Karnataka High Court
The Deputy Commissioner Of Commercial ... vs Bellary Steels And Alloys Limited on 31 May, 2004
Equivalent citations: ILR2004KAR3776, (2008)11VST361(KARN), 2004 AIR - KANT. H. C. R. 2790, (2004) 57 KANTLJ(TRIB) 321
Bench: H.L. Dattu, A.C. Kabbin
JUDGMENT Dattu, J.
1. This appeal is filed by the State Government against the order made by the learned Single Judge in W.P.No. 7112/1998 dated 30.7.1998.
2. The primary relief sought in the Writ Petition was to declare that the notification in FD.1.CSL.95(I) dated 11.10.1995 issued by the State Government is unconstitutional and that therefore, the petitioner was entitled for tax exemption subject to a ceiling of 80% of the amount of investment spread over a period of five years in terms of the notification issued by the State Government in No. FD. 171.CSL.93(I) dated 28.8.1993.
3. The learned Single Judge while allowing the petition has observed:
"If the investment has been made after coming into force of the notification dated 11.10.1995 then the relief could be restricted according to the notification. But if the investment has already been made, prior to coming into force of this notification dated 11.10.1995, in terms of notification dated 28.8.1993, the benefit of exemption cannot be denied giving effect retrospectively. The assessing authority therefore may consider this aspect as to when the actual investment has been made by the petitioner. It has been held in Motilal Padampat Sugar Mills Company Ltd. v. The State of Uttar Pradesh (1970) 44 STC 42 and Pounami Oil Mills v. State of Kerala (1987) 65 STC 1, that the doctrine of promissory estoppel is applicable to the new unit, in view of the promise given by the State.
Writ Petition stands disposed off with the above observations."
4. The view of the learned Single Judge is that the benefit of the notification dated 28.8.1993 cannot be denied to an industry which has made investment for expansion/modemization/diversification by giving effect to the notification dated 11.10.1995 retrospectively. Secondly, the doctrine of promissory estoppel is applicable in the facts and circumstances of the case, in view of the promise held out by the State Government in the notification dated 28.8.1993.
5. Briefly stated the facts of the case is as under:
Respondent is a Public Limited Company engaged in the manufacture and sale of steel products, having its manufacturing unit at Bellary. It is registered both under the provisions of the Karnataka Sales Tax Act, 1957 and Central Sales Tax Act, 1956. It is the case of the respondent, that in terms of the notification dated 28.8.1993, it is eligible for sales tax exemption for a period of five years from the date of the commencement of commercial production, subject to a ceiling of 80% of the amounts invested under the fixed assets for modernisation. The grievance of the respondent is that the State Government has issued notification in No. FD. CSL. 95(I) dated 11.10.1995, substituting item (iii) in Explanation II to the notification dated 28.8.1993 and thereby it introduced a new norm, which was not there in the original notification for tax exemption to an industrial unit, which would invest in expansion/modernisation.
6. The case of the appellants/ State Government before the learned Single Judge and even before this Court is that the impugned notification does not take away any benefit granted to an industrial unit under notification dated 28.8.1993 that the said notification is only clarificatory in nature, prescribing a method for computing the tax liability and to grant exemption of tax as notified in the notification dated 28.8.1993 and that therefore, the doctrine of promissory estoppel cannot be applied in the present fact situation. It is therefore argued that the learned Single Judge was not justified in applying the doctrine of promissory estoppel by relying on the observations made by the Apex Court in the case of MOTILAL PADAMPAT SUGAR MILLS COMPANY LTD. v. THE STATE OF UTTAR PRADESH, (1979) 44 STC 42. Secondly, it is contended that the learned Single Judge was not justified in giving a finding that if the investment has been made after coming into force of the notification dated 11.10.1995, then the relief could be restricted according to the notification, but if the investment is already made prior to coming into force of the notification dated 11.10.1995, ie., in terms of the notification dated 28.8.1993, the benefit of exemption cannot be denied by giving effect retrospectively. It was and is their specific case that the benefit granted under the earlier notification dated 28.8.1993 is neither withdrawn nor taken away by the impugned notification dated 11.10.1995.
7. The respondent - company would assert that the impugned notification is not in the nature of 'clarificatory notification' as contended by the appellants in its memorandum of appeal, but a notification which would take away the benefit extended under the earlier notification dated 28.8.1993 and therefore, the learned Single Judge was justified in declaring that the impugned notification is prospective and is further justified in observing in his order, that, if the investment is already made by an industrial unit pursuant to the policy declared and notified by the State Government in its notification dated 28.8.1993, the benefit of exemption cannot be denied by giving retrospective effect to the notification dated 11.10.1995.
8. The learned Counsel appearing for the parties in these proceedings reiterate their assertions made in their pleadings at the time of hearing of this appeal.
9. The only question that requires to be considered and decided in this appeal is, whether the conclusion reached by the learned Single Judge that the impugned notification takes away the benefit granted under earlier notification and therefore the notification requires to be applied prospectively is correct or not in the facts and circumstances of the present case.
10. The Government of Karnataka in order to encourage new industrial units in all sectors, namely, tiny, small, medium and large-scale industries in the State, notified by its order dated 12.7.1993, a package of incentives and concessions to new industrial units in Karnataka and also industrial units which made investments in expansion/ modernisation of their industrial units for creating additional capacity by such investments. In the Government Order, it is stated that the incentives and concessions shall also be available for investments made for expansion, diversification, modernisation, but limited to the extent of the additional capacity created out of the said investment. The order issued by the State Government has the approval of the Cabinet. In order to give effect to the policy of the State Government, the State Government has issued the notification dated 28.8.1993 in exercise of its power under Section 8A of the Karnataka Sales Tax Act exempting the tax payable under the Act in respect of goods manufactured and sold by a new industrial unit located in zones specified in column No. (3) for a particular period. The notification also exempts the tax payable under the Act by an industrial unit making investment for expansion or diversification or modernisation on or after 12.7.1993 which are located in the zones specified in column No. (3).
Explanation I to the notification defines the meaning of the expressions "tiny industrial unit, or small scale industrial unit, or medium scale industrial unit or large scale industrial unit", "industrial unit" and "Government Order" etc. Explanation II to the notification provides the method for quantification of the extent of tax exemption under the notification. It only says that the extent of tax exemption shall be the aggregate of tax exempted under the notification and the notification - II No. FD 171 CSC 93 dated 28.8.1993 issued under Central Sales Tax Act, 1956 from the date of commencement of Commercial production as certified by the Director of Industries and Commerce or his authorised nominee.
Clause (iii) to Explanation II to the notification is relevant for the purpose of this case. Therefore, the same requires to be extracted. It reads as under:
"(iii) tax exemption to an industrial unit undertaking investment in expansion /diversification/ modernisation shall be available only to the additional capacity created by it out of such investment."
11. A perusal of the aforesaid clause of the notification would only indicate the following. They are:
(i) Tax exemption is available to an industrial unit, which undertakes investment in its expansion, diversification and modernisation.
(ii) Secondly, such expansion, diversification and modernisation shall be available to an industrial unit only to the additional capacity created by it out of such investment.
The emphasis is on the tax exemption on the additional capacity created by an industrial unit, which is already in existence.
12. By a subsequent notification in No. FD.1.CSL.95 (1) dated 11.10.1995, the State Government has substituted item (iii) of Explanation II to the earlier notification dated 28.8.1993. The substituted portion of item (iii) to Explanation II reads as under:
"(iii) (a) Tax exemption to an Industrial Unit, undertaking investment in expansion/modernisation shall be available only to the additional capacity created by it out of such investment, subject to the respective ceiling specified in the table below Clause (ii);
(b) The tax liability eligible for exemption under Clause (a) above, shall be the difference between the total tax liability (i.e., the tax liability of the unit under the Karnataka Sales Tax Act, 1957 together with the tax liability under the Central Sales Tax Act, 1956) and the average total tax liability of the three years immediately preceding the year in which investment for such expansion /modernisation has taken place.
(iv)(a) The exemption to an Industrial Unit undertaking investment in diversification shall be available to the additional capacity created by it out of such investment subject to the ceiling specified in the table below Clause (ii);
(b) Tax liability eligible for exemption under Clause (a) shall be restricted to the tax payable on the goods manufactured and sold under the investment for such diversification."
13. We have heard the learned Counsels appearing for the parties. Sri Anand, learned Govt. Advocate appearing for the State Government would submit that the subsequent notification dated 11.10.1995 issued by the State Government is in the nature of a clarificatory notification, clarifying Clause (iii) of Explanation II of the earlier of notification dated 28.8.1993, only to maintain uniformity for quantification of the tax exemption available to a new industrial unit or to an industrial unit which would create additional capacity by making investment either for expansion/modernisation/diversification. Therefore, the subsequent notification cannot be said, that, it would take away the right or the benefits granted to the new industrial units or industrial units which have made investment for expansion/modernisation under the earlier notification.
14. Per contra, Sri R.V. Prasad, learned Counsel appearing for the respondent would submit, that, the subsequent notification issued by the State Government cannot be construed by any of stretch of imagination, that, it is a clarificatory notification since it takes away the benefit that has been granted to the dealer under the earlier notification.
15. An explanation provided to a section, rule or notification shall only explain the scope of the section, rule or the notification. It shall not expand or add to the scope of either the section, or the rules or the notification. An explanation could introduce a fiction or settle a matter of controversy. The orthodox function of an explanation is to explain the meaning and the effect of the main provision to which it is an explanation and to clear up any doubt or ambiguity in it. Legislature has different ways of explaining itself and in the last analysis, the words used alone are repository of legislative intent. The construction of an explanation must depend upon its terms and no theory of its purpose can be entertained unless it can be inferred from the language used. The explanation added to a notification becomes an integral part of the notification itself. The question as to whether the explanation seeks to control the effect of the notification is immaterial, as the explanation purports neither to control nor to alter but only seeks to explain or clarifies.
16. In the present case, we are concerned not with the new industrial units, but the units which are already in existence but would make investment either for the purpose of expansion/modernisation/ diversification. In the notification dated 28.8.1993, under explanation II, the extent of tax exemption that could be granted under the notification shall be the aggregate of tax exempted under this notification and the notification dated 28.8.1993 issued under the Central Sales Tax Act, 1956. In column (4) of the notification the period or for the number of years for which tax exemption is extended from the date of the commencement of production is also stated and it is subject to a ceiling of a particular percentage of the amount invested in fixed assets for expansion or diversification or modernisation for the additional capacity created out of such investment. It is important to note that it is an incentive scheme to give relief to newly established industrial undertakings and also to existing industrial units undertaking new industrial investments for expansion, modernisation or diversification on or after a particular date by way of tax relief for a particular period and for a particular limit. The explanation had not provided any method for quantification of tax relief provided in the notification. In fact, it is vague, which resulted in assessing authorities adopting their own methods while grating tax relief under the notification. This prompted the State Government to issue the impugned notification by providing a method to quantify the tax exemption that an industrial unit undertaking new industrial investments for expansion modernisation etc. Even under the impugned notification, the tax exemption is provided to an industrial unit, undertaking investment in expansion/modernisation to the additional capacity created by it out of such investment. To quantify the tax relief under the notification, a simple method is provided, ie., the tax liability eligible for exemption would be the different between the total tax liability both under Karnataka Sales Tax Act and the Central Sales Tax Act and the average total tax liability of the three years immediately preceding the year in which investment for expansion/modernisation has taken place. Even under this notification, the maximum ceiling limit of tax exemption to which an industry would be entitled is not altered in any manner whatsoever. In other words, even prior to the substitution of the explanation, the very situation existed except that the method for quantification of tax liability for exemption had not been specifically spelt out. A reading of the subsequent notification dated 11.10.1995, in our opinion, would only clarify the earlier notification in so far as the method that requires to be adopted for calculating the tax exemption that an existing industrial unit can avail of, for the period mentioned in the certificate issued by the Director of Industries and Commerce. Since, in our opinion, the subsequent notification dated 11.10.1995 is clarificatory in nature, it would not take away the tax relief granted earlier.
17. In view of the above, in our opinion, the learned Single Judge was not justified in coming to the conclusion that the subsequent notification dated 11.10.1995 would take away the vested right of the new industrial units. In that view of the matter, the order made by the learned Single Judge in W.P.No. 7112/1998 dated 30.7.1998 cannot be sustained.
18. In the result, the following:
ORDER
1. Writ appeal is allowed.
2. The impugned order made by the learned Single Judge in W.P.No. 7112/1998 dated 30.7.1998 is set aside. Ordered accordingly.