Mrf Ltd., Kottayam vs Assistant Commissioner ...

FACTS MRF is a company incorporated under the Companies Act, 1956 and its registered office is at 124, Greams Road, Chennai. One of its industrial units is located at Vadavathoor near Kottayam in the State of Kerala. MRF is engaged in the manufacture of automotive tyres, tubes, compound rubber, tread rubber, flaps, pre-cured tread rubber etc. at its industrial unit at Vadavathoor.

The Government of Kerala has from time to time declared and introduced several incentives to promote industrial growth and expansion in the State of Kerala by granting exemptions, concessions or reduction in sales tax, electricity duty and electricity tariff etc. to new industries as well as to existing industrial units undertaking substantial expansion, diversification or modernization. Accordingly, the Government of Kerala has been issuing notifications from time to time to give effect to its declared policy for industrial promotion.

Acting on the incentives, concessions and benefits held out by the Government of Kerala, MRF approached the Government of Kerala with its proposal to make substantial expansion and diversification of its industrial unit at Vadavathoor. A Memorandum of Understanding was entered between MRF and the State of Kerala on 6.10.1993, which provided that the MRF had decided to make substantial investment of Rs.50 crores for expansion/diversification of its existing industrial unit at Kottayam for the manufacture of various products and that the immediate plan of MRF was to expand in the compound rubber manufacture and diversity into new products like tyres, pre-cured tread rubber, flaps etc. The said Memorandum of Understanding expressly provided that MRF shall be entitled to tax exemptions available for existing industries undertaking expansion/diversification.

In accordance with the provisions of SRO No. 1729/93 the eligibility certificate evidencing the MRF's entitlement to the exemption and benefits was to be issued by the Director of Industries and Commerce, Government of Kerala. MRF applied for the said eligibility certificate and the Director of Industries and Commerce, inspected the factory and verified the manufacturing process of goods for which expansion and diversification was undertaken by the MRF. After considering the application and all relevant facts and materials, and, on being satisfied that the MRF was entitled to the exemption, concessions and benefits under SRO No. 1729/93 issued the eligibility certificate on 10.11.1997. Eligibility certificate in Form 4 set out the details of fixed capital investment of MRF of the aggregate amount of Rs. 74,12,77,528.51. MRF commenced its production on 31.12.1996. Director of Industries and Commerce forwarded the eligibility certificate and his report to the Board of Revenue for its consideration for issuance of certificate of exemption. The Board of Revenue vide exemption order No. C 4/40588/97/Tx MRF dated 30.6.1998 having found the MRF eligible for sales tax exemption under SRO No. 1729/93 granted tax exemption of 7 years in the aggregate amount of Rs. 74,12,77,529.00 specifying the period of exemption to be from 30.12.1996 to 29.12.2003.

MRF sent its reply to the above said notice on 14.2.2000 pointing out that MRF has already completed expansion/diversification and had commenced commercial production on 30.12.1996 and was thereafter entitled to tax exemption for the full period of 7 years with effect from 31.12.1996 to 29.12.2003. The proceedings initiated by the Assistant Commissioner were dropped by Assistant Commissioner's letter/order stating that:-

MRF thereafter filed Writ Petition No. 3343 of 2000 in the High Court of Kerala challenging the aforesaid notices issued as being contrary to the eligibility certificate and exemption order. It was prayed in the writ petition that a writ of mandamus be issued to the respondents, restraining them from taking any proceedings against MRF contrary to the eligibility certificate dated 10.11.1997 issued by the Director of Industries and Commerce and exemption order issued by the Secretary, Board of Revenue dated 30.6.1998. The Single Judge before whom the writ petition came up for hearing dismissed the same and remanded the matter back to the Sales Tax Authorities. Being aggrieved, the MRF filed the writ appeal which has been dismissed by the order impugned in this appeal.

The finding recorded by the High Court that "there is no factual foundation" for the plea of promissory estoppel are contrary to the averments made in the writ petition filed in the High Court. The averments made in the writ petition clearly show that the promissory estoppel and legitimate expectation have been specifically pleaded. Paras 3, 4, 6 and grounds (D) and (F) of the writ petition clearly demonstrate that the appellant had taken the plea of promissory estoppel against the State as well as legitimate expectation in its favour. In para 3 of the writ petition it was pleaded that the appellant acting on the promises, assurances and undertaking made by the State of Kerala had invested more than Rs. 90 crores and carried out substantial expansion of its existing industrial unit. In Ground (F) of the writ petition the appellant has clearly stated that "the respondents are barred by the rule and principle of promissory estoppel to deprive or deny exemption to the petitioner from tax on the purchase turnover or rubber used in the manufacture of compound rubber in any manner." Further, in the same paragraph it was pleaded by the appellant that "respondents are barred and precluded from taking any such proceedings by virtue of the principle of promissory estoppel as well as legitimate expectation." The finding recorded by the High Court that the appellant had not taken the plea of promissory estoppel being contrary to the facts of the case is set aside.

On a co-joint reading of SRO 1729/93, SRO 38/98 and SRO 1092/99 the intention of the Government does not seem to take away the benefits of exemption in respect of manufactured products including compound rubber after 15.1.1998 (the date on which SRO 38/98 was issued) where commercial production had commenced prior to that date. By virtue of the certificate of eligibility and by virtue of the exemption order granted pursuant to SRO 1729/93 dated 3.11.1993, MRF Ltd. had acquired the right to avail of tax exemption for a fixed period of 7 years from 30.12.1996 to 29.12.2003, in respect of products manufactured from raw rubber, including compound rubber. In the eligibility certificate and in the exemption order the date of commencement of commercial production of all manufactured products, including compound rubber is stated to be 30.12.1996. The Government had itself recognized that the benefit of tax exemption for the fixed period of 7 years would remain available to the units which have fulfilled the prescribed conditions, and have obtained the eligibility certificate etc. and have commenced commercial production before the date of any amendment to SRO 1729/93. This had been stated by the State of Kerala in its counter affidavit before the High Court. The relevant portion of which reads:

(d). The eligibility certificate referred to in Sub- Clause (b) above shall contain the date of commencement of commercial production and the monetary limit of exemption the unit is eligible for. The eligibility certificate issued in respect of existing medium and large scale industrial units which undertake expansion, modernization or diversification shall also contain the date of commencement as well as the date of completion of such expansion, modernization or diversification.

For the reasons stated above, the appeal is accepted, order of the High Court is set aside. Writ of mandamus is issued restraining the respondents from taking any proceedings against MRF Ltd. contrary to or inconsistent with the eligibility certificate dated 10.1.1997 and the exemption order dated 10.6.1998. Parties shall bear their own costs.