Karnataka High Court
Hotel Madhuvan International Private ... vs State Of Karnataka By Its Secretary, ... on 1 June, 2006
Equivalent citations: ILR2006KAR2788, [2006]147STC619(KAR)
Author: Mohan Shantanagoudar
Bench: Mohan Shantanagoudar
JUDGMENT Mohan Shantanagoudar, J.
Page 0574
1. Since similar questions of fact and law are involved in these writ petitions, they are taken up together for hearing and are disposed of by this common order.
2. Heard the learned advocates appearing for petitioners and the learned Government Advocate appearing for respondents and perused the material on record.
3. For the sake of convenience, I prefer to note the facts of one writ petition.
Brief facts of the case in W.P. No. 24575/2005 are as under:
The petitioner is a dealer registered under the provisions of the Karnataka Sales Tax Act, 1957 (hereafter referred to as 'KST Act' for short) and now under Karnataka Value Added Tax Act ('KVAT Act' for short). In exercise of the powers conferred under Section 8-A(1) of the KST Act, the Government of Karnataka by issuing notification produced at Annexure-'B' dated 30th December 1993, exempted with immediate effect the tax under the KST Act in respect of sale of food and drinks by new tourism units situated in the places specified in the said notification i.e., B & C grade places for the period of three and seven years respectively. The said notification is issued with a view to give incentives to new tourism units for the purposes of promoting tourism in Karnataka State. For taking the benefit of exemption given by the State of Karnataka by virtue of the said Notification dated 30th December 1993, bearing No. FD 188 CSL 92(1), the petitioner started Hotel Madhuvan International at Bijapur which is Category-'C' place. As Page 0575 the petitioner's hotel is located at Category-'C' place, it was eligible far 100% tax exemption for a period of seven years in pursuance to the aforesaid Notification vide Annexure-'B'. There cannot be any dispute that the hotel started by the petitioner was a new tourism unit and the same was covered by the said Notification vide Annexure-B dated 30th December 1993. Thus, the petitioner was issued with a certificate of exemption vide Annexure-'A' on 6.11.1998 by the Director of Tourism, Bangalore. The said authority was competent to issue the said certificate. Pursuant to the said certificate, the petitioner is entitled to 100% tax exemption with effect from 6.11.1998 i.e., the date of starting of the hotel - tourism industry for seven years. The said certificate Annexure-'A' was given effect to by the tax department for the periods from 2001-02 and 2002-03 and the taxes for the relevant items were not levied on the petitioner.
4. After coming into force of the Karnataka Value Added Tax Act, the Government of Karnataka issued three Notifications dated 18.4.2005 bearing Nos. FD 56 CSL 2005 (1), FD 56 CSL 2005 (2) and FD 56 CSL 2005 (3). The copies of the above noted Notifications are produced vide Annexures-'C', 'C-1' and 'C-2' respectively along with the writ petition. The said Notifications are issued under the provisions of Section 5(2) of KVAT Act and relevant portion of the Notification bearing No. FD 56 CSL 2005 (1) reads thus :
In exercise of the powers conferred by Sub-section (2) of Section 5 of the Karnataka Value Added Tax Act, 2003 (Karnataka Act No. 32 of 2004), the Government of Karnataka hereby exempts with effect from the first day of April 2005, the net tax payable by a new industrial unit under the said Act, on the sale of goods manufactured by it, subject to the following conditions and procedure, namely-
(1) The industrial unit is eligible for tax exemption on sale of goods manufactured by it, under the notification issued by the Government under the provisions of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957).
(2) The tax exemption extended in this notification shall be limited to the un-availed portion of period and extent of tax exemption extended in the relevant notification and any Government Order and also subject to the overall tax concession originally extended.
In all the three Notifications, almost the aforesaid material is found. In the year 2005, i.e., after coming into force of KVAT Act, the petitioner filed application before the Joint Commissioner of Commercial Taxes for issuance of the entitlement certificate regarding exemption of tax as contemplated under KVAT Act. However, the said prayer of the petitioner is rejected by the Joint Commissioner by issuing endorsement vide Annexure-'E' dated 30.7.2005. Consequently, the petitioner was assessed to tax by passing the orders vide Annexures-'G', 'G-1' and 'G-2' to the writ petition for a period of three months i.e., from April to June 2005. For recovery of the tax Page 0576 assessed, demand notice is issued by the Deputy Commissioner of Commercial Taxes as per Annexure-"H' dated 13.9.2005 for the said period of three months. Petitioner has called in question the endorsement vide Annexure-'E', the assessment orders vide Annexures-'G', 'G-1' and 'G-2', and the demand notice vide Annexure-'H', by filing the writ petition.
5. In all other writ petitions, almost similar facts are found and in all these matters, petitioners were exempted from paying taxes in pursuance to the Government Notification dated 30th December 1993 for certain period. Petitioners have availed the benefit of the said exemption already for a portion of exempted period and they are yet to avail the tax exemption for the remaining period which is prescribed in the certificate of exemption. Therefore, all the petitioners have approached this Court by filing these writ petitions, questioning the validity of the assessment orders, demand notices and endorsements issued by the department, by which, the exemption granted earlier is taken away.
6. Smt. Niloufer Akbar, learned Addl. Government Advocate after filing her statement of objections argued in support of the assessment orders, inter alia contended that the assessment orders are issued in the interest of public, meaning thereby that the Notification vide Annexure-'B' issued earlier granting exemption to the tourist industry under the provisions of the Karnataka Sales Tax Act, is withdrawn impliedly.
7. It is not in dispute that the Notification dated 30th December 1993 bearing No. FD 188 CSL 92(1) vide Annexure-B to the writ petition is still in force and is not withdrawn by the Government of Karnataka. Based on the promise of the Government for grant of tax exemption, the petitioners have ventured to invest their money in Category- 'C' and Category- 'B' places to boost the tourism industry in the State of Karnataka, They have availed the benefits of the exemption granted for certain period. In the meanwhile, the new enactment - KVAT Act came into force with effect from 1st April 2005. The KVAT Act does not rescind or cancel or modify the earlier notification Annexure-B granting exemption to the petitioners relating to tourist industries. In this view of the matter, the department by virtue of the executive orders, cannot take away the benefit of exemption accorded by the State Government, particularly when the earlier notifications are still in force. Merely because of the enactment of the new law i.e., KVAT Act, the Notification issued under the KST Act cannot be given go by when the new enactment does not cancel or rescind the said notification. Therefore, the certificates given to the petitioners granting tax exemption to them in pursuance to the government notification Annexure-B issued earlier under the KST Act will continue to operate till they expire by lapse of time. As aforesaid, in the exemption certificates, it is specifically stated by the Tourist Department as to up to what time the petitioners are entitled to for the tax exemption.
8. There cannot be any doubt that the Government can rescind from its promise in public interest Government can also resile from its promise even Page 0577 in the absence of public interest if no one is adversely affected thereby or if it provides reasonable opportunity to the promisee to resume his position, provided restoration of status quo ante is possible. But in this case, as aforesaid the Government has not issued any notification withdrawing the earlier notifications in public interest. It has not rescinded from its promise, meaning thereby, operation of the earlier notifications granting exemption will continue. Nor any opportunity is given to the promisees to resume their position. It is also not enquired into by the department to determine as to whether restoration of status quo ante is possible. On facts, this Court finds that the tax department has not shown that it is possible for the petitioners-promisees to restore the status quo ante. The reason is obvious. Once the new entrepreneurs were lured for establishing the hotels in the B & C grade cities on being assured with certain years guaranteed incentive of tax rebate on certain items and acting under the same, once they had established their industries and spent large amounts for constructing the infrastructure and for employing necessary labour and for purchasing raw materials etc., it would be almost impossible for them to restore the status quo ante and walk out in the midstream if the tax rebate incentive is withdrawn for unexpired period out of three or seven years, as the case may be, which is the guaranteed period of exemption of tax rebate. On the other hand, as could be seen from Notifications vide Annexures-'C' 'C-l" and 'C-2' issued under Section 5(2) of the KVAT Act, the industrial unit is eligible for tax exemption on the sale of goods manufactured by it under the notification issued by the Government under the provisions of the KST Act. It is also made clear in the said Notifications vide Annexures-'C' 'C-1" and 'C-2', that the tax exemption extended in these notifications shall continue to remain for the unavailed portion of the period and the extent of tax exemption extended in the relevant notification or in Government Order. Thus, even the notifications issued under KVAT Act vide Annexures-'C', 'C-1' and 'C-2' dated 18.4.2005, make it amply clear that the petitioners who are granted exemption earlier under KST Act from paying tax for certain period will continue to get the said benefit for the unavailed portion of the period prescribed in the exemption certificates, As aforesaid, there cannot be any dispute that while granting exemption, petitioners' units were all new industrial units and that therefore, they are fully covered by the notification dated 18.4.2005 issued under Section 5(2) of the KVAT Act (Annexure-B).
9. The principle of promissory estoppel is applicable against Government under certain circumstances. The determination of applicability of promissory estoppel against public authority/Government hinges upon "balance of equity" or "public interest". In case there is a supervening public equity, the Government would be allowed to change its stand. However, the Court must satisfy itself that such a public interest exists. In these cases on hand, this Court does not find anything to hold that the assessment orders are backed up by any demand of public interest which would outweigh individual interests of petitioners. There cannot be any dispute that even now the State Government has been trying to boost and promote Page 0578 tourism in the State of Karnataka. Also there cannot be any dispute that, relying upon earlier notifications, holding out promise by the State Government to get tax rebate by way of incentive to new hotels (industries) for seven years (for starling of hotels in 'C' grade city) from the date of commencement of the hotel/industry, all the petitioners, as new industrialists, had walked into such 'C' grade cities and established their hotels/industries by spending huge amounts of moneys for construction of hotels, building up of infrastructure etc., wherein their industrial activities could commence. Under these circumstances, when no public interest is sought to be pressed in service by the State for withdrawal of this incentive rebate, the equity which had arisen in favour of the petitioners remained untouched and undisturbed by any overwhelming and superior equity in favour of the State, entitling it to withdraw this tax rebate in a premature manner leaving those promises high and dry before the requisite period of seven years earlier guaranteed to them by way of tax rebate had got exhausted. Therefore, the respondent-officers of the Tax Department must be treated to be estopped from prematurely withdrawing the incentive tax rebate made available to these petitioners by passing impugned orders. As aforesaid, the State has not withdrawn the earlier notification issued by it granting tax exemption under the provisions of KST Act, Under such circumstances, the department could not have withdrawn tax concession given to the petitioners by passing impugned orders, particularly when the notification granting exemption still subsists.
10. It is relevant to note here itself that the Government Order dated 26.11.1988 bearing No. ITY 124 TTM 84 (II), makes it clear that the Tourism is declared as an industry. Thus, as the petitioners' hotels are coming under the definition of 'industry', they were rightly granted exemption under the KST Act. For the aforesaid reasons, these petitioners are entitled to for the said benefit of tax exemption for the un-availed portion of the period mentioned in the exemption certificates. In view of the same, the following order is made:
Petitioners are entitled to avail the tax exemption benefit granted to them earlier for the un-availed portion of the period prescribed under the exemption certificate issued to them earlier under the provisions of KST Act. Consequently, the endorsement issued by the authorities withholding the said exemption and the assessments orders passed against the petitioners for the period for which they were granted exemption from paying tax, stand quashed. Consequently the impugned demand notices are quashed.
Writ petitions are allowed accordingly. Rule made absolute.