SCA/15730/2007 1/37 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 15730 of 2007 With SPECIAL CIVIL APPLICATION No. 19369 of 2006 For Approval and Signature: HONOURABLE THE CHIEF JUSTICE Y.R.MEENA HONOURABLE MR.JUSTICE J.C.UPADHYAYA ====================================== 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 ? ====================================== BHARAT FOODS CO-OPERATIVE LTD. & 1 - Petitioner(s) Versus STATE OF GUJARAT & 3 - Respondent(s) ====================================== Appearance : MR KS NANAVATI for NANAVATI ASSOCIATES for Petitioner(s) : 1 - 2. MR KAMAL TRIVEDI, ADVOCATE GENERAL with MS SNAGEETA VISHEN, AGP for Respondent(s) : 1, NOTICE SERVED for Respondent(s) : 1 - 4. ====================================== CORAM : HONOURABLE THE CHIEF JUSTICE Y.R.MEENA and HONOURABLE MR.JUSTICE J.C.UPADHYAYA Date : 27/06/2008 SCA/15730/2007 2/37 JUDGMENT CAV COMMON JUDGMENT (Per : HONOURABLE MR.JUSTICE J.C.UPADHYAYA) Rule. Service of rule is waived by Ms. Sangeeta Vishen, Ld. AGP for the respondents. Learned counsels for the parties requested to hear and decide both the matters by way of common judgment as the facts and issues involved in the petitions are identical and common. Hence both the petitions are being decided and disposed by this CAV Common Judgment. The petitioners filed present petition – Special Civil Application No. 15730 of 2007 under Article 226 of the Constitution of India to seek the following reliefs against the respondents :- “(A) Your Lordships may be pleased to issue a writ of mandamus or writ in the nature of mandamus or direction or order quashing and setting aside the decision taken by the State Level Committee, respondent no. 3, in its meeting dated 5.6.2007 [Annexure-Y] and conveyed to the society by the Additional Industries Commissioner, vide its letter dated 5.6.2007 [Annexure-A] and be further pleased to direct the respondents to grant Sales Tax exemption to the petitioners for the amount of Eligible Capital Investment made by the petitioners. (A1) Your Lordships may be pleased to quash and set aside the resolution dated 9.11.2005 [Annexure-M1] or in the alternative be pleased to hold and declare that the said resolution is not applicable to the case of the present petitioners. SCA/15730/2007 3/37 JUDGMENT (B) Pending admission and final disposal of this petition, Your Lordships may be pleased to restrain the respondent No. 4 from levying and collecting or recovering sales tax from the petitioners;” 1.1. The petitioner no. 1 is Bharat Foods Cooperative Ltd., and petitioner no. 2 Mr. S K Handa, is Member and Managing Director of the petitioner no. 1 – Cooperative Ltd. 2. The facts leading to the petition, in nut-shell, are as under :- 2.1. The petitioner no. 1 is a Cooperative Society registered and incorporated under the Multi State Cooperative Societies Act, 2002 [for short 'the Act']. On 26.01.2001 there was a devastating earthquake which hit District Kutch of the State of Gujarat. Because of the said natural calamity, the economic activities in Kutch District came to a standstill. With a view to create new employment opportunity and for attracting industries in Kutch District, the respondent no. 1 – State of Gujarat and its Department of Industries and Mines, by way of resolution No. INC-10200-903-1 dated 9.11.2001 announced a scheme of sales tax incentive titled as “Incentive Scheme 2001 for the Economic Development of Kutch District” and by way of the said scheme, any existing industrial undertaking or a new industry setting up a unit in Kutch District was eligible for the benefit of sales tax exemption or sales tax deferment on eligible fixed capital investment. As per the scheme, a cooperative society setting up a unit for refining of edible oil/hydrogenation of edible oil is eligible for sales tax incentive. SCA/15730/2007 4/37 JUDGMENT Initially the scheme was operative till 31.12.2004. However, by subsequent resolution, it was extended till 31.12.2005. 2.2. The Government of Gujarat issued notification under section 49 of the Gujarat Sales Tax Act [for short 'GST Act'] on 31.12.2001 whereby exemption from sales tax was granted to eligible unit as defined in the scheme. The petitioner no. 1 society was registered and incorporated on 11.09.2003 under the Act. The area of operation of the society extended upto the States of Gujarat, Maharashtra and Madhya Pradesh. On 10.11.2003 the petitioner society applied to the State Government for obtaining certain clarifications regarding the scheme before constructing a plant for refining of edible oil/hydrogenation of edible oil in Kutch District. Pursuant to the application of the petitioner, vide order dated 10.11.2003 passed in exercise of powers under section 62 of the GST Act, the Deputy Commissioner of Sales Tax [Legal] held that the petitioner was eligible for availing the sales tax incentives under the scheme. Thereupon, on 16.09.2004 the petitioner society applied for registration under the scheme. Since no prompt action was taken by the State, the petitioner society sent reminders for registration on 1.11.2004, 2.11.2004, 28.1.2005, 9.2.2005, 16.2.2005, 7.3.2005, 29.4.2005, 2.5.2005, 13.6.2005, etc. Yet the respondents did not grant registration to the petitioner society to avail the benefits of the scheme. However, in the month of December 2004, the plant of the petitioner society was ready to start commercial production. The plant was set up by investing more that Rs.32 crore. The State Level Committee [for short 'SLC'] in its meeting held on 5.5.2005 held that Industries Commissioner SCA/15730/2007 5/37 JUDGMENT would send a proposal to the State Government to amend the scheme so as to restrict the benefits only to the cooperative societies of edible seed growers. Accordingly, Industries Commissioner had sent a proposal to the State Government, but no such amendment was made by the State Government in its original scheme. As no decision was taken by the respondent – State on application for registration made by the petitioners, the petitioners were constrained to prefer Special Civil Application No. 13040 of 2005. In the said petition, on 21.07.2005 a statement was made by the Ld. AGP who was representing the respondents, upon instructions from the Joint Industries Commissioner that the Government will take decision in the matter as early as possible and preferably by 31.08.2005. Thereafter, vide different letters, respondents sought for certain information from the petitioner society regarding the members of the society, their vocation, source of earnings of the society, etc. The said details were immediately supplied to the respondents. Despite this, no decision was taken till 30.09.2005. In the result, the petitioners preferred Civil Application No. 9355 of 2005 in Special Civil Application No. 13040 of 2005. In the said Civil Application, this Court directed that the petitioners would be entitled to enter into commercial production without payment of any sales tax till final disposal of the main petition. Pursuant to the said order passed by this Court, the petitioner society commissioned the plant and vide letter dated 21.10.2005 applied for eligibility certificate for eligible capital investment of Rs.30,93,76,043/-. However, on 21.10.2005 the respondent no. 2 – Joint Industries Commissioner informed the petitioners that their application for registration under the scheme was rejected by the respondent no. 3 SCA/15730/2007 6/37 JUDGMENT – SLC on the ground that under section 29 of the Act, a person whose business is in conflict or competitive with business of society is not eligible to be a member of the society. However, in the pending petition, the aforesaid decision of the respondent no. 3 - SLC was withdrawn by the respondents by way of a statement made before this Court on 28.10.2005 and this Court disposed of Special Civil Application No. 13040 of 2005 on 28.10.2005 with a direction that the Industries Commissioner shall issue eligibility certificate to the petitioner latest by 11.11.2005 and thereafter, the parties would be entitled to proceed in accordance with law. 2.3. On 29.10.2005 the registration was granted to the petitioner society as contemplated under the scheme and on 11.11.2005 eligibility certificate was issued in favour of the petitioner. Eligible investment was considered to the tune of Rs.27,76,06,000/-. However, in para. 4 of the eligibility certificate it was mentioned that the certificate was issued provisionally at the rate of 25% of the tentative eligibility as detailed verification of assets was to be carried out. On 30.11.2005 exemption certificate under section 49(2) of the GST Act was issued by the Sales Tax Commissioner in favour of the petitioners. Thereafter, a team comprising of Additional Industries Commissioner, Joint Industries Commissioner, etc., visited the plant of the petitioner at Kutch and its registered office situated at Mumbai and administrative office situated at Indore for inspection. They also visited and met the members of the petitioners, the financial institution that had granted loans, dealers, etc., and recorded their statements. On the basis of the said inquiry, report was submitted by the team to SLC SCA/15730/2007 7/37 JUDGMENT on 27.09.2006. From the report, it was evident that an extensive and detailed inquiry was conducted by the respondents to find out whether the society was genuine or was promoted by any company as a firm to obtain tax exemption benefits. At the end of such inquiry, the committee concluded that it has not found that the society was not genuine or it has been set up by any company or group. Despite the fact that the petitioner society was found to be genuine, the SLC in its meeting dated 30.03.2007 decided that prima-facie the petitioner society was not entitled to the benefits under the scheme, there was only one farmer member in the society and the purpose of the scheme was to give benefit to the society formed by farmers. Despite the fact that the SLC took the said decision on 30.03.2007, the Industries Commissioner did not convey the same nor called the petitioner no. 2 for hearing. Thereafter, on 16.5.2007 the Industries Commissioner informed the petitioners that the SLC was of the prima-facie opinion that the petitioner society was not eligible for the benefit under the scheme as it had no farmer member. Meanwhile, the petitioners were constrained to file Special Civil Application No. 12776 of 2007 and in said petition, on behalf of respondents, statement was made before this Court that the petitioners shall be heard on 31.5.2007 by the Industries Commissioner and till then, the respondents will not make any coercive recovery. This Court in its order observed that it was accepted that the order passed by the SLC would be communicated to the petitioners and before initiating coercive recovery, the petitioners would be granted reasonable time for challenging order of the committee in case the same was adverse to the petitioners. The petitioners appeared before the Industries SCA/15730/2007 8/37 JUDGMENT Commissioner and submitted its reply/representation. On 8.7.2007 the petitioner society received a letter from the Additional Industries Commissioner stating that the representation of the petitioners was considered by the SLC on 5.6.2007 and the SLC was of the opinion that the benefit under the scheme was available only to such cooperative society of farmer members and as there was no agriculturist member in the petitioner society, the petitioner society was not eligible under the scheme and, therefore, the application of the petitioner under the scheme was rejected. Hence, the present petition is filed. 3. Learned senior counsel Mr. KS Nanavati for the petitioners submitted that the impugned decision of the SLC taken in its meeting held on 5.6.2007 holding that the petitioners are not eligible for the incentives under the scheme is not only contrary to the scheme itself but the same is illegal, void and violative of Article 14 of the Constitution of India. That by impugned decision, the SLC tried to interpret the scheme in the manner not provided in the scheme itself, but contrary to the objectives of the scheme. That the main ground on which the petitioners are denied the benefits under the scheme is that none of the members of the petitioner society are farmers. That as a matter of fact, considering the scheme, copy of which is produced at Annexure-C in this petition, in the definition of “industrial enterprises”, 'registered cooperative society' is also included. Annexure-C attached to the scheme contains list of banned industries. As per entry no. 3 – solvent extraction of oil from edible seed/edible oil cake processing and/or SCA/15730/2007 9/37 JUDGMENT hydrogenation of edible oil falls within the purview of 'banned industries'. But the exception is , 'a cooperative sector'. Therefore, if the unit is a cooperative sector, dealing with the item referred in item no. 3 in the schedule, such cooperative society is eligible for the benefit of the scheme. That neither in the scheme itself nor in any of the schedules attached to the scheme, it is referred that the cooperative society having farmers as its members can only avail benefits of the scheme. Considering the objects behind introducing the scheme, it is clearly set forth in the scheme itself that because of the devastating earthquake occurred on 26.1.2001 in the State of Gujarat, the adversely affected area was district of Kutch. That in the area of Kutch new employment opportunities could be created if new investment takes place. That the Government was committed to attract the industries in Kutch district to make industrial and economic environment live. That even Government of India has announced excise duty exemption for new industries to promote large-scale investment in the district. That, therefore, State Government has also decided to announce the scheme of sales tax incentives. It is further stated in the scheme that since the scheme is aimed at making economic environment of Kutch district live, it has been decided to confine the same only to Kutch district. That, therefore, the object behind the scheme was not to promote agricultural activities in the district or to render benefits only to farmers adversely affected by earthquake in the district. The main object was to create new employment opportunities and to make the industrial and economic environment live in the district. That therefore, to deny the benefits of the scheme solely on the ground that none of the members of the petitioner society is farmer can be SCA/15730/2007 10/37 JUDGMENT said to be an illegal and arbitrary exercise of powers by the State contrary to the scheme promulgated by the State itself. That if at all the object behind floating of the incentive scheme was to give benefits to such cooperative society having farmer members, then there was no reason whatsoever by subsequent amendment in the scheme dated 9.11.2005 to delete cooperative sector mentioned at item no. 3 in Annexure-C attached to the scheme. If at all the intention of the State was to benefit the farmers, instead of deleting the cooperative sector as a whole dealing in oil seeds unit, the State could have further qualified the word “cooperative sector” by stating that such cooperative sector having farmers as its members dealing in oil seeds unit, are only entitled to the benefits of the scheme. That instead of this, by subsequent amendment in item no. 3 of list of banned industries Annexure-C attached to the scheme, the entire cooperative sector itself is deleted. 3.1. Mr. Nanavati further submitted that before erecting a plant in Kutch district the petitioner society sought for further clarification from the State Government and as a matter of fact, the Deputy Commissioner of Sales Tax in an order dated 10.11.2003 passed under section 62 of the GST Act, has determined that the benefit of the scheme was available to the petitioner cooperative society. The petitioner society has complied with all the conditions incorporated in the scheme. That, therefore, the respondents cannot deny the benefits of the scheme. Even the respondent – State is estopped from denying the benefits to the petitioner society. That even doubt was raised by the respondents regarding the genuineness of the formation of the petitioner cooperative society, but upon inquiry it was revealed that the petitioner society was SCA/15730/2007 11/37 JUDGMENT genuinely formed cooperative society and was not backed by any company. Mr. Nanavati further submitted that the impugned order dated 6-8.6.2007 is also illegal in view of the fact that the same was passed contrary to the statement made by the Industries Commissioner before this Court on 28.10.2005. The Special Civil Application No. 13040 of 2005 was pending. While disposing of said petition by order dated 28.10.2005 Mr. Agarval, Industries Commissioner and Mr. Mehta, Joint Commissioner – Industries, submit that the eligibility certificate shall be issued in favour of the petitioners latest by 11.11.2005. It was further stated before this Court that earlier order passed by the SLC may be ignored and the authorities be allowed to proceed in the matter as suggested by them. That surprisingly thereafter, by the impugned order the benefit was denied to the petitioner by the State authorities. That relying upon the scheme as well as the clear opinion expressed in writing by the responsible officer of the Sales Tax Department of the State, the petitioner invested more than Rs.32 crore in erecting the plant. The plant was ready for production by December 2004. Subsequently, despite the fact that clear directions were issued by this Court in earlier writ petition and unconditional statements made by responsible officers of the State Government before this Court, by virtue of the impugned decision, the State denied the benefits of the scheme to the petitioner. That the authorities of the State acted upon the order passed by this Court on 28.10.2005 in earlier writ petition and eligibility certificate was issued, said order was not challenged by the State before the Hon'ble Apex Court, therefore, said order has become final. Yet surprisingly the request of the petitioner to accord sales tax benefits to the petitioner society SCA/15730/2007 12/37 JUDGMENT in accordance with the scheme was denied solely on the flimsy ground that its members are not farmers. That thus, a very discriminatory treatment is given to the petitioners by the State. Therefore, it is submitted that the petition be allowed as prayed for. 4. Learned Advocate General Mr. Kamal Trivedi vehemently opposing the petitions, submitted that the petitioners are not at all entitled to obtain the relief as prayed for by them in the petition. In this petition, this Court is concerned with the scheme dated 9.11.2001. The very object behind the scheme was to motivate the cooperative societies, which are formed by the farmers connected with/engaged in the activities of agricultural production of oil seeds in Kutch district. In para. 9 of the scheme, it is clearly provided that the resolution with regard to any interpretation, dispute or argument of the scheme shall be made by the SLC. That therefore, any interpretation of the scheme made by any officer of the Sales Tax Department of the State cannot be looked into. The only power was that of the SLC to interpret any of the provisions of the scheme and its decision can be said to be final. In the instant case, denying the benefits of the scheme to the petitioner society, SLC in its meeting dated 5.6.2007 clearly opined that none of the members of the petitioner society is connected with or engaged in the agricultural production of oil seeds and, therefore, even though the petitioner society is a cooperative society having solvent extraction plant, it is not entitled to the incentive benefits. That this interpretation is final and given by the authority empowered to interpret in the scheme itself. That while exercising judicial review under Article 226 of the Constitution, this Court cannot substitute SCA/15730/2007 13/37 JUDGMENT its own interpretation that the provision of the scheme should have been interpreted in the manner requested by the petitioners. That subsequently, the cooperative sector was removed as a whole from the purview of the scheme by amendment dated 9.11.2005. That the interpretation of the scheme made by the SLC in its 3rd meeting held on 5.5.2005 was immediately conveyed to the petitioner society. That thus, the petitioner society was conveyed right from the inception that it would not be entitled to the said incentive benefits. That therefore, in the instant case there is no question of any promissory estoppel to be applied against the respondents. 4.1. Mr. Trivedi further submitted that the scheme promulgated by the Government Resolution dated 9.11.2001 is not a notification issued under any statutory provisions and that therefore, the same cannot by any stretch of imagination be considered to be a statutory instruction granting exemption. That while interpreting any non-statutory instruction like the present Government Resolution, the understanding of the authority issuing such an instruction or the authority responsible for executing the policy, propounded by such instruction, should always be relied upon, as per the well established rule of “contemporanea expositio”. It is submitted that even otherwise public interest requires that a cooperative society like the petitioner society should not be allowed to earn the incentive benefits of sales tax exemption since the same is not meant for such a cooperative society. That the doctrine of promissory estoppel shall not apply in the present case, but assuming without admitting that doctrine of promissory estoppel is applicable, then in that case also, such a direction would not be enforceable against the State Government when it comes in the way SCA/15730/2007 14/37 JUDGMENT of public interest, since public interest has to prevail over the private interest. That in a judicial review, this Court cannot sit in appeal over the decision of the SLC regarding the interpretation of the scheme. This Court cannot examine whether particular policy is desirable or not. 4.2. Mr. Trivedi further submitted that admittedly the figures given in the ad-hoc eligibility certificate in respect of capital investment made by the petitioner society in its solvent extraction plant are figures supplied by the petitioner society itself and no inquiry as regards its correctness or otherwise has so far been made and, therefore, such figures should not be presumed to be correct figures unless inquired into and certified to that effect by the State authorities, which may have to be done only in the event of the petitioner finally succeeding in this petition. While concluding the arguments, Mr. Trivedi submitted that none of the actions on the part of the State Government and its authorities is violative of Article 14 of the Constitution and, therefore, the petition does not survive. It would be in the public interest to reject the petition since other cooperative societies which have also applied during the pendency of the scheme for the incentive benefits of sales tax exemption are waiting for the outcome of the proceedings and that, therefore, grant of any relief in favour of the petitioners would open up the flood gate and also would invite huge burden on the State exchequer. Therefore, it is submitted that the petition be rejected. 5. Considering the petition as well as reply affidavit filed by Mr. G.C. Bhavsar, Under Secretary to the Government of Gujarat, Industries and Mines Department and the scheme dated SCA/15730/2007 15/37 JUDGMENT 9.11.2001, the admitted fact is that in the scheme it is nowhere expressly provided that so far as the cooperative sector is concerned, only such cooperative sector having farmers as its members can only avail of the benefits of the scheme. Considering para. 3 of the scheme, definitions are given and while defining 'industrial enterprises', 'a legally registered cooperative society' is also included in the definition of 'industrial enterprises'. There is also no dispute that the petitioner no. 1 society is a registered society, registered and incorporated under the Act. The petitioner no. 1 society was registered as such on 11.9.2003 under the Act. Annexure-C attached to the scheme contains list of banned industries. Item no. 3 reads as under :- “1. xxx xxx xxx xxx 2. xxx xxx xxx xxx 3. Solvent extraction of oil from edible