THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN W.P.No.27095 OF 2010 ORDER: (Per Hon’ble Sri Justice Ramesh Ranganathan) The demand notice dated 5.8.2009, as confirmed by the proceedings of the Commercial Tax Officer, Nampally dated 8.6.2010, are under challenge in this Writ Petition as being illegal and arbitrary. A consequential direction is sought to the respondents not to insist that the petitioner should pay the deferred tax as demanded in the impugned orders. Facts, in brief, are that the petitioner, a company incorporated under the Companies Act carrying on business in carpets, is a dealer on the rolls of the 3rd respondent. They were granted eligibility certificate dated 13.1.1999 exempting them from payment of tax under the APGST Act for a period of seven years from 9.11.1998 to 8.11.2005. The tax exemption, and other benefits, granted for new industrial units in the State, such as the petitioner, were in terms of G.O.Ms.No.108 dated 20.5.1996, G.O.Ms.No.134 dated 1.7.1996 and G.O.Ms.No.187 dated 21.11.1995. It is the petitioner’s case that, pursuant to the policy of the Government in G.O.Ms.No.187 dated 21.11.1995, the 2nd respondent, on behalf of the 1st respondent, had entered into an agreement with the petitioner company whereby the VAT payable (which was deferred in terms of Rule 67 of the A.P. VAT Rules, 2005) was deemed to be a loan given by the Government, and was to be repaid from April, 2019 along with the tax payable for the corresponding month of April of that year; they had acted in accordance with the said agreement, and were enjoying the benefit of tax deferment on the premise that the deferred tax, which was converted into a loan, was repayable in monthly installments from April, 2019 as stipulated in the agreement; and, believing the promise of the respondents, the tax deferred was utilized by them in their industrial activity. Rule 67 of the A.P. VAT Rules, 2005 (hereinafter called the “Rules”) was amended, and the amendment was notified in G.O.Ms.No.503 dated 8.5.2009. Sub-rule (5), which was inserted to Rule 67, stipulated that the amount availed in the first year, in which the unit was converted from tax holiday into tax deferment scheme, should be paid in the month succeeding the month in which the period for which the unit was eligible for availment of the incentive was completed, and the amount availed in the second year should be paid in the year subsequent to the year in which the amount availed in the first year was paid or payable and so on. The 3rd respondent issued demand notice dated 5.8.2009 calling upon the petitioner to pay Rs.13,24,120/- representing the deferred tax payable for the years 2005-06 and 2006-07. Aggrieved thereby, the petitioner filed W.P. No.18570 of 2009 which was disposed of by order dated 19.10.2009 permitting the petitioner to file their objections to the notice, and directing the respondents to consider the same and pass orders. The petitioner submitted their objections on 6.11.2009 and, thereafter, the 3rd respondent issued proceedings dated 8.6.2010 confirming the earlier notice dated 5.8.2009. It is these two proceedings which are under challenge in this writ petition. The 3rd respondent, in his order dated 8.6.2010, notes that the VAT returns filed by the petitioner for the period April, 2005 to June, 2006 showed that the total tax due for the year 2005-06 was Rs.10,49,173/-, and for the year 2006-07 it was Rs.2,75,111/- i.e., the total tax due was Rs.13,24,120/- which the petitioner was required to pay pursuant to the demand notice. The 3rd respondent observed that the State Government, in G.O.Ms.No.108 dated 20.8.1996, had offered various incentives for industrial growth, one of which was tax incentive in the form of sales tax holiday/exemption, and sales tax deferment; all the tax incentives were announced during the regime of the APGST Act, 1957, which was replaced by the A.P. VAT Act, 2005; under the A.P. VAT Act, 2005 (hereinafter called the “Act”) all tax holiday units were converted into tax deferment units; the petitioner was also converted into a tax deferment unit; the Government had amended the rules in exercise of its powers under Section 78 of the Act, and had issued G.O.Ms. NO.503 dated 8.5.2009 amending the illustration under sub-rule 3(a) of Rule 67; they had inserted sub-rule (5) to Rule 67 of the Rules; under the amended illustration the tax availed by the petitioner in 2005-06 was payable in 2006, and the tax availed in 2006-07 was payable in July, 2007; accordingly a demand notice was issued to the petitioner calling upon them to pay Rs.13,14,120/-; the doctrine of promissory estoppel had no application; the amendment was not retrospective in its operation; and, as such, the amount demanded in the notice dated 5.8.2009 was being confirmed. The impugned proceedings are under challenge on grounds that as part of the policy, enunciated in G.O.Ms. No.187 dated 21.11.1995, the deferred tax was deemed to be converted as a loan granted by the Government; this loan was repayable as per the terms and conditions of the agreement entered into between the petitioner and the Dy. Commissioner, Commercial Taxes on 28.11.2005; as a result the deferred tax must be deemed to be a Government loan; the tax liability ceased to exist, and the loan was repayable only from April, 2019; the State is bound by “promissory estoppel” in terms of the agreement, and it cannot deny the benefit of tax deferment which was already converted as a “loan” in the year 2005; the State cannot resile from its policy of granting tax benefits to new industrial units which include conversion of the tax due as a ‘loan’; Rule 67(5) is arbitrary and in violation of Article 14; the amended Rule 67(5) did not, and could not, supersede or invalidate or ignore the agreement; Rule 67(5) cannot be made applicable to cases where the “deferred tax” was converted into a loan in the year 2005; by demanding payment of deferred tax, covered by the said agreement as loan, the respondents were enforcing the amended rule with retrospective effect; the 3rd respondent erred in holding that the said rule applied prospectively; the demand notice dated 5.8.2009, and the proceedings dated 8.6.2010, are arbitrary, illegal, unjust and unenforceable; Rule 67(5) is inconsistent with the loan agreement dated 28.11.2005 and Rule 67; the respondents are estopped from denying the benefit of conversion of deferred tax as a loan; Rule 67(5) does not contemplate recovery of ‘deferred tax’ which is already converted as a loan by the 1st respondent ; the deferred tax has lost its character as a “tax” in view of the said agreement; the impugned notice and proceedings seek repayment of a loan prematurely contrary to the said agreement; Rule 67(5) is applicable only in cases where the deferred tax is due as deferred tax, and not in cases where the deferred tax was converted as a ‘loan’; Rule 67(5) cannot be interpreted inconsistent with Rule 67 of the Rules, and Section 69 of the Act; and pursuant to the earlier policy, the petitioner was extended the benefit of tax holiday which cannot be reopened on the basis of the amended Rule 67, as such a course is not open on the principle of promissory estoppel. I n M/s MAKS Casting Private Ltd v. Government of A.P.,[1] the validity of the amendment to Rule 67 of the Rules, as notified in G.O.Ms.No.503, Revenue (CT-II) Department dated 8.5.2009, was under challenge. A Division Bench of this Court, while upholding the validity of the amendment to Rule 67, rejected the challenge thereto. The Division Bench held that amendment of Rule 67, by G.O.Ms. No.503 dated 8.5.2009, was not in violation of Article 14, and did not fall foul of Section 69(1) of the Act; the earlier period of repayment of the deferred tax after 14 years which was taken away by the Illustration to Rule 67, as substituted by G.O.Ms. No.503 dated 8.5.2009, was not discriminatory; the amended rule, notified in G.O.Ms.No.503 dated 8.5.2009, was not applied with retrospective effect; and the amended rule could not be struck down on the ground of non-application of mind or failure to record reasons. On the question of ‘promissory estoppel’ the Division Bench held: “…….The distinction between exercise by the Government of its statutory power of granting exemption from tax, and a statutory rule made in exercise of the powers conferred by plenary legislation, must be borne in mind. The nature of delegated legislation can be broadly classified as: (i) the rule- making power; (ii) grant of exemption from the operation of a statute. In the latter category, the scope of judicial review would be wider, including on those grounds on which administrative action may be questioned. (P.J. Irani v. State of Madras[2]; Vasu Dev Singh v. Union of India[3] and J.K. Industries Ltd v Union of India[4]). While the doctrine of promissory estoppel would apply to a promise made by the Government, in the exercise of its statutory power of exemption, (which power has been held to be in the nature of delegated legislation), application of the said doctrine cannot be extended to statutory rules, made under a taxing statute, as such rules are ‘law” being legislative in character. As no promise can be enforced contrary to law, the doctrine of promissory estoppel cannot be pressed as an aid to invalidate the illustration to Rule 67 as substituted by G.O.Ms. No.503 dated 08.05.2009. Even otherwise a vague and bald averment, in the affidavits filed in support of these writ petitions, that the petitioners had altered their position and had arranged their financial affairs in the belief that the earlier rule would be available to them, would not suffice for application of the doctrine of promissory estoppel. To invoke the said doctrine, clear, sound and positive foundation must be laid in the petition itself by the party invoking it, and bald expressions, without any supporting material, to the effect that the doctrine is attracted because the party invoking the doctrine has altered its position relying on the assurance of the Government would not suffice to press into aid the doctrine. The doctrine of promissory estoppel cannot be invoked in the abstract. (Kasinka Trading v Union of India[5]; State of Bihar v. Kalyanpur Cements Ltd[6]). Reliance placed by the learned counsel for the petitioners on State of Punjab v. Nestle India Ltd[7] is misconceived. In Nestle India Ltd6, the Supreme Court held:- “…………the decision in Bakul Cashew Co. V. Sales Tax Officer, Quilon (1986 (2) SCC 365) was a case dealing with the preconditions on the fulfilment of which a plea of promissory estoppel can be raised viz. , that the representation must not only be definite but must be satisfactorily established. The alteration of the petitioner's position acting upon such representation must also be pleaded with particularity and sufficiently supported with material. The Court found that it had not been established that any prejudice had been suffered by the petitioner. As we have noted earlier, each of the respondents in these appeals has given a detailed account of how the monies which were otherwise payable on account of purchase tax have been expended on the milk shed areas and producers of milk. No dispute has been raised by the appellants to this………” (emphasis supplied) Unlike in Nestle India Ltd.6 the affidavits, filed in this batch of writ petitions, lack details as to how the petitioners had altered their position and had rearranged their affairs on the assurance of the pre-amended illustration. No supporting material in this regard has been placed before this Court. The contention, that the Government is not entitled to resile from its promise, by substituting the illustration to Rule 67, is not tenable and necessitates rejection. ………” (emphasis supplied) The Division Bench negatived the contention that the notice of demand was arbitrary. As regards the contention that, since the relevant paragraphs in G.O.Ms.No.108 dated 20.5.1996 had not been amended and were still in force and the final eligibility certificate issued to the petitioners had also not been varied or amended, G.O.Ms. No.503 could not take away the benefits that were available to the petitioner without amendment/cancellation of the final eligibility certificate and G.O.Ms.No.108 dated 108 dated 20.5.1996, the Division Bench held: “………..G.O.Ms. No.108 dated 20.5.1996 issued by the State Government is referable to its power of exemption under Section 9 of the APGST Act. As noted hereinabove the APGST Act was repealed in its entirety, and the A.P.VAT Act, 2005 came into force on 1.4.2005. The mere fact that G.O.Ms.108 dated 20.5.1996 has not been amended, or the final eligibility certificate issued thereunder was not cancelled or varied, would not enable the petitioners to either claim tax exemption or that the period for repayment of the deferred tax should be 14 years. Neither an executive order nor a statutory rule can fall foul of the provisions of the Statute and, since Section 69(1) of the Act requires tax holiday units to be treated as tax deferment units, the petitioners are not entitled to claim the benefit of tax exemption after the Act came into force from 1.4.2005 irrespective of the fact that G.O.Ms.No.108 dated 20.5.1996 has not been amended, and the final eligibility certificates issued thereunder have not been cancelled or varied………….” Following the judgment of the Division Bench of this Court in MAKS Casting Private Ltd1, all the contentions afaorementioned, except as regards G.O.Ms.No.187 dated 21.11.1995, and the agreement entered into between the Government and the petitioner, are liable to be, and are accordingly, rejected. As regards the contentions urged on the basis of G.O.Ms. No.187 dated 21.11.1995, and the agreement, it is necessary to note that G.O.Ms. No.187, Industries & Commerce (IP) Department dated 21.11.1995 was issued by the State Government whereby the amount of sales tax due and deferred under the interest free sales tax deferral scheme, in G.O.Ms.No.375 dated 23.8.1985, was treated as deemed to have been paid and an identical amount treated as government loan extended to the assessee subject to the condition that an agreement should be executed by the assessee to the effect that the amount due, and deemed to have been paid, would be treated as an interest free loan repayable to the Government by the assessee in specified installments as prescribed in the Government Order sanctioning the tax deferral; the Commercial Tax Department would be the agency for entering into the loan agreement, for maintenance of the accounts, and for collection of the loan installments when they fell due; and the Deputy Commissioner of Commercial Taxes was being authorized to enter into an agreement with the assessee in respect of the amount of sales tax due and deferred under the interest free sales tax deferral scheme. Thereafter G.O.Ms. No.75 dated 14.3.1996 was issued whereby it was clarified that the tax deferral shall only be on the amount of tax payable and the additional local sales tax, over and above the previous level of local sales, before expansion; and, in case the local sales tax after expansion was less than or equal to the previous level, the actual tax liability on such lower sales would be payable and there would not be any scope for tax deferral as there would not arise any additional tax liability. Subsequent thereto, G.O.Ms.No.108 dated 20.5.1996 was issued whereby the Government introduced a liberalized incentive scheme for setting up new industries in the State of A.P called “TARGET – 2000” in order to accelerate industrial development of the State. Clause 6.03 thereof provides for deferment/tax holiday on sales tax. Under the said clause, sales tax deferment is to be limited to 135% of the fixed capital investment in a period of 14 years, and the deferred amount would be treated as deemed loan on making available the security of fixed assets of the industry pari – passu with the financial institutions, and on financial assessment by the commercial tax authorities for each year; or sales tax exemption for a period of 7 years limited to a ceiling of 135% of the fixed capital investment during the entire holiday period, at the option of the industry effective from the date of commencement of commercial production. As noted hereinabove, the petitioner initially availed sales tax holiday, and not sales tax deferment. The period of tax exemption was 7 years from 9.11.1998 to 8.11.2005. It is only for the period remaining after the Act came into force were the tax holiday units required to be treated as tax deferment units. G.O.Ms.No.187 dated 21.11.1995, which was issued under the APGST regime, applies only to cases where the sales tax due was deferred under the interest free sales tax deferral scheme formulated under G.O.Ms. No.375 dated 23.8.1985, as extended to cases of modernization/expansion/diversification in G.O. Ms. No.386 dated 26.9.1995. Since the petitioner had availed the benefits of sales tax holiday, and not sales tax deferment, under G.O.Ms. No.108 dated 20.5.1996, they were not entitled for the benefit of sales tax deferment under the interest free sales tax deferral scheme in terms of G.O.Ms. No.187 dated 21.11.1995 read with G.O.Ms. No.375 dated 23.08.1985. The Government could not have extended the benefit of treating the deferred tax as having been paid, and an identical amount as Government loan, for units which had availed the benefit of tax holiday under the APGST regime. Consequently, no loan agreement could have been entered into between the Deputy Commissioner, (CT) and the petitioner who had availed the benefit of tax holiday. Curiously, while the period of tax holiday of the petitioner unit expired on 8.11.2005 itself, an agreement was entered into, between the Government of A.P. represented by the Deputy Commissioner of Commercial Taxes and the petitioner, thereafter on 28.11.2005. Even more curious is that the agreement refers to Section 69 of the A.P VAT Act, 2005 and Rule 67 of the A.P. VAT Rules, 2005. Section 69 of the Act merely requires tax holiday units, under the APGST regime, to be treated as tax deferment units after the A.P. VAT Act, 2005 came into force. The A.P. VAT Act, 2005 does not empower the Government to issue policy guidelines, (other than in the case of purchases), either exempting industrial units from payment of tax, or for deferment of the tax payable by them. Rule 67 prescribes the manner in which the eligibility period, and the period of repayment, is to be computed. Neither of these provisions enable the Government to extend the benefit of tax deferment to new units or to treat the sales tax due and payable by such units as a deemed loan. The agreement dated 28.11.2005 is not referable to any of the provisions of the Act or the Rules made thereunder and, since the Act and the Rules do not enable the Government to confer the benefit of tax deferment on new units and merely requires the erstwhile tax holiday units to be treated as tax deferment units, the benefits of G.O.Ms. No.187 dated 21.11.1995 cannot be extended to such units, more so after the A.P. VAT Act, 2005 came into force. The agreement entered into by the Government with the petitioner is in violation of the provisions of the Act and the Rules made thereunder and would not, therefore, disable the 3rd respondent from collecting the tax due in accordance with the provisions of the Act and the Rules. The agreement dated 28.11.2005 would not prohibit the 3rd respondent from discharging his statutory obligations under the Act and the Rules. Even otherwise, the agreement dated 28.11.2005 is non-statutory in nature as it is not referable to any statutory provision. The forum for enforcement of contractual obligations, more so in the case of non-statutory contracts, is the Civil Court of competent jurisdiction and, ordinarily, not the High Court in exercise of its extra-ordinary jurisdiction under Article 226 of the Constitution of India. We see no reason, therefore, to exercise discretion to entertain the writ petition seeking enforcement of contractual obligation as the validity of such an agreement is itself doubtful and, in any event, cannot be construed as prohibiting the 3rd respondent from collecting the tax due in accordance with the provisions of the Act and the Rules. Viewed from any angle, the petitioner is not entitled to the relief sought for. The Writ Petition fails and is, accordingly, dismissed. However, in the circumstances, without costs. _____________ V.V.S.RAO, J ___________________________ RAMESH RANGANATHAN, J 22.11.2010 MRKR [1] judgment in W.P.No.12804 of 2009 and batch dated 16.9.2010 [2] (1962) 2 SCR 169 [3] (2006) 12 SCC 753 [4] (2007) 13 SCC 673 : (2008) 297 ITR 176 [5] (1995) 1 SCC 274 : AIR 1995 SC 874 [6] (2010) 28 VST 1 [7] (2004) 6 SCC 465