Case: Mahabir Vegetable Oils Pvt. Ltd.  Vs. State Of Haryana

The basic facts are not in dispute.The Appellants are owners of solvent extraction plants. The State of Haryana announced an Industrial Policy for the period 1.4.1988 to 31.3.1997 wherein inter alia incentive by way of sales tax exemption was to be given for the industries set up in backward areas in the State.The State enacted Haryana General Sales Tax Act, 1973 (for short the Act). Section 64 of the Act provides for rule making power. The said provision was amended by inserting sub-section (2A) therein which reads asThe power to make rules under Sub-sections (1) and (2) with respect to clauses (ff) and (oo) of Sub-section (2) shall include the power to give retrospective effect to such rules i.e. from the date on which policy for incentives to industry is announced by the State and for this purpose rules 28A, 28B and 28C of the Haryana General Sales Tax Rules, 1975, shall have retrospective effect i.e. with effect from 1st April, 1988, 1st August, 1997 and 15th November, 1999, respectively, but such retrospective operation shall not prejudicially affect the interest of any person to whom such rules may be(ff) of sub-section (2) of Section 64 of the Act provides for the class of industries, period of exemption and conditions of such exemption, under Section 13B; whereas Clauses (oo) thereof provides for class of industries, period of deferment and the conditions to be imposed for such deferment under Section 25-A.Section 13-B of the Act was inserted onto or in furtherance of the said rule making power, the State made rules known as the Haryana General Sales Tax Rules, 1975 (for short the Rules). Rule 28A occurring in Chapter IV A of the Rules provide for the class of industries, period and other conditions for exemption/ deferment from payment of tax as envisaged both under Sections 13B and 25A of the Act. Operative period has been defined in sub-rule (2)(a) of Rule 28A of the Rules to mean the period starting from the 1st day of April 1988 and ending on the 31st day of March, 1997. Sub-rule (2)(c) thereof defines New Industrial Unit to mean a unit which is or has been set up in the State of Haryana and comes or has come into commercial production for the first time during the operative period and has not been or is not formed as a result of purchase or transfer of old machinery except when purchased in the course of import into the territory of India or when the cost of old machinery does not exceed 25% of the total cost of machinery re-establishment, amalgamation, change of lease, change of ownership, change in constitution, transfer of business, reconstruction or revival of the existing unit. Negative List has been defined in sub-rule 2(o) to mean a list of class of industries as specified in Schedule III appended to theseIII appended to the Rules provide for a negative list of the industries and/ or class of industries which were not to be included therein. Solvent extraction plant was admittedly not included in the list.On or about 3.1.1996, notice was given as regards the intention of the State to amend the rules in respect whereof a draft was circulated for information of persons likely to be affected thereby so as to enable them to file objections and suggestions thereto. Amendments in the terms of the said draft rules were notified on 16th December, 1996 substituting Schedule III appended to the Rules whereby and whereunder the solvent extraction plant was included therein. Note 2 appended thereto reads asIndustrial units in which investment has been made upto 25% of the anticipated cost of the project and which have been included in the above list for the first time shall be entitled to the sales tax benefits related to the extent of investment made upto the 3rd January, 1996. Only those assets will be included in the fixed capital investment which have been installed or erected at site and have been paid for. The anticipated cost of the project will be taken on the basis of documents furnished to a financial institution or banks for drawing a loan and which have been accepted by the financial institution or bank concerned for sanction ofor about 28th May, 1997, the said rules were amended inter alia by omitting Note 2 deeming to have always been omitted.Yet again on 3rd June, 1997, in clause (a) of sub-rule (2) of Rule 28A of the Rules instead and in place of 31st March, 1997, the words date on which new policy for incentive to industry is announced by the Government of Haryana in Industries Department was substituted.On 26th June, 2001, in Section 13-B after the words for such period, the words either prospectively or retrospectively were inserted.Mahavir Vegetable Oil Pvt. Limited (Appellant in civil appeal arising out of S.L.P. (C) No. 17730 of 2004) purchased land measuring 30 kanals 17 marlas in the month of August, 1995 to set up the unit. It also obtained registration under the provisions of the Act and Central Sales Tax Act, 1956 on 06.09.1995. On 13.08.1996 it applied for a No Objection Certificate from the Haryana State Pollution Control Board which is a condition precedent for setting up a solvent extraction plant. On 15.08.1996, the Appellant entered into an agreement with M/s. Saratech Consultants and Engineers, Karnal for supply and erection of the plant for a sum of Rs.55,55,000/- and Rs.22,75,000/- respectively and advances were paid on different dates. Furthermore, on 6.09.1996, civil construction work started at site. Plans submitted by the Appellant for getting permission for storage of Hexane were sanctioned by the Explosives Department on 19.9.1996 and licence was finally given on 11.3.1997. On 26.09.1996, process of installation of the plant started at the site. On or about 18.11.1996, a 250 KVA power generating set costing Rs. 9,91,000/- was installed, no objection certificate wherefor was granted on 22.11.1996. The Appellant applied to the Haryana State Electricity Board for release of the power connection vide application dated 12.12.1996 and also deposited the security of Rs. 68,700/- for the same. On 26.03.1997, the Appellant started the trial production and commercial production commenced on 29.03.1997.Bharat Rasayan Ltd. (Appellant in Civil Appeal arising out of SLP(C) No. 23361 of 2004) set up on or about 17.01.1991 its unit to manufacture pesticides at Village Makhara, Madina-Makhara Road, District Rohtak with an investment of Rs.252.70 lakhs. Commercial production commenced on and from 17.1.1991. The unit of the Appellant falls in a backward area. On 7.8.1993, the Appellant carried out expansion with an additional investment of Rs.181.83 lakhs and added another 250MT in the production capacity in its unit wherefor eligibility certification/ exemption certification was issued in its favour. The Appellant also got itself registered with the Sales Tax Department for the expanded unit under the Act and under the Central Sales Tax Act, 1956 with effect from 4.12.1993. On 16.11.1995, the Appellant also applied for additional licence which was required for the product manufactured by it. On 3.2.1997, the Appellant was registered with the Government of India. Furthermore, on 7.9.1997, an additional licence was granted to it by the Central Insecticides Board. After receipt of the same, the Appellant applied to the Director of Agriculture, Haryana for addition of new items in the manufacturing licence and the Appellant commenced its commercial production in its expanded unit on 28.4.1998.By 16.12.1996, they had invested about 80% of the total project cost. The Appellants had applied for grant of exemption from payment of sales tax as on 16.12.1996 which was rejected in the case of Mahabir Vegetable Oils Pvt. Ltd. in the followingSolvent extraction plants were included in negative list with effect from 16.12.1996. The industrial unit has made 45% of total investment. In the notification it was stipulated that industrial unit in which investment has been made upto 25% of the anticipated cost of the project which has been included in the negative list for the first time shall be entitled to sales tax benefit, however, this condition has been deleted vide notification dated 28.5.1997. Committee was of the view that this condition has already been deleted and certain parties have challenged in Punjab and Harayana High Court. Director of Industries was of the view that in case a particular industry is put in the negative list, benefit on account of investment made before the date of putting the unit in the negative list should be available to the unit for sales tax exemption/ deferment. Though the Higher Level Screening Committee broadly agreed with this view, yet in view of the fact that such cases were not covered in the existing notification of Commercial Taxation Department, it was decided to reject the claim of thewrit petition filed by Mahabir Vegetable Oils Pvt. Ltd. before the High Court was dismissedThe power to grant exemption from the payment of sales tax is an exercise of the powers conferred by the statute on the State Government and is, thus, a delegated legislative function. The delegated legislation can be struck down if it is established that there is manifest arbitrariness. It must be shown that it was not reasonable or manifestly arbitrary.(ii) As per the records made available, a Standing Committee was constituted by the State of Haryana for revising the negative list periodically keeping in view the industries scheme of the State and its neighbourhood. Such Standing Committee considered the revision of negative list in its meeting held on 15.9.1995 wherein it was decided to include highly polluting industries, power intensive industries, conventional type of industries where sufficient capacity has already come up and any further increase in the capacity would jeopardize the health of existing industry in the negative list. There is no challenge to the decision or proceedings of such Committee on any ground indicating arbitrariness, bias, mala fide or any such like reason.(iii) In view of certain decisions of this Court, the benefit of exemption can be withdrawn in public interest.(iv) There is no allegation of exercise of such power to include solvent extraction plant is actuated by any mala fides, fraud or lack bona fide. It is a matter of fiscal policy of the State Government as to which industries should be granted exemption.(v) Mahabir Vegetable Oils Pvt. Ltd. only invested Rs. 4,44,000/- in the land and purchased machinery worth Rs. 16,90,000/- on 14.12.1996.(vi) Thus, we hold that there is no representation on behalf of the State Government that the scheme of granting incentives by way of exemption or deferment will not be modified amended or varied during the operative period. There cannot be any restraint on the State Government to exercise the delegated legislative functions within the parameters laid down by the statute.In the case of Bharat Rasayan Ltd., the judgment rendered in Mahabir Vegetable Oils Pvt. Ltd. was followed without considering the factual aspectthe writ petition filed before this Court, it has beenissue an appropriate writ, order or direction especially in the nature of certiorari quashing the draft notification dated 03.01.1996, final notification dated 16.12.1996 modifying the industrial policy of 1988 and the notification dated 28.05.1997 modifying the Haryana Sales Tax Rules, 1975 as ultravires the constitution being arbitrary, malafide, unjust unreasonable, unworkable, illegal and against the principles of public policy;(b) issue an appropriate writ, order or direction especially in the nature of Mandamus directing the respondents to grant the benefit of sales tax exemption to the petitioners as per the States Industrial Policy of 1988;(c) pass any such further order or orders as this Honble Court may deem fit and proper under the facts and circumstances of the

Court's reasoning:
We, in this case, are not concerned with the quantum of exemption to which the Appellants may be entitled to, but only with the interpretation of the relevant provisions which arise for consideration beforemay at this stage consider the effect of omission of the said Note. It is beyond any cavil that a subordinate legislation can be given a retrospective effect and retroactive operation, if any power in this behalf is contained in the main act. Rule making power is a species of delegated legislation. A delegatee therefor can make rules only within the four-cornersis a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. [See West v. Gwynne, (1911) 2 Ch.retrospective effect to an amendment by way of a delegated legislation could be given, thus, only after coming into force of sub-section (2A) of Section 64 of the Act and not priorreason of Note 2, certain rights were conferred. Although there lies a distinction between vested rights and accrued rights as by reason of a delegated legislation, a right cannot be taken away. The amendments carried out in 1996 as also the subsequent amendments made prior to 2001, could not, thus, have taken away the rights of the appellant with retrospective effect.