Karnataka High Court
M/S Primal Projects Limited vs Union Of India on 20 March, 2013
Equivalent citations: 2013 (4) AKR 29
Bench: N.Kumar, B.Manohar
®
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 20TH DAY OF MARCH 2013
PRESENT
THE HON'BLE MR. JUSTICE N.KUMAR
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
WRIT APPEAL NO.8413/2012(T-Res)
BETWEEN :
M/s. Primal Projects Limited,
A Company Incorporated
Under Companies Act,
Having its Office at
97/B, 1st and IInd Floor,
6th Block, Koramangala,
Bangalore - 560 095,
Represented by its
Managing Director and
Authorised Representative
Mr.D.Kuppendra Reddy. ...APPELLANT
(By Sri.S.P.Shankar, Sr.Adv. for
Smt.Mamata G. Kulkarni, Adv.)
AND :
1. Union of India,
Represented by its
Secretary,
Commerce and
Industries Department,
Central Secretariat,
New Delhi - 110 001.
2. State of Karnataka,
Represented by its
Secretary to Government,
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Commerce and Industries
Department, M.S.Building,
Vidhana Veedhi,
Bangalore - 560 001.
3. Karnataka Industrial Area
Development Board,
Bangalore,
Represented by its CEO,
Bangalore - 560 002. ...RESPONDENTS
. . . .
This writ appeal is filed under Section 4 of the
Karnataka High Court Act praying to set-aside the order
passed in the writ petition No.22365/2010 (T-Res) dated
10.10.2012.
This writ appeal coming on for orders, this day,
N.Kumar J., delivered the following:
JUDGMENT
This appeal is filed challenging the order passed by the learned Single Judge, who declined to interfere with the order of the State Government dated 29.10.2009 withdrawing the exemption granted earlier in respect of 1% of Labour Welfare Cess on construction cost incurred by a developer/Co-developer under "State Policy for Special Economic Zones - 2009". -3-
2. The petitioner-appellant is a specialized organization engaged in constructing, developing and maintaining Technical/IT parks with self-contained infrastructural facilities in Special Economic Zones (SEZ), KIADB. The State Authority has allotted the land to the petitioner for development of Industries in the State of Karnataka. The project of the appellant- petitioner has been approved in the State High Level Committee for establishing comprehensive Information Technology Park with allied services. The petitioner directly and indirectly employs labour force and has availed the benefit extended in the guidelines issued by State of Karnataka. The petitioner is thus a beneficiary under the Special Economic Zones Act, 2005 and Rules 2006 for the purpose of serving and promoting the interest of State of Karnataka as IT Park developer. It had availed, in particular, the benefit of exemption of 1% labour welfare cess. The said benefit is traceable to State Policy for SEZ 2009 particularly in Clause 4 under heading "Labour related issues" and Clause 5 under heading `Fiscal benefits'. In Clause 5, `fiscal benefits' - -4- sub-para (d) relates to exemption of 1% labour welfare cess on construction cost incurred by Developer/Co- developer being a public utility service fictionally.
3. The case of the petitioner is the power to exempt appears in part III of State Policy under the heading "Policy Measures". When the State Government proclaimed its State Policy, 2009, it held out and assured all developers and co-developers, including the appellant herein that certain specific fiscal benefits as well as benefit in regard to labour related issues are extended without any outer limit of time and the developers of IT Parks could act on such representation. The appellant-petitioner being a developer of such IT park believed in the said representation, acted on the same and arranged its affairs by making substantial progress in implementing State Government's policy of SEZ as public utility service. The appellant-petitioner thus has acquired substantial rights, privileges and special benefits under State Policy for SEZs 2009 proclaimed and brought into effect by State of Karnataka. The State Policy is duly authorized by -5- Government of India and backed by power under Rules 2006 read with Section 50 of the SEZ Act, 2005. On 29.12.2009, the Government of Karnataka has withdrawn exemption of 1% Labour Welfare Cess on construction cost incurred by the developer/Co- developer with immediate effect making it appear that this order is issued with concurrence of cabinet from 22.10.2009. Therefore, aggrieved by the same, the petitioner preferred a writ petition before the learned Single Judge challenging the validity of the State Government order. The learned Single Judge, after considering the contentions raised by the petitioner held that the State Government and the State Legislature has no power to exempt levy of Labour Welfare Cess payable under Section 3 of the Building and Other Construction Workers' Welfare Cess Act, 1996 which is a Central Act. The exemption offered was beyond the competence of the State Government. Therefore, he did not find any legal infirmity in the order of the State Government, withdrawing the exemption offered. Hence, -6- the writ petition was dismissed. Aggrieved by the said order, the present appeal is filed.
4. Sri.S.P.Shankar, learned Senior counsel appearing for the appellant-petitioner assailing the impugned orders contend that the Parliament has enacted the Special Economic Zones Act, 2005 with a view to providing an internationally competitive and hassle free environment for production of goods and services for exports. The Government of India has announced the Special Economic Zones Scheme. Section 51 of the said Act has an overriding effect on other laws for the time being in force. The Government of Karnataka has announced its policy for Special Economic Zones in the year 2009 and the said State Policy was to facilitate and expedite establishment of SEZs, at the same time safeguarding the environment and the interests of land owners. It provides for a package of incentives, supportive measures besides clarity on procedural guidelines. One such incentive so offered, is regarding `Labour related issues' and `Fiscal benefits' and once an exemption of 1% Labour Welfare -7- Cess on construction cost is incurred by the developer/co-developer, was exempted from payment. Acting on the said policy document of the State Government and taking into consideration the exemptions offered, the petitioners through the Single window agency of the State Government approached the KIADB, for the purpose of developing an IT Park. They employed 200 workers mostly locals. Now by the impugned order, the said exemption has been withdrawn, which is not only illegal but also offends Principles of Natural Justice because the petitioner has not been heard in the matter. That apart, it amounts to the State not hon`ouring its commitment and therefore, they are estopped from going back on the promise made by them. Therefore, he submits that the impugned order requires to be set-aside on the aforesaid grounds.
5. We do not see any merit in any of these contentions. The Parliament enacted the Building and Other Construction Workers' (Regulation of Employment and Conditions of Service) Act, 1996 to regulate the employment and conditions of service of building and -8- other construction workers and to provide for their safety, health and welfare measures and for other matters connected therewith or incidental thereto. The Statement of Objects and reasons appended to the said Act sets out that about 8.5 million workers in the country are engaged in building and other construction works. Building and other construction workers are one of the most numerous and vulnerable segments of the unorganized labour in India. The building and other construction works are characterized by their inherent risk to the life and limb of the workers. The work is also characterized by its casual nature, temporary relationship between employer and employee, uncertain working hours, lack of basic amenities and inadequacy of welfare facilities. In the absence of adequate statutory provisions, the requisite information regarding the number and nature of accidents is also not forthcoming. In the absence of such information, it is difficult to fix responsibility or to take any correct actions. Although the provisions of certain Central Acts are applicable to the building and other construction -9- workers yet a need has been felt for a comprehensive Central Legislation for regulating their safety, health welfare and other conditions of service. The State Governments and Union Territory Administrations have been consulted in the matter and a majority of them have favoured such a legislation. A general consensus had emerged on the need for the proposed Central Legislation. Therefore, it was considered necessary to constitute Welfare Boards in every State so as to provide and monitor Social Security Schemes and Welfare measures for the benefit of building and other construction workers. Therefore, the aforesaid comprehensive Legislation was enacted by the Parliament.
6. As a supplement to the said Act, the Parliament in order to provide for levy and collection of Cess on the Construction cost incurred by employers with a view to augmenting the resource and the Building and Other Construction Workers' Welfare Boards enacted the Building and Other Construction Workers' Welfare Cess Act, 1996. The intention was to makeover, after due
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appropriation by Parliament by law, the proceeds of the Cess, to the State Building and Other Construction Workers' Welfare Boards and the cost of collection not exceeding one per cent of the Cess collected to the State Governments to whom it is proposed to delegate the authority to collect the cess. Though initially, an ordinance came to be passed, thereafter it is replaced by the aforesaid Act. Under the provisions of the Act, the `Board' is defined to mean a Building and Other Construction Workers' Welfare Board constituted by a State Government under Sub-Section (1) of Section 18 of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996. Section 3 of the said Act is the charging Section. It reads as under:
3. Levy and collection of cess. -
(1) There shall be levied and collected a cess for the purposes of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 , at such rate not exceeding two per cent. but not less than one per cent. of the cost of construction incurred by an employer,
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as the Central Government may, by notification in the Official Gazette, from time to time specify.
(2) The cess levied under sub- section (1) shall be collected from every employer in such manner and at such time, including deduction at source in relation to a building or other construction work of a Government or of a public sector undertaking or advance collection through a local authority where an approval of such building or other construction work by such local authority is required, as may be prescribed.
(3) The proceeds of the cess collected under sub- section (2) shall be paid by the local authority or the State Government collecting the cess to the Board after deducting the cost of collection of such cess not exceeding one per cent. of the amount collected.
(4) Notwithstanding anything contained in sub- section (1) or sub- section (2), the cess leviable under this Act including payment of such cess in advance may, subject to final assessment to be made, be collected at a uniform rate or rates as may be prescribed on the basis of the quantum of the building or other construction work involved.
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As is clear from the aforesaid provision, the minimum rate at which the Cess could be levied is 1% and the maximum is 2% as the Central Government may, by notification in the Official Gazette, from time to time specify. The Cess levied under Sub-Section (1) of Section 3 of the Act shall be collected from every employer and the proceeds of the Cess collected under Sub-Section (2) shall be paid by the local authority or the State Government collecting the Cess to the Board after deducting the cost of collection of the Cess.
7. The Building and Other Construction Workers' Welfare Cess Rules, 1998 framed under the Act deals with exemption. Rule 9 of the Rules, which deals with exemption, reads as under:
9. Exemption.-
(1) Any employer or class of employers in a State seeking exemption under section 6 of the Act may make an application to the Director General of Labour Welfare, Ministry of Labour, Government of India, stating the details of works Undertaken, name of The Act or corresponding law in force in that State
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under which he is liable to pay cess for the welfare of the construction workers and amount of cess actually paid along With the date of such payment and proof thereof. A copy of such application shall be endorsed to each of the Assessing Officer and the board concerned.
(2) On receipt of such application the Central Government may, if it feels
necessary, seek a report from the State Government concerned.
(3) On examining the grounds, facts and merits of such application the Central Government may, by notification in the Official Gazette, issue an order exempting the employer or class of employers, as the case may be, from payment of cess payable under the Act where such cess is already levied and payable under such corresponding law.
(4) Assessment proceedings shall be stopped by the Assessing Officer for a period of thirty days commencing from the date of the receipt of a copy of the application under sub-rule (1) to him, or till the order of the Central Government under sub-rule (3) is conveyed to an employer or class of employers who made the application under sub-rule (1), whichever is earlier.
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8. Therefore, the express provision is made under the Rules for exemption from payment of the said Cess and the procedure is also clearly prescribed. Therefore, the Act and the Rules read together provide for levy and collection for cess and also for exemption from payment of the said cess. The Parliament has enacted a Special Economic Zones Act, 2005 (for short hereinafter referred to as `SEZ Act') to provide for establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto. Section 8 of the Act deals with Constitution of Board of Approval and Section 9 of the SEZ Act deals with power, functions and duties of the Board. Sub-Section (6) of Section 9 of SEZ Act declares that the decision of the Central Government whether a question is one of policy or not shall be final. Section 50 of the Act deals with the power of the State Government to grant exemption which reads as under:
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50. The State Government may, for the purposes of giving effect to the provisions of this Act, notify policies for Developers and Units and take suitable steps for enactment of any law:-
(a) granting exemption from the State taxes, levies and duties to the Developer or the entrepreneur;
(b) delegating the powers conferred upon any person or authority under any State Act to the Development Commissioner in relation to the Developer or the entrepreneur.
9. Section 51 of the Act gives a overriding effect to this Act. By virtue of the power conferred under Section 55 of the SEZ Act, 2005, the Central Government has made a Special Economic Zones Rules, 2006. Sub-Rule (5) of Rule 5 sets out the exemptions that the State Government made extend for setting up of a Special Economic Zone which reads as under:
(5) Before recommending any proposal for setting up of a Special Economic Zone, the State Government shall endeavour that the following are made available in the State to the proposed Special Economic Zone Units and Developer, namely:--
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(a) exemption from the State and local taxes, levies and duties, including stamp duty, and taxes levied by local bodies on goods required for authorized operations by a Unit or Developer, and the goods sold by a Unit in the Domestic Tariff Area except the goods procured from domestic tariff area and sold as it is;
(b) exemption from electricity duty or taxes on sale, of self generated or purchased electric power for use in the processing area of a Special Economic Zone;
(c) allow generation, transmission and distribution of power within a Special Economic Zone ;
(d) providing water, electricity and such other services, as may be required by the developer be provider or caused to be provided;
(e) delegation of power to the Development Commissioner under the Industrial Disputes Act, 1947 (No. 14 of 1947) and other related Acts in relation to the Unit;
(f) delegation of power to the Development Commissioner under the
Industrial Disputes Act, 1947 (No. 14 of 1947) in relation to the workmen employed by the Developer;
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(g) declaration of the Special Economic Zone as a Public Utility Service under the Industrial Disputes Act, 1947 (No. 14 of 1947);
(h) providing single point clearance system to the Developer and unit under the State Acts and rules.
It is in pursuance of the aforesaid power conferred under the Rule, the State Government as per Annexure `A' dated 28.02.2009 announced the State Policy for Special Economic Zones, 2009 as enacted in Annexure to the State Government Order. The prime objective of the policy is to facilitate and expedite establishment of SEZs and at the same time safeguarding the environment and the interests of land owners. The Policy provides for a package of incentives, supportive measures besides clarity on procedural guidelines.
10. Clause 4 deals with Labour related issues and Clause 5 deals with Fiscal Benefits. Under the heading of Fiscal benefits, at sub-clause (d) exemption of 1% Labour Welfare Cess on construction cost incurred by the developer or co-developer was extended. It is in
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pursuance of the said policy exemption of 1% Labour Welfare Cess and Unit was offered, the First Monitoring and Review Committee of SEZ, on 07.07.2009 informed that exemption of 1% Labour Welfare Cess does not come under the purview of the State Government and as per the Central Building and other Construction Workers' Welfare Cess Act, 1966, the building/Employer has to pay cess at the rate of 1% on the cost of construction. Hence, it was resolved to withdraw 1% Labour Welfare Cess with the approval of the cabinet. After obtaining the approval by an order dated 21.09.2009 the Government withdrew the exemption of 1% Labour Welfare Cess on construction cost incurred by the Developer/Co-developer with minimum effect under the State Policy for Special Economic Zones, 2009. It is that order, which is under challenge in this writ appeal.
11. From the aforesaid statutory provisions, it is clear that the Act of 1996 was enacted to provide for the safety, health and welfare of the workers who are engaged in building and other construction works. To
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augment the resources for such welfare measures, the Act was enacted providing for levy and collection of cess. The power to exempt from the operation of this Act was conferred on the Central Government under Section 6 of the Act. Rule 9 of the Rules provides for the procedure to be followed for claiming such exemptions. Therefore, it is a central enactment which expressly provided for levy, collection and exemption. However, the object of SEZ Act, 2005 is altogether different. Government of India announced Special Economic Zone Scheme in April 2000 with a view to provide an internationally competitive environment for exports. The objects of SEZs include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth. In order to give a long term and stable policy framework with minimum regulatory regime and to provide expeditious and single window clearance mechanism, a Central Act for Special
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Economic Zones has been found to be necessary inline with international practice. Therefore, the SEZ Act, 2005 came to be enacted for setting up units and the matters relating to requirement for setting up of off- shore banking units and units in international financial service centre in Special Economic Zones, including fiscal regime governing the operation of such units, the fiscal regime of developers of Special Economic Zones and units set up therein, establishment of an authority for each Special Economic Zone and designation of Special Courts and single enforcement agency to ensure speedy trial and investigation of notified offences committed in special economic zones. The principal object of this enactment is to promote exports and for matters connected therewith.
12. Section 7 of the SEZ Act, 2005 provides for exemption from taxes, duties or cess under all enactments specified in the first schedule. It stands to reason. Though the country is in need of earning by way of Special Economic Zones by promoting exports and the prime objective of the policy as reflected in the
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SEZ Act, 2005 is to facilitate expeditious establishment of Special Economic Zones. At the same time, an attempt is made to safeguard the interest of the environment and the interest of the landowners, besides the interest of workforce and in particular persons who are engaged in construction activities.
13. Article 39 of the Constitution of India lays down certain principles of policy to be followed by the State, in particular, the health and strength of workers, men and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength and the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. The State has an obligation to promote welfare of the people by securing and protecting as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life. Therefore, when the aforesaid two Acts were enacted, keeping in mind the obligation cast on the State by the
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Constitution of India, the safety, health and welfare measures of workers engaged in the building and other construction works could not be sacrificed under any circumstance. They are the most numerous and vulnerable sections of unorganized labour force in India. They are exposed to intended risk of their life every day. The employment itself being temporary in nature. Therefore, the Parliament advisedly did not include in the schedule the aforesaid two enactments, though a power is conferred on the Central Government to exempt under the SEZ Act from payment of tax, duties and cess by developers under the Act.
14. Similarly, the provisions are made for extending exemption and granting incentives to such entrepreneurs. Section 50 of the SEZ Act, 2005 expressly provides that the State Government may, for the purpose of giving effect to the provisions of the said Act, notify policies for developers and units and take suitable steps for enactment of any law, granting exemption from the state taxes, levies and duties to a developer or an entrepreneur and also delegates the
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powers conferred upon any person or authority under any State Act to the Development Commissioner in relation to the developer or the entrepreneur. Therefore, the intention is clear. Though the State Government is vested with the power to grant exemption, it is only from the State taxes, levies and duties. It has no power to grant an exemption in respect of Central taxes, levies and duties payable by such developers under the central enactments. When a power is conferred on the State to enact any law, Section 51 of the SEZ Act, made it clear that the provisions of this Act shall have an overriding effect on such laws passed by the State. Rule 5 of the Rules framed under the SEZ Act provides for recommendation of any proposal for setting up of a Special Economic Zone by the State Governments. While making such a recommendation, the State should make available exemptions from the State local taxes, duties etc., and from all such duties and taxes leviable and recoverable by the State governments. Therefore, being consistent with Section 7 of the SEZ Act, this Rule meticulously
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stipulates what is the exemption a State Government can offer and it expressly states that all such levies, taxes and duties which are leviable or recoverable by the State Governments. In other words, the State Governments have no power to exempt any taxes, levies, cess and duties leviable and recoverable by the Central Government. Therefore, the intention of the Parliament is very clear. Though, in one hand they wanted to extend benefits and incentives for setting up these Special Economic Zone Units, they are not prepared to compromise the interest of the landowners, environment and workers who are involved in the building and other construction works. Their interest was not negotiable. It is consistent with the Constitutional mandate.
15. Unfortunately, the State Government in its anxiety to promote exports, ignoring this mandatory provision and prohibition contained therein, in its exercise of power in the matter of grant of exemptions, did offer this 1% of the construction cost incurred by the developer as labour welfare cess. Obviously, it is a bona fide mistake. Once the first monthly review
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committee brought to the notice this aspect, promptly, without any further waste of time, they have resolved to withdraw the exemptions granted and also obtained approval of the Cabinet for the same. The very grant of exemption is not authorized. The said grant was void ab initio. It was a non est in the eye of law. Even without withdrawing the said exemption, it had no legal, effect. It was unenforceable. But for the purpose of clarity, promptly they have withdrawn a void order. Therefore, the said action cannot be found fault with any legal infirmity.
16. In so far as the contention that it is opposed to the principle of natural justice, as the petitioner was not heard in the matter, is concerned, the said exemption offered was not confined to the petitioner alone. The said exemption is contained in the policy document. The said exemption was offered to all entrepreneurs who came within the fold of SEZ scheme. The said offer was without authority of law and contrary to law and therefore no right as such accrued to any of the entrepreneurs by virtue of such offer. Now, by
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withdrawing the said exemption, in substance, the government has amended the policy document. The benefit is not withdrawn only to the petitioner. Now the said benefit is not available to any persons. Under these circumstances, the question of hearing the persons who fall within the scheme would not arise. It is not of an act of the State which is made with an intention to hurt any individual. It is an act where an error which has crept in the policy document is sought to be corrected. Therefore, it cannot be said that the petitioner ought to have been heard before carrying out the said amendment and therefore we do not find any substance in the said contention.
17. In so far as the contention that, based on the aforesaid representation the petitioner opted for the scheme, invested money and also had the benefit of the said exemption for a considerable time and withdrawing the benefit is hit by the doctrine of promissory estoppel is concerned, it is well settled that there cannot be any estoppel against a statute. Correction which is effected, in effect, brings the policy document in
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conformity with the law of the land. In ignorance of the legal provision and in ignorance of the prohibition contained in the statutory enactment of the Parliament, the State has made that exemption. Therefore, there cannot be any estoppel against a statute and on that ground, the petitioner is not entitled to any relief.
18. It was contended that the labour cess that is levied and collected is for the benefit of the State and the State as such beneficiary was well within its authority to give up such benefits for the promotion of export. This submission is misconceived. The State is an authority which is empowered to levy and collect the cess and to pay it to the Board. This cess is meant for those workers. The workers are the beneficiaries. While making an exemption, the beneficiaries were not heard, because they form an unorganized workforce and though the Parliament has passed this Act to protect their interest. This is how their interest has suffered over the years. Now, the Parliamentary legislation provides for levy and collection of a cess and payment of the cess to the Board, which in turn should utilize the
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said fund for the benefit of these workers. The contention that the State Government is the beneficiary and it has the authority to give up such benefit is without any substance.
19. Lastly, it was contended that liberty should be reserved to the petitioner to approach the Central Government, as under the provisions of the Act, power is conferred with the Central Government to grant such exemption from payment of cess and that the disposal of this writ appeal should not come in the way of the petitioner approaching the Central Government. As the power to exempt the very operation of the Act is conferred on the Central Government, it is open to the petitioner to approach the Central Government and certainly disposal of this writ appeal will not come in the way of the Central Government considering the request of the petitioner on its merits and in accordance with law.
20. In that view of the matter, we do not find any ground to interfere with the order passed by the learned
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Single Judge, which is valid and legal. Writ appeal dismissed.
SD/-
JUDGE SD/-
JUDGE SPS/*pjk