbursement will be made."
11. The learned Senior Counsel for the petitioner points out that the period of 5 years contemplated in G.O. Ms. No. 1497, Industries, dated December 26, 1984, in so far as the petitioner is concerned would come to an end by efflux of time only on January 26, 1989, but by operation of the impugned G.O. Ms. No. 989, dated August 1, 1988 effective from April 1, 1988 the petitioner would cease to have the benefit of purchase tax subsidy for the period subsequent to April 1, 1988 since by April 1, 1988 the petitioner had crossed the ceiling of 300 lakhs. The learned Senior Counsel submits that while the earlier G.O. Ms. No. 1497, Industries, dated December 26, 1984 as well as G.O. Ms. No. 1414, Industries, dated November 30, 1984 did not impose any mandatory outer-limit for grant of subsidy, the later order in G.O. Ms. No. 989, Industries, dated August 1, 1988 imposed a monitary limit. The same has adversely affected the petitioner and has deprived it of the benefits conferred by G.O. Ms. No. 1414, Industries, dated November 30, 1984 and G.O. Ms. No. 1497, Industries, dated December 26, 1984. The submission of the learned Senior Counsel is that, after having held out that the benefit of subsidy would enure for a period of five years from the date of commencement of production, the first respondent is prevented by the theory of promissory estoppel.
12. The learned Senior Counsel further submits that for the period subsequent to April 1, 1988 the respondent has collected from the petitioner a sum of Rs. 92,85,277 as purchase tax and such collection being contrary to law should be ordered to be refunded together with interest.
13. In support of the above plea the learned Senior Counsel for the petitioner relies on the decision reported in [1979] 44 STC 42 (SC) (Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh). On the facts of that case it is seen that in October, 1968, the Secretary to the Government of Uttar Pradesh made a statement that exemption from sales tax for a period of two years under Section 4(A) of the Uttar Pradesh Sales Tax. Act, 1948, would be given to all new units in the State with a view to enabling them to come on a firm footing in the developing stage. It was the case of the petitioner that he acted upon this representation. He established a new industry hoping that the benefit of tax exemption would be available. But the State Government went back upon this promise stating that the Government had taken a policy decision that new vanaspati units in the State would be given only a partial concession in sales tax. Questioning the correctness of this action, it was contended before the Supreme Court, that on the theory of promissory estoppel Government cannot go back on its promise. The court held as follows:
"It was clear from the letter of the respondent written in January, 1969 that a categorical representation was made by the respondent on behalf of the Government that the proposed vanaspati factory of the appellant would be entitled to exemption from sales tax in respect of sales of vanaspati effected in U.P. for a period of three years from the date of commencement of production. That letter clearly shows that the respondent made this representation in his capacity as the Chief Secretary of the Government, and it was, therefore, a representation on behalf of the Government. The appellant relying on this representation of the Government, borrowed moneys from various financial institutions, purchased plant and machinery and set up a vanaspati factory. The facts necessary for invoking the doctrine of promissory estoppel were, therefore, clearly present and the Government was bound to carry out the representation and exempt the appellant from sales tax in respect of sales of vanaspati effected by it in U.P. for a period of three years, from the date of commencement of the production."
14. When an argument was advanced on behalf of the State that the doctrine of promissory estoppel had no application because the appellant had not suffered any detriment by acting on the representation made by the Government, the Supreme Court accepting the proposition of law laid down by Lord Denning in Central London Property Trust Ltd. v. High Trees House Ltd. case [1947] KB 130 held :
"We do not think that in order to invoke the doctrine of promissory estoppel it is necessary for the promisee to show that he suffered detriment as a result of acting in reliance on the promise. But we may make it clear that if by detriment we mean injustice to the promisee which would result if the promisor were to recede from his promise, then detriment would certainly come in as a necessary ingredient. The detriment in such a case is not some prejudice suffered by the promisee by acting on the promise, but the prejudice which would be caused to the promisee, if the promisor were allowed to go back on the promise."
It was also held that :
"Whatever be the nature of the function which the Government discharges the Government is under the rule of promissory estoppel and by this essential ingredient rule, the Government is compelled to carry out the promise made by it. We are therefore, of the view in the present case the Government was bound to exempt the appellant from payment of sales tax in respect of sales of vanaspati effected by it in the State of Uttar Pradesh for a period of three years from the date of commencement of production."
15. The next decision relied on by the learned Senior Counsel for the petitioner is reported in [1987] 65 STC 1 (SC) (Pournami Oil Mills v. State of Kerala). It would be necessary to extract two paragraphs from the above judgment :
"Under the order dated April 11, 1979, new small-scale units were invited to set up their industries in the State of Kerala and with a view to boosting of industrialisation, exemption from sales tax and purchase tax for a period of five years was extended as a concession and the five-year period was to run from the date of commencement of production. 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 [1979] 44 STC 42 (SC); (1979) 2 SCC 409.
...................
On facts the Supreme Court found that it is not disputed that the first order, viz., the one dated April 11, 1979, gave more of tax exemption than the second one. The second notification withdrew the exemption relating to purchase tax and confined the exemption from sales tax to the limit specified in the proviso of the notification.
The court held that, all parties before us who in response to the order of April 11, 1979, set up their industries prior to October 21, 1980, within the State of Kerala would thus be entitled to the exemption extended and/or promised under that order. Such exemption would continue for a period of five years from the date they started production."
16. Yet another decision of the Madras High Court reported in [1995] 98 STC 125 [Sulochana Cotton Spinning Mills (P) Ltd. v. State of Tamil Nadu] is also relied on. A division Bench of the Madras High Court held as follows :
"As long as it is permissible in law and there is no prohibition contained either under any Act or under the Constitution or under any other law prohibiting the State Government to offer such an incentive as the one under consideration, the representation made by the State Government through G.O. Ms. No. 500 dated May 14, 1990 to the industrialists to take advantage of those concessions and establish industries can in unequivocal terms be construed as a lawful promise made by the State Government to the industrialists. It is also not in dispute that the industrialists acting upon such promise, established new industries and also commenced production before April 24, 1991. There is no illegality, no lack of bona fides on the part of industries. Everything has been fair and proper. If that be so, the State Government cannot turn back and cannot withdraw the concession or restrict it."
17. The petitioner submits that in the instant case it is not pleaded that the issue of G.O. Ms. No. 1414, Industries, dated November 30, 1984 and G.O. Ms. No. 1497, Industries, dated December 26, 1984 is contrary to law or is in violation of constitutional provisions. According to the petitioner, the Government made a lawful promise and they are bound by the promise made by them.
18. Yet one another decision on which the learned counsel relies on is reported in (1997) 8 Supreme 81 (SC) in the case of Pawan Alloys and Castings Ltd. v. U.P. State Electricity Board. Referring to earlier decisions of the Supreme Court in Motilal Padampat Sugar Mills case [1979] 44 STC 42 (SC), Jit Ram Shiv Kumar's case AIR 1980 SC 1285, Godfrey's case AIR 1986 SC 806 and also in Pournami Oil Mills case [1987] 65 STC 1 (SC), the Supreme Court approved the law laid down in Motilal Padampat Sugar Mills case [1979] 44 STC 42 (SC) as follows :
"The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution."
The learned Judges then went on to say as follows :
"Suffice it to say at this stage that if a statutory authority or an executive authority of the State functioning on behalf of the State in exercise of its legally permissible powers, has held out any promise to a party who relying on the same has changed its position not necessarily to its detriment and if this promise does not offend any provision of law or does not fetter any legislative or quasi-legislative power inhering in the promisor then on the principle of promissory estoppel the promisor can be pinned down to the promise offered by it by way of representation containing such promise for the benefit of the promisee."
19. The learned Senior Counsel for the petitioner therefore contends that when the request was made by the petitioner citing examples of concession extended to public sector and co-operative sector sugar mills and on a consideration of that request Government issued G.O. Ms. No. 1414, Industries, dated November 30, 1984 and G.O. Ms. No. 1497, Industries, dated December 26, 1984 holding out a promise of purchase tax subsidy for a period of five years from the date of commencement of production and when that benefit would enure till January 26, 1989, it is not open to the respondent to recede from that promise and restrict the benefit only till April 1, 1988 and also subject to a monetary ceiling of Rs. 300.00 lakhs.
20. The learned Government Advocate for Taxes submits that G.O. Ms. No. 989, Industries, dated August 1, 1988 was issued only by the Industries Department and it is not an order issued under the provisions of the Tamil Nadu General Sales Tax Act and therefore, this Tribunal would have no jurisdiction to go into this question of promissory estoppel pleaded by the petitioner. This submission of the Government Advocate is rejected on the ground that even though the said G.O. is issued by the Industries Department, it has a direct and immediate effect on the liability for payment of purchase tax under the Tamil Nadu General Sales Tax Act. Secondly, the learned Government Advocate relies on the decision of the Supreme Court reported in [1986] 62 STC 122, viz., Bakul Cashew v. Sales Tax Officer. In that case by a notification dated April 29, 1970 new industries set up in areas far away from cities were granted a tax holiday for a period of five years. The petitioner therein who had established a new industry at a place about 24 kms., away from the municipal limit of Ahmedabad City claimed the benefit of the said notification. The Supreme Court rejected the plea by observing that the petitioner had established the unit several months before the Government held out a promise and therefore, he cannot take advantage of that notification which is given a prospective operation. It would therefore be obvious, that on facts, it was found in that decision that there was no materials to show any definite or certain promise made by the State entitling the petitioner therein to raise the plea of estoppel. Hence, the decision in Bakul Cashew v. Sales Tax Officer is clearly distinguishable because the factual foundation for making a plea of estoppel was not available.
21. The second submission of the learned Government Advocate is based on the decision reported in [1989] 72 STC 354 (SC) (Bharat General and Textile Industries Ltd. v. State of Maharashtra). In that case while dealing with the scope of Section 41 of the Bombay Sales Tax Act which enables the State Government to give the benefit of tax exemption, an argument based on Article 14 of the Constitution was raised pleading that to grant exemption only to new manufacturing units set up in backward areas would be discriminatory and the Government should extend the benefits to all units. This plea was rejected stating that it is open to the Government to make a reasonable classification. This decision can hardly be of any assistance to the point to be decided in this case.
22. The last decision relied on by the learned Government Advocate is reported in [1995] 99 STC 333 (SC) (Arvind Industries v. State of Gujarat). A few facts are necessary to appreciate the law laid down in that decision. By a notification dated November 11, 1970, the State of Gujarat directed that on fulfilment of certain conditions like obtaining eligibility certificate and establishing of industries beyond the municipal limits of certain town between 1st April, 1970 and 31st March, 1975, drawback for a period of five years of the whole or any part of the sales tax would be given. The petitioner therein claimed the said benefit. On facts it was found that no particulars were furnished by the petitioner as to when land was purchased and as to when plant and machinery for industries were procured. Further it was found that in the petitioner's case the petitioner had set up industries at Junagadh. It is a very large city whereas the notification dated November 11, 1970 granted exemption to new industries which had been set up beyond 24 kms., from the municipal cities of Ahmedabad and Baroda and 16 kms. from the cities of Surat and Jamnagar, etc. In conclusion the court observed as follows :
"The appellant has been entirely unable to make out any factual basis for a case of promissory estoppel. The appellant cannot claim that merely because it had set up its industrial unit at Junagadh at a certain point of time, the fiscal laws of the State must remain unaltered from that date. The appellant has not been able to show that some definite promise was made by or on behalf of the Government and the appellant had acted upon that promise to its detriment and thereafter the changes effected by the notification dated July 17, 1971, have caused great prejudice to the appellant."
23. It would therefore be obvious that in the cases cited by the learned Government Advocate the Supreme Court found that there was no factual foundation made out by the petitioner for claiming promissory estoppel.
24. On the contrary as rightly contended by the learned Senior Counsel for the petitioner, when request made by the petitioner based on established policies of the Government of Tamil Nadu to encourage new industries by granting subsidy of purchase tax, the Government considered that request and passed orders in favour of the petitioner promising that for a period of five years from the date of commencement of production, purchase tax subsidy would be given. This promise once made would bind the Government for that period and it is not possible for the respondent to recede from that promise and pass orders to the prejudice of the petitioner.
25. While accepting the above submissions of the petitioner's counsel there can be no difficulty in holding that the theory of promissory estoppel on the facts of this case applies and it is held that G.O. Ms. No. 989; Industries, dated August 1, 1988 will have no application to the petitioner. The petitioner is also entitled to the consequential relief.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 26th day of November, 1997.