Kerala High Court
M.R.F. Limited vs Assistant Commissioner (Assessment) ... on 15 November, 2005
Equivalent citations: [2006]148STC212(KER)
Author: K.S. Radhakrishnan
Bench: K.S. Radhakrishnan, K.T. Sankaran
JUDGMENT K.S. Radhakrishnan, J.
1. Original petition was preferred by the appellant herein seeking a writ of certiorari to quash exhibit P9 notice and P13 letter and also for a writ of mandamus directing the respondents not to initiate any proceedings against the petitioner contrary to or inconsistent with exhibits P4 and P5 and also for other consequential reliefs.
2. Exhibit P9 is a notice dated December 19, 2001, issued under Section 45A of the Kerala General Sales Tax Act, 1963, in short, "the KGST Act", proposing a total penalty of Rs. 49,39,45,410 stating that the assessee had failed to pay tax on the purchase turnover for the years 1997-98, 1998-99, 1999-2000, 2000-01 and 2001-02 on the ground that they were exempted turnover. S.R.O. No. 1729/93, it was pointed out, had allowed exemption only on the purchase value of rubber used and no exemption was allowed on the turnover of any processing of one form of goods into another form of the same goods by mixing with chemicals or gas fumigation or other processes as the mere conversion would not come under the term "manufacture" after January 15, 1998 since S.R.O. No. 1729/93 was amended by S.R.O. No. 39 of 1998 dated January 15, 1998. Petitioner was informed that the company had failed to pay tax on the purchase turnover of rubber from January 15, 1997 to March 31, 1998, 1998-99, 1999-2000, 2001-2002 and up to 11/2001. Petitioner was informed that non-payment of tax is in clear violation of the KGST Act and Rules and the company has committed an offence punishable under Clause (g) of Sub-section (1) of Section 45A of the KGST Act and a penalty of Rs. 49,39,45,410 was proposed to be imposed. Exhibit P12 objection was filed by the company questioning the validity of the notice as well as the jurisdiction of the officer.
3. The first respondent rejected exhibit P12, vide by exhibit P13 order dated January 17, 2002 and directed the petitioner to file objection, if any, on or before January 31, 2002, failing which, it was pointed out, the proposal would be given effect to. Petitioner then filed the present writ petition questioning the very basis on which exhibit P9 was issued. Senior Counsel wanted this Court not only to examine the validity of exhibit P9 but also the larger question as to whether the company is entitled to get the benefit of S.R.O. No. 1729/93. Counsel referred to exhibit P4 eligibility certificate issued by the Director of Industries and Commerce on November 10, 1997. Exhibit P5 is a copy of the order dated June 30, 1998, passed by the Board of Revenue (Taxes) granting sales tax exemption in respect of compound rubber. Relying on exhibits P4 and P5, counsel submitted, exhibits P9 and P13 have no legs to stand and are liable to be quashed. The question that is germane for consideration in this case is whether the petitioner is entitled to get the benefit of exhibit P5 order of the Board of Revenue purported to have been issued on the basis of S.R.O. No. 1729/93 and also whether exhibit P5 is in conformity with those notifications.
4. Petitioner is engaged in the manufacture of automotive tyres, tubes, compound rubber, tread rubber, flaps, procured tread rubber, etc., at its industrial unit at Vadavathoor. In order to promote rubber based industries in the State of Kerala, Government have granted exemptions, concessions and reductions under the KGST Act and the Central Sales Tax Act. Petitioner submitted that acting on the incentives, concessions and benefits held out by the Government, it had approached the Government of Kerala with its proposal to make substantial expansion and diversification of its industrial unit. Exhibit PI is the Memorandum of Understanding executed between the petitioner and the Government of Kerala on October 6, 1993 and it is stated therein that the immediate plan of MRF Limited was to expand the process of manufacture of compound rubber and diversify into new products like tyres, procured tread rubber, flap, etc. The Government of Kerala in exercise of the powers conferred by Section 10 of the KGST Act issued S.R.O. No. 1729/93 dated November 3, 1993 in public interest granting tax exemption to industrial units and/or reduction on the sale or purchase of goods by such industrial units subject to certain conditions and restrictions. S.R.O. was published in the Kerala Gazette (Extraordinary) dated November 4, 1993. Clause 5 of the notification, relevant for the purpose of this case, is extracted below:
5. In the case of existing medium and large scale industrial units which undertake diversification, expansion or modernisation on or after the 1st April, 1993, there shall be an exemption for a period of seven years from the date on which such diversification, expansion or modernisation has been completed,
(a) in respect of the tax payable under the Kerala General Sales Tax Act, 1963,-
(i) on the turnover of sale of goods manufactured in excess of full rated capacity of the unit prevailing immediately prior to such diversification, expansion or modernisation, and sold by them within the State ; and
(ii) on the turnover of goods, taxable at the point of last purchase in the State, which are used by such units for manufacturing the goods referred to in Sub-clause (i) above for sale within the State or inter-State ; and
(b) in respect of the surcharge payable under Section 3 of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957) in relation to the goods referred to in Sub-clause (a) above.
5. Clause 10 of the notification deals with conditions and restrictions which stipulates that the eligibility certificate for medium and large scale industries assisted by the Kerala State Industrial Development Corporation or the Kerala Financial Corporation would be issued by the Corporation which render assistance and in other cases by the Director of Industries and Commerce, on application by such units and orders of exemption would be issued by the Secretary, Board of Revenue (Taxes), Thiruvanan-thapuram. The eligibility certificate shall contain the date of commencement of commercial production and the monetary limit of exemption the unit is eligible for and other relevant matters. Clause 11 (ix) defines the expression "manufacture", which reads as follows:
'Manufacture' shall mean the use of raw materials and production of goods commercially different from the raw materials used but shall not include mere packing of goods, polishing, cleaning, grading, drying, blending or mixing different varieties of the same goods, sawing, garbling, processing one form of goods into another form of the same goods by mixing with chemicals or gas, fumigation or any other process applied for preserving the goods in good condition or for easy transportation. The process of producing desiccated coconut out of coconut shall be deemed to be 'manufacture' for the purpose of this notification.
The following 'processes' shall not be deemed to be 'manufacture' for the purpose of this notification:
(a) Crushing copra and producing coconut oil and coconut oil cake.
(b) Converting timber logs into timber sizes, (c) Crushing rubble into small metal pieces.
(d) Converting sodium silicate into liquid silicate.
(e) Tyre-retreading.
(f) Cutting granite or marble slabs into smaller pieces and/or polishing them.
(g) Such other processes as may be notified by Government in this behalf.
6. Notification was to come into effect from January 1, 1994. The Government of Kerala later issued another notification, S.R.O. No. 271/96 dated March 13, 1996 in exercise of the powers conferred by Section 10 of the KGST Act amending S.R.O. No. 1729/93 and exempting tax payable on the products of raw rubber by medium and large scale industrial units manufacturing tyres within the State and also existing industrial units manufacturing tyres within the State which undertake diversification/ expansion/modernisation limiting the exemption to 100 per cent of fixed capital investment or for a period of seven years whichever is earlier for use in the manufacture of rubber based goods within the State whether or not the product suffers tax under the KGST Act or the Central Sales Tax Act, 1956. Later a Memorandum of Understanding dated April 10, 1996 was executed by the Government of Kerala and the petitioner as an addendum to the earlier Memorandum of Understanding entered into between the parties on October 6, 1993.
7. The Government of Kerala later amended S.R.O. No. 1729/93 as per S.R.O. No. 38/98 dated January 15, 1998 in exercise of the powers conferred by Section 10 of the KGST Act by which Clause (h) was added to Clause 11(ix) of S.R.O. No. 1729/93. The notification stipulates that processing one form of goods into another form of the same goods by mixing with chemicals or gas fumigation -or any other process shall not be included in the term "manufacture". Amendment was intended to clarify that the abovementioned process also would fall within the exclusion clause of Clause (ix) of paragraph 11 of S.R.O. No. 1729/93 and it was to come into effect from January 1, 1994.
8. The Government of Kerala had earlier issued a Notification S.R.O. No. 641/81 giving reduction of tax payable on the purchase of rubber by manufacturers of finished rubber products within the State for use of such rubber by such manufacturers in the manufacture of finished rubber products which was later amended by notification dated June 15, 1990. Question arose as to whether Government had the power under Section 10(3) of the Act to issue notification with retrospective effect. A Bench of this Court in Deputy Commissioner (Law) v. M.R.F. Ltd. [1998] 109 STC 306 (Ker) : [1998] 6 KTR 183, took the view that the Government have no power to issue notification with retrospective effect which was affirmed by the apex Court in Deputy Commissioner (Law), Board of Revenue (Taxes) v. M.R.F. Ltd. [2001] 121 STC 274. The Government later issued S.R.O. No. 491/98 so as to amend S.R.O. No. 38/98 stating that the said S.R.O. would have only prospective effect from January 15, 1998.
9. The abovementioned notification makes it clear that centrifuging of field latex or forming compound of the rubber by mixing it with chemicals would be covered by exclusion Clause (ix) of paragraph 11 since Clause (h) was added to the items with effect from January 15,1998. Going by S.R.O. No. 1729/93 as amended by S.R.O. Nos. 38/98 and 491/98 conversion of rubber latex into centrifugal latex, raw rubber sheet, ammoniated latex, crepe rubber, crumb rubber or any other item falling under entry 110 of the First Schedule to the KGST Act, 1963 or treating the raw rubber in any form with chemicals to form a compound of rubber by whatever name called shall not be deemed to be manufacture. S.R.O. No. 1729/93 was amended by S.R.O. No. 38/98 and S.R.O. No. 491/98.
10. The Secretary (Taxes), Board of Revenue (Taxes) however issued order No. C4.40588/97/TX dated June 30, 1998 holding that the petitioner would be eligible to sales tax exemption under Notification S.R.O. No. 1729/93 for compound rubber, tubes, repair materials, tread rubber, tyres, flaps and procured tread rubber. The Senior Counsel for the appellant Sri F. S. Nariman, submitted that the petitioner is entitled to get the benefit of S.R.O. No. 1729/93 in view of the order passed by the Board of Revenue on June 30, 1998. Further counsel also referred to exhibit P4 eligibility certificate issued by the Director of Industries and Commerce to the Secretary, Board of Revenue which would indicate that the petitioner had started manufacturing of compound rubber from October 30, 1996. The counsel submitted that on the basis of the eligibility certificate and the exemption order of the Board of Revenue, exhibit P5 order dated June 30, 1998, the petitioner is entitled to get the benefit of S.R.O. No. 1729/93. The counsel submitted that by virtue of exhibit P5 order petitioner had acquired an absolute and indefeasible right of exemption in respect of sales tax, surcharge, additional sales tax and tax on purchase for a period of seven years from commencement of commercial production on December 30, 1996 to December 29, 2003. The petitioner submitted that acting on the orders issued by the second respondent and the memorandum of understanding signed between the second respondent-Government, petitioner has made huge investment for expansion particularly for the manufacture of compound rubber. The counsel further submitted, first respondent-Assistant Commissioner being a subordinate authority is bound by the order passed by the Secretary, Board of Revenue.
11. The counsel placing reliance on the decision of the apex Court in Assistant Commissioner of Commercial Taxes (Asst.), Dharwar v. Dharmendra Trading Company [1988] 70 STC 59 submitted that the Assistant Commissioner and the Deputy Commissioner (Sales Tax) are bound by the orders or notifications issued by the Government and also the order of exemption granted by the Secretary, Board of Revenue. Reference was also made to the decision of the apex Court in Vadilal Chemicals Ltd. v. State of Andhra Pradesh [2005] 142 STC 76 and submitted that once eligibility certificate has been issued by the Board of Revenue, Tax Department, the taxing authorities cannot go behind the same. Reference was also made to the Full Bench decision of this Court in Kurian Abraham Pvt. Limited v. Assistant Commissioner (Assmt) II, Special Circle, Kottayam [2004] 137 STC 237 and contended that the circulars and orders issued by the department are binding on the officers subordinate to them. Counsel also placed reliance on the decisions of the apex Court in Shamarao V. Parulekar v. District Magistrate, Thana [1952] SCR 683 and Orient Paper and Industries Ltd. v. Union of India [1991] Suppl 1 SCC 81, and highlighted the fact that the amendments effected would have the effect of incorporating themselves into the old notification with pen and ink and there is no need to refer to the amending provisions at all. Exhibit P5 order according to the counsel is statutory in nature.
12. Sri Raju Joseph, Special Government Pleader for Taxes on the other hand contended that exhibit P5 order of the Board of Revenue is not statutory in nature and cannot override the statutory notification S.R.O. No. 1729/93 as amended by S.R.O. No. 38/98 and S.R.O. No. 491/98. Counsel submitted that the petitioner's case squarely falls under Sub-clause (h) of Clause (ix) in paragraph 11 of S.R.O. No. 1729/93 as amended by S.R.O. No. 38/98. Counsel submitted that the amendment had come into force on January 15, 1998 and therefore would be effective from January 15, 1998 onwards and the petitioner would not get the benefit of the amended S.R.O. No. 1729/93. Learned Government Pleader further submitted that the petitioner would get the benefit of the S.R.O. till January 14, 1998. Eligibility certificate was issued by the Director of Industries and Commerce on November 10,1997 prior to January 15, 1998 and therefore on the basis of the eligibility certificate petitioner is entitled to get the benefit till January 14, 1998 and not from January 15, 1998 onwards. Counsel submitted that the Government have got the power to amend the notification by virtue of Section 10(3) of the KGST Act and that the Government had not held out any promise to the petitioner. No evidence has been adduced to establish the principle of promissory estoppel.
13. We heard counsel on either sides at length and have also gone through the various notifications referred to earlier and also the various judicial precedents cited at the Bar.
14. Government, as we have already pointed out, have issued S.R.O. No. 1729/93 in exercise of the powers conferred under Section 10(1) of the KGST Act in supersession of the notifications mentioned in the schedule thereto whereby it has granted tax exemption in public interest to industrial units/reduction in rate of tax payable on the sale or purchase of the goods. Clause 5 of the notification specifically stipulates that in the case of existing medium and large scale industrial units which undertake diversification, expansion or modernisation on or after April 1,1993 there shall be exemption for a period of seven years from the date on which such diversification, expansion or modernisation has been completed, on the turnover of goods taxable at the point of last purchase in the State which are used by such units for manufacturing the goods for sale within the State or inter-State. The emphasis is on the manufacture of goods. The expression "manufacture" has been defined in Clause (ix) of paragraph 11 of the notification. The clause also stipulates a negative list which states that processes included therein cannot be considered to be "manufacture" for the purpose of that notification. Originally Clause (h) as such was not there in the notification. However, Sub-clause (g) of Clause (ix) in paragraph 11 confers powers on the Government to include such other processes in the negative list. Resultantly the very unamended notification S.R.O. No. 1729/93 itself has conferred the power on the Government to include other processes also in the negative list. Further Section 10(3) of the KGST Act has conferred overall power on the Government to cancel or vary the notification issued under Section 10 by publication in the official gazette. S.R.O. No. 1729/93 is a notification issued by the Government in exercise of the powers conferred under Section 10(1) of the Act and Section 10(3) confers power on the Government to cancel or vary any notification issued under Sub-section (1). It is in exercise of the powers conferred under Section 10(3) read with Sub-clause (g) of Clause (ix) of paragraph 11 of S.R.O. No. 1729/93 Government have issued S.R.O. No. 38/98 as amended by S.R.O. No. 491/98 by incorporating Sub-clause (h) to Clause (ix) of paragraph 11 of S.R.O. No. 1729/93. Therefore, those units who have undertaken the process of conversion of rubber latex into centrifuged latex, raw rubber sheet, ammonium sheet latex, crepe rubber, crump rubber or any other item falling under entry No. 110 of the First Schedule to the KGST Act would get the benefit of S.R.O. No. 1729/93 only till January 14, 1998 and not beyond that by virtue of inclusion of the above processes in the negative list from January 15, 1998 onwards vide S.R.O. No. 38/98 read with S.R.O. No. 491/98. Petitioner therefore would get the benefit of the unamended S.R.O. No. 1729/93 only till January 14, 1998 and not from January 15, 1998 onwards.
15. Exhibit P5 is an order of exemption issued by the Board of Revenue on the basis of the eligibility certificate, exhibit P4 dated November 10, 1997. The eligibility certificate issued by the Director of Industries and commerce would hold good only till January 14, 1998 and not beyond that. Clause 10(b) of S.R.O. No. 1729/93 stipulates that eligibility certificate for medium and large scale industries assisted by the Kerala State Industrial Development Corporation and Kerala Financial Corporation would be issued by the Corporation which render assistance and in other cases by the Director of Industries and Commerce on application by such units and orders of exemption would be issued by the Secretary, Board of Revenue (Taxes). Clause (d) also stipulates that eligibility certificate should contain the date of commencement of commercial production and the monetary limit of exemption the unit is eligible for and the eligibility certificate issued in respect of existing medium and large scale industrial units which undertake expansion, modernisation or diversification should also contain the date of commencement as well as the date of completion of such expansion, modernisation or diversification. We are of the view exhibit P5 though stipulates that period of exemption is from December 30, 1996 to December 29, 2003 so far as the processes which fall under Sub-clause (h) of Clause (ix) in paragraph 11 of S.R.O. No. 1729/93 are concerned the exemption will be available only till January 14, 1998 and not beyond that. Exhibit P4 eligibility certificate read with exhibit P5 would bind the officers and the petitioner only till January 14, 1998 and after the statutory amendment exhibit P5 has no legal validity. Exhibit P5 order issued by the Board of Revenue, in our view, cannot defeat the statutory notification issued by the Government in exercise of the powers conferred under Section 10(1) read with Section 10(3) of the KGST Act and Clauses (g) and (h) of S.R.O. No. 1729/93 as amended by S.R.O. No. 38/98. The decision in Vadilal Chemical's case [2005] 142 STC 76 (SC), is of no assistance to the petitioner where the apex Court held that the Department of Industries and Commerce having exercised its mind granted the eligibility certificate and hence the Commercial Tax Department cannot go behind it. In our view, exhibit P5 would go against the statutory notification and therefore would not operate beyond January 15, 1998.
16. Senior Counsel Sri F. S. Nariman placed considerable emphasis on Clause 2 of S.R.O. No. 1092/99 which stipulates that industrial units which had been sanctioned exemption/deferment as per Notification S.R.O. No. No. 1729/93 before 1st day of January, 2000 shall continue to enjoy the concession for the full period covered by the order of exemption/ deferment. Counsel submitted that the petitioner has satisfied all those conditions and therefore the unit is entitled to exemption from December 30, 1996 to December 29, 2003. Counsel submitted the order would fall under Clause 2 of S.R.O. No. 1092/99 and therefore entitled to get the concession for the full period. We find it difficult to accept the contention of the counsel. Government have decided to withdraw the benefit of exemption/deferment in respect of tax under the KGST Act granted to industrial unit as per notification S.R.O. No. 1729/93 in respect of industrial units which are set up on or after January 1, 2000. But it has been specifically stated that in the case of units which have already commenced commercial production or taken up effective steps to set up industrial units prior to January 1, 2000 will be allowed benefit of exemption or deferment granted as per notification S.R.O. No. 1729/93. Petitioner therefore would get only the benefits available under S.R.O. No. 1729/93 and nothing more and nothing less. Exhibit P5 in our view would not come to the rescue of the petitioner even by the application of Clause 2 of S.R.O. No. 1092/99. We reiterate the order passed by the Board of Revenue cannot override the statutory notification issued by the Government.
17. We are not impressed by the argument of the counsel based on the principle of promissory estoppel not only due to the fact that there is no factual foundation in the writ petition but also on legal principles. Whatever promises held out to the petitioner on the basis of S.R.O. No. 1729/93 have already been extended to the petitioner but only till January 14, 1998. From January 15, 1998 onwards amended S.R.O. No. 1729/93 would come into play. Further we have already indicated, even the unamended S.R.O. No. 1729/93 itself has got a clause that the Government can include other processes in the negative list of Clause (ix) in paragraph 11 of the notification. These notifications are statutory and no plea of estoppel will lie against a statutory notification. Further even according to the petitioner the expansion was completed in the year 1996 and the order of the Board of Revenue is dated June 30, 1998 and there is nothing to show that the petitioner had effected huge investments. In any view, the Government have got the power under Section 10(3) to vary, amend or delete any notification and hence the plea of estoppel will not be available against the statute.
18. The plea of promissory estoppel also would not stand especially in the light of the various judicial pronouncements. Reference may be made to the decision of the apex Court in Bannari Amman Sugars Ltd. v. Commercial Tax Officer [2005] 139 STC 86. The apex Court held that no vested right as to a tax is acquired by any person who is granted a concession by the Government. The Government reserves the power to withdraw the concession if authorised by law. Section 10(3) of the KGST Act and S.R.O. No. 1729/93 have conferred power on the Government to cancel or vary it. Further a person who wanted to invoke the doctrine of promissory estoppel should make a solid foundation for that plea and establish in what way his position has been altered relying upon the promise. No such foundation has been laid in the petition, much less evidence or materials furnished. Plea of promissory estoppel therefore would not stand.
19. Exhibit P9, we have noticed, is a notice issued under Section 45A of the KGST Act calling upon the petitioner to file objection to the proposal for levy of penalty. The legal basis on which the notice was issued has already been considered by us and answered. Learned single Judge has however vacated the proposal to levy penalty under exhibit P9 notice and directed the officer to compete of assessment pending from 1997-98 onwards and the right to impose penalty has been kept open, after completing the assessment proceedings. No appeal has been preferred by the State against that direction and hence we find it unnecessary to express any final opinion on that direction.
20. We therefore find no reason to interfere with the judgment of the learned single Judge and the appeal is dismissed for the above mentioned reasons.