State
of Rajasthan & ANR Vs. M/S. Mahaveer Oil Industries & Ors [1999] INSC
160 (22 April 1999)
Sujata
V.Manohar, D.P.Mohapatra, R.C.Lahoti Mrs. Sujata V. Manohar, J.
At
all material times the respondent was an industry engaged in the business of
oil extraction and manufacture in the State of Rajasthan.
By
a notification dated 23rd of May, 1987 issued in the exercise of its powers
under Section 4(2) of the Rajasthan Sales Tax Act, 1954, the appellant - State
of Rajasthan notified a Sales Tax Incentive Scheme for Industries, 1987
(hereinafter referred to as the "Incentive Scheme") under which it
exempted (inter alia) new industrial units from payment of tax on the sale of
goods manufactured by them for sale within the State of Rajasthan in the manner
and to the extent and for the period as specified in that notification. The
operative period of the scheme under that notification was from 5th of March,
1987 to 31st of March, 1992. It was subsequently extended to 31st March, 1997.
The
incentive scheme was applicable, inter alia, to new industrial units set up in
areas mentioned in Annexure-A to the notification. Annexure-B sets out a list
of industries which were not eligible for the benefit of the said notification.
Oil extraction or manufacture was not listed in appendix- B. Hence this
industry was eligible for benefits under the scheme of 23rd of May, 1987.
By
another notification dated 23rd of May, 1987 issued under Section 8(5) of the
Central Sales Tax Act the State Government notified another sales tax incentive
scheme for industries exempting (inter alia) new industrial units from payment
of central sales tax on the inter- state sale of goods manufactured by them
within the State of Rajasthan.
Under
this notification also it was provided that industries listed in appendix-B
would not be eligible for the benefit of the scheme. Oil extraction or
manufacture was not listed in appendix-B to this notification. Hence oil
extraction units were eligible for exemption from central sales tax in respect
of inter-state sale of their goods.
By
a notification dated 6th of July, 1989 issued under Section 4(2) of the
Rajasthan Sales Tax Act, 1954 the appellants notified Sales Tax New Incentive
Scheme for Industries, 1989, to exempt industrial units from payment of tax on
sale of goods manufactured by them within the State of Rajasthan in the manner
and to the extent and for the period covered by that notification. The new
Incentive Scheme of 1989 was deemed to have come into operation with effect
from 5th of March, 1987 and was to remain in force up to 31st of March, 1992. A
similar notification of the same date was issued in respect of the central
sales tax exemption for the said units under Section 8(5) of the Central Sales
Tax Act. Under this notification also appendix-B contained a list of industries
not eligible for benefits under the said notification. Once again oil
extraction or manufacture was not listed in appendix-B in either of the two
notifications.
By
two notifications dated 7th of May, 1990 - one issued under the Rajasthan Sales
Tax Act, 1954 and the other issued under the Central Sales Tax Act, the
notifications of 23rd of May, 1987 were amended. As a result, by amendment of
Annexure-B, oil extracting or manufacturing industry was added as an entry,
thus withdrawing the benefits of the incentive scheme from oil extracting and
manufacturing industries both in respect of Rajasthan Sales Tax as also Central
Sales Tax. Thereafter by further notifications dated 10.9.1990 issued under the
Rajasthan Sales Tax Act, 1954 and the Central Sales Tax Act, it was further
notified, inter alia, that whenever an industry is included on any date during
the period of operation of the scheme in Annexure-B, the units of such industry
which have started commercial production and whose applications for benefit
under the scheme are pending on the said date before the appropriate screening
committee will be entitled to claim full benefit of the scheme.
Thus
by reason of the notifications issued on 7.5.1990 the benefit of the incentive
scheme was withdrawn from oil extracting and manufacturing industries.
Thereafter the position was reviewed by the Finance Department and the Industry
Department of the State of Rajasthan. Ultimately by a notification dated
26.7.1991 the benefit of exemption from Central Sales Tax was restored to oil
extracting and manufacturing industry to the extent of 75% in the case of new
industries and to the extent of 60% in the case of industries going for
expansion or diversification. Thus new industrial units established after
7.5.1990 and before 26.7.1991 alone were not entitled to the benefit of the
Incentive Scheme under the Central Sales Tax Act in respect of inter-state
sales of their goods.
The
respondents commenced commercial production on 17th of February, 1991. Prior
thereto, on 2.4.1991 they applied for an eligibility certificate. The
appellants sent a reply dated 29.4.1991 pointing out that they were not
eligible for the benefit of the incentive schemes since the benefit of the said
schemes had been withdrawn with effect from 7.5.1990 in respect of their
industry. The application of the respondents was finally rejected on
30.11.1991. The respondents thereupon filed writ petition no.2529 of 1992
before the High Court challenging the two notifications of 7.5.1990 issued
under the Rajasthan Sales Tax Act, 1954 and the Central Sales Tax Act. Several
such petitions were filed between the years 1990 and 1992 by various oil
industries challenging the two notifications of 7.5.1990.
When
the writ petition of the respondents came up for hearing before a learned
Single Judge, one such petition in the case of Govardhan Oil Mills had already
been decided by the same High Court by a Single Judge quashing the
notifications of 7.5.1990. Relying on the said judgment the Single Judge
granted relief to the respondents setting aside the notifications of 7.5.1990
and directing the appellants to issue an eligibility certificate to the
respondents within six weeks. An appeal filed by the appellant before the
Division Bench of the High Court has been dismissed by the impugned judgment
dated 14.8.1995.
During
the pendency of the appeal before the Division Bench in the present case, six
other writ petitions filed by various oil industries including Gopal Oil Mills
were heard by a Division Bench of the same High Court and decided on 12.1.1993.
By the said judgment the High Court held that the notifications of 7.5.1990
cannot be given effect to where all necessary acts for setting up the new
industry had been done prior to 7.5.1990 and production had also started.
The
High Court invoked the doctrine of promissory estoppels and gave relief to the
six industries before it, as also new industries set up before 31.3.1992.
The
appellants in those cases filed a special leave petition before this Court in
which this Court on 4.4.1994 granted an interim stay of the judgment of the
High Court dated 12.1.1993. Thereafter the appeals of Gopal Oil Mills and other
appeals were decided by this Court on 23.2.1995.
Before
this Court, the respondents in those appeals only pressed their claim for
exemption from Central Sales Tax for the period 7.5.1990 to 26.7.1991. This
Court came to the conclusion that there was no public interest in withholding
the benefit in respect of Central Sales Tax for the short period 7.5.1990 to
26.7.1991. Therefore, it set aside the notification of 7.5.1990 issued under
the Central Sales Tax Act and upheld the High Court judgment in respect of the
said notification issued under the Central Sales Tax Act.
The
respondents in those appeals stated that they were not pressing their challenge
to the notification of 7.5.1990 issued under the Rajasthan Sales Tax Act, 1954.
This Court, therefore, by the impugned judgment set aside the order of the High
Court and upheld the validity of the notification of 7.5.1990 issued under the
Rajasthan Sales Tax Act, 1954.
However,
it also held that prior to 4.4.1994, which was the date when this Court stayed
the judgment of the Division Bench under challenge, any benefit availed of
under the High Court judgment could be retained by the said industry.
In
the present case, the appeal before the Division Bench was decided on
14.8.1995. The attention of the Division Bench does not appear to have been
drawn to the decision of this Court in Gopal Oil Mills (Supra). The Division
Bench dismissed the appeal of the State of Rajasthan, the present appellants,
on the ground that the respondent- industry had started its production much
before 31.3.1992, relying on the earlier judgment of the Division Bench of the
High Court dated 12.1.1993.
We
have to consider whether the respondents were rightly given by the High Court
the benefit of the said incentive scheme in respect of exemption from Central
Sales Tax as also Rajasthan Sales Tax. The notification of 7.5.1990 issued
under the Central Sales Tax Act withdrawing the benefit of the scheme from oil
extraction and manufacturing industries in respect of inter-state sales
effected by them has already been quashed by this Court by its judgment dated
23.2.1995 in State of Rajasthan & Anr.v. Gopal Oil Mills & Anr. being
Civil Appeal No.5738 of 1994. In view thereof, since the respondents have
started commercial production on 17th of February, 1991 during the subsistence
of the said scheme, they are entitled to the benefit of the said scheme
pertaining to exemption from Central Sales Tax from the date of starting their
commercial production. To this extent the judgment of the Division Bench must
be upheld.
However,
the respondents contend that the judgment of this Court in State of Rajasthan
& Anr. v. Gopal Oil Mills & Anr. (Supra) should not be applied to them
in so far as that judgment upholds the validity of the notification of 7.5.1990
withdrawing the benefit of the Incentive Scheme under the Rajasthan Sales Tax
Act. The respondents contend that this Court did not consider the validity or
otherwise of the notification of 7.5.1990 issued under the Rajasthan Sales Tax
Act, on merit. This Court quashed the said notification in the said judgment
merely on the basis of a concession made by the respondent - oil industries
that they were not challenging the validity of the notification of 7.5.1990
issued under the Rajasthan Sales Tax Act. The respondents are right in
contending that the validity or otherwise of the notification of 7.5.1990 issued
under the Rajasthan Sales Tax Act has to be examined independently in their
case. They are also right in contending that its validity must be considered
independently of the validity of the notification of 7.5.1990 issued under the
Central Sales Tax Act. The notification of 7.5.1990 issued under the Central
Sales Tax Act was withdrawn on 26.7.1991. In the light of this fact, this Court
said that there was no public interest in withholding the benefit of the
incentive scheme granting exemption from Central Sales Tax from oil industries
for the short period 7.5.1990 to 26.7.1991. In the case of the notification of
7.5.1990 under the Rajasthan Sales Tax Act, no subsequent notification has been
issued to restore the benefit of the scheme to oil extraction industries. The
ratio, therefore, on the basis of which the notification of 7.5.1990 under the
Central Sales Tax Act was set aside, is not available while considering the
notification of 7.5.1990 under the Rajasthan Sales Tax Act.
The
appellant, State of Rajasthan, contends that it is open to it in public
interest to withdraw any concessions which it may have granted to oil
extraction industries under the incentive scheme. In fact, the scheme itself
provides in Clause 8 that the scheme can be reviewed or amended from time to
time during the subsistence of the scheme. The respondents, however, contend
that by framing the said incentive scheme the State of Rajasthan had held out a
promise that the benefit of the scheme would be available for all new
industries set up during the period 5.3.1987 to 31.3.1992. Relying upon this
promise the respondents had taken all effective steps to set up the new
industrial unit within that period. Hence the doctrine of promissory estoppel
would be attracted in the present case. It would not be open to the State of Rajasthan to withdraw the benefit of the scheme during the subsistence of the said scheme
by the notification of 7.5.1990.
Are
the respondents justified in holding the State to the promise made by it in the
form of an incentive scheme which is made available for a specified period of
time, when new industries are set up on the basis of that scheme relying on the
promise of benefits held out by it? Public interest requires that the State be
held bound by the promise held out by it in such a situation. But this does not
preclude the State from withdrawing the benefit prospectively even during the
period of the scheme, if public interest so requires. Even in a case where a
party has acted on the promise, if there is any supervening public interest
which requires that the benefit be withdrawn or the scheme be modified, that
supervening public interest would prevail over any promissory estoppel.
After
examining a large number of authorities, this Court in the case of Kasinka Trading
and Anr. v. Union of India and Anr. (1995 (1) SCC 274) held that when there was
a supervening public interest in withdrawing the promise held out, the
Government cannot be estopped from withdrawing the benefit held out under an
existing scheme. In the case of Shrijee Sales Corporation and Anr. v. Union of
India (1997 (3) SCC 398), once again this Court after examining a number of
authorities has held that if any supervening public interest so demands, the
benefit under any incentive scheme can be withdrawn. The same view has been
again reiterated in Union of India and Ors. v. Godhawani Brothers and Anr.
(1997 (11) SCC 173).
The
State Government has, with the permission of this Court, relied upon an
affidavit in this connection which they had filed in Civil Appeal No.5738 of
1994 State of Rajasthan and Anr. v. Gopal Oil Mills and Anr. (Supra).
The
appellant - State has pointed out that their experience with regard to
implementation of the said incentive scheme during the years 1988 and 1989
revealed that the object of having more new industries in the areas specified
could not be achieved, particularly in the case of oil industry and cotton
industry. On the contrary, the policy had adversely affected existing units in
the State. Since the tax liability of new units was much less, and the tax
liability on the old units was high, old units gradually started closing down
while new units started coming up. As a result, in the two years 1988 and 1989,
64 old units were closed down and 74 new units were started. The closure of old
units and their replacement by new units resulted in blocking of capital and
funds invested in the old units.
Therefore,
in effect, the incentive scheme as operating for oil industries was resulting
in closure of existing units and substitution of the same by new units - which
was never the intention of the incentive scheme. It was, therefore, decided to
withdraw the benefit of the scheme in public interest in respect of oil
industry. The notification of 7.5.1990, therefore, was clearly issued on
account of a supervening public interest.
Secondly,
in the present case the respondents do not seem to have taken steps which can
be considered as effective steps for starting a new unit prior to the
notification of 7.5.1990, thereby entitling them to invoke the doctrine of
promissory estoppel. The respondents rely upon the following for the purpose of
invoking promissory estoppel:
1.
The respondent firm got its provisional registration certificate on 15.2.1990.
This is merely a provisional registration issued by the Directorate of
Industries.
2.
They applied for allotment of land and land was allotted to them by RIICO
Limited, by its letter dated 19.2.1990. Possession of the land was handed over
on 7.3.1990 and lease agreement was executed in March, 1990.
For
this land, only an amount of Rs.30,849/was invested.
3.
The respondent firm was registered as a partnership firm with the Registrar of
Firms on 6.3.1990.
4.
On 2.4.1990 the respondent firm applied for registration under the Rajasthan
Sales Tax Act which was granted on 17.4.1990.
5.
A loan of Rs.7.5 lakhs was sanctioned by the Rajasthan Financial Corporation in
favour of the respondents on 17.4.1990. It is not stated how much loan was
actually availed of by the respondents on or before 7th of May, 1990.
6.
Construction of building was started by the respondent on 20.4.1990 barely 3
weeks before the withdrawal of the benefit under the said scheme.
7.
The respondents claim that they placed orders for machinery on 18.4.1990. It
is, however, not stated whether any amount either as earnest or advance for the
purchase of machinery was paid by the respondent to anybody before 7.5.1990.
The respondents also claim to have applied for power connection, to have
installed a transformer and to have invested about Rs.15 lakhs in installing
the industrial unit. However, there is no material to show that any of this was
done prior to 7.5.1990. In fact, the respondents could commence commercial
production only in February, 1991 long after the benefit of the incentive
scheme had been withdrawn. Their application for eligibility certificate under
the said scheme was made only on 2.4.1991 long after the benefit of the scheme
had been withdrawn in respect of oil industry. In these circumstances, even if
we were to hold that the doctrine of promissory estoppel can be invoked, the
same cannot be invoked in the case of the respondents.
In
view of the withdrawal of the benefits under the said incentive scheme by the
notification of 7.5.1990 which was issued in valid exercise of power by the
appellant, the respondents are not entitled to the benefit of the incentive
scheme pertaining to exemption from payment of sales tax under the Rajasthan
Sales Tax Act, 1954.
The
respondents, however, contend that they were granted a certificate of
eligibility in respect of both Central and State Sales Tax Schemes on 6.1.1993.
They have enjoyed the benefit of exemption from the State Sales Tax as well as
the Central Sales Tax throughout as a result of the said certificate. Their
unit has now closed down with effect from 31st of July, 1997. In view of the
exemption granted by the appellant to the respondents under both the schemes,
the respondents have not collected sales tax in respect of any of the
transactions covered by the two incentive schemes. Hence, now they should not
be asked to pay any amount by way of State Sales Tax on the transactions of
sale within the State during the period commencing from 6th of January 1993
(the date of grant of eligibility certificate).
The
respondents also rely upon a circular dated 27.1.1994 issued by the Directorate
of Industries, Rajasthan, Jaipur. This circular states that it is being issued
in view of the Rajasthan High Court's decision in the case of M/s. Goverdhan
Oil Mills and M/s. Bindal Oil Mills. Since there is some confusion, it has been
clarified that in view of the above judgment of the High Court all oil
manufacturing units which commenced production upto 31.3.1992 are entitled to
the benefit under the 1987/1989 schemes under both the Rajasthan Sales Tax Act
and the Central Sales Tax Act. We fail to see how this circular of 27.1.1994
can help the respondents. The circular was issued entirely on account of the
decision of the Rajasthan High Court and was meant for implementing that
decision.
Appeals,
however, from the judgments referred to in that circular as also similar
judgments pronounced in respect of other oil industries, were filed by the
State and have been finally decided by this Court in the case of State of Rajasthan and Anr. v. Gopal Oil Mills and Anr. (Supra).
A
circular, therefore, which was issued entirely to give effect to a judgment
which was not accepted by the department but was appealed against, cannot be
considered as conferring any permanent rights thereby. In the case of the
respondents, however, they were granted an eligibility certificate on 6.1.1993
long prior to the said circular entirely because of the directions contained in
the judgment of the Single Judge dated 27.11.1992 in their writ petition.
The
respondents have been aware throughout that the judgment of the Single Judge
was appealed against. Even after the Division Bench dismissed the appeal the
matter was carried further by filing the present special leave petition/appeal
before this Court. The respondents continued to enjoy the benefits of the said
two schemes since no stay was obtained.
Nevertheless,
the question whether the respondents are entitled to the said benefits, has
been sub judice throughout. Since the appeal is now being decided against the
respondents, they cannot claim the benefit of an eligibility certificate which
was granted entirely on account of a judgment of a Single Judge in their favour
which is now being set aside.
The
respondents, however, point out that this Court in its judgment in State of Rajasthan and Anr. v. Gopal Oil Mills and Anr. (Supra) allowed the respondent - oil
industries to retain the benefit they had obtained under the scheme framed
under the Rajasthan Sales Tax Act upto 4.4.1994. This was on the ground that
the stay of the impugned High Court judgment was granted by this Court only on
4.4.1994. In the present case, the respondents cannot be discriminated against.
They should, therefore, be allowed to retain the benefits they have enjoyed at
least upto 4.4.1994, just as the other oil industries have been allowed to
retain benefits availed of upto 4.4.1994. Looking to the benefits which other
oil industries have enjoyed in view of the judgment of this Court in State of
Rajasthan and Anr.v. Gopal Oil Mills and Anr. (Supra); we do not see any reason
why the respondents also should not have the same benefit. They cannot,
however, retain the entire benefit they have received beyond 4.4.1994 or upto
the date of this judgment on the ground that no stay was granted by this Court
while admitting the special leave petition of the appellants. The eligibility
certificate, as far as the respondents are concerned, was given entirely on
account of a judgment delivered in the course of the present proceedings, which
judgment has been set aside. Therefore, the benefits, flowing from that
certificate were clearly sub judice throughout and were subject to the outcome
of the proceedings.
In
the premises, the judgment of the High Court, in so far as it sets aside the
notification of 7.5.1990 issued under the Rajasthan Sales Tax Act, 1954 is set
aside and the notification of 7.5.1990 issued under the Rajasthan Sales Tax
Act, 1954 is upheld as valid. The respondents, however, will be entitled to
retain the benefits received by them under the incentive scheme framed under
the Rajasthan Sales Tax Act upto 4.4.1994. The judgment of the High Court in so
far as it quashes the notification of 7.5.1990 issued in respect of the
incentive scheme under the Central Sales Tax Act is upheld in the light of the
decision of this Court in the case of State of Rajasthan and Anr. v. Gopal Oil
Mills and Anr. (Supra). The appeal is disposed of accordingly.
There
will, however, be no order as to costs looking to the circumstances of the
present case.
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