State of Haryana vs Shri Bhagwati Oil and General Mills

N.K. Kapoor, J.—This appeal is against the judgment of learned single Judge dated July 25, 1988 whereby the respondent''s petition has been accepted holding that Notification dated December 30, 1987 does not apply to the industrial unit of the petitioner (now respondent).

The Government of Haryana issued a Notification dated 2.6.1979 whereby exemption to tiny rural industrial units from payment of sales tax was granted in case the capital investment on the machinery and equipment does not exceed Rs. one lakh. Such a unit was to get a certificate of genuineness from the Industries Department. Subsequently, Haryana Government vide the impugned Notification dated 30.12.1987 permitted the tiny industrial units so set up exempting them from the pay- merit of sales tax but upper limit for exemption was fixed, i.e., such units were entitled to exemption with regard to payment of sales tax in case their turn over did not exceed Rs. five lakhs in a year. The petitioners (now respondents) assailed this Notification primarily on the ground of principle of promissory estoppel which found favour with the learned single Judge.

Facts as briefly noticed are not in dispute. Learned counsel for the appellant, at the outset brought to our notice the decision of the Apex Court in Bharat General and Textile Industries Ltd. v. State of Maharashtra and Ors. 1989(72) STC 354 and tated that the matter is squarely covered by the aforesaid decision and hence the appeal deserves to be allowed. According to the counsel, another learned single Judge in an identical manner, referred the precise point for consideration by a larger Bench vide order dated April 3, 1989. Learned counsel for the appellant further argued that the exemption granted to the tiny industrial units was in the nature of concessions. It being so, the Government was well within its right to withdraw the same. It is with this background that the Government thought it appropriate to confine the exemption to such tiny rural industrial units whose turn over did not exceed rupees five lakhs in a year. Approach of the Government is quite rational. Appeal thus merits acceptance.

None has put in appearance on behalf of the respondents. In Bharat General and Textile Industries Ltd.''s case, the Court was examining as to whether Section 41 of the Bombay Sales Tax Act, 1959 is violative of Articles 14 and 19 of the Constitution of India. On consideration of the matter, the Court held that it is open to the State Government u/s 41 of the Bombay Sales Tax Act, 1959 to give the benefit of tax exemption either in full or to a partial extent. The Section itself states that the power of exemption is conferred on the Government in order to enable it to work in public interest. Thus, it is open to the Government in exercise of its powers of exemption u/s 41 to exempt from tax only new manufacturing units set up in the backward areas which were engaged in the production of the same type of goods as the new units. In the aforesaid case, in view of the exemption granted by the Government in exercise of its powers u/s 41, industries engaged in the production of edible as well as non-edible oils set up in the backward areas, came to enjoy the benefit of exemption from paying purchase tax/sales tax. Subsequently, the Government came to realise that the sales tax exemption given without any limit had conferred far more benefits on some of the industries concerned than what the Government had in mind when the Notification granting tax exemption was made. It is in this background that the Government decided to withdraw the exemption which was challenged by the affected parties. As noticed above, it was held that the exemption earlier given was in the nature of concessions and the Government had the powers to withdraw or modify the Notification etc. Some what similar is the position in the aforesaid case. Earlier, the rural tiny industrial units whose capital investment did not exceed rupees one lakh were exempted from payment of sales tax without any rider as to the turn over whereas by the subsequent Notification, the exemption has been confined only with regard to the industries whose turn over does not exceed rupees five lakhs. This Notification has a rational basis. At no time, the Government intended to enrich the entrepreneurs at the cost of Government exchequer. Primarily, this concession was intended to promote the rural industries and see that such an industry is not put to any undue strain during the first few years.

Respectfully following the decision of the Apex Court, we accept the appeal and set aside the judgment of the learned Single Judge. There will be no order as to costs.