Secretary To Government & Ors vs M/S Peekay Re-Rolling Mills (P) Ltd

Facts giving rise to these civil appeals are as follows. Peekay Re-Rolling Mills (P) Ltd., respondent herein, was registered as an industrial unit on 6.9.1991. They claim to have set up an industrial unit in the State on account of tax exemption given to industrial units from payment of sales tax for the fixed period commencing from the date of commercial production. Tax exemption was in fact granted under Section 10 of the Kerala General Sales Tax Act, 1963 ("1963 Act") vide notification dated 4.11.1993. Under that notification, tax exemption was admissible to medium scale units for seven years from the commencement of commercial production. In the present case, the respondent commenced the said production on 31.3.1995. In between, on account of acute power shortage in the State, the Government issued an Order inter alia stating that certain industries included in the negative list would not be eligible for State Investment Subsidy and certain other assistance. One of the items in the negative list, being item no. 7, was "power intensive units", whose total power requirement exceeded 2500 KVA and where the cost of power exceeded 25% of the cost of production. By clauses 2 and 4 of the said G.O., all units in the negative list provisionally registered on or after 31.12.1993 were denied State Investment Subsidy. By clause 3 of the said G.O., expansion/ modernization/ diversification of existing units in the negative list was also disqualified from tax exemption from the Government except in cases where an application was made by the unit on or before 31.12.1993.

Subsequent to the commencement of commercial production on 31.3.1995 and prior to March, 1996, additional investment was made by the respondent for the construction of building, installation of plant and machinery, electrification etc. This expansion was undertaken for the purpose of downline integration to enable the respondent to manufacture steel ingots, an input in the manufacture of iron rods and bars. After starting commercial production, the respondent made an application for tax exemption on 20.6.1997. The Director of Industries issued eligibility certificate and based on the said certificate, the Commissioner of Taxes granted exemption on 19.12.1997 on the initial investment to the respondent to the tune of Rs. 2.66 crores (approx.) for seven years from 31.3.1995 to 30.3.2002. During the pendency of the exemption application before the Director of Industries, additional capital investment of Rs. 5 crores (approx.) was made. This led to the increase in the contract load and, therefore, an application was made on 24.9.1997 by the respondent claiming tax exemption on the basis of additional capital investment. This application dated 24.9.1997 was rejected by the competent authority on the ground that the respondent was a power intensive unit having a load factor of more than 2500 KVA. Reliance was placed on G.O. dated 26/27.11.1993 in that regard. This order led to litigation. Without going into unnecessary details, suffice it so state that both, the Government and the Director of Industries, proceeded to reject the claim for tax exemption by placing reliance on the above G.O. dated 26/27.11.1993. This led to the filing of O.P. Nos. 32947 and 32807 of 2000 by the respondent herein in the High Court. To complete the chronology of events, on 19.4.1994 the Government issued a clarification to the G.O. dated 26/27.11.1993. By the said G.O., it was clarified that tax exemption would continue to be available to all industries which were provisionally registered before 31.12.1993 and only those industries in the negative list which stood registered on or after 31.12.1993 alone would be ineligible for financial assistance/ tax exemption from the Government. Therefore, in the said O.P. Nos. 32947 and 32807 of 2000 one of the grounds taken by the respondent was that the Government as well as the Director of Industries had erred in denying tax exemption to the respondent without considering the clarificatory G.O. dated 19.4.1994. In the said writ petitions, the order passed by the Director of Industries dated 21.10.2000 holding that the respondent was not entitled to tax exemption in respect of the additional capital investments was questioned. This order was passed by the Director of Industries based on an inter departmental letter dated 5.7.2000 addressed by the Principal Secretary to the Director of Industries, which the Department has termed as "clarification". Before the High Court, it was also contended by the respondent that eligibility for tax exemption had to be decided only with reference to statutory notification under Section 10(1) of the said 1963 Act and not with reference to the general executive orders which do not have statutory flavour and that by the said G.O. dated 26/27.11.1993 it was not open to the State Government to withdraw the benefit of tax exemption granted vide notification dated 4.11.1993.

Aggrieved by the said judgment, the respondent herein carried the matter in writ appeals to the Division Bench. By the impugned judgment, it has been held that, G.O. dated 26/27.11.1993 was a general Notification withdrawing grant of subsidy and as against the said G.O., the exemption Notification dated 4.11.1993 was a specific Notification issued under Section 10(1) of the said 1963 Act and, therefore, the specific Notification would override the general G.O./ Notification dated 26/27.11.1993. Accordingly, the writ appeals were allowed, hence, these civil appeals.

Similarly, the Division Bench has failed to consider clause 7 of G.O. dated 26/27.11.1993. We reproduce hereinbelow clause 7:

However, the issues, which we have remitted to the Division Bench in the earlier matters (Civil Appeal Nos. 8031/04 and 8032-8033/04), also arise in the present case.

In the circumstances, we remit this case also to the Division Bench. Accordingly, we request the Division Bench of the High Court to tag W.A. No. 1477 of 2003 with W.A. Nos. 991, 1316 and 1561 of 2003 and decide the appeals accordingly.

Subject to above, the appeal is allowed with no order as to costs.