Case: Pepsico India Holdings P.Ltd Vs. State Of Kerala

Appellant is a private limited company. It intended to set up a medium scale industrial unit at Kanjikode, Palakkad in the State of Kerala for manufacturing soft drinks under the brand name `Pepsi. Such a decision was taken purported to be relying on or on the basis of a policy decision taken by the State of Kerala to grant exemption from payment of sales tax with a view to attract more investment in the State. The said policy decision was issued by way of a Notification bearing SRO No.1729/1993 issued under Section 10 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to for the sake of brevity as, "the said Act") providing for exemption to New Industrial Units set up in the State of Kerala, the relevant clauses whereof read asIn the case of new Industrial Units under Medium and Large Scale Industries, there shall be an exemption for a period of seven years from the date of commencement of commercial production-(a) in respect of the tax payable by such units under the Kerala General Sales Tax Act, 1963-(i) On the turnover of sale of goods manufactured and sold by them within the state; and(ii) On the turnover of goods, taxable at the point of last purchase in the State, which are used by such units for manufacturing other goods for sale within the State or inter-state; and(b) in respect of the Surcharge payable under Section 3 of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957) in relation to the goods referred to in sub-clause (a) above.The said notification provided for issuance of eligibility certificate in respect of medium and large scale industries assisted by the Kerala State Industrial Development Corporation ("KSIDC" for short) or the Kerala Financial Corporation inter alia by the Director of Industries and Commerce on application made by such units, and orders of exemption issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram. It is stated that in stead and place of Secretary, Board of Revenue (Taxes), Thiruvananthapuram, the said jurisdiction of the Board was being exercised by Deputy Commissioner (General) Commercial Taxes.4. Appellant is said to have written a letter to the Principal Secretary, Department of Industries, Government of Kerala on or about 11.5.1999 seeking confirmation of the benefits, such as incentive of sales tax exemption on the goods produced etc., available to the proposed new unit,for Investments in Kerala State PepsiCo in India PepsiCo Inc. has set up a fully integrated operation in India - manufacturing, research and development marketing, distribution, exports and franchise - covering fruit/vegetable processing, snack foods and beverages. Presently, our activities provide direct/indirect employment to over 60,000 persons. We are also one of the large exporters in the country.PepsiCo activities in KeralaPepsiCo India Holdings Ltd. revived the closed and sick manufacturing unit of Contract Bottling Company Ltd. at Angamaly, by entering into an arrangement for the manufacture of soft drinks.We now propose to make substantial investments of over Rs.50 crores in the first two phases spread over three years in setting up a new unit in Kerala for the manufacture of soft drinks with the full range of Pepsi brands. We expect the project will generate substantial direct/indirect employment opportunities and also stimulate other related economic activities. The Greenfield unit will either be set up directly or, by assisting a local

Reasoning: Although a contention has been raised before us that despite opportunities granted, the appellant had not adduced the additional evidence to establish compliance of the conditions precedent for grant of eligibility certificate, it has not been denied or disputed that even in the first round of litigation, the requisite documents formed part of the writ petition. The Deputy Commissioner (General) Commercial Taxes, therefore, in our opinion, even it be assumed that he was not totally bound by the observations made therein, should have taken into consideration the interpretation of the notification adverted to by the learned Singlenotification dated 3.11.1993 was issued in terms of an industrial policy; pursuant whereto exemption was to be granted for a period of seven years. Appellant had placed orders for supply of plant and machinery both with advances and without advances.What was necessary was to take effective steps for setting up of new industrial units. A deeming provision existed in terms whereof the effective steps would be considered to have been taken; if it has :(a) obtained provisional registration (applicable only in the case of SSI units);(b) owned or acquired or has been allotted land for establishing the industrial units and applied for financial support from any regular financial institution/ government before 1.1.2000; or(c) in the case of self financed units acquired or placed firm orders for the purchase of the necessary plant and machinery before 1.1.2000.Although clause (a) has no application in the instant case but it becomes relevant for the purpose of construing the notification so as to measure the level of rigours imposed thereby. In case of SSI units, thus, merely a provisional registration would serve the purpose. Even no investment was necessary for obtaining the benefit. So far as clause (b) is concerned, mere application for financial support from any regular financial institution again would entitle the entrepreneur to obtain the benefit of the exemption notification. It is in the aforementioned context, applications for grant of exemption by theunits are required to be taken into consideration. They are either to acquire or place firm orders for the necessary plant and machinery. It is not that order for entire machinery and equipment were required to be placed for before the first day of January, 2000. Even in relation thereto, a legal fiction has been created stating that if such unit had made any advance payments therefore by means of demand draft or cheque, the requirements would stand satisfied.33. The Director of Industries and Commerce, as noticed hereinbefore, opined that apart from a few items, firm orders have been placed in respect of some machineries by means of demand draft or cheques and the same has been credited to the account of the sellor prior to the first day of January, 2000.It is also of some significance to notice that the exemption notification appears to have been drafted having regard to the decision of this Court in State of Rajasthan and Another v. Mahaveer Oil Industries and Others [(1999) 4 SCC 357] .A comparative chart placed before us by Mr. Billimoria may be noticed :Mahaveer OilThisobservationNotification 1092/99 as amendedThe respondent – firm got its provisional registration certificate on 15.2.1990.This is merely a provisional registration issued by the Directorate of IndustriesMere registration would be good enough for SSI units.They applied for allotment of land and land was allotted to them by RICO Limited, by its letter dated 19.2.1990. Possession of the land was handed over on 7.3.1990 and lease agreement was executed in March 1990.For this land, a very small amount was paid.If you bought or were allotted land and had merely applied for a loan from a regular financial institution/ Government, before the relevant date it is good enough.A loan of Rs. 7.5 lakhs was sanctioned by the Rajasthan Financial Corporation in favour of the respondents 17.4.1990.It is not stated how much loan was actually availed of by the respondents on before 7.5.1990.Mere application for loan is good enough for those who acquired or land.Mahaveer Oil claimed that they placed for machinery 18.4.1990.It is, however, not orders stated whether any on amount either as earnest or advance for the purchase of machinery was paid by the respondents to anybody before 7.5.1990.Show payment of any advance towards plant and machinery and it will be deemed that necessary orders have been placedThe aforementioned comparative chart throws a light on the legislative intent and deliberate dilutions of the rigours as to what effective steps would merit consideration of the application for grant of exemption by an entrepreneur.34. It is also of some significance that the said notification was withdrawn by a notification dated 31.12.1999, subject of course to an exception curved out therein, viz., the industries which had been set up on or before 1.1.2000 and which have already commenced commercial production, set up or taken effective steps to establish industrial unit prior to 1.1.2000 were to be allowed the benefit of exemption.That notification stood amended on 31.3.2000 in terms whereof some benefits had been given to an entrepreneur like the appellant, as noticed hereinbefore.35. Appellant need not have questioned the validity thereof as the notification in question was issued by relaxing the conditions imposed in the notification dated 31.12.1999 which was one of withdrawing the grant of earlier benefits. Thus, by reason of the said notification, certain benefits had been confirmed on it.36. There cannot be any doubt whatsoever that the burden of proof was on the appellant. According to the Director of Industries, he had discharged the burden. Only because the procedural sanction of grant of financial exemption was to be received from the Deputy Commissioner (General) Commercial Taxes, the same, in our opinion, would not mean that the conditions had not been satisfied. In any event, the certificate granted by the Director deserved serious consideration.Both the learned Single Judge as also the Division Bench did not consider this aspect of the matter.37. Although payment of advance in respect of some machinery and plant would subserve the requirements for the purpose of obtaining the eligibility certificate, the learned Single Judge read the word `any to be synonymous to the word `all, whereas the Division Bench considered it to beHigh Court although laid emphasis on the word "any" but proceeded on the basis as if, purchase of plant, machinery and equipment prior to 1st January, 2000 in their entirety, was imperative.38. Appellants bonafide is not in dispute. The fact that it had set up an industry and started commercial production nine months prior to thedate, viz., 31.12.2001 is also not disputed.39. Ordinarily, this Court would not have gone into the findings of the fact arrived at by the statutory authorities but was only required to consider the correctness of judgment of the learned Single Judge as also the Division Bench of the High Court. However, even in a case of this nature, the authorities stuck to their own stand which is not expected from a statutory authority. See, however, K.I. Shephard and Others v. Union of India and Others (1987) 4 SCC 431  and Rajesh Kumar and Others v. Dy. CIT and Others (2007) 2 SCC 181 ]40. Mr. Dave has placed strong reliance on a decision of this Court in Tata Iron & Steel Co. Ltd. v. State of Jharkhand and Others [(2005) 4 SCC 272]  wherein it wasEligibility clause, it is well settled, in relation to exemption notification must be given a strict meaning.43. In Collector of Customs v. Maestro Motors Ltd. this Court held: (SCC p. 418, para 9) "It is settled law that to avail the benefit of a notification a party must comply with all the conditions of the notification. Further, a notification has to be interpreted in terms of itsaforementioned observations were made having regard to the nature of exemption claimed by the appellant therein as also having regard to the industrial policy of the State of Jharkhand.41. We may, however, notice that recently in Kusumam Hotels (P) Ltd. v. Kerala State Electricity Board & Ors. [2008 (9) SCALE 448 ], this CourtIt is now a well settled principle of law that the doctrine of promissory estoppel applies to thesaid principle was reiterated in M/s. Badri Kedar Paper Pvt. Ltd. v. U.P. Electricity Regulatory Commn. & Ors. [2009 (1) SCALE 137 ] in the followingis furthermore well known that even a right under a mandatory provision can be waived. [See Babulal Badriprasad Varma v. Surat Municipal Corporation and Ors.] If it had made a representation pursuant whereto or in furtherance whereof a consumer of electrical energy had altered its position, the doctrine of promissory estoppel shall apply. The doctrine of promissory estoppel, it is nowapplies also in the realm of a statute.An exemption notification and a notification withdrawing the benefit granted would, however, stand on different footings. For the said purpose, the industrial policy is required to be kept in mind. It must also be taken into consideration for the purpose of construing the exemption notification.In A.P. SteelMill Ltd. v. State of Kerala and Others [(2007) 2 SCC 725] , this CourtThe general principles with regard to construction of exemption notification are not of much dispute. Generally, an exemption notification is to be construed strictly, but once it is found that the entrepreneur fulfils the conditions laid down therein, liberal construction would be made.34. A question as to whether, in a given situation, an entrepreneur was entitled to the benefit under an exemption notification or not, thus, would depend upon the fact of each case. A bare perusal of the notification datedissued by the first respondent would show that the purport and object thereof was to grant benefit of a concessional power tariff which came into force on and from 1The phraseology used in the said notification postulates that the benefit was to be granted in regard to the "enhanced power tariff". Thus, where the new units had started production between6, such exemption was available to the entrepreneurs. 35. Evidently, except in a situation as might have been existing in Hitech Electrothermics that any application filed by the entrepreneur had not been processed within a reasonable time, in which case benefit might not be denied on equitable ground; in cases where there has been a substantial failure on the part of the industrial unit to obtain such benefit owing to acts of omission and commission on its part, in our opinion, no such benefit can beagain in U.P. Power Corporation Ltd. and Another v. Sant Steels & Alloys (P) Ltd. and Others [(2008) 2 SCC 777] , it wasLearned Senior Counsel invited our attention to a decision of this Court in State of Punjab v. Nestle India Ltd. in which a representation was made by the Government in the manner dehors the rules but a statement was made by the Finance Minister in his Budget speech formaking representation to the effect that the State Government had abolished purchase tax on milk. The manufacturers of milk products, therefore, were not paying the purchase tax on milk for Assessment Yearand mentioned this fact in their returns. The taxing authority entertained such returns. The manufacturers passed on the benefit of exemption to the dairy farmers and milk producers. However, after expiry of the said assessment year, the Government took a decision not to abolish purchase tax on milk and the taxing authority therefore raised a demand for Assessment YearOn these facts, the Court held that in absence of proof of any overriding public interest rendering the enforcement of estoppel against the Government was inequitable, notwithstanding that no exemption notification as required by the statute was issued. It was held that the State Government cannot resile from its decision to exempt milk and raise a demand for the aforesaid assessment year. However, the same principle of estoppel was not invoked after Assessment YearThe Court enforced the principle of estoppel. All the earlier cases on the subject were reviewed by the Court and ultimately it was concluded as follows:(SCC pp.para 47)"47. The appellant has been unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against the State Government. The representation was made by the highest authorities including the Finance Minister in his Budget speech after considering the financial implications of the grant of the exemption to milk. It was found that the overall benefit to the States economy and the public would be greater if the exemption were allowed. The respondents have passed on the benefit of that exemption by providing various facilities and concessions for the upliftment of the milk producers. This has not been denied. It would, in the circumstances, be inequitable to allow the State Government now to resile from its decision to exempt milk and demand the purchase tax with retrospective effect fromso that the respondents cannot in any event readjust the expenditure already made. The High Court was also right when it held that the operation of the estoppel would come to an end with the 1997 decision of the35. In this 21st century, when there is global economy, the question of faith is very important. The Government offers certain benefits to attract the entrepreneurs and the entrepreneurs act on those beneficial offers. Thereafter, the Government withdraws those benefits. This will seriously affect the credibility of the Government and would show theof governance. Therefore, in order to keep the faith of the people, the Government or its instrumentality should abide by their commitments. In this context, the action taken by the appellant Corporation in revoking the benefits given to the entrepreneurs in the hill areas will sadly reflect their credibility and people will not take the word of the Government. That will shake the faith of the people in the governance. Therefore, in order to keep the faith and maintain good governance it is necessary that whatever representation is made by the Government or its instrumentality which induces the other party to act, the Government should not be permitted to withdraw from that. This is a matter ofin this case, the appellant admittedly has even not realized any tax from its purchasers. Keeping in view the facts and circumstances of the case, we are of the opinion, that the respondents must, thus, be held to be bound by the doctrine of promissory estoppel.