Himachal Pradesh High Court
M/S Jaiprakash Associates Ltd vs State Of H.P. And Others on 4 December, 2023
Bench: Mamidanna Satya Ratna Sri Ramachandra Rao, Jyotsna Rewal Dua
IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA CWP No.4599 of 2013 and connected masters.
.
Reserved on: 08.11.2023.
Decided on: 4th December, 2023 ______________________________________________________
1. CWP No.4599 of 2013 M/s Jaiprakash Associates Ltd. .....Petitioner of Versus State of H.P. and others rt ...Respondents _______________________________________________________
2. CWP No.9131 of 2013 M/s Shiv Vani Electronics LLP .....Petitioner Versus State of H.P. ...Respondent _______________________________________________________ 3. CWP No.24 of 2014 M/s S.P.A. Soaps & Surfactants .....Petitioner Versus State of H.P. ...Respondent _______________________________________________________ 4. CWP No.30 of 2014 M/Anuspaa Heritage Pvt. Ltd. .....Petitioner Versus State of H.P. ...Respondent ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -2- _______________________________________________________ 5. CWP No.62 of 2014 .
M/s Videotex International Pvt. Ltd. .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ 6. CWP No.63 of 2014 of M/S Ajanta Enterprises .....Petitioner rt Versus State of H.P. and others ...Respondents _______________________________________________________ 7. CWP No.64 of 2014 M/s Bright Metal Works .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ 8. CWP No.75 of 2014 M/s Anuja Foods International .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -3- 9. CWP No.7537 of 2014 M/s New Pulkit Industries .....Petitioner .
Versus State of H.P. and others ...Respondents _______________________________________________________ 10. CWP No.2577 of 2015 M/s Sai Refinery .....Petitioner of Versus State of H.P. and others ...Respondents _______________________________________________________ rt 11. CWP No.4802 of 2015 M/s Rail Coach Engineers .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ 12. CWP No.911 of 2016 M/s New Pooja Steel Industries .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ 13. CWP No.997 of 2016 M/s Orelia Refiners Pvt. Ltd. .....Petitioner Versus State of H.P. and others ...Respondents ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -4- _______________________________________________________ 14. CWP No.101 of 2019 M/s R.S. Industries .....Petitioner .
Versus State of H.P. and others ...Respondents _______________________________________________________ 15. CWP No.1547 of 2019 M/s Goyal Polymer .....Petitioner of Versus State of H.P. and others ...Respondents rt _______________________________________________________ 16. CWP No.1548 of 2019 M/s Bright Moulding Works .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ 17. CWP No.1549 of 2019 M/s Anmol Industries .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ 18. CWP No.3237 of 2019 M/s Pulkit Fibers .....Petitioner Versus State of H.P. and others ...Respondents ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -5- _______________________________________________________ 19. CWP No.7984 of 2021 .
M/s B.N. Enterprises .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ of 20. CWP No.7320 of 2022 M/s Sunshine Packaging .....Petitioner rt Versus State of H.P. and others ...Respondents _______________________________________________________ 21. CWP No.7335 of 2022 M/s Sunrise Packaging .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ 22. CWP No.1927 of 2023 M/s Shivam Enterprises .....Petitioner Versus State of H.P. and others ...Respondents _______________________________________________________ ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -6- Coram The Hon'ble Mr. Justice M. S. Ramachandra Rao, Chief Justice .
The Hon'ble Ms. Justice Jyotsna Rewal Dua, Judge 1 Whether approved for reporting? Yes _____________________________________________________ For the petitioner(s): Mr. Vishal Mohan, Sr. Advocate with Mr. Praveen Sharma & Mr. Aditya Sood, Advocates; Mr. Amar Pratap Singh, of Advocate & Mr. Goverdhan Lal Sharma, Advocate and; Mr. Janesh Gupta, Advocate, for the respective rt petitioner(s), in the respective petitions.
For the respondent(s): Mr. Anup Rattan, Advocate General with Mr. Rakesh Dhaulta & Mr. Pranay Pratap Singh, Additional Advocate General, Mr. Arsh Rattan & Mr. Sidharth Jalta, Deputy Advocate General and Mr. Rakesh Sharma, Assisting Counsel, for the respondents-State.
Jyotsna Rewal Dua, Judge All these petitions raise common questions of law and facts, hence are being taken up together for decision. For convenience, documents from CWP No. 9131 of 2013 are being referred to hereinafter.
The core question around which all these petitions are Whether reporters of Local Papers may be allowed to see the judgment? Yes ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -7- centered, is whether tax incentives granted to the petitioner-industrial units under specific Rules and statutory Notifications framed & issued .
pursuant to the State Industrial Policy, 2004, could be withdrawn during the currency of the exemption period promised under the Industrial Policy/ Rules/Notifications.
2. Brief reference to facts : -
of 2(i) The respondent-State notified Industrial Policy, 2004 on 30.12.2004 (Annexure P-1). The policy aimed to attract entrepreneurs rt to set up their projects, inter-alia, in backward areas of the State and in return, promised off-setting to some extent capital cost for setting up the units in remote and difficult areas due to locational disadvantages in form of tax concessions.
2(i)(a) Clauses 8.1, 8.3 and 8.4 pertaining to 'Package of Incentives, Concessions and Facilities for Industries under the 2004 Policy' being relevant, are extracted hereinafter: -
"8.1 With a view to encourage investment in our State and to offset the locational disadvantages the State Government has been implementing various Incentive Schemes in tandem with the changing needs and aspirations of Industry. Over a period of time it has been realized that fiscal incentives have invariably led to the creation of inefficient and uncompetitive ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -8- industry, which has not been able to sustain itself in the long run. In addition, with changes and modifications being introduced in the taxation policy and reforms initiatives like .
introduction of VAT, incentives to industry need to be looked at afresh. Thus it is imperative that we move towards a policy of gradual phasing out of subsidies. Such initiatives coupled with an increased stress on the provision of quality infrastructure shall help create a conducive environment for of industrial growth and attract both foreign and domestic investments.
8.3 A new set of Rules to govern incentives, concessions and facilities will be announced as a part of this Policy which rt will remain operative till the next Rules governing the incentives, concessions and facilities are announced or these rules amended. It is a conscious attempt of the State Government to phase out all tax-based and offer fiscal incentives (deferrals/exemptions etc.) over a period of time keeping in tune with the changing economic scenario of the country and ground realities. While doing so, efforts will, however, be made to enable existing units to avail of the incentives they are already availing for the periods they are entitled to.
8.4 In order to assure local industry with adequate back-up of Government in international markets and to encourage setting up of innovative industry based on local skills, local raw materials and employing local people, the State Government would give fiscal incentives to Companies set up and having their registered offices in H.P. for patenting their inventions and its commercialization, especially for activities ::: Downloaded on - 04/12/2023 20:35:18 :::CIS -9- such as drafting the patent application, filing the patent application In India, filing the patent application in Patent Tribunals, prosecution of the patent application outside .
India, maintenance fee of the granted patent application, and obtaining non-infringement opinion. Fiscal Incentive by the State Government would also be provided to such companies so as to meet with the fees charged by the private lawyers/law firms located within the country having a of reference from any Ministry/ Deptt. of Government of India of having successfully assisted such Companies in the country."
2(i)(b) Clause 18 of the 2004 Policy pertaining to State Taxes rt runs as under: -
"18 State Taxes:
"18.1. Introduction of VAT at the earliest to regulate, administer and Improve collection of taxes to be paid by Industry would be top priority of the Government. It would be a conscious effort of the State Government to design the VAT structure which is simple, based on floor rates agreed upon by the adjoining States and which are broad based. The State Government would make all out efforts to get the final draft of the Act approved by the State Legislature within the FY 2004-2005 as also have the draft of the Rules to be made under this Act finalized in advance before implementation so as to enable Industry to get adequate time to adjust to the new regime. For this adequate notice to allow a switchover and adjust to the new VAT regime would be allowed to the Industry. However, for selected Tiny Village industries as ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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may be notified by the State Government falling within the ambit of Khadi and Village Industries, may be exempted from the payment of Sales Tax as was the position prior to .
10.03.1999."
2(i)(c) The concluding para of the policy expressing the State intent reads as under
"24. CONCLUSION of This policy statement is an expression of Government's intent and commitment to accelerate the growth of the industrial sector. The State Government recognizes the crucial role it has to play in terms of formulating and implementing policies rt relating to infrastructure development and accessibility such as power and telecom, industrial incentives, simplification of rules/procedures, annual inspections and labour reforms. Current labour laws are therefore being made flexible enough to allow levy where it is warranted and in public interest. With respect to infrastructure, emphasis is being laid on both quality and quantity aspects which are key for industrial survival and growth. It is our firm belief that in this era of Post-liberalisation, our economy can grow at a faster rate as it has the potential. It is an established fact that a balance between manufacturing, services and agriculture and other allied sectors is key to economic growth. From the perspective of our Government, all round growth and especially of the manufacturing sector is a key area of employment generation, contributing significantly to the overall prosperity of our people living in rural and urban areas besides contributing revenue to the exchequer. Clearly ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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this is an area, which our Government is giving the highest importance. It is our belief that by adopting pro-active policies it would not only spur economic growth in the State .
but also contribute substantially to the overall economic prosperity and welfare of our people. It is with this clear and emphatic statement of intent that the State Government of Himachal Pradesh sincerely extends an invitation to entrepreneurs, from within and outside the country, to set up of their projects in the State. The Government of Himachal Pradesh on behalf of its people assures investors in the State of their whole hearted support."
2(ii) rt In tune with the Industrial Policy, 2004, the respondents notified "Rules, Regarding Grant of Incentives, Concessions and Facilities to Industrial Units in Himachal Pradesh, 2004"
(Annexure P-2). The Rules came into force w.e.f. 31.12.2004.
2(ii)(a) Under the Incentive Rules, 2004, area of the State was categorized into three categories i.e. 'A', 'B' and 'C'. Category 'C' areas (Tax Free Zone) included all Tribal Development Blocks as also the Development Blocks under this category and all the Backward Panchayats located in Blocks under 'A' and 'B' category areas. The categorization as done under Rule 5 is as under: -
"5. CATEGORISATION OF THE STATE:::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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a) The State is being now classified into three categories of Areas as "A", "B", C as per Annexure I of these Rules or as may be specified from time to time by the Government for .
the purpose of Incentives, depending upon its location; distance from the border of adjoining States; extent of industrial development; extent of overall backwardness of the block; resource availability and potential for employment generation for local people. The categorization into three of Categories is as per Annexure-1 of these Rules.
b) Category "A" Areas are areas under the Kanungo Circles falling within the respective development blocks but excludes any Backward Panchayats which may fall under the rt specifically mentioned Kanungo Circles listed as Category "A" Areas. Category "B" Areas includes the entire area falling under the Development Blocks indicated in the list and includes any left out areas of the Development Blocks Indicated under Category 'A' Areas but excludes any Backward Panchayat. Category "C" Area (Tax Free Zones) includes all Tribal Development Blocks and Development Blocks mentioned under this category and includes all Backward Panchayats located in Blocks under the "A" and "B" Category Area."
2(ii)(b) Under the definition Clause, Rule 3(bb) defined 'Tax Free Zone' as all tribal areas notified by the competent authority of the State Government and included all Tribal Development Blocks and Development Blocks mentioned under this category in the Rules.
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All Backward Panchayats categorized as 'C' Category areas under the Rules which may be located in Blocks categorized 'A' and 'B' .
Category area of the Rules were also included in this zone.
2(ii)(c) Rule 10 pertained to Sales Tax Concessions. Rule 10.1, inter-alia, provided Sales Tax Incentives i.e. exemption from the payment of Central Sales Tax/General Sales Tax (CST/GST) for ten of years from the date of commencement of commercial production in Tax Free Zone to the new industrial units and or existing units as on rt 07.01.2003 which undertake substantial expansion after 07.01.2003, located in backward areas (category 'C').
In the backward areas (Tax Free Zone) tax incentives were thus admissible to new industrial units being set up and also to the industrial units existing as on 07.01.2003, which would undertake substantial expansion after 07.01.2003. The incentives were made available to all eligible units listed in the negative list also. The negative list framed by the State was not applicable in Tax Free Zone for the purpose of Sales Tax incentive. The relevant Rules 10.1 and 10.4 read as under: -
"10.1 The following Sales Tax Incentives would be provided subject ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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to their fulfilling the eligibility conditions as laid down elsewhere under these Rules:
(1) Sales Tax incentives, that is, exemption from .
payment of C.S.T/G.S.T. for 10 years from the date of their commencement of production in the Tax Free Zone (now classified as Category 'C' areas under these Rules) shall be continued, as provided for under the 1999 Incentive Rules. This incentive will be admissible to New Industrial Units and or of existing industrial units as on 7/01/2003 (for the purpose of this incentive only) which undertake substantial expansion after 7/01/2003. This incentive rt will be available to all eligible units listed in the negative List (Annexure-111) also. In other words, no Negative List will be applicable in Tax Free Zones for the purpose of this incentive. 10.4 The concessions provided under this rule will commence from the date of commencement of commercial production or from the date of notification issued by the Department of Excise and Taxation (wherever required), whichever is later."
2(ii)(d) Rule 19 laid down that all new industrial units set up in category 'C' areas shall be exempted from payment of any State Taxes and Duties (excluding levies in the shape of cess, fees, royalties etc.) for a period of ten years from the date of commencement of commercial production or the date of notification by the concerned ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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department, whichever is later. The Rule runs as under: -
"19. TAX INCENTIVES AVAILABLE TO UNITS IN .
CATEGORY "C" BLOCKS (TAX FREE ZONE) 19.1 All new industrial unit(s) set up in the Category "C"
areas of the State, as notified from time to time, shall be exempted from payment of any State taxes and duties (excluding levies in the shape of cess, fees, royalties etc.) for a period of 10 years from the date of commencement of of commercial production or the date of notification by the concerned Department(s), whichever is later."
2(iii) In furtherance of the Industrial Policy, 2004 and the rt Rules notified thereunder, the State Excise & Taxation Department issued statutory notifications granting exemption from GST/CST: -
(a) Notification dated 30.03.2005 was issued under the Himachal Pradesh General Sales Tax Act, 1968.
Under this notification, no tax was to be levied under Section 6 of the Act on sales of goods manufactured by new industrial units and or existing industrial units as on 07.01.2003 located in Tax Free Industrial Zone for a period of ten years from the date of commencement of commercial production or from the date of exemption notification, whichever was later.
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(b) Another notification was issued on 30.03.2005 under the Central Sales Tax Act, 1956, directing that .
no tax under this Act would be payable on sales of goods manufactured by the dealers running any new industrial units and existing industrial units (in existence on 07.01.2003) located in tax free industrial zone.
of
(c) Upon promulgation of the H.P. Value Added Tax Act, 2005 (VAT in short), the respondents on rt 19.01.2006, issued a notification granting exemption from payment of VAT to new industrial units and or existing industrial units located in Tax Free Zone for a period of ten years from the date of commencement of commercial production.
2(iv) All the petitioners have set up their new industries in Tax Free Zone pursuant to the above notified Industrial Policy, the Incentive Rules and the statutory Notifications issued to give effect to the Policy/the Rules. The petitioner-industrial units are covered by the exemption notifications referred to above from the dates of commencement of commercial production by them tabulated as ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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under: -
Writ Petition No. Name of the Date of
Petitioner Commercial
.
Production
CWP No.4599 of 2013 M/s Date of
Jaiprakash commencement of
Associates Commercial
Ltd. Production is
Clinker is
24.02.2010
Cement is
16.01.2012.
of
CWP No.9131 of 2013 Ms. Shiv Vani 25.03.2010.
Electronics LLP CWP No.24 of 2014 Ms. S.P.A. 25.03.2010.
rt and
Surfactants
CWP No.30 of 2014 MS 16.10.2009.
Manuspaa
heritage
Pvt.Ltd
CWP No.62 of 2014 MS Videotex 25.03.2010.
International
Pvt.
CWP No.63 of 2014 Ms. Ajanta 16.10.2009.
Enterprises
CWP No. 64 of 2014 Bright Metal 25.03.2010.
Works
CWP No.75 of 2014 Ms. Anuja 16.10.2009.
Foods
International
CWP No.7537 of 2014 MS New 31.03.2010.
Pulkit
Industries
CWP No.2577 of 2015 Ms. Sai 30.03.2010.
Refinery
CWP No.4802 of 2015 MKS Rail 23.03.2010.
Coach
Engineers
CWP No.911 of 2016 Ms. New In the year, 2012
Pooja Steel
Industries.
CWP No.997 of 2016 Ms. Orelia 17.09.2008.
Refiners Pvt.
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Ltd.
CWP No.101 of 2019 M/S R.S. 25.03.2010.
Industries
CWP No.1547 of 2019 M/S Goyal 30.03.2012.
.
Polymer
CWP No.1548 of 2019 M/S Bright 27.03.2010.
Moulding
Works
CWP No.1549 of 2019 M/S Anmol 30.03.2012.
Industries
CWP No.3237 of 2019 M/s Pulkit 30.03.2012.
Fibers
CWP No.7984 of 2021 M/S B.N. 14.07.2008.
of
Enterprises
CWP No.7320 of 2022 M/S Sunshine 31.03.2010.
Packaging
CWP No.7335 of 2022 M/S Sunrise 12.07.2009.
rt Packaging
CWP No.1927 of 2023 M/S Shivam 12.06.2009.
enterprises
All the petitioners availed benefits of exemption notifications issued under the Industrial Policy, 2004 and the Incentive Rules framed in furtherance thereof.
2(v) On 30.03.2013, the respondents issued notification, whereby the areas/Panchayats where the petitioners had set up their new industrial units were de-notified as backward areas/Panchayats.
This was followed by an office letter dated 26.04.2013 from the office of Principal Secretary (Excise & Taxation), directing the Excise & Taxation Commissioners to realize the tax under the relevant statutes from the industrial units established in the areas, now de-notified as ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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backward areas or re-notified as non-backward areas. Consequently, notices were issued to the petitioners by the Excise & Taxation .
Department that on account of withdrawal of the status of backward Panchayats where they had established their industrial units, they were liable to deposit VAT and CST with effect from 01.04.2013 and were directed accordingly.
of 2(vi) The developments of the year 2013 led the petitioners to institute these writ petitions, seeking directions to the respondents to rt fulfill their commitments in entirety as per the Industrial Policy 2004, the Incentive Rules framed thereunder & the consequent statutory notifications and to allow exemption to the petitioners from payment of VAT/CST as promised to them. Prayer has also been made for quashing the notifications withdrawing backward area status of the Panchayats where the petitioners had set up their industrial units and the office letter dated 26.04.2013, directing the petitioners to pay VAT/CST.
2(vii) Additional Facts in CWP No. 4599 of 2013.
2(vii)(a) The petitioner unit was set up in 'Mangal' Panchayat, a notified backward Panchayat. On 30.03.2013, this Panchayat was ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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denuded of its backward status. However, by this time, petitioner unit was not only established in this Panchayat but had also started its .
production as would be apparent from the table. Petitioner unit was eligible and was being allowed tax exemption in terms of Industrial Policy, 2004, the Incentive Rules, 2004 and the exemption notifications dated 30.03.2005 and 19.01.2006. After the withdrawal of of backward status from 'Mangal' Panchayat, petitioner unit was directed to deposit CST/VAT etc. rt 2(vii)(b) Petitioner filed CWP No.4599 of 2013 assailing actions of the State, the demand raised by the State Excise & Taxation Department and also laid challenge to the Notification dated 30.03.2013 withdrawing backward status from 'Mangal' Panchayat.
During pendency of the petition, the impugned 'de-notification' dated 30.03.2013 was withdrawn by the State vide notification dated 26.11.2014 with 'immediate effect'. Another notification was issued on 27.02.2015, de-notifying backward status of 'Mangal Panchayat', and re-notifying it as non-backward Panchayat with immediate effect.
This was followed by yet another notification issued on 24.03.2015 deleting the words 'with immediate effect' from the notification dated ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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27.02.2015 and clarifying that 26.11.2014 notification would be deemed to be effective from 30.03.2013.
.
The action of the respondents in going back and forth defies even common sense logic. Having realized that the impugned notification dated 30.03.2013, withdrawing backward status from 'Mangal' Panchayat, had not been issued in accordance with law, the of respondents had withdrawn the same on 26.11.2014 with immediate effect. On 27.02.2015, respondents issued a fresh notification rt withdrawing backward status from 'Mangal' Panchayat with immediate effect. On 24.03.2015, a corrigendum was issued that notification dated 26.11.2014 would be deemed to be effective from 30.03.2013 itself. This kind of time travel is not admissible even to the State. Petitioner feeling aggrieved against notification dated 27.02.2015, de-notifying 'Mangal' Panchayat's backward status was allowed to amend its writ petition, inter-alia, laying challenge to notifications issued during the pendency of the writ petition and also to the directions issued to the petitioner to deposit tax during the exempted period.
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3. Submissions 3(i) Learned counsel for the petitioners contended that .
there was no quantifiable data with the State to withdraw the status of the backward area from the Panchayats where petitioner industrial units had been set up. The de-notification of the backward areas was illegal. It was submitted that even though the backward Panchayats, of where the petitioners' units had been set up, were illegally de-notified, yet this would not in any way affect the tax exemptions granted to the rt petitioners as petitioner industrial units had commenced commercial production much before the date of de-notification of the areas.
Therefore, the impugned communications issued by the Industries Department and on that basis, the impugned directions issued by the Excise & Taxation Department requiring the petitioners to deposit otherwise exempted tax, are not sustainable. Placing reliance upon several decisions of the Hon'ble Apex Court, doctrine of promissory estoppel was invoked by the petitioners to argue that based upon State's promise of tax incentives for a period of ten years in lieu of setting up industrial units in backward areas of the State called as Tax Free Zone, the petitioners had altered their positions and set up ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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industrial units in such areas. Petitioners were eligible and were being allowed the promised incentives in form of specified tax exemptions.
.
The incentives being granted to them could not be withdrawn during the validity/promised period. Further contention was raised that the impugned directions of the respondents to the petitioners to pay VAT/CST are without any legal force as no notification withdrawing of the exemptions granted to the petitioner units from payment of VAT/CST was ever issued. The exemption notifications had not been rt withdrawn by the State for the units which had already commenced production prior to the date of de-notification. The impugned communications, directing the petitioners to pay VAT/CST, were in contradiction to the Industrial Policy, 2004, the Incentive Rules, 2004 framed thereunder and the consequent notifications which granted them 100% exemption from such payment for ten years. The petitioners are entitled to enjoy the tax incentives till the enforcement of GST regime in the year, 2017.
3(ii) On behalf of the respondents-State, the factual position of individual cases as put forth in the petitions was not disputed by the learned Advocate General. The stand taken, however, was that the ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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Panchayat areas where the petitioners had established their new industrial units had been de-notified as backward Panchayats. After .
the de-notification, the status of such Panchayats was no more that of backward areas. The areas in question having lost the status of backward Panchayats after the de-notification did not fall in the Tax Free Zone. Therefore, the petitioners were not entitled to any tax of concessions. It was asserted that the impugned notifications and directions issued by the respondents to the petitioners to deposit rt VAT/CST after the de-notification of the Panchayats where the petitioners had set up their industrial units, were in order. The respondents urged that it is the prerogative of the Government to declare a Panchayat as backward area and de-notify the same if it does not fulfill the criteria laid down for being declared as backward area.
Therefore, tax concessions earlier granted to the petitioners in lieu of theirs' setting up industrial units in the said Panchayats could be taken away after the de-notification of the areas. The Panchayats where the petitioners had set up their industrial units pursuant to the Industrial Policy, 2004 were backward areas at the time of setting up of industrial units. The petitioners-units were accordingly allowed ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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exemptions from payment of VAT/CST. Later, on finding that these Panchayats no more satisfied the criteria laid down by the State to .
continue to enjoy backward area status, they were de-notified as such.
After the de-notification of the Panchayats, the petitioners cannot be held entitled to tax concessions.
Learned Advocate General further contended that in of sequel to the Industrial Policy, 2004, the Incentive Rules, 2004 were framed by the State granting tax concessions to the eligible industrial rt units. In terms of following Rule 4.2 of the Incentives Rules, 2004, incentives were provided under the discretionary power of the State Government. Grant of such incentives cannot create any claim against the State Government and are not enforceable in any court of law: -
"4.2. The incentives under these rules are provided under the discretionary powers of the State Government. They do not create any claim against the Himachal Pradesh Government enforceable in any court of law. The state Government in its wisdom may decide to amend, alter, delete or revise any or all the incentives notified under these rules and no claim on account of such a decision will be entertained."
Placing reliance upon (2020) 20 SCC 59, Union of India ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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and another vs. V.V.F. Limited and another with Barak Valley Cement Limited Versus Union of India and others; (2022) 5 SCC .
62, Krishi Upja Mandi Samiti, New Mandi Yard, Alwar Versus Commissioner of Central Excise and Service Tax, Alwar and;
2019 (10) SCC 575, Union of India and others Versus Unicorn Industries, it was contended that promissory estoppel is an equitable of doctrine, which can be moulded to suit a particular situation. That there is primacy of public interest over promissory estoppel.
rt Withdrawal of exemptions in public interest is permissible. Hence, prayer was made for dismissing the writ petitions.
4. Consideration We have heard learned counsel on both sides and considered the case files.
The pivotal question that needs to be adjudicated in these writ petitions is whether the respondents are estopped from directing the petitioners to pay VAT/CST during the currency of the exemption period promised to them under the Industrial Policy, 2004, the Incentive Rules, 2004 framed in furtherance of the Industrial Policy, 2004 and the statutory exemption ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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notifications dated 30.03.2005 (HPGST), 30.03.2005 (CST) and 19.01.2006 (VAT) or in other words, whether in the given facts, the .
petitioners can successfully invoke the doctrine of promissory estoppel against the State for continuing to avail the tax concessions.
4(i) The contention raised on behalf of the State that Rule of 4.2 of the Incentive Rules, 2004 debars the petitioners from laying any claim against the State is an unsustainable argument. The self-serving rt Rule framed by the State debarring the petitioners from enforcing the tax concession in a Court of law, cannot be held against the petitioners.
In AIR 1968 SC 718, Union of India Vs. Indo-Afgan Agencies Ltd., holding supremacy of rule of law, it was laid down by Hon'ble Supreme Court that the government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action.
In (1979)2 Supreme Court Cases 409, M/s Motilal Padampat Sugar Mills Vs. State of Uttar Pradesh and others, ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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Hon'ble Apex Court reiterated that in a republic governed by rule of law, no one, howsoever high or low, is above the law. Everyone is .
subject to law as fully and completely as any other and the government is no exception. It is indeed the pride of constitutional democracy & rule of law that the Government stands on the same footing as a private individual so far as obligation of law is concerned.
of The government cannot claim immunity from the doctrine of promissory estoppel. If essential ingredients of this rule are satisfied, rt the government can be compelled to carry out the promise made by it.
In (2016) 6 SCC 766, Manuelsons Hotels (P) Ltd. Vs. State of Kerala, after referring to several earlier decisions, the Apex Court reiterated the observations from Motilal Padampat Sugar Mills supra that the Courts could not possibly have intended to lay down as absolute proposition that there can be no promissory estoppel against the government in exercise of its governmental, public or executive powers. Relevant paras from the judgment is as under:-
"33. This very passage was referred to in M/S Motilal Padampat Sugar Mills and was explained thus:::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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"29 The next decision to which we must refer is that in Excise Commissioner U.P. Allahabad v. Ram Kumar This was also a decision on which strong reliance was placed on behalf of the State. It is true that, in this case, the Court .
observed that "19......it is now well settled by a catena of decisions that there can be no question of estoppel against the Government in the exercise of its legislative, sovereign or executive powers."
But for reasons which we shall presently state, we do not think this observation can persuade us to take a different view of the law than that enunciated in the Indo-Afghan Agencies case. ...
of It will thus be seen from the decisions relied upon in the judgment that the Court could not possibly have intended to lay down an absolute proposition that there can be no promissory estoppel against the Government in the exercise of rt its governmental, public or executive powers. That would have been in complete contradiction of the decisions of this Court in the Indo-Afghan Agencies case, Century Spinning and Manufacturing Co. case and Turner Morrison case and we find it difficult to believe that the Court could have ever intended to lay down any such proposition without expressly referring to these earlier decisions and overruling them. We are, therefore, of the opinion that the observation made by the Court in Ram Kumar case does not militate against the view we are taking on the basis of the decisions in the Indo-Afghan Agencies case, Century Spinning & Manufacturing Co. case and Turner Morrison case in regard to the applicability of the doctrine of promissory estoppel against the Government."
Therefore, notwithstanding Rule 4.2, the petitioners can maintain writ petitions which are primarily based upon doctrine of promissory estoppel. This principle can be applied against State where it is necessary to prevent manifest injustice or fraud. The claim of the petitioners has to be judicially and judiciously examined and reviewed in accordance with law.
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4(ii) Examination of Petitioners' Claim of promissory estoppel. For determining as to whether plea of promissory estoppel .
is available against the State to the petitioners in these Writ petitions, we may first notice the legal position: -
4(ii)(a) In (1979)2 Supreme Court Cases 409, M/s Motilal Padampat Sugar Mills Vs. State of Uttar Pradesh and others one of of the questions considered by Hon'ble Apex Court was whether assurance given on behalf of the State Government that the appellant rt would be exempted from sales tax for a period of three years from the date of commencement of production could be enforced against the respondent-State by invoking the doctrine of promissory estoppel. The Hon'ble Court observed that in Indian law, not only the doctrine of promissory estoppel had been adopted in its fullness, but it has been recognized as affording a cause of action to the person to whom the promise is made. The requirement of consideration has not been allowed to stand in the way of enforcement of such promise. The Court also held that in order to attract the applicability of doctrine of promissory estoppel, it was not necessary that the promisee acting in reliance on the promise should suffer any detriment. What is ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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necessary is only that the promisee should have alerted his position in reliance on the promise. The alteration of position only means that the .
promisee must have been led to act differently from what he would otherwise have done. All that is required is that the one should have acted on the belief induced by the other party. The doctrine is evolved by equity in order to prevent injustice. It must yield when equity so of requires. If it can be shown by the government that having regard to the facts, it would be inequitable to hold the government to the rt promise made by it, the Court will not raise an equity in favour of the promisee. It will not be enough for the government just to say that the public interest requires that the government should not be compelled to carry out the promise or that the public interest would suffer if the government were required to honour it. For resisting liability, the government will have to disclose to Court the fact & circumstances on account of which the government claims to be exempted from liability and it would be for the Court to decide whether the facts and circumstances are such as to render it inequitable to enforce the liability against the government. It is only if the Court is satisfied on proper and adequate material placed by the government that ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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overriding public interest requires that the government should not be held bound by the promise but should be free to act unfettered by it, .
that the Court would refuse to enforce the promise against the government. The burden would be upon the government to show that the public interest in the government acting otherwise than in accordance with the promise, is so overwhelming that it would be of inequitable to hold the government bound by the promise and the Court would insist on a highly rigorous standard of proof in discharge rt of this burden. The Court also held that the taxation is sovereign or governmental function, but no distinction can be made between the exercise of a sovereign or governmental function and a trading or business activity of the Government as far as doctrine of promissory estoppel is concerned. Whatever be the nature of the function, which the Government is discharging, the Government is subject to rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it.
4(ii)(b) 1986 (Supp.) SCC 728, Pournami Oil Mills. Etc. Vs. ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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State of Kerala and another, was a case, where, under order dated 11.04.1979, the State of Kerala invited small scale units to set up their .
industries with a view to boost industrialization. Exemption from sales tax and purchase tax was made available to such industrial units for a period of five years from the date of commencement of production.
However, this concession/exemption relating to purchase tax was of withdrawn by the State on 29.09.1980. The Court held that if in response to the order dated 11.04.1979 and in consideration of the rt concession made available under that order, the promoters of any small scale concerns had set up their industries in the State of Kerala, they would certainly be entitled to plead the Rule of estoppel. The promised tax exemptions would continue for full period of five years from the date the industrial units started production. It is only the new industries set up after 21.10.1980, which would not be entitled to exemption benefit as they had notice of curtailment in the exemption before setting up their industries. Relevant portion from the judgment is as under: -
"7. Under the order dated April 11,1979, new small-scale units were invited to set up their industries in the State of Kerala ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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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 of 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 rt authority on this point in the case of M.P. Sugar Mills v.
State of U.P. On the other hand, reliance has been placed on behalf of the State on a judgment of this Court in Bakul Cashew Co. v. S.T.O.. In Bakul Cashew Co. case this Court found that there was no clear material to show any definite or certain promise had been made by the Minister to the concerned persons and there was no clear material also in support of the stand that the parties had altered their position by acting upon the representations and suffered any prejudice. On facts, there- fore, no case for raising the plea of estoppel has been made out. This Court proceeded on the footing that the notification granting exemption retrospectively was not in accordance with section 10 of the State Sales Tax Act as it then stood, as there was no power to grant exemption retrospectively. By an amendment that power has been subsequently conferred. In these appeals there is no question of retrospective exemp- tion. We also ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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find that no reference was made by the High Court to the decision in M.P. Sugar Mills' case (Supra). In our view, to the facts of the present case, the ratio of M.P. Sugar Mills' .
case directly applies and the plea of estoppel is unanswerable."
8. It is not disputed that the first Order namely, the one dated 11.4. 1979 gave more of tax exemption than the second one. The second notification withdrew the exemption relating to of purchase tax and confined the exemption from sales tax to the limit specified in the proviso of the Notification. All parties before us who in response to the Order of April 11, 1979 set rt up their industries prior to 21.10.1980 within the State of Kerala would thus-be entitled to the exemption extended and/or promised under that Order. Such exemption would continue for the full period of five years from the date they started production. New industries set up after 21.10. 1980 obviously would not be ,entitled to that benefit as they had noticed of the curtailment in the exemption before they came to set up their industries."
The principle followed in Pournami Oil Mills etc. case supra was reiterated in (1995)1 SCC 274, Kasinka Trading & Anr.
Vs. Union of India & Anr. It was held that if an incentive was granted by the State Government to set up new industries in the State with a view to boost industrialization and exemption had been granted, in that fact situation, doctrine of promissory estoppel was ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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available to the appellant therein. In the facts of the case, however, it was found that exemption notification did not hold out any incentive .
for setting up any industry, therefore, its subsequent withdrawal by the State in public interest was held justified.
4(ii)(c) In (2020) 13 Scale 500, The State of Jharkhand & Ors. Versus Brahmputra Metallic Ltd. Ranchi & Anr., the of respondent had claimed its entitlement to a rebate/deduction from electricity duty in terms of the representation held out by the State in rt its industrial policy 2012. It was contended that denial of exemption by the State government during the years 2011-2014 was contrary to the doctrine of promissory estoppel. The Hon'ble Apex Court traced out the origin and evolution of doctrine of promissory estoppel in several judicial precedents. The Court also traversed from doctrine of promissory estoppel to the doctrine of legitimate expectation and referred to various Judgments on the issue in the timeline. It was observed that the State had held out a solemn representation founded on its stated desire to encourage industrialization in the State. Having made a solemn representation, it was manifestly unfair and arbitrary to deprive industrial units of their legitimate entitlement. The State ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that .
the State will act according to what it puts forth in the public realm.
The State is bound to act fairly, in a transparent manner in its action.
This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts. The relevant of paras of the judgment are extracted hereinafter: -
rt "H.6 Expectations breached by the State of Jharkhand
43. Applying the abovementioned principles in the present case, we are unable to perceive any substance in the submission of the State which was urged in defense before the High Court.
Not only did the State in the present case hold out a solemn representation, this representation was founded on its stated desire to encourage industrialization in the State. The policy document spelt out:
(i) The nature of the incentives;
(ii) The period during which the incentives would be available; and
(iii) The time limit within which follow-up action would be taken by the State government through its departments for implementing the Industrial Policy 2012.
44. The State having held out a solemn representation in the above terms, it would be manifestly unfair and arbitrary to deprive industrial units within the State of their legitimate entitlement. The State government did as a matter of fact, ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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issue a statutory notification under Section 9 but by doing so prospectively with effect from 8 January 2015 it negated the nature of the representation which was held out in the .
Industrial Policy 2012. Absolutely no justification bearing on reasons of policy or public interest has been offered before the High Court or before this Court for the delay in issuing a notification. The pleadings are completely silent on the reasons for the delay on the part of the government and offer of no justification for making the exemption prospective, contrary to the terms of the representation held out in the Industrial Policy 2012.
45. It is one thing for the State to assert that the writ petitioner rt had no vested right but quite another for the State to assert that it is not duty bound to disclose its reasons for not giving effect to the exemption notification within the period that was envisaged in the Industrial Policy 2012. Both the accountability of the State and the solemn obligation which it undertook in terms of the policy document militate against accepting such a notion of state power. The state must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that the state will act according to what it puts forth in the public realm. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts. A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest. This conception of state power has been recognized by this Court in a consistent ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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line of decisions. As an illustration, we would like to extract this Court's observations in National Buildings Construction Corporation (supra):
.
"The Government and its departments, in administering the affairs of the country are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice."
46. Therefore, it is clear that the State had made a representation of to the respondent and similarly situated industrial units under the Industrial Policy 2012. This representation gave rise to a legitimate expectation on their behalf, that they would be rt offered a 50 per cent rebate/deduction in electricity duty for the next five years. However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated. Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and is violative of Article 14."
4(ii)(d) The riders on application of principle of promissory estoppel as explained in (1997)7 SCC 251, Pawan Alloys & Casting (P) Ltd. Vs. U. P. State Electricity Board & Ors, are:-
"10. It is now well settled by a series of decisions of this Court that the State authorities as well as its limbs like the ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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Board covered by the sweep of Article 12 of the Constitution of India being treated as 'State' within the meaning of the said Article, can be made subject to the equitable doctrine of .
promissory estoppel in cases where because of their representation the party claiming estoppel has changed the position and if such an estoppel does not fly in the face of any statutory prohibition, absence of power and authority of the promisor, is otherwise not opposed to public interest, and of also when equity in favour of the promisee does not outweigh equity in favour of the promisor entitling the latter to legally get out of the promise."
In catena of decisions public interest has been accepted rt as the superior equity which can override estoppel. In (2019)10 SCC 575, Union of India & Ors. Vs. Ms. Unicorn Industries, it was concluded that when withdrawal of the exemption is in public interest, the public interest must override any consideration of private loss or gain. Withdrawal of exemption on ground of severe resource crunch has been found to be a valid ground and to be in public interest in (1998)1 SCC 572, STO Vs. Shree Durga Oil Mills.
While holding that there can be no promissory estoppel against the exercise of legislative power, (2023)1 SCC 386, Hero Motocorp Ltd. Vs. Union of India also elaborates that this principle cannot be invoked for preventing the government from discharging ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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its functions under the law.
4(iii) Petitioners have categorically taken the plea of .
promissory estoppel. The questions as to whether this plea is available to them; whether the petitioners can hold on to the State to bind the latter invoking the doctrine of promissory estoppel, can be answered by discussing facts of the case in light of above of legal position:-
4(iii)(a) It is not in dispute that the respondents-State issued rt Industrial Policy, 2004 to boost investment in its tribal and backward areas by making them tax free zones (category 'C'). The instrument was meant to boost the confidence of the investors and catalyze industrial expansion in the backward areas of the State. With that aim, tax exemptions were promised. The tax concessions were not only promised, but the duration of such concession was also laid out. It was also spelt out that the policy statement was an expression of Government's intent and commitment to accelerate growth of the industrial sector in backward areas. The State of Himachal Pradesh, on behalf of its people had assured the investors in the State of their wholehearted support.::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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Clause 8.3 of the Industrial Policy, 2004, provided framing of Rules to govern incentives, concessions and facilities as .
part of the Industrial Policy, 2004, which were to remain operative till the next Rules governing the incentives, concessions and facilities were announced or the Rules got amended. Clause 8.3 also stipulated that even in case of amendments, efforts would be made to enable the of existing units to avail the incentives which they would be already availing for the periods they were entitled to.
rt Clause 18.1 of the Policy provided for exemption from payment of CST/VAT/Sales Tax in terms of the Rules to be framed under the policy.
4(iii)(b) It is also not in dispute that the Incentive Rules, 2004 framed in furtherance of Industrial Policy, 2004 came into force w.e.f.
31.12.2004. Under these Rules, the backward Panchayats were categorized as 'C' category areas, which fell within the purview of Tax Free Zone as defined under rule 3(bb).
Rule 10 of the Incentive Rules, 2004 provided exemption from payment of sales tax for a period of ten years to the new ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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industrial units set up in category 'C' areas. Rule 19 provided that all new industrial units set up in category 'C' areas, notified from time to .
time, will be exempted from payment of any State taxes and duties (excluding levies in the shape of cess, fees, royalty etc.) for period of ten years from the date of commencement of commercial production or the date of notification by the concerned Department, whichever of was later.
4(iii)(c) Issuance of statutory exemption notifications dated rt 30.03.2005 & 19.01.2006 granting exemption from payment of VAT and CST to the industrial units located in tax free zone is borne out from the record.
4(iii)(d) It is not in dispute that all the petitioners had set up their new industrial units pursuant to the Industrial Policy, 2004 and the Incentive Rules, 2004 framed thereunder. It is also not denied that all the petitioners had commenced production in new industrial units set up in tax free zone subsequent to the coming in force of the Incentive Rules, 2004.
4(iii)(e) It is an admitted position that all the petitioner units were eligible for exemption from payment of VAT/CST for a period of ten ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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years under the Incentive Rules, 2004 and the exemption notifications dated 30.03.2005 and 19.01.2006.
.
It is not in dispute that promised tax exemptions (VAT/CST) were actually made available to all the petitioner units for having set up their industrial units in backward areas for a few years i.e. till the de-notification of the concerned Panchayats by the of respondents.
4(iii)(f) Noticeably the statutory exemption notifications dated rt 30.03.2005 (HPGST), 30.03.2005 (CST) and 19.01.2006 (VAT) have not been withdrawn by the State even after the de-notification of Panchayat areas where the petitioner industrial units had been established. The Industrial Policy, 2004 was also not altered by the respondents.
4(iii)(g) One more significant factual facet that needs to be noticed is a notification issued by the respondents on 12.03.2015 (Annexure P-23 with CWP No.4599 of 2013) whereby Incentive Rules, 2004 were amended. For deciding present issue, it will be appropriate to refer to following two rules as amended on 12.03.2015:-
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"10.1(1) For existing industrial units set up and commencing commercial production up to the date of this notification Sales Tax Incentives, that is, exemption from .
payment of CST/VAT for 10 years from the date of their commencement of production in the Category 'C' areas shall be provided as per the provision of the 2004 incentive rules as amended up to the date of this notification. This incentive will be admissible to New Industrial Units and or of existing industrial units (set up or commencing commercial production up to the date of this notification for the purpose of this incentive only) which commences commercial production (New Units) or undertake substantial expansion rt after the date of this notification, as per the provision made under rule 19 of these rules. This incentive will not be available to units listed in the negative List (Annexure-III) also.
19(13) Any dealer who was enjoying the benefit of exemption under the notification No. EXN-F(1)2/2004 (i) dated 30.03.2005 issued under Section 42 of the Himachal Pradesh General Sales Tax Act, 1968 and EXN-F(1)-5/2004 dated 19.01.2006 of the Himachal Pradesh Value added Tax, 2005 and who would have continued to be eligible for such exemption on the date of the commencement of this notification shall continue to avail the benefit of the exemption from payment of tax on the sale of manufactured goods for the unexpired period as per the conditions applicable vide the above said notifications."
In the face of above provisions coupled with the fact that ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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exemption notifications of 2005 and 2006 had not been withdrawn and the Industrial Policy, 2004 remained as it was even after the de-
.
notification of Panchayats, it is doubtful that even intention of the government was to take away the benefits of tax concessions from the petitioner units.
4(iv) Conclusion
of
It is, thus, quite apparent that petitioner units had acted upon the promise extended to them by the State for investing in rt backward Panchayats of the State categorized as tax free zone. The promise being exemption from payment of VAT/CST for a period of ten years from the date of commencement of production. The petitioner units changed their position and invested in the State by setting up industrial units in backward areas/tax free zone. The doctrine of promissory estoppel is definitely applicable to the facts of the instant case. Having promised the petitioners exemption from payment of VAT/CST for a specific period, the respondents-State cannot be permitted to now assert that it is entitled to withdraw the tax concessions and to direct the industrial units to pay VAT/CST merely because in the subsequent years the Panchayats where the petitioners ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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had set up their industrial units were de-notified and no longer carried the backward status. The growth of industrial sector can be said to be .
one significant factor in the development of an area. The petitioners who set up their industrial units in the then backward areas under the promise of tax exemption extended to them by the State for specific period cannot be penalized for the subsequent development of the of area, by withdrawing tax exemptions from them during the promised period on the ground that with passage of time, the erstwhile rt backward areas had developed and were no more part of the tax free zone. Doctrine of promissory estoppel is applicable in the facts of the cases and can certainly be successfully invoked by the petitioners in such circumstances to compel the State to adhere to its side of bargain promised under the Industrial Policy, 2004 and the Rules framed thereunder. The action of the respondent in withdrawing tax concessions granted to the petitioner units is not in consonance with law.
We have refrained from examining the validity of the notifications withdrawing backward area status of the concerned Panchayats. Nonetheless, the notifications withdrawing the backward ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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area status from the concerned Panchayats will have only prospective effect i.e. will be applicable to industries being set up/expanded after .
the date of withdrawal notifications. These cannot be applied retrospectively to the petitioner units which had already come into production by the time the backward areas status was withdrawn from such Panchayats. These Panchayats shall have to be construed as of backward areas/ tax free zone for the purpose of grant of tax incentives to the petitioners for specific period as per the promise rt extended by the State.
The three judgments cited by learned Advocate General are distinguishable on facts. In VVF Ltd. case, the Industrial Policy/ Notifications were issued to encourage setting up new industries in the area. It, however, turned out that exemptions meant to be granted to genuine manufacturers were being misused by unscrupulous manufacturers who had indulged in different types of tax evasion tactics etc. The Government then came out with subsequent notifications, policies allowing refund of excise duty only to the extent of duty payable on the actual value addition made by the manufactures undertaking manufacturing activities in the areas ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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absolutely in consonance with the incentive scheme. The Apex Court held that subsequent notifications/industrial policies do not take away .
any vested right conferred under the earlier notifications/industrial policies. Subsequent notifications were not hit by doctrine of promissory estoppel. The subsequent notifications were held to be only clarificatory in nature. In the instant case, it is not the case of of the respondents that impugned directions were clarificatory. It is the positive point pressed by the State that it has the power and rt authority to withdraw the exemptions allowed to the petitioner units.
Instant is not a case where previously issued notifications have been clarified later on. It's a case where tax concessions allowed to the petitioners under the Industrial Policy, 2004, the Incentive Rules, 2004 and the statutory exemptions notifications are being withdrawn on the ground that tax free zone where the petitioners had set up their industrial units in terms of above policy/rules/notifications, no longer carried the tax free zone status. Therefore, the decision relied by the respondents has no applicability to fact situation of these petitions.
Similarly in 'Krishi Upaj Mandi Samiti' case, it was laid down that the exemption notification should be strictly construed and given a ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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meaning according to legislative intendment. If any condition of the notification is not fulfilled, the party is not entitled to the benefit of .
that notification. Reverting to the facts before us, it is no body's case that the petitioner units were not entitled to tax incentives. It is an admitted factual position that petitioner industries satisfied conditions for grant of tax incentives. They were eligible and were being allowed of tax exemptions. The judgment relied upon by the respondents has no applicability to the present petitions.
rt It is also not the plea of the State that tax incentives have been withdrawn from the petitioners in public interest or in exercise of any legislative power. The simple case of the State is that once the backward areas where the petitioner industrial units were set up, lost their backward status, the tax incentives could no longer be availed by the petitioners. We have already turned down this defence in the given facts of the case.
5 The result As a result of above discussion, these Writ petitions are allowed. Impugned office communication dated 26.04.2013 ::: Downloaded on - 04/12/2023 20:35:18 :::CIS
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(Annexure P-10 in CWP No.9131 of 2013) directing realization of tax from the petitioner Industrial units established in tax free zones, the .
consequent notices issued to the petitioners to deposit tax (Annexure P-11 in CWP No.9131 of 2013) are quashed and set aside. Petitioners are held entitled to tax exemptions in terms of the Industrial Policy, 2004, the Incentive Rules, 2004 and the tax exemption notifications of dated 30.03.2005(GST & CST) and 19.01.2006 (VAT) till the coming into force of GST regime in the year 2017.
rt The pending miscellaneous application(s), if any, also stand disposed of.
(M. S. Ramachandra Rao)
Chief Justice
(Jyotsna Rewal Dua)
December 04, 2023 Judge
R.Atal
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