Anant Fertilizers and Metals Pvt. Limited vs State of Punjab

Dr. Bharat Bhushan Parsoon, J.—Impugning order dated July 3, 1998 (annexure P35) passed by respondent No. 3 whereby grant of exemption certificate was declined to the petitioner on the plea that the business carried on by it was in the negative list, the petitioner has sought issuance of a writ of mandamus after quashing the order (annexure P35) seeking direction to respondents No. 1 and 2 to grant sales tax exemption to the petitioner in terms of the Industrial Policy, 1989. The Punjab Government in order to attract industrialists to establish new industries and for accelerating the rate of industrial development and also for generating employment opportunities particularly for unemployed rural youth had framed "New Industrial Policy, 1989" offering fresh incentives.

A notification (annexure P3) dated March 30, 1989 was issued to implement the said policy. Under the said policy, it was committed that sales tax exemption/deferment shall be admissible as per rules. As per the original notification, the industries engaged in expelling and crushing of oil-seeds had figured in the list of items not eligible for sales tax exemption and incentives. However, annexure II of the 1989 policy was subsequently amended on May 23, 1991 whereby the words "expelling and crushing" were deleted from item No. 9 of annexure II.

Driven by the notification of the State of Punjab, the petitioner had set up an industrial unit. Though amendment had been effected in the notification, the petitioner as an abundant precaution on March 16, 1992 wrote a letter to the Udyog Sahayak Directorate of Industries seeking information regarding the eligibility of "expelling and crushing" industries for the incentives under the 1989 Policy. Vide reply of March 25, 1992, the petitioner was informed that industrial units engaged in expelling and crushing of edible mustard oil seeds are eligible for 15 percent State capital subsidy in Rajpura Tehsil. Industrial unit established by the petitioner went into production on July 29, 1992. The promoters had spent Rs. 42,84,832 on setting up the industrial unit as per break-up, given below:

The petitioner-company had raised a loan of Rs. 45 lacs from the Punjab Financial Corporation by mortgaging its assets. After the unit came into production, on October 27, 1992, a certificate (annexure P2) of eligibility under rule 6.3(2) of the Policy for the grant of incentives of sales tax exemption was issued to the petitioner by the General Manager, District Industries Centre, Patiala. Thereafter, the petitioner approached the Excise and Taxation Department for the grant of incentives. Such application of the petitioner was kept pending and incentives were not released in terms of the industrial policy. Representations (annexures P4 to P26) were also made from time to time but to no avail. On March 31, 1995, a meeting was held under the Chairmanship of the Chief Secretary, Punjab to consider the case of the petitioner. The matter was referred to another committee headed by the Secretary, Industries, Punjab. In a meeting held on May 15, 1995, officers of the Excise and Taxation, Industries and Law Departments participated, wherein the following decision, was taken:

The committee after taking into consideration this fact, decided that those expelling and crushing units would be entitled for sales tax exemption under the 1989 Policy which had gone into production between May 23, 1991 and March 21, 1994 but the concessions would be restricted for this period only. Accordingly a parallel notification amending the Punjab General Sales Tax (Exemption and Deferment) Rules, 1991 will be issued by the Excise and Taxation Department.

However, neither any rule was changed nor any exemption certificate was issued. As a sequel to inaction of the respondents, the petitioner-company was unable to give its dealers the sales tax exemption certificates/declaration so that the dealers could sell the products of the company and claim sales tax exemption. Therefore, the dealers started holding payments on the plea that their assessments were being delayed on account of non-grant of sales tax exemption/declaration. Resultantly, outstanding sundry debts of the petitioner for the year ending March 31, 1994 amounted to Rs. 7,65,376.30 and for the year ending March 31, 1996 this figure rose to Rs. 15,88,706.

Non-grant of sales tax exemption certificate started directly impacting profitability of the petitioner because huge amounts were held up in the market due to non-grant of certificate by respondents No. 1 and 3. Ultimately, the petitioner-company started incurring losses and defaulted in the payment of loan resulting in enforcing the company to re-schedule the loan instalments and also permission to sell the vacant land, etc. Non-participatory attitude from the Punjab Financial Corporation also went against the petitioner. Instead of supporting and sustaining the unit, the Punjab Financial Corporation took over the possession of the unit, release of which came only on further undertakings given by the petitioner.

When prolonged silence of respondents No. 1 and 3 in the matter of grant of exemption certificate forced the petitioner to file C.W.P. No. 17856 of 1997 in which the respondents on April 17, 1998 gave an undertaking that final decision on the issues would be taken within three months and further that no recovery of the sales tax arrears would be effected till a decision was taken on the request of the petitioner. Subsequently, on July 3, 1998, the Assistant Excise and Taxation Commissioner rejected claim of the petitioner and refused grant of sales tax exemption. It is this order (annexure P35) which is under challenge in this petition on the grounds that the petitioner-company had set up its unit and had started commercial production, thus, changing its position to its detriment while acting upon the assurance of the respondents who were bound by the doctrine of equitable estoppel. Claiming that inordinate delay on the part of the respondents in processing the application of the petitioner for the grant of sales tax exemption caused incalculable harm, this act of the respondents is challenged alleging it to be arbitrary and discriminatory violating provisions of articles 14 and 19(1)(g) of the Constitution of India. Relying on the doctrine of legitimate expectations, the impugned order has been sought to be set aside.

In written statement furnished by respondents No. 1 and 3, a tough contest was made to the petition. Controverting the allegations made by the petitioner, it was, inter alia, set up that notification of May 23, 1991 issued by the Industries Department was a conditional one for excluding "expelling and crushing" units from the negative list and this was subject to the rectification and adoption by the Excise and Taxation Department by a notification, which was never issued and thus the notification of May 23, 1991 became redundant. Consequent upon resistance of the Department of Excise and Taxation, the Industries Department once again had issued another notification dated March 21, 1994 (annexure R3) whereby the first notification of May 23, 1991 had been rescinded. It is averred that annexure II of the Industrial Policy of 1989 was amended on May 23, 1991. The petitioner was not entitled to avail of the exemption without issuance of certificate of exemption in Form-ST (Deferment & Exemption) II by the Excise and Taxation Department in terms of rule 3(2) of the Punjab General Sales Tax (Exemption and Deferment) Rules, 1991 (hereinafter referred to as the 1991 Rules) (annexure R4). Such certificate concededly was never issued in favour of the petitioner.

It has been explained that the Department of Excise and Taxation is administered by its own set of rules and any decision taken by the Industries Department does not automatically entitle the petitioner for exemption from payment of sales tax under the Punjab General Sales Tax Act, 1948. It has, thus, been claimed that the petitioner was not entitled for exemption even if the unit of the petitioner was taken out of the negative list of the Industries Department since list of the Department of Excise and Taxation is relevant for the purpose.

It is further explained that on May 23, 1991 during inspection of the business premises of the petitioners, it was found that there was suppression of purchase/sales turnover and claim of exemption even otherwise was liable to be rejected under rule 5(5) of the 1991 Rules (annexure R5). It has been made clear that the petitioner could claim exemption from payment of sales tax only on the basis of exemption certificate to be issued by the Excise and Taxation Department and otherwise it was not eligible for grant of exemption under the Rules. It has also been explained that application of the petitioner was not lying dormant but proceedings therein had been continuing all along and the petitioner had not produced the account books despite seeking various adjournments and efforts at the front of the petitioner on the other hand all through were being made for bringing the unit within the provisions of 1991 Rules. It is averred that form C was obtained from the purchasing dealers of other States and that certificate was to be produced before the Assessing Authority for availing of concessional rate of tax. Being in the negative list, the petitioner was to charge sales tax and was to make payment to the Department of Excise and Taxation. Asserting validity and legality of the impugned order, dismissal of the petition was sought.

We have heard counsel for the parties while going through the paper book.

Whereas the petitioner has claimed the impugned order (annexure P35) to be wrong and not binding and praying for quashing of the said order had sought mandate against respondent Nos. 1 and 3 for granting sales tax exemption, the respondents have asserted validity and legality of the impugned order urging that the petition was frivolous. It is claimed that neither doctrine of equitable estoppel nor of legitimate expectations come to the rescue of the petitioner.

Merely because "expelling and crushing" units were not in the negative list of the Industries Department is not a fact which could entitle the petitioner for issuance of exemption certificate by the Department of Excise and Taxation as the matter was governed by the Punjab General Sales Tax Act 1948. The Excise and Taxation Department was not to automatically follow decision taken by the Industries Department.

The petitioner was to be issued certificate for exemption from payment of sales tax only under the provisions of the Punjab General Sales Tax Act, 1948. Sequelly, even if the unit of the petitioner had been taken out of the negative list of the Industries Department this fact ipso facto did not entitle the petitioner for issuance of exemption certificate by the Excise and Taxation Department. Rather, it is noteworthy that even notification (annexure P3) of May 23, 1991 of the Industries Department was drastically modified by the same Department on March 21, 1994 wherein item "expelling and crashing units" were introduced in the negative list of the Industries Department as well. This fact was not disclosed by the petitioner and even in the petition, there is no explanation emerging for such important omission. Even viewed from another angle, the eligibility certificate issued by the Department of Industries could not have automatically entitled the petitioner for issuance of exemption certificate, which was to be issued by the Excise and Taxation Department, Punjab.

In fact, the petitioner could claim exemption from the payment of sales tax only on the basis of exemption certificate to be issued by the Excise and Taxation Department which was then to be attached along with e-return under rule 3(2) of the 1991 Rules. When the unit of the petitioner was on the negative list in terms of the 1991 Rules and was not eligible for the grant of sales tax exemption, claim of the petitioner that it had satisfied all the requirements, is misleading. Perusal of paper book reveals that the application of the petitioner for grant of exemption from sales tax was not lying pending but had remained actively under consideration of the respondents all through but the petitioner itself had rather been postponing such proceedings as it had not been producing account books despite having been asked to do so and had all through making endeavour for bringing the unit within the provisions of the 1991 Rules. Even the case of the petitioner was not considered favourably in the meetings held on December 10, 1993 (annexure R6) and on March 31, 1995 (annexure R7). In the meeting of March 31, 1995, the Department of Excise and Taxation had declined to accept the claim of the petitioner for sales tax exemption noticing that even the notification of May 23, 1991 of the Industries Department had already been withdrawn by the said Department itself on March 21, 1994.

It is, thus, noticed that at no stage, there was any representation made by the respondents acting upon which the petitioner could have been taken in for installing its unit. Rather, it is clear that unit of the petitioner was continuing on the negative list and was not entitled for grant of exemption certificate under the 1991 Rules. In this backdrop of facts and circumstances, even the doctrine of legitimate expectations does not enure for the petitioner. Consequently, the respondents were right in rejecting claim of the petitioner for sales tax exemption under the 1991 Rules vide order dated July 3, 1998 (annexure P35).

Viewed from another angle, this impugned order of July 3, 1998 (annexure P35) is also appealable one u/s 20 of the Punjab General Sales Tax Act, 1948, whereas in the writ petition, the petitioner has specifically mentioned that no efficacious remedy of appeal is available against the impugned order (annexure P35). Keeping in view the totality of facts and circumstances as mentioned above, the petition, being without any merit, is dismissed.