SCA/2372020/2006 1/110 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 23720 of 2006 with SPECIAL CIVIL APPLICTION No. 23699 of 2006 with SPECIAL CIVIL APPLICATION No. 23718 of 2006 with SPECIAL CIVIL APPLICATION No. 24798 of 2006 with SPECIAL CIVIL APPLICATION No. 24807 of 2006 with SPECIAL CIVIL APPLICATION No. 24808 of 2006 with SPECIAL CIVIL APPLICATION No. 24810 of 2006 with SPECIAL CIVIL APPLICATION No. 24812 of 2006 with SPECIAL CIVIL APPLICATION No. 24816 of 2006 with SPECIAL CIVIL APPLICATION No. 24859 of 2006 with SPECIAL CIVIL APPLICATION No. 24862 of 2006 with SPECIAL CIVIL APPLICATION No. 24864 of 2006 with SPECIAL CIVIL APPLICATION No. 24867 of 2006 with SPECIAL CIVIL APPLICATION No. 25017 of 2006 with SPECIAL CIVIL APPLICATION No. 25021 of 2006 with SPECIAL CIVIL APPLICATION No. 25023 of 2006 with SPECIAL CIVIL APPLICATION No. 25025 of 2006 with SPECIAL CIVIL APPLICATION No. 25027 of 2006 with SPECIAL CIVIL APPLICATION No. 25028 of 2006 with SPECIAL CIVIL APPLICATION No. 25379 of 2006 with SPECIAL CIVIL APPLICATION No. 25381 of 2006 with SPECIAL CIVIL APPLICATION No. 25384 of 2006 with SPECIAL CIVIL APPLICATION No. 25391 of 2006 with SCA/2372020/2006 2/110 JUDGMENT SPECIAL CIVIL APPLICATION No. 25393 of 2006 with SPECIAL CIVIL APPLICATION No. 25394 of 2006 with SPECIAL CIVIL APPLICATION No. 26575 of 2006 with SPECIAL CIVIL APPLICATION No. 26577 of 2006 with SPECIAL CIVIL APPLICATION No. 26584 of 2006 with SPECIAL CIVIL APPLICATION No. 26585 of 2006 with SPECIAL CIVIL APPLICATION Nos. 19723 to 19727 of 2006 with SPECIAL CIVIL APPLICATION Nos. 4746 to 4752 of 2007 with SPECIAL CIVIL APPLICATION No. 4950 of 2007 with SPECIAL CIVIL APPLICATION No. 5318 of 2007 with SPECIAL CIVIL APPLICATION No. 5589 of 2007 with CIVIL APPLICATION No. 13171 of 2006 with CIVIL APPLICATION No. 13689 of 2006 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ HONOURABLE MR.JUSTICE RAJESH H.SHUKLA ========================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? SCA/2372020/2006 3/110 JUDGMENT ========================================= KISHORKUMAR PRABHUDAS TANNA & 1 - Petitioner(s) Versus STATE OF GUJARAT THR' SECRETARY & 2 - Respondent(s) ========================================= Appearance : MR SN SHELAT, Sr. Advocate, with MR P A MEHD for Petitioner(s) : 1 - 2. MR JP SHAH with MR MANISH J SHAH for Petitioner(s) (in Special Civil Application Nos. 19723 to 19727 of 2006) MR SUNIT S. SHAH, GOVERNMENT PLEADER, with MR DIPEN DESAI, AGP, for Respondent(s) : 1 - 3. ========================================= CORAM : HONOURABLE MR.JUSTICE K.A.PUJ and HONOURABLE MR.JUSTICE RAJESH H.SHUKLA Date : 29/12/2008 CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE RAJESH H.SHUKLA) This group of petitions have been filed by the petitioners for the prayers, inter alia, that a Writ of Mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction may be issued directing the respondents to make the earlier exemption granted to the petitioners by the certificates issued by respondent No. 2 under the provisions of the Gujarat Sales Tax Act, 1969 available to the petitioners for the purpose of exemption under the provisions of the Gujarat Value Added Tax Act, 2003 at least for the duration as mentioned in the aforesaid certificate (passed under the Gujarat Sales Tax Act, 1969), if not for more time. SCA/2372020/2006 4/110 JUDGMENT 2. It is also prayed that the respondents may be directed to grant exemption to the industry of the petitioners under the provisions of Gujarat Value Added Tax Act, 2003 from the date of coming into force of the Gujarat Value Added Tax Act, 2003 on the same terms as exemption has been granted earlier under the provisions of Gujarat Sales Tax Act, 1969. 3. It is also prayed to quash and set aside Notification No. (GHN-27) GST-2006 (Section 49) (404)TH dated 31.3.2006 and Notification No. (GHN-27) GST-2006 (Section 49) (405) dated 31.3.2006. 4. It is further prayed that the respondents may be directed to extend the effect of Entry 95 under Section 49(2) and Entry 74 of the Schedule of the Gujarat Sales Tax Act, 1969 to the provisions of Gujarat Value Added Tax Act, 2003 from the date of coming into force of the Gujarat Value Added Tax Act, 2003. 5. It is also prayed that the respondents may be directed to refund the tax paid or payable by the petitioners for the purchase of goods and remit the tax paid or payable by the petitioners on sale of goods with effect from coming into force of the Gujarat Value Added Tax Act, 2003 and also stay the operation and implementation of Notification No. (GHN-27) GST-2006 (Section SCA/2372020/2006 5/110 JUDGMENT 49) (404)TH dated 31.3.2006 and Notification No. (GHN-27) GST- 2006 (Section 49) (405) dated 31.3.2006. 6. The facts of the case, briefly summarized, are as under: 6.1 The petitioner No. 2 in Special Civil Application No. 23720 of 2006 and other petitioners are village industries established for the purpose of availing the benefit of exemptions from sales tax granted under the Gujarat Sales Tax Act, 1969 (hereinafter referred to as 'the Sales Tax Act'). It is averred that the petitioners are entitled to the protection of their fundamental rights guaranteed under the Constitution of India. It is averred that the petitioners are carrying on business of village industries as defined under the Rural Employment Generation Programme (for short 'REGP') as formulated under the Khadi & Village Industries Commission Act, 1956 (for short 'KVIC Act') read with the provisions of the Sales Tax Act and the rules made thereunder. The action of the respondents of not continuing and/or granting and/or extending the benefit of tax exemption to the petitioners has been challenged in the present group of petitions inasmuch as the petitioners were enjoying the benefit of sales tax exemption under the Sales Tax Act and when it has been substituted by bringing in force the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as 'the 'VAT Act'), the said benefit/exemption has been discontinued or withdrawn on various counts elaborately stated in the petition and also dealt with in the SCA/2372020/2006 6/110 JUDGMENT submissions made by the learned Counsel for the petitioners. 6.2 It is the case of the petitioners that the action of the respondents of not recognizing the certificate of exemption granted by respondent No. 2 under the erstwhile Sales Tax Act for the purpose of exemption under the VAT Act in spite of the fact that there is a provision in the latter act (VAT Act) to the effect that the aforesaid certificate granted under the Sales Tax Act would continue to remain valid for the purpose of VAT Act. For that purpose, the petitioners have brought on record the action of the respondents in issuing the notifications dated 31.3.2006 by which such exemption has been withdrawn, which is produced at Annexure-I. By the impugned notifications under the purported exercise of power under sec. 49(2) of the Sales Tax Act read with sec. 21 of the Bombay General Clauses Act, have rescinded all exemptions granted previously under sec. 49(2) of the Sales Tax Act including the exemption granted to the petitioners. 6.3 Therefore, it has been challenged in the present group of petitions contending, inter alia, that such action is arbitrary and ultra vires the Constitution of India and also ultra vires the provisions of the Sales Tax Act and also it is against the Directive Principles of the State Policy as enshrined in the Constitution of India. It is also challenged on the ground of arbitrariness, discrimination and principles of promissory estoppel. It has been SCA/2372020/2006 7/110 JUDGMENT contended that some of the village industries have been extended the exemption by various notifications which includes the units under the khadi industries and village industries for the purpose of VAT Act and the petitioners are denied the same benefit though they are on the same footing and fall within the same homogeneous class. Therefore, it has been contended that the impugned action of the respondents is discriminatory and violative of the mandate of the Constitution of India and the impugned notifications, which have been issued withdrawing/rescinding the exemption granted under the Sales Tax Act, is arbitrary and illegal. 6.4 It has been contended that at least the notifications which have been issued under the erstwhile Sales Tax Act would remain in operation till the expiry of the date or the period as the same cannot be rescinded once, on the basis of such promise of benefit of exemption under the Sales Tax Act, the petitioners have relied upon and acted on it and, therefore, the respondents are also not entitled to rescind or withdraw such benefit on the principle of promissory estoppel. It is contended that the petitioners who are similarly situated are, therefore, challenging the impugned action of rescinding or withdrawal of the benefit granted under the Sales Tax Act and in fact it ought to have been extended or continued under the VAT Act on the same footing like other industries under the khadi or village industries and such action is therefore challenged on the ground of promissory estoppel and legitimate expectation. SCA/2372020/2006 8/110 JUDGMENT 6.5 It is averred that the industry of the petitioners is a village industry recognized by the Khadi & Village Industries Commission (for short 'KVIC') of which recognization has been issued, which have been produced on record. KVIC is a statutory body created under the KVIC Act for the purpose of promoting and developing khadi and village industries. The said functions of KVIC are under the administrative control of the Ministry of Agro & Rural Industry, Govt. of India. It is averred that the aforesaid KVIC is based on Gandhian philosophy of providing work to all stating that Gandhiji had anticipated a complimentary relationship between khadi and village industries. 6.6 Therefore, one of the main programmes of KVIC is REGP for which the scheme has been framed, which has been set out in detail with the objectives in the memo of petition. The Ministry of Argo & Rural Industries, Govt. of India has, therefore, launched REGP through OCKVI with the broad objectives which have been also set out in the petition as reproduced hereinafter : 1. To generate employment in rural areas. 2. To develop entrepreneurial skill among the rural unemployed youth. 3. To achieve the goal of rural industrialization. 4. To facilitate participation of financial institutions for SCA/2372020/2006 9/110 JUDGMENT higher credit to rural industries. 6.7 As enumerated and dealt with in detail, the basic objective of the scheme provides that 25% of the project cost up to Rs. 10 lakhs will be provided as “Margin Money”, i.e., subsidy. For project cost between Rs. 10 lakhs to Rs. 25 lakhs – 25% of Rs. 10 lakhs plus 10% of the balance. Project cost beyond Rs. 25 lakhs was not eligible under the said scheme. Various sections of the village population, particularly, SC, ST, OBC, women, physically handicapped, ex-servicemen were entitled to above benefit on a higher scale and the scheme was made applicable to all viable village industries projects except negative list stated in the scheme. There is a provision in the general category for extending such benefit. The Scheme has been produced at Annexure-B to Special Civil Application No. 23720 of 2006. 6.8 It is also stated that the development of village industries is also an activity to be carried out by the respondents in furtherance of the Directive Principles of State Policy enshrined in the Constitution of India which speak of the efforts to be made by the respondents to minimize inequality in income and facilitate opportunities amongst individuals as well as groups residing in different areas. This, will provide the citizens right of adequate means of livelihood and in turn it would avoid concentration of wealth and promote rural employment and ultimately it would SCA/2372020/2006 10/110 JUDGMENT promote not only cottage industries but it would also promote economic interest of the weaker sections of the country as a whole. 6.9 It is, therefore, contended that the KVIC Act and Gujarat Khadi & Village Industries Act, 2006 as well as the Directive Principles of State Policy clearly envisage that the policy of the respondents is to encourage such village industries in the rural areas, like the one carried out by the petitioners. 6.10 It is therefore averred that village industries like the petitioners have enjoyed exemptions from sales tax for more than 40 years as incentive offered by the government as and by way of encouragement for setting up such industries in villages or rural areas. It is also averred that the petitioners, on the basis of the promise of the respondents of granting exemption of sales tax, was one of the main reason which persuaded them and other village people to take up such activity of setting up industries in far-flung village or rural areas, which otherwise lack adequate infrastructure, qualified manpower, etc. However, the Sales Tax Act was substituted with VAT Act which are both essentially enacted for the same purpose, i.e., levy and collection of tax in respect of sale or purchase of goods. It is averred that the underlying policy and principles of both the legislations essentially remain the same and what has changed is simply the method of computation and collection of tax on sale or purchase of goods. SCA/2372020/2006 11/110 JUDGMENT 6.11 It is therefore contended that the policy of grant of exemption and its continuance thereof could not have changed with the coming into force of VAT Act. It is also contended that the aforesaid position is further fortified by reading section 100 of the VAT Act, which is a repeal and saving clause. It is required to be mentioned that sec. 100 of VAT Act, referring to the repeal and saving clause, has been much emphasized contending that as per this provision of the VAT Act, the benefits which have been extended under the Sales Tax Act and the certificate and the notifications/orders issued under the Sales Tax Act would also continue to remain in effect. It has been further emphasized that the aforesaid proposition is supported by the fact that the Sales Tax Act is actually defined as “earlier law” in sec. 2(12) of the VAT Act. 6.12 Further, it has been contended that under the Sales Tax Act, the petitioners were granted exemption under two sections, section 5 as well as sec. 49. Various notifications were issued under the aforesaid two sections of the Sales Tax Act for extending benefit of exemption. It is also contended that the exemption granted under sec. 5 of the Sales Tax Act was originally under Entry 35 of the schedule to the Sales Tax Act which was subsequently amended to Entry 74 of the Schedule to the Sales Tax Act, which has been produced on record. It is also contended that the petitioners were also given protection vide notification under sec. 49(2) of the Sales SCA/2372020/2006 12/110 JUDGMENT Tax Act and the said protection has been given vide Entry 95 which has been inserted in the list of entries referred in sec. 49(2), which is also produced on record. Therefore, it has been contended that the respondents had, vide the impugned notifications dated 31.3.2006, cancelled all earlier exemptions and entries granted under sec. 49(2) of the Sales Tax Act before the VAT Act came into force. The said notifications are also produced on record. 6.13 It is contended that the benefit of exemption under the Sales Tax Act would remain and continue when the VAT Act came into force on the next date, i.e., 1.4.2006. It has been contended that the effect of coming into force of the aforesaid Act has been that the the Sales Tax Act stood repealed. However, sec. 100 of the VAT Act, which refers to repeal and saving clause, will have application. 6.14 Further, it has been also contended that sec. 5 of the VAT Act contained a provision for granting exemption and the earlier exemption granted to khadi industries was continued under the VAT Act for which reference has been made to Entry 36B of Schedule I of VAT Act, which is also produced on record at Annexure J in SCA No. 23720 of 2006. It is further contended that the respondent No. 4, in exercise of power conferred by sub-sec. (2) of sec. 5 of VAT Act, continued the tax exemptions granted to sale or purchase of goods by the industrial units or the deferment of tax to such industrial units under the 'earlier law' though the SCA/2372020/2006 13/110 JUDGMENT petitioners have been meted out a different treatment, which is the bone of contention. Therefore, it has been contended that though the petitioners are similarly situated like other industrial units or khadi industries to whom the benefits have been extended in one form or other regarding exemption from payment of tax and/or applicability of VAT Act, the petitioners have been meted out a different treatment and, therefore, the impugned action and the notifications are arbitrary, discriminatory and also in violation of the Directive Principles of the State Policy and the Constitution of India. 6.15 A reference has been made to the representations made to various authorities including the representation made by the petitioners through Mahagujarat Gramudyog Mahasangh for extending the benefit given to them under the erstwhile Sales Tax Act. However, such representations have been ignored by the respondents. It is also averred that the office of Commissioner of Khadi & Village Industries has also recommended for exemptions to the village industries like the petitioners as it would fall within the purview of KVIC. However, the same has also been ignored and the impugned notifications came to be issued, which have been challenged in the present group of petitions on various grounds as set out in detail in the petitions, briefly summarized hereinabove. 6.16 An affidavit-in-reply has been filed on behalf of respondent SCA/2372020/2006 14/110 JUDGMENT No. 1 by the Addl. Secretary, Finance Dept., contending, inter alia, that the petitioners have established the concerned village industries for getting the exemption of sales tax under the Sales Tax Act. However, it is denied that the respondents have held out any promise or representation as alleged and it has been denied that the petitioners have set up their industries on the basis of any purported promise or representation regarding grant of exemption to the industries as alleged. It is also contended that a reference could be made to the relevant enactments/laws and the REGP for its proper meaning and interpretation. 6.17 It is contended that the broad objective of the REGP floated by the Ministry of Agro & Rural Industries, Govt. of India, was to generate employment in rural areas, to develop entrepreneurial skills among the rural unemployed and also to facilitate participation of the village population for the purpose of employment and also other goals. It has referred to the broad outline of the schemes as to how it would work out extending the benefit and it has been specifically contended that as per the policy of REGP subsidy for margin money to the tune of approximately Rs. 2.81 lakhs has already been received by the petitioners in Special Civil Application No. 23720/06 in setting up the unit and similarly such benefit has been availed by the other petitioners. 6.18 It has been, therefore, contended that the benefits under the SCA/2372020/2006 15/110 JUDGMENT REGP have already been ensued in favour of the petitioners and they have availed of the same. It is also contended that the benefits or exemption granted under sec. 49 of the Sales Tax Act can always be withdrawn and the government is entitled to modify or withdraw any such exemption. It is, therefore, contended that sec. 49 of the Sales Tax Act empowers the State Government to rescind or modify such exemption subject to the condition that the same has to be published in the Official gazette. 6.19 It is denied that sales tax as well as VAT are essentially the same. It is contended that the VAT is a multi point sales tax and is collected on value addition only at each stage. The input tax credit accumulated from the previous stage is adjusted against the output tax paid in the return period. The sales tax is collected at one single stage of purchase or sale of goods while VAT is a multi point taxation system. Further, under the VAT there is a provision for set off of previously paid tax by allowing the adjustment of input tax credit. Therefore, under sales tax only one dealer, either the first or the last, bears the whole burden of tax, while under VAT all dealers from first seller to last seller would share the burden of tax. It is contended that there is no policy of exemption as contended by the petitioners. However, the scheme of VAT contemplate refund of tax and remission of tax as provided under the VAT Act, which is different from the Sales Tax Act. It is contended that the provision of sec. 100 of the VAT Act does not apply to the facts of SCA/2372020/2006 16/110 JUDGMENT the present case, which is a repeal and saving clause, and such an interpretation, as sought to be canvassed by the petitioners, would render the provision of sec. 5(2)(b) of VAT Act redundant. It is also contended that the petitioners are not entitled to claim continuation of exemption granted under the Sales Tax Act even after coming into force of VAT Act or the certificate of the petitioners can be construed to have been valid or in force after the VAT has been brought into force. It is denied that exemption granted to the petitioners under the erstwhile Sales Tax Act would continue to be valid under the VAT Act as alleged. It is denied that the certificate of exemption granted or issued to the petitioners are valid or operative even under the VAT Act as alleged. It is contended that the exemption has been granted under the relevant provisions of the Sales Tax Act and it is well established that the Government has the power to rescind, amend or annul such notifications which would therefore not amount to a representation at all. 6.20 It is contended that the petitioners have not taken any action pursuant to any representation or promise and therefore the petitioners are not entitled to invoke the doctrine of promissory estoppel or legitimate expectation. It is therefore contended that the claim of the petitioners based on the doctrine of promissory estoppel is misconceived because the exemptions have been rendered ineffective because of the enactment by the legislature in the form of the new act, i.e., the VAT Act, which has repealed the SCA/2372020/2006 17/110 JUDGMENT earlier Sales tax Act under which the exemptions were granted to the petitioners. It is, therefore, contended that the question of applying the doctrine of promissory estoppel or legitimate expectation does not arise. It is denied that the representation of the petitioners have been ignored as alleged. 6.21 It is contended that under the provisions of VAT Act, the respondent No. 1 had set up a high powered cabinet sub-committee and the said committee has considered number of issues arising under the VAT Act including the advisability of continuing exemptions granted under the Sales Tax Act as well as regarding granting refund/remission under the VAT Act. The committee took into account the relevant facts and material, the scheme and provisions of the VAT Act and also considered visit reports of various aspects including the necessity of providing impetus to village industries after considering the development and potential of various activities undertaken by such