IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 07.03.2008 CORAM THE HONOURABLE MR.JUSTICE S.MANIKUMAR W.P.No15797 of 2007 M.P.NO.1 of 2007 Ultra Tech Cement Limited, rep. by its Assistant Vice President, Arokkonam Cement Works, Chitteri P.O., Arakkonam 631 003. ... Petitioner vs. 1. The Secretary to Government, State of Tamil Nadu, Commercial Taxes and Regligious Endowments Dept., Secretariat, Fort St. George, Chennai-9. 2. The State Industries Promotion Corporation of Tamil Nadu Limited (SIPCOT), rep. by its Managing Director, 19-A, Rukmani Lakshmipathy Road, P.O.Box. No.7223, Egmore, Chennai-8. 3. The Assistant Commissioner (Commercial Taxes), Vellore. 4. The Deputy Commercial Tax Officer, Arakkonam. ... Respondents Writ petition is filed under Article 226 of the Constitution of India for issuance of a Writ of Certiorarified Mandamus to call for the records of the fourth respondent comprised in its notice in Ref.Nil dated 20.03.2007, quash the same and consequently direct the respondents to forthwith consider the petitioner's representations, including the representations, dated 29.12.2006 and 08.02.2007 and pass orders on the continuance of the waiver scheme as per the deed of agreement, dated 12.07.2006 entered into between the first respondent and the petitioner. For Petitioner : Mr.Sathish Parasaran For 2nd Respondents : Mr.Haja Naziruddin, Special Government Pleader For Respondents 1,3 & 4 : Mr.M.Devaraj O R D E R The petitioner has sought a Writ of Certiorarified Mandamus to quash the order of the Deputy Commercial Tax Officer, Arokanam Village, Vellore District and consequently, direct the respondents to consider the petitioner's representation dated 29.12.2006 and 08.02.2007 and pass orders on the continuance of the waiver scheme of the deed of the agreement, dated 12.07.2006 entered into between the Government of Tamil Nadu and the petitioner and for further orders. 2. The petitioner is a public limited company engaged in the manufacture of Cement, carrying on its manufacturing activities in 10 plants located in various parts of the country, including manufacturing unit at Arokonam Village, Vellore District. The said unit was established, pursuant to the package of incentives given by the State vide G.O.Ms.No.500, Industries (MIG-II) Department, dated 14.05.1990, whereby, the State directed inter alia that the new industries set up in 30 Most Backward Taluks notified in the annexure to the said order and also in three Industrial Complexes of SIPCOT at Pudukottai, Cuddalore and Manamadurai, shall be eligible for full waiver of Sales Tax dues for a period of five years upto a ceiling of total investment made in the fixed asset and G.O.Ms.No.43, Industries (MIG-II) Department, dated 13.11.1992, directing the package of incentives for large industries, whereby, an industry set up anywhere in the state having an investment of Rs.100 Crores and below Rs.200 Crores will be eligible for a sales tax waiver of 6 years or deferral for 12 years subject to a ceiling of 100% of the value of fixed assets. 3. The petitioner has further submitted that the new unit at Arakonam was established at an eligible investment of Rs.10, 198.84 Lakhs made in fixed assets and it commenced production with effect from 01.04.2001 and as the petitioner was entitled to the sales tax waiver as provided in G.O.Ms.No.43 Industries (MIG_II) Department, dated 13.12.1992, it applied for and obtained an Eligibility Certificate, dated 15.05.2006 from the State Industries Promotion Corporation of the Tamil Nadu Limited (hereinafter referred to as "the SIPCOT"), under the waiver scheme announced by the State. 4. Based on the said eligibility certificate, the petitioner and the Government signed a deed of agreement dated 12.07.2006, which inter alia provided for waiver of the total amount of sales tax/surcharge/additional surcharge/additional tax not exceeding the eligible investment of Rs.10,198/- made in the fixed assests. The waiver scheme was extended to the petitioner for a period of 6 years from 01.08.2006 to 31.07.2012. One of the conditions of the waiver agreement is that the petitioner should not collect sales tax on local sales of cements for six years. The said waiver scheme commenced with effect from 01.08.2006 and continued till 01.01.2007, when the Value Added Tax (VAT) was introduced in the State of Tamil Nadu by bringing into force the Tamil Nadu Value Added Tax, 2006. Since the exemption and waiver schemes generally militate against the efficient working of the VAT system by breaking the VAT chain, the Value Added Tax inter alia provided a deeming provision in Section 33 of the Act. 5. It is the case of the petitioner in the light of the aforesaid provision, the waiver scheme extended to the petitioner as per the deed of agreement dated 12.07.2006, automatically stood modified as deferral scheme. Since the VAT Act provided that the Government on an application from the Industrial Unit already availing remission of tax to pass orders for continuance of such remission for the unexpired portion or till the balance of amount of tax is remitted (whichever is earlier), the petitioner made an application to the respondents as early as on 29.12.2006, even before the Act was notified, pointing out the legal position and explained the petitioners predicament arising out of switching over from waiver to deferral scheme under the new Act and sought clarification regarding implementation of the scheme. Pending clarification, the petitioner indicated that he would show the VAT separately in its invoices with effect from 01.01.2007 in order to enable its dealers to claim input tax credit. According to the petitioner, the said recourse was in full compliance with Section 33 of the VAT Act. 6. Subsequent to the petitioner's representation dated 29.12.2006, the SIPCOT convened a meeting between the Special Secretary to the State Government and representatives from the Industry on 18.01.2007 and the issue relating to status of the existing exemption schemes was discussed. The mechanism followed in other states such as Gujarat, Maharashtra, Karanataka and W.Bengal was discussed to evolve a suitable system in the State of Tamil Nadu for the continuance of the waiver schemes introduced in the TNGST Act. The petitioner has further contended that during the said meeting the adhoc procedure adopted by the petitioner, during the interregnum period of showing VAT invoices so as to enable his dealers to avail the input tax credit was declared by the respondent, as not prejudicing the request for continuance of the waiver scheme. Subsequently, the petitioner addressed a letter 08.02.2007, intimating the second and third respondent that pending necessary notification by the first respondent, the petitioner was availing waiver facility under the VAT Act. 7. While the petitioner and the other industries were awaiting a notification from the Government on the VAT procedure and on the treatment of existing waiver schemes under the new VAT Act, the petitioner was shocked to receive the impugned communication, dated 20.03.2007 from the Deputy Commercial Tax Officer, Arockanam, Vellore District, wherein, he has stated that the collection of tax from January 2007 under the Tamil Nadu VAT Act 2006, is a violation of the conditions of eligibility certificate and waiver agreement dated 01.08.2006 and retention of the tax collected, is an offence. On the basis of said finding, the petitioner has been directed to remit the amount within three days from the date of communication of the letter failing which penal action would be initiated against the petitioner under the VAT Act. The petitioner has further submitted the impugned communication though termed as notice is in the nature of final order, where conclusion as to the alleged commission of grave offence has already been arrived at by the fourth respondent. According to the petitioner, no opportunity has been given to them and therefore, the impugned order is in violation of the principles of natural justice. 8. The petitioner has further contended that in the absence of clear notification indicating the Government's policy on the treatment of existing waiver schemes, it was incumbent on the part of the authorities concerned to have given some guidelines to the industries to act in conformity with VAT Act. The petitioner has further submitted that on the failure of the authorities to discharge their duties in this regard, the petitioner was constrained to adopt a procedure which was reasonable in the given circumstances. The act of invoicing with effect from 01.01.2007, was also duly intimated to the authorities from time to time. Without taking any steps to clarify the position, on the representation dated 29.12.2006, the fourth respondent has taken a hasty decision in order to show collection of the tax before the closure of current financial year 2006-07. In these circumstances, the petitioner has preferred the present Writ Petition for the relief as stated supra. 9. The respondent No.4, in his counter affidavit has submitted that the petitioner has availed the waiver scheme as per the sales tax waiver agreement executed by the Government of Tamil Nadu, through the Assistant Commissioner (Commercial Taxes), Vellore, the third respondent dated 12.07.2006. The eligibility certificate, dated 15.05.006 was issued by SIPCOT, Chennai. The agreement as well as the certificate of SIPCOT contained several conditions for availing the waiver of payment of tax. One of the important conditions for availing the waiver scheme is that the dealer should not collect tax during the waiver period of 6 years on the sale of manufacture of port land cement. The non-collection of tax by the unit is in order to maintain the competitive advantage and this provision is incorporated in Rule 48-A of the TNGST Act, 1959. The VAT Act has been introduced by 01.01.2007 by Act 32 of 2006. 10. The fourth respondent has further submitted that as per Rule 16(4) of the VAT Rules, 2006, the Government may, in the public interest or to mitigate hardship to the trade remit the whole or any part of the tax or penalty or fee payable in respect of any period by any dealer under Section 31 subject to the condition that in respect of remission of tax the dealer had not collected tax on the turnover in respect of that period for which remission is sought to be granted. It is the further contention of the respondent that since the State of Tamil Nadu have intended to continue the waiver scheme, a proviso was provided to Section 33(1) of the VAT Act. It is further submitted that the petitioner having addressed a letter much earlier to the introduction of the VAT Act, 2006, which came to effect from 01.01.2007, the petitioner ought not to have collected tax for the period from 01.01.2007 to 30.04.2007. The details of the tax collected and retained by the petitioner are as follows: Months Rs. in Crores January 2.65 February 3.19 March 3.88 April 3.79 Total 13.51 11. The fourth respondent has further submitted that the petitioner has collected tax for about 13.58 Crores and as on the date of filing of the counter affidavit and the respondent were able to collect a sum of Rs.4 Crores towards the tax and the remaining amount of Rs.9.4 Crores is yet to be paid. The fourth respondent has submitted that the demand to pay the balance amount of tax is valid and permissible under the Act. In response to the above demand notice, the petitioner has sent a letter dated 23.03.2007, which reads as follows: "1. You will appreciate that we have sought clarifications from the Department as well as SIPCOT as to the procedure to be adopted so as to ensure our availment granted by the Government, while at the same time also ensuring that our dealers pay VAT only on the value addition. 2. The letters sent to your Department as early as 18/Dec/2006, followed by several correspondences are yet to be replied. 3. We would like to bring to your kind notice, the assurance given by Dept., in the meeting convened on 18.01.2007, that in view of the confusion that has arisen on the change over to VAT, the period between the introduction of the VAT and the notification of procedure (which is yet to be released) will be treated as period of "transition" during which period the Government will not initiate any action on account of the industries charging VAT in the invoice so as to ensure dealers avail input credit." 12. The fourth respondent has further submitted that when the petitioner has intended to avail the waiver scheme for the unexpired period under Section 33 (1) of the Act, it is improper on their part to have collected tax on the sale of finished product during the period of waiver and retention of the same as shown in their monthly returns from January to March 2007 (continued in April 2007 also), is in violation of the waiver agreement and against Rule 16(4) of the VAT Rules. 13. It is further submitted that the existing dealers who availed waiver scheme under the provisions of the Tamil Nadu General Sales Tax Act,. 1959, are permitted to continue under the scheme and the main condition for continuing in the waiver scheme is that the dealer should not collect taxes on the finished products, i.e., Rule 16(4) of the Tamil Nadu VAT Rules 2006, should not be violated and in order to maintain VAT chain, the dealer-customers of the waiver availing dealer, should not claim input tax credit. The respondent has further submitted that the petitioner has violated Rule 16(4) of the TNVAT Rules, and has collected taxes of Rs.9.72 Crores from January 2007 to March 2007 and retained the same. 14. The respondent has further submitted that as per the agreement executed by the petitioner in the year 2006 with the Assistant Commissioner (Commercial Taxes) Vellore District, the petitioner has agreed that they would not collect taxes on the sale of finished product (Cement) as per Rule 48- A of the TNGST Rules, 1959. The eligibility certificate dated 15.05.2006, imposes the same condition. Besides, as per Rule 16(4) of the Rules, 2006, the dealers under the waiver scheme should not collect tax on the finished products. Therefore, the adhoc procedure followed by the petitioner is against the rules, terms of the agreement and the eligibility certificate. AS stated supra, when the petitioner has intended to remain in the waiver scheme under the VAT Act, they have no locus standi or right or authority to collect tax without amending eligibility certificate, for availing the benefit under Section 33(1) of the VAT Act. 15. The respondents have further submitted that the manufacturing unit who wants to remain in the waiver scheme under the VAT Act, if allowed to collect tax on the sale of finished products, then allowing its dealer-customers to claim full input tax credit is not compatible with the waiver scheme borne out of the industrial policy of the State of Tamil Nadu and the above acts would break the VAT chain. The respondents have further submitted that the Empowered Committee of State Finance Ministry has given following guidelines for the continuance of industrial incentives under the VAT legislation. Para 2.15 of the above said guidelines dated 17.01.2005 deals with incentives and it reads as follows: "Under the VAT system, the existing incentive scheme may be continued in the manner deemed appropriate by the states after ensuring that VAT chain is not affected". The Empowered Committee while allowing the states to decide their own policy for treatment of incentives had prescribed certain preconditions: (1) The quantum as well as the time period allowed for availing the incentives should not be increased or extended. (2) VAT chain should not be affected thus at the national level no common policy has been adopted in regard to the treatment of incentives schemes. This was due to the reason that different states have offered various kinds of incentives depending upon their local needs of the State and relevant tax system of the State." 16. The respondents have further submitted that in so far as State of Tamil Nadu is concerned, the Waiver scheme is governed under G.O.Ms.No.500 Industries (MIG II) Department dated 14.05.1990 and the relevant notifications G.O.P.No.396/dated 10.09.1991 is governed under Section 17 (4) of the Tamil Nadu General Sales Tax Act, 1959. As per Rules 48-A of the TNGST Rules, 1995, the dealer availing waiver should not have collected tax and after the introduction of VAT Act, 2006, the dealer should not collect tax under Rule 16(4) of the VAT Rules to avail Wavier scheme. The Hon'ble Taxation Tribunal by order in O.P.No.669/2901, dated 04.01.2002 in the case of V.V.K. Packaging Private Ltd., v,. Assistant Commissioner (CT) Tuticorin has held that the dealer availing the waiver concession should not have collected taxes and it amounted to violation. It is further submitted that only under the deferral scheme, the dealers are permitted to collect taxes, which are to be paid later on to the Government as per schedule of payment. 17. It is further submitted that as per the Tamil Industrial Policy and G.O.Ms.No.500, and Notification GOP.No.396, dated 10.09.1991, published tin the Government Gazette, collection of tax is illegal. The Assistant Commissioner (Commercial Taxes) Vellore, the third respondent is empowered to cancel the waiver agreement. It is further submitted that as per the guidelines of the Empowered Committee, incentives scheme and the modification thereto are left to the discretion of the particular state. As far as the State of Tamil Nadu is concerned, there is no remission model. Other states, have adopted a different procedure of exemption (waiver) and the remission model of the other states are not equivalent to the one followed by the State of Tamil Nadu. The respondent has further submitted that the petitioner, has elected themselves to be under the waiver scheme and collected tax during the above mentioned period and that the same is contrary to the provisions of the TNGST Act, terms of the agreement, eligibility certificate and the provisions of the VAT Act, 2006 and the contentions are summarised as follows: "(a) It is evident that the writ petitioner has addressed letters to the Secretary to Government and Commissioner of Commercial Taxes expressing his intention to continue under waiver scheme under the Act. (b) While so, the petitioner collected tax from his customers-dealers and retained the amount in his hands. The petitioner has no right to adumbrate or accept having made an application to continue under waiver scheme the petitioner should not have collected tax from the customers during the period of waiver. (c ) In nutshell, the dealers-customer of the writ petitioner has availed the full input tax credit and the bills of customer-dealer have to show that the petitioner has not followed the norms relating to the waiver scheme. Since there is no automatic conversion of claim of waiver into deferral in conformity with Section 33(1) of the Act but at the same time the petitioner is expressing his intention to continue under waiver scheme. Therefore, the petitioner is expressing his intention to continue under waiver scheme is nothing but bundle of inconsistencies." For the foregoing reasons, the respondents have submitted the petitioner is not entitled to the reliefs sought in the Writ Petition. 18. The SIPCOT, second respondent in their counter affidavit has submitted that the Government have issued policy and guidelines with respect to the establishment of the industrial unit in the specified area and as such and on the basis of the said policy and guidelines SIPCOT have issued eligibility certificate to the petitioner on 15.05.2006 for a period of 6 years from 01.06.2006 to 31.05.2012. The second respondent has further submitted that they are only a nodal agency in implementing the scheme and the policy of the Government, and they are not competent to take action on the representation of the petitioner unilaterally. 19. Mr.Sathish Parasaran, learned counsel for the petitioner submitted that by the impugned communication, the fourth respondent without giving an opportunity of hearing, has come to an erroneous conclusion that the petitioner has committed a grave offence of keeping the Government money that the said finding is unjust and in violation of the principles of natural justice. He further submitted that the impugned communication, treating the petitioner's request for continuance of waiver, even in the absence of a notification or an order to that effect by the Government, is contrary to the express provisions contained in Section 33 of the TNVAT Act. According to him, such an approach of the fourth respondent militates against the deeming fiction introduced in Section 33 of the Act to the effect, the remission of tax made under the repealed TNGST Act, 1959, shall be deemed to be a deferred payment of tax under Section 33 of the TNVAT Act for the unexpired period for such remission. 20. Learned counsel for the petitioner further submitted that by coercing the petitioner to pay huge amounts, the fourth respondent has abused the statutory powers conferred on it and therefore, the action of the fourth respondent amounts to colorable exercise of the powers. He further submitted that even before coming into the force of the TNVAT Act on 01.01.2007, the petitioner has submitted a letter to the first respondent as early as on 18.12.2006, anticipating possible confusion and lack of clarity as to the treatment of the dealers under the then Waiver scheme. In all the letters, the petitioner has categorically intimated that as an interim arrangement, they have decided to separately show VAT collection in their invoices so as to avoid the VAT chain being snapped and to enable the customers to avail the Input Tax Credits. According to him, if the respondents had issued a clarification as early as in the month of December 2006 or in January 2007, the present situation could have been averted and having put the petitioner in a such predicament, the respondents are not entitled to take advantage of their own default in responding to representations promptly. 21. Placing reliance on the decision in CCT v. Swarn Rekha Cokes and Coals (P) Ltd., reported in 2004(6) SCC 689, learned counsel for the petitioner submitted that Section 33(1) of TNVAT Act creates a legal fiction and while interpreting such a provision, the Court must ascertain the purpose, for which, fiction is created and assume such facts and circumstances, which are incidental or inevitable corollaries to give effect to the legal fiction. He further submitted that the Court must not lose sight of the fact that there may be unforeseen events which may give rise to an unusual circumstances. Applying the said judgment to the facts of this case, he submitted that when the petitioner has submitted their representations dated 29.12.2006 and 08.02.2007, to clarify the procedure to be adopted during transition period of conversion of the scheme, by operation of the deeming provision, the petitioner is entitled to collect tax and the same is not illegal warranting action against the petitioner. Learned counsel for the petitioner inviting the attention of this Court to a decision of the Supreme Court in Gajraj Singh v. State Transport Appellate Tribunal, submitted that the legal fiction created under the deeming provision should be recognised. 22. Mr.Haja Nazurudeen, learned Special Government Pleder for the State submitted that with view to promote industrialization, in certain most backward Taluks, the Government have introduced incentive schemes for industries and interest free sales tax deferral/waiver schemes were formulated. The petitioner by taking advantage of the industrial policy of the State of Tamil nadu to avail sales tax waiver entered into an agreement, dated 12.7.2006 with the Government. He further submitted that an eligibility certificate, dated 15.05.2006 was issued by the SIPCOT, Chennai and one of the conditions for availing the waiver scheme is that the dealer should not collect tax during the period of waiver, i.e., for six years on the sales of the final product, Cement. The non-collection of the tax in the waiver unit is to help the units in order to maintain the competitive advantage and this provision is incorporated in the Rule 48(a) of the TNGST Rules, 1959. 23. Referring to the notification issued under sub-Section 4 of Section 17 of the TNGST Act in G.O.Ms.No.43, dated 13.12.1992, providing sales tax waiver, the eligibility certificate issued by the SIPCOT and Rule