AUGUSTAN TEXTILE COLOURS LIMITED (NOW AUGUSTAN TEXTILE COLOURS PVT LIMITED) versus DIRECTOR OF INDUSTRIES & ANR
[2022] 15 S.C.R. 104, Supreme Court of India, 2022
Outcome: Dismissed (Dismissed)
Segment: Ratio
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AUGUSTAN TEXTILE COLOURS LIMITED (NOW AUGUSTAN
TEXTILE COLOURS PVT LIMITED)
v.
DIRECTOR OF INDUSTRIES & ANR.
(Civil Appeal No. 2830 of 2022)
APRIL 08, 2022
[K. M. JOSEPH AND HRISHIKESH ROY, JJ.]
Kerala General Sales Tax Act,1963 – s.10 – Sick Industrial
Companies (Special Provisions) Act, 1985 – ss.17,18, 19 and 20 –
Tax exemption – The case involves the withdrawal of tax exemption
benefits granted to the appellant, who had revived a sick industrial
unit under the Sick Industrial Companies Act – Government by
exercising its power under Section 10(3) of the KGST Act, 1963 by
an order of 2006 withdrew the exemption granted earlier – This
prompted the appellant to file a petition in the High Court
challenging the 2006 order – The High Court doubted whether the
exemption could have been extended to the appellant alone instead
of a class of industries and upheld the order of Government – The
appellant approached the Supreme Court – Held: (Per Hrishikesh
Roy, J.) : The power to grant exemption u/s 10(1) is in respect of a
class of persons and was never intended for an individual industrial
unit like appellant – When this aberration was noticed and it was
seen that amongst similarly engaged units in the same business, the
appellant was the only one enjoying the benefit of exemption, the
2006 government order was issued withdrawing the exemption
granted – Even though appellant was granted benefit of tax
exemptions, it cannot
be continued for further assessment years, as
that would amount to perpetuating and condoning a wrong, which
is opposed to public policy – Benefit of equitable doctrine of
estoppel cannot be extended to the appellant as in that case the
State Authority would be obligated to act in a manner which is
contrary to legislative mandate – Judgment of High Court was upheld
– (Per K.M Joseph, J.) (concurring): Appellant cannot pitch its case
higher than at the limit under Order dated 25.11.1994 – Exemption
of sales tax is contemplated for a period of two years – Maximum
period in any case is 5 years – In the case of the appellant, the
appellant enjoyed the benefit of the exemption till it was withdrawn
   [2022] 15 S.C.R. 104
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on 21.11 2006 – Appellant enjoyed the benefit of exemption for
nearly 4 years – Appellant is a company which is making profits –
Appeal must fail.
Dismissing the appeal, the Court
HELD:
Per Hrishikesh Roy, J.:
1.The gap between the 2004 Government Order and the
Government Order dated 21.11.2006 shows that the appellant
was enjoying the benefit for a fair duration. Significantly, the power
to grant such tax benefit is not seen in any other State Legislation
but only in Section 10(1) of the Kerala General Sales Tax Act,
1963. The power to grant exemption under Section 10(1) is
however in respect of a class of persons and was never intended
for an individual industrial unit like the appellant. When this
aberration was noticed and it was seen that amongst similarly
engaged units in the same business, the appellant was the only
one enjoying the benefit of exemption, the 2006 government
order was issued withdrawing the exemption granted on
20.3.2004. [Para 20][115-G-H; 116-A-B]
2. Undoubtedly, the government was empowered under
Section 10(3) to withdraw the exemption at any time and therefore,
it cannot be said that the principle of promissory estoppel by
itself, will facilitate the appellant to challenge the 2006
Government Order. It must be pointed out that a number of
concessions were offered to the appellant under the 2004
Government order and it is discernible that payments under
several heads were not set apart for the appellant, notwithstanding
their
role in revival of the sick unit. [Para 21][116-B-C]
3. The present dispute pertinently is only with regard to
the exemption relatable to sales tax/works contract tax and it is
nobody’s case that past arrears of sales tax/works contract tax
payable by the sick units, were completely waived. Factoring this,
the writ court as well as the Division Bench opined that sub-
clause (1)(b) of 2004 Government Order relating to waiver of tax
in the State is of such wide amplitude that the same must be seen
as uncertain and vague. Also importantly, such exemption cannot
continue indefinitely and particularly not beyond the point at which
the revival of the sick unit is seen. [Para 22][116-D-E]
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4. Section 10(1)(ii) of the KGST Act enables the State to
grant exemption from sales tax only with respect to “any specific
class of persons in regard to the whole or any part of their turnover”
and since the 2004 Government Order benefitted only a single
unit i.e. the appellant, it is difficult to accept that the solitary
industrial unit which was being revived under the BIFR Scheme,
would form a class by itself. Therefore, contention to the contrary
by the appellant is considered and rejected with the reasoning
that the exemption by 2004 Government Order was not made
applicable to all sick industrial units of the state, engaged in the
like activities of bleaching, dyeing etc. [Para 23][116-E-G]
5. On the argument of the appellant based on the principles
of promissory estoppel, as earlier noted, the tax exemption in
the present matter was not given to a class of persons and the
appellant is made the sole beneficiary. This is contrary to Section
10 of the KGST Act. The 21.11.2006 withdrawal order was
therefore issued, when it was discovered that this was a case of
exemption to an individual unit and that is impermissible under
Section 10 of the KGST Act. Such being the position, the benefit
of the equitable doctrine of estoppel cannot be extended for the
appellant as in that case the State authority would be obliged to
act in a manner which is contrary to the legislative mandate. [Para
27][117-E-G]
6. The equitable
principle of promissory estoppel cannot
be invoked for enforcing promises in the teeth of the provisions
of law. Having concluded that the Government Order
(20.03.2004), granting Sales Tax/ Works Contract Tax exemption
was ultra vires the Section 10(1) of the KGST Act, the promise,
in furtherance of Government Order, in the form of BIFR Scheme
dated 17.01.2005 being unlawful, cannot in our view, be enforced
on equitable consideration. [Para 31][118-F-G]
7. Even though the appellant was granted benefit of tax
exemptions under the 2004 government order, this was ultra vires
the Section 10 KGST Act. Such exemption cannot be continued
for further assessment years, as that would amounts to
perpetuating and condoning a wrong, which is opposed to public
policy. [Para 33][119-B-C]
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8. The Division Bench concluded that the appellant does
not form a separate class of its own. Hence, the 2004 government
order was held to be ultra vires the Section 10(1) of the KGST
Act. The appellant has failed to bring to our attention, any
intelligible differentia, based on which it can be said that they
constitute a unique, separate class of its own. In absence of such
differentiating factor, the benefit of tax exemptions being granted
to the appellant, to the exclusion of all other sick industries
involved in similar activities, do not appear to be reasonable and
should be seen as arbitrary. The 2004 government order was not
only ultra vires Section 10(1) of KGST Act, but also falls short by
principle of reasonableness, fairness, and non arbitrariness. The
2006 government order withdrawing the tax exemption was in
fact issued to remedy this very mischief. Hence, the appellant
cannot invoke the principle of legitimate expectation against the
2006 government order. [Para 41][122-B-D]
State of Gujarat vs. Arcelor Mittal Nippon Steel India
Ltd. (2022) SCC OnLine SC 76 (14); Pournami Oil
Mills and Others vs. State of Kerala and Anr. 1986
(Supp) SCC 728 : [1987] 1 SCR 654 (18); M/s. Motilal
20 Padampat Sugar Mills vs. State of Uttar Pradesh &
Ors. (1979) 2 SCC 409 : [1979] 2 SCR 641 (28); Amrit
Banaspati Co. Ltd. vs. State of Punjab & Anr. (1992) 2
SCC 411 : [1992] 2 SCR 13 (29); Bangalore
Development Authority vs. R. Hanumaiah (2005) 12
SCC 508 : [2005]
3 Suppl. SCR 901 (30); Voltas Ltd.
vs. State of A.P. (2004) 11 SCC 569 : (34); Monnet
Ispat & Energy Ltd. vs. Union of India (2012) 11 SCC
1 : [2012] 7 SCR 644 (36); Pawan Alloys & Casting
Pvt. Ltd., Meerut vs. U.P. State Electricity Board and
Others (1997) 7 SCC 251 : [1997] 3 Suppl. SCR 266
(42) – referred to.
MRF Ltd., Kottayam vs. Asst. Commissioner (Assessment)
Sales Tax & Ors. (2006) 8 SCC 702 : [2006] 6 Suppl.
SCR 417 (38) – distinguished.
Case Law Reference
(2022) SCC OnLine SC 76
referred to
Para 14
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[1987] 1 SCR 654 
referred to
Para 18
[1979] 2 SCR 641
referred to
Para 28
[1992] 2 SCR 13 
referred to
Para 29
[2005] 3 Suppl. SCR 901 
referred to
Para 30
(2004) 11 SCC 569
referred to
Para 34
[2012] 7 SCR 644
referred to
Para 36
[2006] 6 Suppl. SCR 417 
distinguished
Para 38
[1997] 3 Suppl. SCR 266 
referred to
Para 42
Per K.M Joseph, J. (Concurring):
1. There is merit in the contention of the appellant that the
exemption granted initially, dated 20.03.2004, was not one which
is premised under Section 10 of the Act. The exemption was
granted in terms of the scheme under Section 19 of the Act. This
is an exemption which was given under statutory provisions. In
other words, consent being forthcoming from the state, a scheme
being sanctioned under section 19 providing for financial
assistance in the form of tax exemption, inter alia, the
Government became obliged to honour its consent and the dictate
of the statute. [Para 11][133-F-G]
2. It will be inequitable to the company and against public
interest also, as it frustrates the object of law to allow a scheme
to be sanctioned inducing all parties to proceed on the basis that
a company would be redeemed from its financial dire-straits and
the crucial financial assistance indispensable to the said process
is not forthcoming from the State. The aforesaid interpretation
placed hereinbefore would harmonise the Central and the State
Act. It will also give life to the Sick
Companies Act as it would
clearly further the object of the law. Therefore, the exemption
granted can be understood as springing from the provisions of
Section 19(3) read with 19(1) in this regard. Thus, the exemption
is not to be treated as falling under Section 10 of the State Act. In
other words, Section 10 cannot be treated as the sole repository
of power to grant exemption. [Para 12][133-G-H; 134-A-B]
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3. It is quite clear that the appellant cannot pitch its case
higher than at the limit under Order dated 25.11.1994. Therefore,
exemption of sales tax is contemplated for a period of two years.
However, it further provides that it cannot be for more than five
years or beyond the date the net worth of the company becomes
positive whichever is earlier. Therefore, the maximum period in
any case is 5 years. In the case of the appellant, the appellant
enjoyed the benefit of the exemption till it was withdrawn on 21.11
2006. The said order in turn was withdrawn on 01.10.2007. It is
no doubt true that on 29.02.2008, the order dated 01.10.2007
came to be withdrawn. The writ petition was filed by the appellant.
It would appear that for a period of nearly 4 years, the appellant
enjoyed the benefit of exemption in all. No doubt, the appellant
did point out that there is no exercise carried out to find out as to
when the net worth has turned positive. [Para 19][135-H; 136-A-
C]
Mahindra and Mahindra Limited and Ors. vs. State of
Andhra Pradesh and Ors. 1986 (63) STC 274 (16) –
referred to.
Case Law Reference
1986 (63) STC 274
 referred to
Para 16
CIVIL APPELLATE JURISDICTION : Civil Appeal No.2830
of 2022.
From the Judgment and Order dated 28.09.2017 of the High Court
of Kerala at Ernakulam in Writ Appeal No.2021 of 2012.
Ritin Rai, Sr. Adv., Siddhartha Jha, Parth Maniktala, Advs. for the
Appellant.
C. K. Sasi, Abdulla Naseeh V. T., Ms. Meena K. P., Advs. for the
Respondents.
The Judgments of the Court were delivered by
HRISHIKESH ROY, J.
Leave granted.
1. Heard Mr. Ritin Rai, the learned Senior Counsel representing
the appellant. Also heard Mr. C.K. Sasi, the learned counsel representing
the respondents.
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2. The issue to be considered here is whether the benefit of tax
exemption in respect of works contract granted in the process of revival
of the industry, under the relevant provisions of the Sick Industrial
Companies Act, 1985 (for short “the SICA”) based on the Kerala
Government communication dated 20.3.2004 (Ext. P-2) can be
withdrawn, by the subsequent government order dated 21.11.2006 (Ext.
P-3).
3. It was the appellant’s say that they had taken over a sick
industrial unit by the name of M/s Teak Tex Processing Complex Ltd.,
which was engaged in dyeing of clothes. The Kerala based unit was not
operational for a considerable period when attempt was made, for revival
of the unit under SICA. In the proceedings that were pending before the
Board for Industrial and Financial Reconstruction (for short “BIFR”),
the authorities were assessing the possibility of revival of the unit. At
that stage, the appellant offered to make investment for revival of the
company following which, discussions were held amongst the
stakeholders and various concessions were offered to the appellant.
4.1 In tune with the recommendation of the Empowered
Committee constituted for the purpose, the Government Order was issued
on 20.3.2004 whereby the recommendations of the Committee were
accepted. The relevant clause incorporating the measures relating to
Sales Tax/Works Contract Tax, are as under:-
“Sales Tax/Works Contract Tax
(a)
The past
arrears of Sales Tax/Works contract tax will be
completely waived.
(b)
Works contract Tax on processing of Fabrics like bleaching
and dyeing etc. will be exempted in the State”
4.2 In furtherance of the 2004 Government Order, the revival
proposal envisaged the taking over by the appellant entire assets of the
sick unit for a sum of Rs.10 crores and the BIFR Sanctioned Scheme
dated 17.01.2005 mentioned the relief measures under clause 7.2.1
pertaining to sales tax/works contract tax. They read as follows:-
“7.2.1 Sales Tax/Works Contract Tax
(a)
To waive past arrears of Sale Tax Works Contract Tax
completely
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(b)
To exempt works contract tax on processing of fabrics like
bleaching and dyeing etc. in future.”
5. The appellant availed the waiver benefit of past tax arrears of
the sick unit on the basis of the BIFR Sanctioned Scheme dated 17.01.2005
(Ext. P-1) which assured waiver of Works Contract Tax on processing
of fabrics like bleaching and dyeing etc. After about 30 months of such
arrangement, the Government issued another Order on 21.11.2006
exercising the power under Section 10(3) of the Kerala General Sales
Tax Act, 1963 (for short “the KGST Act”) where it was said that the
benefit of exemption can only be granted to a specified class of goods or
a particular class of persons, and the appellant who is one amongst several
industrial units doing similar nature of work within the State of Kerala,
cannot be allowed the benefits of exemption of Works Contract Tax.
After issuance of G.O. order dated 21.11.2006, withdrawing the
concession in question, on 1.10.2007, the Government has withdrawn
G.O.No.110/06/1D dated 21.11.2006, as the concession was one already
allowed in the rehabilitation scheme of the BIFR of the company.
However, on 29.02.2008 again, the Government in the Tax Department
requested to cancel the GO dated 01.10.2007 as it did not have any
legally binding effect and thereupon GO dated 01.10.2007 in turn was
cancelled with immediate effect. Accordingly, it was decided to withdraw
the tax waiver/exemption granted to the appellant which prompted
them
to file the W.P.(C) No. 5677 of 2007 before the High Court of Kerala.
6. It was contended by the appellant that they attempted to revive
and nurse back a sick company under BIFR and with due deliberations
and the recommendations of the Empowered Committee, the incentive
measures to be offered to the appellant, have been worked out and
finalized as per the scheme. The appellant is actively working in the
process of revival of the sick unit and at that stage, it was not open to the
State of Kerala to resile from their promise by issuing the Government
Order dated 21.11.2006. According to the appellant, the exemption granted
vide the 2004 Government Order was issued as a “package deal” in
course of revival of the sick unit in conformity with the relevant provisions
of the SICA and once consent was given and proceedings were finalized
in terms of Section 19(1) or 19(2), the same would be binding upon all
the stakeholders as is provided under Section 19(3) of SICA. It was
therefore argued that the benefit of tax exemption granted by the State
under the Scheme, is binding on the State under the provisions of Section
AUGUSTAN TEXTILE COLOURS LTD. (NOW AUGUSTAN TEXTILE
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19(3) of SICA and the State must be held accountable to their promise.
It was the say of the appellant that the incentives were not granted
under Section 10(1) of the KGST Act, and therefore the tax exemption
could not have been withdrawn by invoking the powers under Section
10(3) of the same Act. The appellant unequivocally rejected a suggestion
by this Court that the appellant might not constitute a unique class of
one, in whose favour a tax exemption under Section 10(1) KGST Act
can be granted legally. The appellant however failed to point out any
other provision in any statute, which empowered the State Government
to grant such tax exemptions. While reviving the sick unit, the appellant
earned profit in 2015, but incurred loss in subsequent three years. The
recent years i.e., 2019 and 2020 are however profitable years for the
appellant.
7. The respondents, on the other hand, contend that the 20.03.2004
Government Order confers various benefits, and the exemption from
sales tax/works contract tax is only one of those benefits offered for
revival of the sick unit. According to the learned Government Counsel,
the source of power to grant tax exemption is traceable only to Section
10(1) of the KGST Act and merely because the 20.03.2004 Government
Order does not specifically refer to the source of power, the same cannot
aid the appellant, as specific reference is made to Section 10(3) of the
KGST Act, while
withdrawing the exemption. The learned government
advocate further argues that when exemption is given, it is always open
for the government to cancel, vary or modify the same, bearing the
public interest in mind, and since no time limit was specified on the liability
in respect of sales tax/works contract tax, the withdrawal of benefit by
the Government Order dated 21.11.2006, is well within the power and
competence of the government.
8. The records available would show that the following benefits/
concessions were extended to the appellant for revival of the sick unit:
“1) Sales Tax/Works Contract Tax
2) Electricity Dues
3) Water Charges
4) Pollution Control Water Cess
5) Panchayat Taxes and Levies
6) The ownership of land”
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9. It is further seen that the benefits offered, inter alia, were
waiver of past arrears particularly under the Sales Tax/Works Contract
Tax. For other charges like electricity dues, water charges, Pollution
Control Water Cess, the principal amount in the arrears were to be paid
without the obligation to bear the interest or penalty burden, from the
date of commencement of the commercial production. Specifically for
the Sales Tax/Works Contract Tax, under clause 1(b), it is not very clear
as to whether the benefit intended for process of fabrics like bleaching,
dyeing etc. will be available individually to the appellant or was intended
to be availed by this class of industries, many of which are operating in
the State of Kerala. It further raises questions in regard to the scope and
extent of exemption that could be provided under Section 10 of the KGST
Act.
10. Adverting to the mandate of Section 10 of the KGST Act, the
learned Single Judge of the High Court doubted whether the exemption
could have been extended to the appellant alone as opposed to a class of
industries and the court commented that “such a course of exemption
throughout the State was not brought about”. The learned Judge
observed that the 2004 Government Order was based on the
recommendation of the Empowered Committee with due discussion
amongst the stakeholders, and those were with specific reference to the
concessions to be extended to new promoters for revival of sick units, in
light
of the government order dated 25.11.1994.
11. It was noted by the learned Single Judge upon perusal of the
1994 Government Order that there are two separate channels of benefits/
reliefs i.e. (a) non-fiscal; and (b) fiscal, and under item no. 2, the
exemption was granted for works contract tax on processing of fabrics
like bleaching, dyeing etc.
12. The above would show that the fiscal measures refer to
exemption/deferment of sales tax, purchase tax, electricity dues for two
years, but not exceeding five years or till the date, the net worth of the
company became positive, whichever is earlier. Thus, the outer cap of
five years was specified in the 1994 Government order and the benefits
could not have been intended to continue without limit.
13. Even though the 2004 Government Order, and the BIFR
Sanctioned Scheme of 2005 were enacted in furtherance of 1994
Government Order, both these documents do not specify the time line
for tax exemptions prescribed in the 1994 government order.
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14. Recently this Court in the case of State of Gujarat Vs. Arcelor
Mittal Nippon Steel India Ltd.1 has held that exemption provisions and
notifications are to be strictly interpreted in accordance with legislative
intent without any addition or subtraction. A Division Bench of this Court
speaking through Justice M. R. Shah held that:
“14.2 It is settled law that the notification has to be
read as a whole. If any of the conditions laid down in the
notification is not fulfilled, the party is not entitled to the
benefit of that notification. An exception and/or an exempting
provision in a taxing statute should be construed strictly and
it is not open to the court to ignore the conditions prescribed
in industrial policy and the exemption notifications.
14.3 The exemption notification should be strictly
construed and given meaning according to legislative
intendment. The Statutory provisions providing for exemption
have to be interpreted in the light of the words employed in
them and there cannot be any addition or subtraction from
the statutory provisions.
14.4 As per the law laid down by this Court in catena
of decisions, in the taxing statute, it is the plain language of
the provision that has to be preferred, where language is plain
and is capable of determining defined meaning. Strict
interpretation to the provision is to be accorded to each case
on hand. Purposive interpretation can be given only when
there is an
ambiguity in the statutory provision or it alleges to
absurd results, which is so not found in the present case.”
15. Accordingly, in the present matter, the 2004 government order
granting tax exemptions should be read as a whole and in absence of
any time line being prescribed, such a time line in our opinion, cannot be
imported from the 1994 government order.
16. Furthermore, Sales tax in the State of Kerala is chargeable
under Section 5 of the KGST Act which makes it obligatory upon the
State to realize the tax in respect of sales transaction. Section 10 deals
with the power of exemption and sub-Section (3) thereof confers the
power to have the order of exemption “varied or modified”, in the
manner specified.
1 (2022) SCC OnLine SC 76.
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17. The benefit of exemption to tax must therefore be traceable
to powers conferred under the KGST Act and such benefits could not
have been granted in terms of the BIFR Scheme dated 17.01.2005 giving
effect to the Government Order issued on 20.3.2004. In the 2006
Government Order withdrawing the benefits, the government has
specifically adverted to Section 10 of KGST Act and as such the non-
mentioning of the provisions of Section 10(1) of the KGST Act in the
2004 Government Order, would not assist the appellant in any significant
measure.
18. In Pournami Oil Mills and Others vs. State of Kerala and
Anr.2, Justice Ranganath Misra, as he was then, opined as follows:-
“6……It is a well settled principle of law that where the
authority making an order has power conferred upon it by
statute to make an order made by it and an order is made
without indicating the provision under which it is made, the
order would be deemed to have been made under the provision
enabling the making of it….”
The present understanding finds support from the above proposition
of law laid down by this Court in Pournami Oil Mills (supra).
19. Insofar as the benefits of tax exemption from the works contract
on processing of fabrics, being in conformity with the stipulations under
paragraph 7.2.1 of the BIFR Scheme dated 17.01.2005, it must be noticed
that Sub-clause (b) of paragraph 7.2.1 is not exactly the same as
paragraph 1(b) of the 2004 Government Order, as in the latter case, it
is
with reference to proposed plan of action, to provide exemption to similar
units within the state of Kerala.
20. What is of significance is that similarly situated fabric
processing units in the state are obliged to meet their tax obligation for
the Works Contract Tax and that is why in the 2006 Government Order,
it was specifically stated that exemption for such taxable events, cannot
be confined to the appellant alone. The gap between the 2004 Government
Order and the Government Order dated 21.11.2006 shows that the
appellant was enjoying the benefit for a fair duration. Significantly, the
power to grant such tax benefit is not seen in any other State Legislation
but only in Section 10(1) of the KGST Act. The power to grant exemption
under Section 10(1) is however in respect of a class of persons and was
2 1986 (Supp) SCC 728
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never intended for an individual industrial unit like the appellant. When
this aberration was noticed and it was seen that amongst similarly engaged
units in the same business, the appellant was the only one enjoying the
benefit of exemption, the 2006 government order was issued withdrawing
the exemption granted on 20.3.2004.
21. Undoubtedly, the government was empowered under Section
10(3) to withdraw the exemption at any time and therefore, it cannot be
said that the principle of promissory estoppel by itself, will facilitate the
appellant to challenge the 2006 Government Order. It must be pointed
out that a number of concessions were offered to the appellant under
the 2004 Government Order and it is discernible that payments under
several heads were not set apart for the appellant, notwithstanding their
role in revival of the sick unit.
22. The present dispute pertinently is only with regard to the
exemption relatable to sales tax/works contract tax and it is nobody’s
case that past arrears of sales tax/works contract tax payable by the
sick units, were completely waived. Factoring this, the writ court as well
as the Division Bench opined that sub-clause (1)(b) of 2004 Government
Order relating to waiver of tax in the Stateis of such wide amplitude that
the same must be seen as uncertain and vague. Also importantly, such
exemption cannot continue indefinitely and particularly not beyond the
point at which the
revival of the sick unit is seen.
23. As earlier discussed, Section 10(1)(ii) of the KGST Act enables
the State to grant exemption from sales tax only with respect to “any
specific class of persons in regard to the whole or any part of their
turnover” and since the 2004 Government Order benefitted only a single
unit i.e. the appellant, it is difficult to accept that the solitary industrial
unit which was being revived under the BIFR Scheme, would form a
class by itself. Therefore, contention to the contrary by the appellant is
considered and rejected with the reasoning that the exemption by 2004
Government Order was not made applicable to all sick industrial units of
the state, engaged in the like activities of bleaching, dyeing etc.
24. It is also relevant to point out that the government order dated
25.11.1994 clearly reflected the government’s intention to consider each
sick industrial unit on a case to case basis.
25. Next, the Court must examine whether the appellant can raise
contention on the validity of 2006 Government Order in the context of
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the sanctioned scheme of restriction approved by the BIFR and the
binding nature of the scheme under Section 19(3) of SICA. This question
arises since the contentions in this regard were earlier argued and rejected
by the learned Single Judge, and the judgment, dated 13.3.2012 in Writ
Petition No.5677 of 2007 has worked itself out with the representations
submitted by the appellant pursuant to the Writ Court’s judgment and the
speaking order passed thereafter by the government on 5.10.2012 rejecting
the appellant’s representation. Significantly, the speaking order was not
challenged. Instead, the appellant filed the Writ Appeal against the learned
Single Judge’s order, granting limited relief of enabling them to file a
representation and directing the State to pass a speaking order after
affording hearing to the appellant. As the appellant had presented their
representation on the strength of the order of the Writ Court and thereby
have accepted the judgment, the appellant cannot thereafter in our view,
challenge the said judgment through a Writ Appeal when an adverse
order is passed against them, by the government.
26. One is certain that it would be legally impermissible to grant
tax exemption, contrary to the provisions of the KGST Act. The special
exemption is provided to a single unit under the BIFR proceeding and
the State cannot in our opinion be compelled to act contrary to the
provisions of the KGST Act, on the strength of binding nature of the
scheme under Section 19(3) of SICA.
27. On the argument of the appellant based on the principles of
promissory estoppel, as earlier noted, the tax exemption in the present
matter was not given to a class of persons and the appellant is made the
sole beneficiary. This is contrary to Section 10 of the KGST Act. The
21.11.2006 withdrawal order was therefore issued, when it was
discovered that this was a case of exemption to an individual unit and
that is impermissible under Section 10 of the KGST Act. Such being the
position, the benefit of the equitable doctrine of estoppel cannot be
extended for the appellant as in that case the State authority would be
obliged to act in a manner which is contrary to the legislative mandate.
28. The equitable principle of promissory estoppel was propounded
by this Court in the case of M/s. Motilal Padampat Sugar Mills Vs.
State of Uttar Pradesh & Ors.3 In the same very case, it was however
observed that the legal principle cannot be invoked to compel anyone to
3 (1979) 2 SCC 409.
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do anything, contrary to law. Justice P. N. Bhagawati for the Division
Bench wrote the following:-
“28…It may also be noted that promissory estoppel cannot
be invoked to compel the Government or even a private party
to do an act prohibited by law…”
29. The above judgment in Motilal Padampat(Supra) was
followed in the case of Amrit Banaspati Co. Ltd. Vs. State of Punjab
& Anr.4wherein, this Court carved out unlawful/illegal promise as an
exception to the principle of promissory estoppel. But, the observation in
this case in reference to an unlawful promise was not laid down as a
ratio, but at best an Obiter dicta.
30. In the later case of Bangalore Development Authority Vs.
R. Hanumaiah5, it was however specifically declared that the equitable
principle of promissory estoppel cannot be invoked for condoning or
enforcing a promise, expressly prohibited by a statute. This Court speaking
through Justice Ashok Bhan pronounced as under:
“34. …In absence of any provision in the Act or the Rules
framed thereunder authorizing BDA to reconvey the land,
direction cannot be issued to BDA to reconvey a part of the
land on the ground that it had promised to do so. The rule of
promissory estoppel cannot be availed to permit or condone
a breach of law. It cannot be invoked to compel the
Government to do an act prohibited by law. It would be going
against the statute. The principle of promissory estoppel would
under the circumstances
be not applicable to the case in hand.”
31. From the above reading of the relevant judgments, it is
abundantly clear that the equitable principle of promissory estoppel cannot
be invoked for enforcing promises in the teeth of the provisions of law.
Having concluded that the Government Order (20.03.2004), granting
Sales Tax/ Works Contract Tax exemption was ultra vires theSection
10(1) of the KGST Act, the promise, in furtherance of Government Order,
in the form of BIFR Scheme dated 17.01.2005 being unlawful, cannot in
our view, be enforced on equitable consideration.
32. Further, in Arcelor Mittal Nippon Steel (Supra) this Court
has held that:
4 (1992) 2 SCC 411.
5 (2005) 12 SCC 508.
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“22….The principle of promissory estoppel shall not be
applicable contrary to the Statute. Merely because
erroneously and/or on misinterpretation, some benefits in the
earlier assessment years were wrongly given, cannot be a
ground to continue the wrong and to grant the benefit of
exemption though not eligible under the exemption
notification.”
33. In the case at hand, even though the appellant was granted
benefit of tax exemptions under the 2004 government order, this was
ultra vires the Section 10 KGST Act. Such exemption cannot be
continued for further assessment years, as that would amounts to
perpetuating and condoning a wrong, which is opposed to public policy.
34. It would be apposite now to advert to Voltas Ltd. Vs. State of
A.P.,6 where a BIFR proceeding was being considered and the ratio
therein will shed some light on the present matter. In that case, the Voltas
Ltd. agreed to take over the refrigeration unit of ‘Hyderabad Allwyn
Ltd.’ (A Sick Company) vide a Memorandum of Understanding with the
state government, subject to BIFR approval. The state government, for
incentivizing the appellant, issued government order dated 20.01.1994
granting sales tax deferral for a period of 7 years. The said deferral was
reflected in the BIFR Sanctioned Scheme dated 04.04.1994. Later, the
state government issued another order on 18.08.1995, whereby 18%
interest was levied on the sales tax component so deferred. The interest
sum was payable after 7 years in
lump sum. Dealing with the challenge
to the government decision, this Court by a short order upheld the
Government Order dated 18.08.1995 with the observation that the interest
was imposed under relevant provisions of AP General Sales Tax Act,
1957 (APGST Act). Further, even though the payment of sales tax was
deferred for 7 years vide Government Order dated 20.01.1994 and the
BIFR sanctioned scheme dated 04.04.1994, both pertinently were silent
on the interest aspect. Hence, this Court held that as there was no express
waiver of interest, the provisions of APGST Act would prevail over the
BIFR scheme.
35. In the case at hand, the government order dated 20.03.2004,
as well as the BIFR sanctioned scheme, are silent on the duration of tax
exemption for the works contract. In any case the tax exemptions cannot
continue indefinitely. Hence, the ratio in Voltas Ltd. (Supra) involving a
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BIFR scheme and a government decision which diminishes the incentives
for the company, do lend support for the impugned decisions of the High
Court. In other words, the Kerala government, notwithstanding the BIFR
scheme for the sick company was entitled to withdraw the tax
exemptions, by issuing the government order dated 21.11.2006 under
Section 10(3) of the KGST Act.
36. Justice H. L. Gokhale, in his concurring judgment in the case
of Monnet Ispat & Energy Ltd. Vs. Union of India,7 highlighted the
difference between the doctrine of promissory estoppel and the doctrine
of legitimate expectation:
“289.As we have seen earlier, for invoking the principle of
promissory estoppel there has to be a promise, and on that
basis the party concerned must have acted to its prejudice…
290….Alternatively, the appellants are trying to make a case
under the doctrine of legitimate expectations. The basis of
this doctrine is in reasonableness and fairness. However, it
can also not be invoked where the decision of the public
authority is founded in a provision of law, and is in consonance
with public interest…”
37. While the equitable principle of promissory estoppel requires
a valid promise, based on which the promisee has changed its position, it
is necessary to observe that the principle of legitimate expectation does
not take into account such considerations. Instead, it is rooted in
fundamental ideas like reasonableness, fairness
and non-arbitrariness.
38. In the case of MRF Ltd., Kottayam Vs. Asst. Commissioner
(Assessment) Sales Tax & Ors.8 the Kerala government in order to
incentivize investment and industrial growth, entered into a Memorandum
of Understanding on 06.10.1993, under which tax incentives were offered
to the company if they invested above Rs. 50 crores for expanding the
existing industrial unit in the State. In the government order dated
03.11.1993 issued under Section 10 of KGST Act, exemptions were
provided for 7 years for all expanding industrial units. An addendum to
the Memorandum of Understanding was executed on 10.04.1996,
explicitly stating that the industry was eligible for tax exemptions under
government Order dated 03.11.1993. Pursuant to such encouragement,
7 (2012) 11 SCC 1.
8 (2006) 8 SCC 702.
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MRF Ltd. invested Rs. 80 Crores for expansion, and then commenced
operations on 31.12.1996. They were also issued the eligibility certificate
on 10.11.1997, granting tax exemption from 31.12.1996 to 29.12.2003,
by the Kerala government. Subsequently the government order was issued
on 15.01.1998, amending its 1993 Order adding sub-clause (h) to the
negative list. This excluded MRF’s activities from the definition of
‘manufacture’. The same in effect extinguished the tax exemptions
granted vide the 1993 government order. By another Notification dated
31.12.1999, the Kerala government notified that the exemptions
sanctioned before 01st January, 2000 in furtherance of 1993 government
order would continue for full period of 7 years. In this background, the
authorities issued a demand notice, seeking to levy purchase tax from
15.01.1998, relying on the 15.1.1998 government order. When this was
challenged and the matter eventually came to this Court, the Division
Bench speaking through Justice Ashok Bhan, held that the state
authority’s demand for purchase tax under KGST Act from 15.01.1998,
is barred by principle of promissory estoppel since the state cannot
renegade its earlier promise of tax exemption for 7 years until 29.12.2003.
This Court held that the state’s action of retrospectively amending its
1993 government order, by subsequent order dated 15.01.1998 was
arbitrary and unreasonable. The 1998 government order was found to
be discriminatory and hit by
the principles of Article 14 of the Constitution.
Thus, holding the state bound to its promise, MRF was found to be entitled
for tax exemptions for the 7 year period, in terms of government order
dated 03.11.1993.
39. But, the above judgment of this Court in the case of MRF
Ltd., Kottayam(Supra) is distinguishable from the facts in the present
case. In the above case, the government order granting tax exemptions,
clearly mentioned a period of 7 years, before which the tax exemptions
could not have been revoked. But, in this case, no such time period was
explicitly prescribed. Neither did the state seek to revoke the exemption
retrospectively. The appellant here, enjoyed the benefit of exemptions
for a considerable period and is now in profit. Hence, it is not open for
the appellant to claim legal entitlement to tax exemption for the period of
5 years.
40. The learned Division Bench of the Kerala High Court has
given categorical findings in reference to the 20.03.2004 government
order i.e. a) the said government order is issued only in the appellant’s
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favor; b) It was not contended that similar concessions were accorded
to any other sick industry engaged in activities of bleaching, dyeing, etc.;
c) Vide the 1994 government order, the state has simply promised to
consider other sick industries for similar exemptions.
41. Based on the above findings, the learned Division Bench
concluded that the appellant does not form a separate class of its own.
Hence, the 2004 government order was held to be ultra vires the Section
10(1) of the KGST Act. The appellant has failed to bring to our attention,
any intelligible differentia, based on which it can be said that they constitute
a unique, separate class of its own. In absence of such differentiating
factor, the benefit of tax exemptions being granted to the appellant, to
the exclusion of all other sick industries involved in similar activities, do
not appear to be reasonable and should be seen as arbitrary. The 2004
government order was not only ultra vires Section 10(1) of KGST Act,
but also falls short by principle of reasonableness, fairness, and non-
arbitrariness. The 2006 government order withdrawing the tax exemption
was in fact issued to remedy this very mischief. Hence, the appellant
cannot invoke the principle of legitimate expectation against the 2006
government order.
42. Reverting now to another appropriate aspect as presented in
Pawan Alloys & Casting Pvt. Ltd., Meerut Vs. U.P. State Electricity
Board and
Others9 where it was propounded that if the state, in exercise
of its sovereign powers, grants any tax exemptions for a specified period,
the principle of promissory estoppel does not bar the grantor from
prematurely withdrawing such exemptions, if such measure is necessitated
for protecting public interest. In other words, public interest would
outweigh the interest of the individual grantee.
43. While reflecting upon the element of public interest as
enunciated in Pawan Alloys (supra),in granting or refusing relief on the
principle of promissory estoppel, the last public address of the lawyer
statesman Abraham Lincoln who served as the 16th President of USA,
intrudes into our thought process. Taking a strong stand in support of
Black suffrage, Abraham Lincoln, soon after winning the Civil War,
refused to give in to his earlier promise of re-construction to the state of
Louisiana, with the following resounding words:-
“But, as bad promises are better broken than kept, I shall
treat this as a bad promise, and break it, whenever I shall be
9 (1997) 7 SCC 251
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convinced that keeping it is adverse to the public interest.
But I have not yet been so convinced.”
Taking a cue from above, and bearing in mind that the appellant
here has already availed the exemption benefits for a substantial period
and was the only one of its category which enjoyed such advantage in
the State of Kerala and also regard being had for the fact that now the
appellant is out of the red and more importantly in a situation where
enforcing the promise against the State is likely to affect public interest,
we find supplementary support for our present conclusion, in the above
quoted insightful words of Abraham Lincoln.
44. In view of the foregoing discussion, this Court, with the
additional reasoning in the preceding paragraphs, is persuaded to uphold
the impugned judgment of the High Court. Accordingly, the appeal stands
dismissed without any order on cost.
K. M. JOSEPH, J.
1. While I am in agreement with the final conclusion reached by
my esteemed and learned brother that the appeal must be dismissed, in
the nature of the questions which arise and the reasoning which appeals
to me, I am inclined to author a separate though concurring judgment.
2. The facts have been set out by my learned brother. The principal
contention of the appellant is that Section 10 of the Kerala General Sales
Tax Act, 1963 (hereinafter referred to as ‘the State Act’) does not exhaust
the power to grant exemption inter alia. Section 10 of the State Act
reads as
follows:
“10. Power of Government to grant exemption and reduction in
rate of tax:-
(1) The Government may, if they consider it necessary in the
public interest, by notification in the Gazette, make an exemption
or reduction in rate, either prospectively or retrospectively in
respect of any tax payable under this Act,
(i) on the sale or purchase of any specified goods or class of
goods, at all points or at a specified point or points in the series
of sales or purchases by successive dealers, or
(ii) by any specified class of persons in regard to the whole or
any part of their turnover
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(2) Any exemption from tax, or reduction in the rate of tax, notified
under sub-section (1) -
(a) may extend to the whole State or to any specified area or
areas therein,
(b) may be subject to such restrictions and conditions as may
be specified in the notification
(3) The Government may by notification in the Gazette, cancel or
vary any notification issued under sub-section(1).
3. In order to appreciate whether the exemption in favour of the
appellant would be ultra vires Section 10 of the State Tax Law and
whether there is merit in the case of the appellant that actually the
exemption was not given under Section 10, I may briefly evaluate the
Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter
referred to as ‘the Act’. The Act defined ‘Sick Industrial Company’
w.e.f. 01.02.1994 as follows:
“3(o) sick industrial company means an industrial company (being
a company registered for not less than five years) which has at
the end of any financial year accumulated losses equal to or
exceeding its entire net worth.
Explanation: For the removal of doubts, it is hereby declared that
an industrial company existing immediately before the
commencement of the Sick Industrial Companies (Special
Provisions) Amendment Act, 1993, registered for not less than
five years and having at the end of any financial year accumulated
losses equal to or exceeding its entire net worth, shall be deemed
to be a sick industrial
company;”
4. The Act envisaged a Board and also an appellate authority.
Section 15 contemplated a reference by the Board of Directors of Sick
Companies. The Board under the Act was to conduct an inquiry as to
whether any industrial unit had become a sick industrial company. Section
17 contemplated, inter alia, suitable orders being passed on completion
of inquiry. Section 17 reads as follows: -
“17. Powers of Board to make suitable order on the completion
of inquiry. — (1) If after making an inquiry under section 16, the
Board is satisfied that a company has become a sick industrial
company, the Board shall, after considering all the relevant facts
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and circumstances of the case, decide, as soon as may be by
order in writing, whether it is practicable for the company to [make
its net worth exceed the accumulated losses] within a reasonable
time.
(2) If the Board decides under sub-section (1) that it is practicable
for a sick industrial company to make its net worth positive within
a reasonable time, the Board, shall, by order in writing and subject
to such restrictions or conditions as may be specified in the order,
give such time to the company as it may deem fit to [make its net
worth exceed the accumulated losses].
Sub-Section (3) of Section 17 dealt with a different class of sick
company:
(3) If the Board decides under sub-section (1) that it is not
practicable for a sick industrial company to [make its net worth
exceed the accumulated losses] within a reasonable time and that
it is necessary or expedient in the public interest to adopt all or
any of the measures specified in section 18 in relation to the said
company it may, as soon as may be, by order in writing, direct any
operating agency specified in the order to prepare, having regard
to such guidelines as may be specified in the order, a scheme
providing for such measures in relation to such company.
Section 17 further provided:
(4) The Board may, —
(a) if any of the restrictions or conditions specified in an order
made under sub-section (2) are not complied with by the company
concerned, 1 [or if the company fails to revive in pursuance
of the
said order,] review such order on a reference in that behalf from
any agency referred to in sub-section (2) of section 15 or on its
own motion and pass a fresh order in respect of such company
under
sub-section (3);
(b) if the operating agency specified in an order made under sub-
section (3) makes a submission in that behalf, review such order
and modify the order in such manner as it may deem appropriate.”
5. It is clear that under Section 17(3) if the Board decided that it
is not practicable within a reasonable time to make the company’s net
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worth exceed the accumulated losses, a scheme may be provided as
provided under Section 18. Section 18, therefore, dealt with the
circumstances obtaining under Section 17(3) to prepare and sanction
the scheme. Section 18 provided in detail as to what could be provided
for in the scheme. It reads as follows: -
“18. Preparation and sanction of schemes. — (1) Where an order
is made under sub-section (3) of section 17 in relation to any sick
industrial company, the operating agency specified in the order
shall prepare, as expeditiously as possible and ordinarily within a
period of ninety days from the date of such order, a scheme with
respect to such company providing for any one or more of the
following measures, namely:—
(a)
the financial reconstruction of the sick industrial company;
(b)
the proper management of the sick industrial company by
change in, or take over of, management of the sick industrial
company;
(c)
the amalgamation of—
(i) the sick industrial company with any other company, or
(ii) any other company with the sick industrial company;
(hereafter in this section, in the case of sub-clause (i), the other
company, and in the case of sub-clause (ii), the sick industrial
company, referred to as “transferee company”;
(c)
the sale or lease of a part or whole of any industrial
undertaking of the sick industrial company;
(da)the rationalisation of managerial personnel, supervisory staff
and workmen in
accordance
with law;
(d) such other preventive, ameliorative and remedial measures as
may be appropriate;
(f) such incidental, consequential or supplemental measures as
may be necessary or expedient in connection with or for the
purposes of the measures specified in clauses (a) to (e).
(2) The scheme referred to in sub-section (1) may provide for
any one or more of the following, namely: —
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(a) the constitution, name and registered office, the capital, assets,
powers, rights, interests, authorities and privileges, duties and
obligations of the sick industrial company or, as the case may be,
of the [transferee company];
(b) the transfer to the transferee company of the business,
properties, assets and liabilities of the sick industrial company on
such terms and conditions as may be specified in the scheme;
(c) any change in the Board of Directors, or the appointment of a
new Board of Directors, of the sick industrial company and the
authority by whom, the manner in which and the other terms and
conditions on which, such change or appointment shall be made
and in the case of appointment of a new Board of Directors or of
any director, the period for which such appointment shall be made;
(d) the alteration of the memorandum or articles of association of
the sick industrial company or, as the case may be, of the transferee
company for the purpose of altering the capital structure thereof
or for such other purposes as may be necessary to give effect to
the reconstruction or amalgamation;
(e) the continuation by, or against, the sick industrial company or,
as the case may be, the transferee company of any action or
other legal proceeding pending against the sick industrial company
immediately before the date of the order made under sub-section
(3) of section 17;
(f) the reduction of the interest or rights which the shareholders
have in the sick
industrial company to such extent as the Board
considers necessary in the interests of the reconstruction, revival
or rehabilitation of the sick industrial company or for the
maintenance of the business of the sick industrial company;
(g) the allotment to the shareholders of the sick industrial company
of shares in the sick industrial company or, as the case may be, in
the [transferee company] and where any shareholder claims
payment in cash and not allotment of shares, or where it is not
possible to allot shares to any shareholder the payment of cash to
those shareholders in full satisfaction of their claims—
(i) in respect of their interest in shares in the sick industrial
company before its reconstruction or amalgamation; or
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(ii) where such interest has been reduced under clause (f) in
respect of their interest in shares as so reduced;
(h) any other terms and conditions for the reconstruction or
amalgamation of the sick industrial company;
(i) sale of the industrial undertaking of the sick industrial company
free from all encumbrances and all liabilities of the company or
other such encumbrances and liabilities as may be specified, to
any person, including a co-operative society formed by the
employees of such undertaking and fixing of reserve price for
such sale;
(j) lease of the industrial undertaking of the sick industrial company
to any person, including a co-operative society formed by the
employees of such undertaking;
(k) method of sale of the assets of the industrial undertaking of
the sick industrial company such as by public auction or by inviting
tenders or in any other manner as may be specified and for the
manner of publicity therefor;
(l) transfer or issue of the shares in the sick industrial company at
the face value or at the intrinsic value which may be at discount
value or such other value as may be specified to any industrial
company or any person including the executives and employees
of the sick industrial company;
(m) such incidental, consequential and supplemental matters as
may be necessary to secure that the reconstruction or
amalgamation or other measures mentioned in the scheme are
fully and effectively carried
out.
(3) (a) The scheme prepared by the operating agency shall be
examined by the Board and a copy of the scheme with
modification, if any, made by the Board shall be sent, in draft, to
the sick industrial company and the operating agency and in the
case of amalgamation, also to any other company concerned, and
the Board shall publish or cause to be published the draft scheme
in brief in such daily newspapers as the Board may consider
necessary, for suggestions and objections, if any, within such period
as the Board may specify;
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(b) The Board may make such modifications, if any, in the draft
scheme as it may consider necessary in the light of the suggestions
and objections received from the sick industrial company and the
operating agency and also from the transferee company and any
other company concerned in the amalgamation and from any
shareholder or any creditors or employees of such companies:
Provided that where the scheme relates to amalgamation the said
scheme shall be laid before the company other than the sick
industrial company] in the general meeting for the approval of the
scheme by its shareholders and no such scheme shall be proceeded
with unless it has been approved, with or without modification, by
a special resolution passed by the shareholders of the company
other than the sick industrial company.
(4) The scheme shall thereafter be sanctioned, as soon as may
be, by the Board (hereinafter referred to as the “sanctioned
scheme”) and shall come into force on such date as the Board
may specify in this behalf:
Provided that different dates may be specified for different
provisions of the scheme.
(5) The Board may on the recommendations of the operating
agency or otherwise, review any sanctioned scheme and make
such modifications as it may deem fit or may by order in writing
direct any operating agency specified in the order, having regard
to such guidelines as may be specified in the order, to prepare a
fresh scheme providing for such measures as the operating
agency
may consider necessary.
(6) When a fresh scheme is prepared under sub-section (5), the
provisions of sub-sections (3) and (4) shall apply in relation thereto
as they apply to in relation to a scheme prepared under sub-section
(1).
(6A) Where a sanctioned scheme provides for the transfer of
any property or liability of the sick industrial company in favour of
any other company or person or where such scheme provides for
the transfer of any property or liability of any other company or
person in favour of the sick industrial company, then, by virtue of,
and to the extent provided in, the scheme, on and from the date of
coming into operation of the sanctioned scheme or any provision
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thereof, the property shall be transferred to, and vest in, and the
liability shall become the liability of, such other company or person
or, as the case may be, the sick industrial company.
(7) The sanction accorded by the Board under sub-section (4)
shall be conclusive evidence that all the requirements of this
scheme relating to the reconstruction or amalgamation, or any
other measure specified therein have been complied with and a
copy of the sanctioned scheme certified in writing by an officer
of the Board to be a true copy thereof, shall, in all legal proceedings
(whether in appeal or otherwise) be admitted as evidence.
(8) On and from the date of the coming into operation of the
sanctioned scheme or any provision thereof, the scheme or such
provision shall be binding on the sick industrial company and the
transferee company or, as the case may be, the other company
and also on the shareholders, creditors and guarantors and
employees of the said companies.
(9) If any difficulty arises in giving effect to the provisions of the
sanctioned scheme, the Board may, on the recommendation of
the operating agency or otherwise, by order to anything, not
inconsistent with such provisions, which appears to it to be
necessary or expedient for the purpose of removing the
difficulty.
(10) The Board may, if it deems necessary or expedient so to do,
by order in writing, direct any operating agency specified in the
order to
implement a sanctioned scheme with such terms and
conditions and in relation to such sick industrial company as may
be specified in the order.
(11) Where the whole of the undertaking of the sick industrial
company is sold under a sanctioned scheme, the Board may
distribute the sale proceeds to the parties entitled thereto in
accordance with the provisions of section 529A and other
provisions of the Companies Act, 1956 (1 of 1956).
(12) The Board may monitor periodically the implementation of
the sanctioned scheme.”
6. Section 19 provided for rehabilitation giving financial assistance.
It reads as follows:
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“19. Rehabilitation by giving financial assistance.—(1) Where
the scheme relates to preventive, ameliorative, remedial and other
measures with respect to any sick industrial company, the scheme
may provide for financial assistance by way of loans, advances
or guarantees or reliefs or concessions or sacrifices from the
Central Government, a State Government, any scheduled bank or
other bank, a public financial institution or State level institution or
any institution or other authority (any Government, bank, institution
or other authority required by a scheme to provide for such
financial assistance being hereafter in this section referred to as
the person required by the scheme to provide financial assistance)
to the sick industrial company.
(2) Every scheme referred to in sub-section (1) shall be circulated
to every person required by the scheme to provide financial
assistance for his consent within a period of sixty days from the
date of such circulation [or within such further period, not
exceeding sixty days, as may be allowed by the Board, and if no
consent is received within such period or further period, it shall be
deemed that consent has been given].
(3) Where in respect of any scheme the consent referred to in
sub-section (2) is given by every person required by the scheme
to provide financial assistance, the Board may, as soon as may
be, sanction the scheme and on and from the date of such sanction
the scheme shall be binding on all concerned.
(3A) On the sanction of the scheme under sub-section (3), the
financial institutions and the banks required to provide financial
assistance shall designate by mutual agreement a financial
institution and a bank from amongst themselves which shall be
responsible to disburse financial assistance by way of loans or
advances or guarantees or reliefs or concessions or sacrifices
agreed to be provided or granted under the scheme on behalf of
all financial institutions and banks concerned.
(3B) The financial institution and the bank designated under sub-
section (3A) shall forthwith proceed to release the financial
assistance to the sick industrial company in fulfilment of the
requirement in this regard.
(4) Where in respect of any scheme consent under sub-section
(2) is not given by any person required by the scheme to provide
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financial assistance, the Board may adopt such other measures,
including the winding up of the sick industrial company, as it may
deem fit.”
(Emphasis supplied)
7. Section 20 provided for winding up. Even though the Sick
Industrial Companies (Special Provisions) Repeal Act, 2003 was passed
repealing the Act, it was not enforced, and it is only with effect from
1.12.2016 when the IBC came into force that the Act was repealed.
8. The definition of Sick Industrial Company has been noticed. It
is to be further noticed that not every sick industrial company becomes
the subject matter of a scheme contemplated under Section 18 read
with Section 19 of the Act. Not every sick industrial unit which becomes
the subject matter of the draft scheme becomes the beneficiary of the
final scheme or sanctioned scheme. The procedure by which it attains
finality does involve affording an opportunity to every person required
by the scheme to providing financial assistance. Either express consent
is granted or there is deemed consent under Section 19(2). It may be
possible to find that a sick industrial company as defined is different
from a sick industrial company which is the subject matter of the final
scheme under Section 19(3). The processes that are involved and the
procedures that are undergone may result in the particular company
which is at the centre stage of the final scheme being entitled to be
treated in terms thereof.
9.
Therefore, on the scheme of the Sick Industrial Companies
Act, the law contemplated concessions, and sacrifices inter alia being
undertaken by the State Government inter alia in terms of financial
assistance. Section 19(4) appears to indicate that if consent is not given
to any person, the Board is free to adopt other measures including winding
up of the sick industrial company. A sick industrial company is defined in
the Act. In terms of the definition, it is undoubtedly true that there may
be more than one sick industrial companies operating in the same
business or rather dealing in the same goods and services. The scheme
of Section 17 appears to be that such sick industrial companies that
could be nursed back to health under section 17(1) and 17(2), did not go
on to be dealt with under Section 18 and 19. It is in regard to a sick
industrial company which fell within the four walls of Section 17(3) that
the special provisions under sections 18 and 19 were applicable. It is
such a company on account of the acuteness of the problem that cried
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out to be dealt with, as contemplated in Sections 18 and 19. The law
contemplated the deliberative process involving all parties having a stake.
Draft scheme may give way to a final one. Section 19 dealt with a
scheme envisaging financial assistance. Having regard to Section 19(1),
which, inter alia, contemplated financial assistance in the form of
concessions or sacrifices from the State Government, it may be
incongruous to not read the words ‘reliefs or concessions or sacrifices’
as not meaning a tax exemption or a reduction in the rate of tax. It is
only when the State gave consent or there was deemed consent under
Section 19(2), that Section 19(3) kicked in, and the scheme on being
sanctioned by the Board was binding on all concerned.
10. There is the aspect of fairness involved. An exemption under
Section 10 cannot ordinarily be claimed as a legal right. The provisions
of Section 19 of the Act made an inroad into the said principle. In other
words, when to a scheme under Section 19 of the Act the State
Government has given consent or its deemed consent, the law
commanded the State Government to honour its consent. In this regard
we may notice that under Section 19(4), if consent is not given, the
Board was left free to take appropriate steps including the winding up of
the company. To give consent and to allow the State to renege on its
consent and defy the binding nature of the sanctioned scheme would
enable the State to frustrate the scheme. In
fact, if consent is refused at
the early and appropriate stage, as contemplated under Section 19(4),
then the Board is left free to take action including winding up the company
as is considered appropriate.
11. There is merit in the contention of the appellant that the
exemption granted initially, dated 20.03.2004, was not one which is
premised under Section 10 of the Act. The exemption was granted in
terms of the scheme under Section 19 of the Act. This is an exemption
which was given under statutory provisions. In other words, consent
being forthcoming from the state, a scheme being sanctioned under
section 19 providing for financial assistance in the form of tax exemption,
inter alia, the Government became obliged to honour its consent and the
dictate of the statute.
12. It will be inequitable to the company and against public interest
also, as it frustrates the object of law to allow a scheme to be sanctioned
inducing all parties to proceed on the basis that a company would be
redeemed from its financial dire-straits and the crucial financial assistance
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indispensable to the said process is not forthcoming from the State. The
aforesaid interpretation placed in para 11 hereinbefore would harmonise
the Central and the State Act. It will also give life to the Sick Companies
Act as it would clearly further the object of the law. Therefore, the
exemption granted can be understood as springing from the provisions
of Section 19(3) read with 19(1) in this regard. Thus, the exemption is
not to be treated as falling under Section 10 of the State Act. In other
words, Section 10 cannot be treated as the sole repository of power to
grant exemption.
13. The Government of Kerala, had in fact issued G.O.M.S. dated
25th November 1994. It, inter alia, deals with the aspect of benefits
given under the Act. In fact, the said order provided for guidelines in the
model package which is appended to be followed by government while
formulating rehabilitation scheme within the purview of the Sick Industrial
Companies (Special Provisions) Act, 1985. Relief and concessions were
to be extended on a case-to-case basis, keeping in view all relevant
factors by the government in the Industries Department. Therein, under
the heading ‘fiscal’, the following is relevant:
“FISCAL
1. Exemption/deferment of sales tax, purchases tax and electricity
duty for two years but not exceeding 5 years or the date the net
worth of the company become positive, which ever is earlier. The
deferment will be interest
free/simple interest not exceeding 12
per cent per annum. Dues deferred repayable in, say, 36 monthly
instalments, repayment commencing after one/two years’
moratorium from date of sanction of B.I.F.R. scheme.”
14. This again fortifies the view that no resort to Section 10 of the
State Act is necessary. The Government Order dated 25.11.1994 provides
support to the working of the scheme.
15. The expression ‘class of persons’ in Section 10 of the State
Act, no doubt, acts as a limitation on the power of the state in exercise
of its power. It also is an indication of the extent of the power. Then the
question would arise as to whether a class of persons includes a single
person. To break it down, whether the words ‘persons’ is capable of
comprehending a single person. Would the plural include the singular?
16. The High Court has proceeded on the basis that the power
under Section 10(1) can be exercised in favour of only a class of persons
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and not qua an individual unit like the appellant. It has also proceeded on
the basis that had the exemption been made applicable to all sick industrial
units which is in the activity of bleaching etc, there would have been
force in the contention that the appellant would form a class by itself.
The sick company, which falls to be dealt with under Section 17(3) read
with Section 18 and finally Section 19, is clearly distinct from the
generality of sick companies both under the definition of a sick company
and even those which are covered by Section 17(1) and 17(2) of the
Act. Therefore, the question would arise as to whether the appellant
would constitute a class by itself. In this regard, we may notice the
decision of Andhra Pradesh High Court in Mahindra and Mahindra
Limited and Ors. vs. State of Andhra Pradesh and Ors.1. Section 9
of the Andhra Pradesh General Sales Tax Act is similarly worded as
Section 10 of the State Tax Law with which we are concerned. A
reduction of tax was given to the second respondent therein. The second
respondent was a Government Company. We notice the following
observations:
“27. …. Apart from that, we are of the opinion taking into account
that the second respondent is a Government company, and, it is
established in a centrally notified backward area, and it provides
employment opportunities to those people in that area and it is a
new entrant in the filed, the concession shown to the second
respondent is clearly
sustainable as the second respondent unit
constitutes a class by itself and the classification so made in its
favour is justified with the object in view as stated above.”
17. A sick industrial company which is the subject matter of the
sanctioned scheme may constitute a class by itself. However, it is not
necessary to explore this aspect further as the exemption granted to the
sick company covered by Section 19(3) is safely anchored in Section 19
of the Act.
18. The question would arise as to whether on the said view the
appellant should be granted relief? There is merit in the view that the
exemption does not envisage any outer time limit. But it is obvious that it
could not be an unending bonanza even after the company breaks even
and even made profits.
19. It is quite clear that the appellant cannot pitch its case higher
than at the limit under Order dated 25.11.1994 referred to in paragraph-
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14. Therefore, exemption of sales tax is contemplated for a period of
two years. However, it further provides that it cannot be for more than
five years or beyond the date the net worth of the company becomes
positive whichever is earlier. Therefore, the maximum period in any case
is 5 years. In the case of the appellant, the appellant enjoyed the benefit
of the exemption till it was withdrawn on 21.11 2006. The said order in
turn was withdrawn on 01.10.2007. It is no doubt true that on 29.02.2008,
the order dated 01.10.2007 came to be withdrawn. The writ petition
was filed by the appellant. It would appear that for a period of nearly 4
years, the appellant enjoyed the benefit of exemption in all. No doubt,
the learned counsel for the appellant did point out that there is no exercise
carried out to find out as to when the net worth has turned positive. The
conduct of the appellant submitting a representation in terms of the
judgment of the learned judge has been noticed by my learned brother.
20.  As noted in the Judgment of my learned Brother, appellant is
a company which is out of the woods and making profits. Therefore, I
would concur with the final conclusion that the appeal must fail though
on grounds as stated hereinbefore. The appeal will stand accordingly
dismissed, however, without any order as to costs.
Ankit Gyan
Appeal dismissed.
(Assisted by : Aarsh Choudhary, LCRA)