REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   3456           OF 2009 (Arising out of SLP (C) No. 30256 of 2008)

PEPSICO INDIA HOLDINGS P. LTD. … APPELLANT

Versus

STATE OF KERALA & ORS.        …RESPONDENTS

J U D G M E N T

S.B. Sinha, J.

Leave granted.

1. Interpretation of an exemption notification dated 3.11.1992 issued by  

the  State  of  Kerala  dated  3.11.1993  as  modified  by  notifications  dated  

31.12.1999 and 31.3.2000 is in question herein.   

2. The said question arises in the following factual matrix.

Appellant  is  a  private  limited  company.   It  intended  to  set  up  a  

medium scale industrial unit at Kanjikode, Palakkad in the State of Kerala  

for manufacturing soft drinks under the brand name ‘Pepsi’.  Such a decision  

was taken purported to be relying on or on the basis of a policy decision  

taken by the State of Kerala to grant exemption from payment of sales tax  

with a view to attract more investment in the State.  The said policy decision  

was  issued  by  way  of  a  Notification  bearing  SRO No.1729/1993  issued  

under Section 10 of the Kerala General Sales Tax Act,  1963 (hereinafter  

referred  to  for  the  sake  of  brevity  as,  “the  said  Act”)  providing  for  

exemption to New Industrial Units set up in the State of Kerala, the relevant  

clauses whereof read as under :  

“4. In  the  case  of  new Industrial  Units  under  Medium and Large Scale Industries, there shall be  an exemption for a period of seven years from the  date of commencement of commercial production-  

(a) in respect of the tax payable by such units  under  the  Kerala  General  Sales  Tax  Act,  1963-

(i) On  the  turnover  of  sale  of  goods  manufactured and sold by them within  the state; and  

(ii) On the turnover of goods, taxable at  the point of last purchase in the State,  which  are  used  by  such  units  for  manufacturing  other  goods  for  sale  within the State or inter-state; and  

2

(b) in  respect  of  the  Surcharge  payable  under  Section 3 of the Kerala Surcharge on Taxes  Act, 1957 (Act 11 of 1957) in relation to the  goods referred to in sub-clause (a) above.”

3. The said notification provided for issuance of eligibility certificate in  

respect of medium and large scale industries assisted by the Kerala State  

Industrial  Development  Corporation  (“KSIDC”  for  short)  or  the  Kerala  

Financial Corporation inter alia by the Director of Industries and Commerce  

on application made by such units, and orders of exemption issued by the  

Secretary, Board of Revenue (Taxes), Thiruvananthapuram.  It is stated that  

in  stead  and  place  of  Secretary,  Board  of  Revenue  (Taxes),  

Thiruvananthapuram, the said jurisdiction of the Board was being exercised  

by Deputy Commissioner (General) Commercial Taxes.   

4. Appellant is said to have written a letter to the Principal Secretary,  

Department  of  Industries,  Government  of  Kerala  on  or  about  11.5.1999  

seeking  confirmation  of  the  benefits,  such  as  incentive  of  sales  tax  

exemption on the goods produced etc., available to the proposed new unit,  

stating:

“Proposal for Investments in Kerala State

PepsiCo in India    

3

PepsiCo Inc. has set up a fully integrated operation  in  India  –  manufacturing,  research  and  development  marketing,  distribution,  exports  and  franchise  –  covering  fruit/vegetable  processing,  snack  foods  and  beverages.   Presently,  our  activities  provide  direct/indirect  employment  to  over 60,000 persons.  We are also one of the large  exporters in the country. PepsiCo activities in Kerala

PepsiCo  India  Holdings  Ltd.  revived  the  closed  and sick manufacturing unit  of Contract  Bottling  Company Ltd.  at  Angamaly,  by entering into  an  arrangement for the manufacture of soft drinks.

We now propose to make substantial investments  of over Rs.50 crores in the first two phases spread  over three years in setting up a new unit in Kerala  for  the  manufacture  of  soft  drinks  with  the  full  range of Pepsi brands.  We expect the project will  generate  substantial  direct/indirect  employment  opportunities  and  also  stimulate  other  related  economic  activities.   The  Greenfield  unit  will  either  be  set  up  directly  or,  by  assisting  a  local  entrepreneur.  

CONFIRMATION REQUESTED

1. Availability of Sales Tax exemption benefit

As per  the State  Government’s  Industrial  policy,  new industrial Units under the medium and large  scale sector are eligible for exemption from sales  tax, purchase tax, surcharge and central sales tax  for  a  period  of  seven  years,  upto  aggregate  financial limit of upto 100% of the value of fixed  capital  investments  of  the  unit.   Soft  drinks  has  been notified as a thrust industry in the list of food  processing industries notified by the Government.  We  request  your  confirmation  that  the  proposed  green field unit, which will be set by the Company  

4

directly,  or through a nominee entrepreneur,  will  be eligible for Sales Tax exemption.

2. Allotment of land for setting up new unit

In  our  discussions  with  the  Hon’ble  Finance  Minister  and  the  State  Industries  Development  Corporation, we were assured that the Government  would  speedily  allocate  land  (approx.  25  to  30  acrs)  with  adequate  water  supply,  power  etc.  in  Kerala.  The preferred location for us is Walayar or  Kanjikode.   Kindly  confirm  that  we  can  get  possession of land within 4 weeks, as we propose  to put up the plant in 9 months from the date of  land allocation.”

5. A  meeting  took  place  by  and  between  the  representatives  of  the  

appellant and the authorities concerned.  By a letter dated 12.5.1999, Kerala  

Industrial Infrastructure Development Corporation replied to the appellant’s  

aforementioned letter dated 11.5.1999 in the following terms:

“This  is  with  reference  to  your  letter  dated  11th  May  1999  addressed  to  Mr.  K.  Mohandas,  Principal Secretary (Industries).  We are extremely  delighted to find your proposal for investment in  the State of Kerala.  

As  regards  the  two  points  which  have  asked  in  your letter, i.e. availability of sales tax exemption  benefit and allotment of land for setting up of the  unit, I wish to inform you the following:-

1. Availability of Sales Tax exemption benefit:

We  are  requesting  the  KSIDC  to  clarify  the  position.   You  may  kindly  discuss  with  the  Managing Director, KSIDC.

5

2. Allotment  of  land  for  setting  up  the  new  unit:-

Regarding this, as we discussed, we offer to give  you  the  required  land  in  the  Districts  of  either  Palakkad, Ernakulam or Kozhikkode, as per your  choice.  The land can be made available as per the  time frame you have indicated in your letter.”

6. Indisputably,  KSIDC by its letter dated 13.5.1999 confirmed that the  

new industrial unit would be exempted from payment of sales tax for the  

first seven years subject to a ceiling of 100% of capital investment.   

7. The Chairman of  KSIDC by its  letter  dated 4.6.1999 informed the  

appellant that all promotional support and possible assistance under the State  

Government’s  industrial  policy  would  be  extended  to  the  proposed  new  

industrial unit, stating:

“As per your telephonic talk with me a few days  ago, recently while I was in Thiruvananthapuram I  briefly  discussed  with  the  Hon’ble  Minster  of  Industry, Kerala Smt. Suseela Gopalan about your  plans  for  investing  in  Kerala  for  setting  up  a  bottling plant and allied facilities.   The Principal  Secretary,  Dept.  of  Industry  was  also  present  during the discussion.

 The  Hon’ble  Minister  has  assured  that  all  

promotional support and possible assistance under  the State Govt.’s Industrial policy will be extended  to the new venture you are planning to set up.

6

Please  rest  assured  that  our  Co-operation,  KINFRA,  and  the  District  Industries  Centre,  Palakkad  will  extend  their  co-operation  to  your  executives concerned.”

8. Pursuant or in furtherance of the said assurance given to the appellant,  

it  entered into  an agreement  for  lease  in  respect  of  50 acres  of  land  for  

setting up the new industrial unit at Kanjikode in the district of Palakkad on  

28.12.1999.   For  the  aforementioned  purpose,  a  sum of  Rs.2,77,64,000/-  

towards the amount of consideration for acquisition of the said land was paid  

on 24.12.1999 by a demand draft.  It furthermore took steps for procurement  

of machinery, etc. being:

a) Filed IEM with SIA vide SIA ACK/2655/SIA/IMO/1999 dated  

28.12.1999.

b) Obtained the necessary consent from the Kerala State Pollution  

Control Board on 20.12.1999

c) Placed  firm orders  for  supply  of  large  number  of  plant  and  

machinery and in some cases made advance payments through  

cheques.  The fact that in cases where advances payments were  

made, the payment was credited prior to January 1, 2000 was  

confirmed by Deutsche Bank by their  letter  dated September  

29,  2000.   This  included  the  following,  apart  from  several  

others:

7

- Pet conveyor systems on 28.12.1999

- Blow  Moulder,  including  installation  and  commissioning  

thereof, on 20.12.1999

- Paramix  Plant,  Deaeration  Plant,  Mixing  Plant,  Beverage  

Chilling Plant, Carbonation Plant and Switch & Control Unit  

& Frame on 28.12.1999.  

9. The  aforementioned  Notification  dated  3.11.1993,  however,  was  

amended by a notification dated 31.12.1999, stating:

 “Government  have  decided  to  withdraw  the  exemptions/ deferment in respect of tax under the  Kerala General Sales Tax Act, granted to Industrial  Unit  as  per  Notification  SRO  No.  1729/93  in  respect of Industrial Units which are set up on or  after  1.1.2000,  existing  units  which  undertake  diversification,  expansion  or  modernization  and  also in respect of small scale industrial units which  are  registered as  sick units  on or  after  1.1.2000.  But  in  the  case  of  units  which  have  already  commenced  commercial  production,  set  up  or  taken effective steps to set up industrial units prior  to 1.1.2000 or which have been registered as sick,  units prior to 1.1.2000, will be allowed the benefit  of  exemption or  deferment,  as  the  case  may  be,  granted as per notification SRO No. 1729/93.

This notification is intended to achieve the above  object.”

8

10. Yet again an amendment was effected by issuance of a notification  

dated 31.3.2000, which is in the following terms:

“S.R.O. NO. 295/2000:- In exercise of the powers  conferred  by  Section  10  of  the  Kerala  General  Sales Tax Act, 1963 (15 of 1963) the Government  of  Kerala,  having  considered  it  necessary  in  the  public interest so to do, hereby make the following  amendments to notification issued in GO (P) No.  181/99/TD  dated  31st December,  1999  and  published  as  SRO  No.  1092/99  in  the  Kerala  Gazette  Extraordinary  No.  2433  dated  31st  December, 1999, namely:-

AMENDMENT

In the said Notification,

(i) in sub-clause (ii), for the words, figures and  brackets,  “(b)  owned  or  acquired”  or  has  been  allotted land for establishing the industrial unit and  (c) applied for financial support from any regular  financial  institution/Government  of  acquired  the  necessary plant  machinery provided that  the unit  “commences commercial production on or before  31st day of December, 2000”, the following shall  be substituted, namely:-

“(b) owned  or  acquired  or  has  been  allotted  land  for  establishing  the  industrial  units  and applied for financial support from any regular  financial institution/government before 1.1.2000 or  (c) in the case of self financed units  acquired or  placed  firm  orders  for  the  purchase  of  the  necessary  plant  and  machinery,  before  1.1.2000  provided  that  the  unit  commences  commercial  production on or before the 31st day of December,  2001”.

9

(ii) in  sub-clause  (iii),  for  the  words,  figures “acquired necessary plant and machinery”  and  equipments  before  the  first  day  of  January  2000,  provided  that  such  units  “commences  commercial  products  under  such  diversification,  expansion or modernization or before the 31st day  of  December  2000”,  the  following  shall  be  substituted, namely:-

“(a) or acquired necessary plant and machinery  and/or equipments or (b) has owned or acquired or  has  been  allotted  land  and  has  applied  for  loan  from any regular financial institution and/or (c) has  placed firm orders for the purchase of such plant  and machinery and equipments before the 1st day  of  January  2000  provided  that  such  unit  commences  commercial  production  of  such  diversification, expansion or modernization on or  before the 31st day of December, 2001.

A unit shall be deemed to have placed firm  orders  for  the  purchase  of  plant,  machinery  and  equipments  if  such  unit  had  made  any  advance  payments therefore by means of demand draft of  Cheque which has been credited to the account of  the seller prior to 1  st   January 2000.  The onus of    proving  that  an  industrial  unit  had  placed  firm  order  for  purchase  of  such plant,  machinery  and  equipments prior to 1  st   January 2000 shall  be on    such industrial unit:

(iii) after  sub-clause  (iv),  the  following  sub-clause shall be inserted, namely:-

“(v) where on enquiry it is found that any  industrial  unit  had  secured  exemption  by  furnishing false information or forged documents,  the  authority  which  issued  the  exemption  order,  shall,  after  affording  such  industrial  unit  a  reasonable opportunity of being heard, cancel the  exemption”.”

10

(emphasis supplied)

11. Indisputably  again,  the  new  industrial  unit  of  the  appellant  

commenced  commercial  production  on  and  from  6.3.2001.   Appellant,  

however, was not granted the eligibility certificate.   

Revenue  recovery  proceedings  in  connection  with  the  provisional  

sales tax assessment for the month of April 2000 were also started wherefor  

a notice of demand for a sum of Rs.47,83,769/- was issued to the appellant  

on 17.5.2001.  Appellant replied thereto,  stating that it  was exempt from  

payment of any sales tax having fulfilled all the requirements in terms of the  

aforementioned exemption notification.  It also applied for grant of sales tax  

exemption on 20.6.2001.   

A writ  petition marked as O.P. No. 20675 of 2001 was filed by it  

before the Kerala High Court in July 2001 questioning the aforementioned  

order of assessment dated 17.5.2001.  By reason of an order dated 7.9.2001,  

the aforementioned writ petition was disposed of, directing:

“Petitioner submits that his Ext. P6 application for  exemption from payment  of  sales tax is  pending  before the second respondent.  In the meanwhile,  steps have already been taken for assessment and  completed as per Ext. P7 whereby huge amounts  are to be paid.  There is already a stay granted by  

11

this  Court  and  the  same  is  pending  from  13.07.2001  onwards.   The  only  grievance  is  regarding  the  delay  in  disposal  of  Ext.  P6  application.  In the above circumstances there is no  purpose in keeping the original  petition pending.  Therefore,  the  original  petition  is  disposed  of  directing  the  second  respondent  to  take  up  for  consideration  Ext.  P6  application  on  merits  and  pass  appropriate  orders  thereon,  in  accordance  with  law,  within  a  period  of  two  months  from  today.  Petitioner will immediately produce a copy  of this order along with a copy of this judgment  before the second respondent.  It is made clear that  Ext. P. 7 order will be subject to the orders passed  by the second respondent on Ext. P6 application.  Till  such  time  orders  are  passed  by  the  second  respondent, interim order passed by this Court will  continue.”

12. Pursuant  thereto  or  in  furtherance  thereof,  the  matter  was  placed  

before  the  Special  Secretary  (Taxes)  who  by  reason  of  a  letter  dated  

15.11.2001 addressed to the Commissioner of Commercial Taxes clarified  

that the appellant was eligible for grant of sales tax exemption.   

13. The Principal Secretary (Industries) also wrote a letter to the Director  

of Industries & Commerce on or about 21.12.2001 reconfirming that it was  

eligible for sales tax exemption.   

Yet again, the said authority by a letter dated 25.7.2002 informed the  

Director of Industries & Commerce stating that the term ‘necessary plant  

12

and machinery’ need not be the entire plant and machinery and further that  

the  appellant  could be held to  have taken effective  steps as  per  the said  

notifications.  The Director of Industries & Commerce, however, could not  

pass an appropriate order in terms of the direction of the learned single judge  

and sought for an extension which was allowed by an order dated 1.8.2002.   

14. The  Sales  Tax  Officer,  Palakkad,  however,  issued  Provisional  

Assessment Notice for the period April 2002 to December 2002 on or about  

7.2.2003.  Questioning the legality and/or validity of the said notice and the  

order of assessment, the appellant filed writ petition being O.P. No. 8563 of  

2003 in the Kerala High Court.  

15. During pendency of the said writ petition, the Director of Industries &  

Commerce   by  its  order  dated  8.6.2003  rejected  the  prayer  for  grant  of  

eligibility certificate made by the appellant, stating:

“….In  turn  vide  letter  No.  29815/B2/02/ID  dt.  23.12.2002 Government have clarified that there is  no need to issue a general  clarification  for SRO  No. 1092/99 and 295/2000 regarding STE.  This  position  was  reported  to  the  State  Level  Committee  held  on  15.3.2003  for  clarification.  Also the views in the matter contained in letter No.  23364/B3/2000/TD dt.  15.11.2001 of  the Special  Secretary  to  Government  (Taxes)  to  the  Commissioner  of  Commercial  Taxes,  Thiruvananthapuram  and  in  Lr.  No.  36693/B2/01/ID dated 21.12.2001 of the Principal  Secretary  to  Government  (Industries)  were  also  

13

presented before the State Level Committee for its  consideration.   As  per  SRO  No.  29/99  dated  6.1.1999 the Government have authorized the State  Level Committee, under Section 10 of the KGST  Act,  as  the  competent  authority  to  issue  clarifications,  wherever  necessary,  regarding  the  scheme of tax exemption.

The  State  Level  Committee  examined  the  above  issues  and  held  that  in  the  case  of  M/s  Pepsicola India Marketing Company, the purchase  orders and the other documents related to payment  of  advance  to  machinery  suppliers  do  not  show  that the Company has fully satisfied the definition  of “Effective steps” as required and as stipulated in  SRO  No.  1092/99  as  modified  by  SRO  No.  295/2000.

ORDER

In  the  above  circumstances  and  for  the  foregoing  reasons,  the  claim  of  M/s  Pepsicola  India  Marketing  Company,  Kanjikode,  Palakkad  for getting Eligibility Certificate for STE vide their  application  dated  30.5.2001  (Ext.  P6  in  OP  No.  20675/2001) stands rejected.”

16. A learned single judge of the High Court disposed of the writ petition  

filed by the appellant being O.P. No. 8563 of 2003.

In coming to its conclusion, the learned judge took into consideration  

the averments contained in paragraphs 6, 7, 8, 9, 12 and 13 of the counter  

affidavit filed on behalf of the State that the appellant had not complied with  

the essential conditions for grant of exemption from payment of sales tax as  

14

advance payment in the specified manner had not been made by it before  

1.1.2000  having  regard  to  the  fact  that  the  Notification  required  such  

payments in respect of ‘necessary plant and machinery and/or equipments’  

and not to any or ‘certain or a small  portion of the plant and machinery  

necessary for the project’, to hold:

“31. The  latter part of Sub-clause (iii) which is  applicable  to  Sub-clauses  (ii)  and (iii)  alike  is  a  deeming  provision  as  per  which  if  any  advance  payments are made by means of demand drafts or  cheque for the purchase of plant,  machinery and  equipments  which  have  been  credited  to  the  account of the seller  prior to January 1,  2000,  it  shall be deemed that firm orders have been placed  by  the  unit  for  the  purchase  of  such  plant,  machinery  and  equipments.   This  deeming  provision, if complied with, it must be noted, only  dispenses with the requirement of establishing that  firm orders have been placed by the unit  for the  purchase  of  plant,  machinery  and  equipments  which are required for setting up the unit and for  commencing  commercial  production.   This,  however, does not mean that the above is the only  means for establishing that “firm orders have been  placed”.  The last sentence in Clause (iii) latter part  states that “the onus of proving that an industrial  unit  had  placed  firm order  for  purchase  of  such  plant,  machinery  and  equipments  prior  to  1st  January,  2000  shall  be  on  such  industrial  unit”.  This makes the position clear that it is open to the  industrial  unit  to  independently  establish  by  producing  other  materials  that  firm  orders  for  purchase of plant, machinery and equipments are  placed before January 1, 2000.”

It was furthermore held:

15

“33. In the case of small-scale industrial unit, if it  has  obtained  provisional  registration  prior  to  January 1, 2000, it could be said that the said unit  has taken effective steps.  Similarly, an industrial  unit  can  be  considered  to  have  taken  effective  steps,  if  it  has  owned  or  acquired  or  has  been  allotted land for establishing the industrial unit and  also  applied  for  loan  from any  regular  financial  institution/Government  before  January  1,  2000.  Similarly,  in  the  case  of  self  financed  units  acquired or placed firm orders for the purchase of  necessary plant  and machinery before January 1,  2000, it can be considered to have taken effective  steps  provided  the  unit  commences  commercial  production  on  or  before  December  31,  2001.  Regarding the third situation, it is stated that a unit  shall be deemed to have placed firm orders for the  purchase  of  plant,  machinery  and  equipments  if  such  units  had  made  any (emphasis  supplied)  advance  payments  therefor  by  means  of  demand  draft  or  cheque which have been credited  to the  account  of  the  seller  prior  to  the  first  day  of  January,  2000.   Here it  must  be noted that  Sub- clauses (ii) and (iii) provide for the circumstances  under  which  an  industrial  unit  can  be  considered/deemed  to  have  taken  effective  steps  but  it  is  not  exhaustive.   The  burden  is  on  the  industrial unit to establish that the unit had placed  firm orders for purchase of plant, machinery and  equipments prior to January 1, 2000.”

The learned judge furthermore opined that the doctrine of promissory  

estoppel shall be applicable in a case of this nature.   

Respondents preferred a writ appeal thereagainst which was dismissed  

by the Division Bench of the said Court by an order dated 15.6.2004.  A  

16

Special Leave Petition being SLP No. 17308 of 2004 filed thereagainst has  

also been dismissed.   

The  Director  of  Industries  &  Commerce  thereafter  granted  an  

Eligibility  Certificate  to the appellant  stating that  it  was also eligible  for  

grant  of  sales  tax  exemption.   Despite  the  same,  however,  the  Deputy  

Commissioner (General) Commercial Taxes denied the grant of benefit of  

sales tax exemption on the premise that it had failed to take effective steps in  

terms of the relevant notifications by an order dated 5.1.2007.   

Another writ petition being W.P. (C) No. 3115 of 2007 was filed by  

the  appellant.   By an  order  dated 30.11.2007,  the  said  writ  petition  was  

dismissed.  An intra court appeal preferred thereagainst has been dismissed  

by reason of the impugned judgment.   

17. Before adverting to the rival contentions of the parties, we may place  

on record a disturbing fact.   This  case,  on being mentioned by a Senior  

Counsel of this Court, this Court, by an order dated 5.01.2009 directed the  

matter to be placed at the top of the Board, subject to overnight part-heard.  

It was taken up for hearing out of turn.   

17

Mr. H.N. Salve, learned Senior Counsel, started his submissions on  

3.3.2009.  On the next day, i.e. on 4.3.2009, he made a statement that he had  

been instructed not to argue.   

The proceeding sheet of this Court reads as under:

 “Mr.  Harish  Salve,  learned  senior  counsel  appearing on behalf of the petitioner states today  that  he has  been instructed not  to  appear  in  this  case.  Ms.  Vibha  Datta  Makhija,  Advocate-on- record also states that in that view of the matter she  too would withdraw herself from this case. Thus,  there  is  no  representation  on  the  part  of  the  petitioner.              

Mr.  Purvez  Bilimoria,  Executive  Director  (Legal) appearing for the petitioner company seeks  adjournment  in  this  matter.  Keeping in  view the  facts and circumstances of this case, we are of the  opinion that this Court can not allow the same.  

We called upon Mr. Bilimoria to argue the  matter  as  a  party  in-person.  He  expresses  his  inability to do so. We refuse to adjourn the matter  and call upon the learned senior counsel appearing  on behalf of the State of Kerala to proceed with the  arguments.  However,  any  written  submissions  filed  on  behalf  of  the  petitioner  shall  be  entertained.”

18. However, after the arguments of Mr. Dave were over, Mr. Bilimoria  

sought  permission  to  appear  in  the  case.   We  have,  despite  such  a  

18

reprehensible conduct on the part of the appellant, allowed its representative  

to argue the case on behalf of the appellant-in-person.

19. Mr. Purvez Bilimoria would urge:

i. Eligibility certificate having been granted by the authorities of  

KSIDC  and  the  Director  of  Industries  and  Commerce,  the  

Secretary  of  State  could  not  have  sit  in  appeal  over  their  

decisions particularly when the High Court itself had gone into  

the issues.

ii. Grant  of  Eligibility  Certificate  could  have  been  denied  only  

when  the  conditions  other  than  those  noticed  by  the  Kerala  

Finance Corporation were not satisfied.

iii. Having regard to the findings of the High Court in Writ Petition  

being O.P. No. 8563 of 2003, the writ appeal and the Special  

Leave  Petition  whereagainst  were  dismissed;  the  State  could  

not have taken a contrary stand.

iv. The State having regard to the promises made to the appellant  

pursuant whereto it altered its position was bound thereby.  

19

v. The  amended  notifications  and  in  particular  the  notification  

dated 31.3.2000 being benevolent ones, the same should have  

been construed liberally.

vi. Appellant, pursuant to or in furtherance of the promise, having  

not  collected  any  tax  from  its  consumers,  a  purposive  

interpretation to the said notification should have been rendered  

by the High Court.

20. Mr. Dushyant Dave, learned senior counsel appearing on behalf of the  

respondents, on the other hand, would contend:

(i) A finding of fact having been arrived at by the authorities that  

the appellant had not placed firm orders of necessary plant and  

machinery within the meaning of the provisions of exemption  

notification  which having  been affirmed  by both  the  learned  

Single Judge as also the Division Bench of the High Court, no  

interference therewith is warranted.   

(ii) The judgment and order dated 7.9.2001 in O.P. No. 20675 of  

2001  cannot  be  held  to  be  binding  upon  the  Director  of  

Industries  as  also  the  Deputy  Commissioner  (General)  

Commercial  Taxes  as  by  reason  thereof  the  said  authorities  

20

were merely asked to consider the matter relating to grant of  

eligibility certificate.   

(iii) The Director of Industries having issued a certificate, subject to  

the  concurrence  of  the  Deputy  Commissioner  (General)  

Commercial Taxes, the same was not conclusive.

(iv) The  exemption  granted  under  the  notifications  being  

conditional,  the  said  condition  being  imperative  in  character  

requires a strict interpretation.

21. The exemption notification was issued for the purpose of achieving  

the economic growth in the State.  The letters exchanged by and between the  

appellant  and  the  authorities  of  the  State,  which  we  have  noticed  

heretobefore, in no uncertain terms, show that the appellant was intending to  

set up a plant in the State of Kerala pursuant to the provisions made by the  

State.

22. It is beyond any doubt or dispute that pursuant to or in furtherance of  

the  said  assurance,  the  appellant  altered  its  position.   It  made  a  huge  

investment.  It entered into an agreement of lease with the authorities of the  

State for which it had expended a sum of Rs. 2,77,64,000/-.  The lease is for  

a period of 99 years with an option of renewal for another  period of 99  

21

years.  Indisputably, again in relation to a part of the plant and machinery, it  

had placed orders.  The Deutsche Bank had issued a certificate on 29.9.2000  

in that behalf, stating:

“This  is  to  confirm  that  the  following  cheques  issued by Pepsi  Cola  India Marketing Company,  which  were  deposited  by  the  parties  in  their  respective  accounts  were  duly  honoured  and  credited to the party’s respective accounts.”

23. Indisputably,  again  the  appellant  had  commenced  commercial  

production much before the cut-off date fixed therefor, viz. 31.12.2001.

24. The grant of eligibility certificate is in two tiers.  But, it is of some  

significance  to  note  that  the  Director  of  Industries  and Commerce  is  the  

appellate  authority  of  the  Deputy  Commissioner  (General)  Commercial  

Taxes, as would appear from a notification dated 3.11.1993.  On the one  

hand,  in  relation  to  the  grant  of  exemption,  the  power  of  the  Board  of  

Revenue  is  being  exercised  by  the  Deputy  Commissioner  (General)  

Commercial  Taxes,  the  Director  of  Industries  and  Commerce  was  the  

appellate authority; on the other, the latter’s decision was made subject to  

the ultimate grant of exemption by the former.

The effect of such a dichotomy merits serious consideration.   

22

25. It stands admitted that the contention raised by the respondents herein  

in the first round of litigation that the investment in the plant and machinery  

must  be  substantial  was  for  all  intent  and purport  rejected.   Interpreting  

clauses (a), (b) and (c) of the notification, it was held that the conditions  

imposed thereby are not absolute.  Clauses (b) and (c) of the notification  

were read together.  It was furthermore held that the term “any” referring to  

advance payment is linked up with all the clauses.   

The  said  writ  application  had  to  be  filed  by  the  appellant  as  the  

Director of Industries refused to grant the eligibility certificate in its favour.  

The Deputy Commissioner (General) Commercial Taxes was a party thereto.  

It has been stated before us that he had not filed any affidavit in the said  

proceedings.  Only the Director of Commerce and Industries did.  Even the  

special leave petition was filed by the Industries Department and not by the  

Commercial Taxes Department.   

The Director had granted a certificate in terms of the order of the High  

Court.  The eligibility certificate was granted in the prescribed form.  It was  

shown that a fixed capital investment of Rs. 30,46,94,552 has been made  

under the following heads:

23

“i) Land : Nil ii) Building : Rs.   1,56,02,600/- iii) Plant & Machinery : Rs. 26,71,62,774/- iv) Pollution Control Devices : Rs.        8,12,294/- v) Lab equipments : Nil vi) Diesel Generator : Rs.    99,73,589/- vii) Electrification : Rs. 1,11,43,295/-

Total : Rs. 30,46,94,552/-“

26. To that extent, the appellant had been found to be eligible for grant of  

exemption.  Conditions entailing the eligibility certificate specified therein  

read as under:

“This  Eligibility  Certificate  is  issued  on  the  condition  that  the  Deputy  Commissioner  (General),  Commercial  Taxes  who  is  the  sanctioning authority shall decide on the eligibility  of  the unit  for ST Exemption under the relevant  notification, vide general procedure in this regard  clarified  by  the  State  Level  Committee,  in  its  meeting held on 15.3.2003”

An explanatory  note  had  been  appended  thereto;  Clauses  3  and  7  

whereof read as under:

“3. Plant & Machinery:

The  claim  of  the  unit  under  Plant  &  Machinery  for  eligibility  certificate  is  Rs.  32,10,13,534/-.  This claim includes investment in  

24

Plant & Machinery, Pollution control devices and  lab  equipments.   Rs.  26,71,62,774/-  and  Rs.  8,12,294/-  are  found  admissible  under  Plant  &  Machinery  and  Pollution  Control  devices  respectively,  based  on  admissible  bills,  invoices  and receipts.  Investments on Lab equipments are  not admitted as the claim is not supported with a  certificate  of  requirement issued by B/S or other  similar  organizations  vide  proviso  (11)  of  the  Manual of STE.

7. Purchase of Machinery

The  unit  has  not  acquired  its  machinery  prior  to  1.1.2000.   All  the  items  were  acquired  after 31.12.1999.”

27. The Director of Industries and Commerce,  furthermore, noticed the  

advance payments made by the appellant to the supplier, stating:

“Of the above, item nos 3 & 4 are not any item/  constituent of necessary Plant & Machinery.  They  relate to expenditure in connection with either pre  acquisition  or  post  acquisition  stages  of  Plant  &  Machinery  in  the  course  of  commissioning  the  unit.   Deducting  the  above,  the  actual  advance  payment  before  1.1.2000  towards  identifiable  constituents/  component  of  necessary  Plant  &  Machinery  is  only  Rs.  13.75  lakhs  and  this  is  advance paid prior to 1.1.2000 towards part of the  Plant  and  Machinery  costing  105.00  lakhs  as  against the total cost of Rs. 3210.13 lakhs involved  in  the  necessary  plant  & machinery  required  for  starting  commercial  production  in  the  unit.   It,  therefore,  shows  that  plant  & machinery  costing  Rs. 3105.13 lakh were not paid of any advance to  machinery suppliers prior to 1.1.2000 and they all  were acquired on different dates after 1.1.2000.

25

During May 2000, amendments were made  by the unit in the earlier placed purchase orders to  accommodate  in  the  purchase/  supply  orders  additional machineries as well as items varying in  specifications/  with  different  capacities  than  the  particular ones for which orders were placed prior  to  1.1.2000.   As  per  this  amendment,  the  total  value  of  the  machinery  for  which  the  advance  payment was made changes from Rs. 105.00 lakhs  to  Rs.  285.80  lakhs.   It  shows  that  final  ‘firm  orders’ even for the items for which advances were  paid prior to 1.1.2000 were placed (along with firm  orders  for  certain  new  items)  only  on  different  dates  in  May 2000.   This  may be  kept  in  mind  while proceeding further, if found necessary.”

28. The Deputy Commissioner (General) Commercial Taxes reopened the  

entire issue.  He, despite the fact that the contention of the State raised in  

O.P. No. 8563 of 2003 had not been accepted by the learned Single Judge of  

the High Court, which was affirmed not only by the Division Bench of the  

High Court but also by this Court, proceeded to opine:

(i) Appellant did not fulfill the eligibility criteria.

(ii) It did not place orders for supply of machinery.

(iii) The conditions for grant of exemption had not been satisfied.      

29. We  may  proceed  on  the  premise  that  the  said  judgment  does  not  

operate res judicata as therein it was directed:

26

“45. For all these reasons, I set aside exhibit P26  order.   I  had  given  sufficient  indications  in  this  judgment in regard to the scope of the expression  “have  taken  effective  steps”  for  setting  up  the  industrial  unit  prior  to  the  first  day  of  January,  2000 used in S.R.O. No. 1092 of 1999.  I direct the  second respondent  to  independently  consider  the  petitioner’s  application  for  sales  tax  exemption  (exhibit  P8)  in  the  light  of  the  observations  contained  in  this  judgment  and after  considering  the documents with regard to the placing of firm  orders  in  respect  of  plant  and  machinery  and  equipments  furnished  by  the  petitioner  untrammeled by the view taken by the State Level  Committee in exhibit P19 proceedings as well as in  exhibit  P26.   The  Government  in  their  communication  dated  December  23,  2002  has  clearly stated that there is no need for issuing any  general clarification regarding the scope of S.R.O.  No.  1092 of  1999 and S.R.O.  No.  295 of  2000.  Thus the  second respondent  is  entitled  to  take  a  decision  on  the  petitioner’s  application  independently.”

It was observed:

“…The  principles  regarding  interpretation  of  an  exemption provision in a taxing statute laid down  by  the  Supreme  Court  as  already  noted  in  paragraph 29 supra where the Supreme Court has  held  that  a  provision  granting  incentive  for  promoting economic growth and development in a  taxing  statute  should  be  liberally  construed  and  restrictions  placed  on  it  by  way  of  exception  should be construed in a reasonable and purposive  manner  so  as  to  advance  the  object  of  the  

27

provision.  In this case, the Government when they  took  a  decision  to  discontinue  the  incentive  provided in Notification S.R.O. No. 1729 of 1993  with  effect  from  January  1,  2000  by  way  of  exception decided to extend the benefit of the said  notification  to  the  four  categories  mentioned  in  paragraph 21 supra.  These exceptions, as already  noted,  are  based  on  the  principle  of  promissory  estoppels as considered by the Supreme Court in  Mahaveer Oil Industries’ case [1999] 115 STC 29.  The  circumstances  under  which  a  unit  can  be  considered  to  have  taken  effective  steps  were  incorporated in Notifications S.R.O. Nos. 1092 of  1999 and 295 of 2000 only as a measure to help  the  units  which  have  taken  effective  steps  for  setting up the industrial unit based on Notification  S.R.O. No. 1729 of 1993.  I  have also observed  that  the  notification  itself  gives  sufficient  clues  regarding  the  meaning  to  be  given  to  the  expression  “have  taken  effective  steps”  in  paragraph 33 supra.  According to me Sub-clauses  (ii) and (iii) of Clause 1 of Notification S.R.O. No.  1092 of 1999 as amended by Notification S.R.O.  No.  295  of  2000  have  to  be  considered  and  understood in the above background.  If the latter  part of Sub-clause (iii) of Clause 1 of Notification  S.R.O. No. 1092 of 1999 inserted by Notification  S.R.O. No. 295 of 2000 is understood in the above  background,  the  use  of  the  expression  “any”  preceding  the  expression  “advance  payments”  would  indicate  that  the  quantum  of  advance  payment  is  irrelevant  and  that  it  is  sufficient  to  make  advance  payments  even  if  it  is  negligible  when  compared  to  the  value  of  the  plant,  machinery and equipments.”

28

30. In the aforementioned  context,  we may notice the judgment of  the  

learned Single Judge in the second round of litigation in W.P. (C) No. 3115  

of 2007 wherein it was observed:

“34. The  total  cost  of  plant  and  machinery  as  claimed  by  the  petitioner,  in  the  application  for  sales  tax  exemption  is  Rs.  32,10,13,534/-.   As  noted in para 13 above (which is  extracted from  Ext. P13) apparently firm orders had been placed  by the petitioner only for three items which would  come under  the  category  of  necessary  plant  and  machinery.   Though three  replies  were  given by  the  petitioner  to  Ext.  P13,  viz.,  Ext.  P14  on  30.6.2005, Ext. P22 dated 29.9.2006 and thereafter  Ext.  P23  written  submissions  was  made  on  1.12.2006 after the personal hearing, it was not the  case of the petitioner at any point of time that firm  orders had been placed by them for other plant and  machinery which will come under the category of  necessary  plant  and  machinery  in  terms  of  the  notification…It is not the petitioner’s case that any  plant and machinery as such was acquired before  the cut off date i.e. 1.1.2000.  In the circumstances  the finding in Ext. P24 that the petitioner had not  acquired or placed firm orders for the purchase of  necessary plant and machinery seems to be based  on  the  materials  on  record  and  is  otherwise  tenable.

*** *** ***

…The items of plant and machinery for which firm  orders  were  placed  prior  to  the  cut  off  date  on  1.1.2000  even  according  to  the  petitioner  are  obviously only a small percentage of the plant and  machinery…”

29

While, however, doing so, we may place on record that the following  

contentions had been raised :

“(1) The  petitioner’s  eligibility  for  sales  tax  exemption was certified by the Director as per Ext.  R1(a)  and  consequently  it  was  not  open  to  the  Deputy Commissioner of Commercial  Taxes,  the  third  respondent  to  again  consider  that  question.  The third respondent had the jurisdiction only to  quantify  the  exemption  that  the  petitioner  was  entitled to, eligibility having been already certified.

(2) That  at  any  rate,  the  petitioner  had  taken  effective steps for setting up a new industrial unit  prior to the first day of January, 2000, being a self  financing  unit  it  had  placed  firm  orders  for  the  purchase of necessary plant and machinery before  1.1.2000.   It  has  commenced  commercial  production before 31st of December, 2001.

(3) The  finding  in  Ext.  P24  that  the  activity  carried on by the petitioner does not tantamound to  manufacture is fundamentally erroneous.”

We are herein concerned with contention Nos. 1 and 2.   

So  far  as  contention  No.  1  is  concerned,  he  determined  the  said  

question in paragraph Nos. 21 to 32, inter alia, stating :

“24…Should the certificate of eligibility issued by  the competent authority necessarily be a certificate  of exemption.  Firstly, clause 10(d) states that the  eligibility certificate referred to in clause (b) shall  contain the date of commencement of commercial  

30

production  and  the  monetary  limit  of  exemption  the unit is eligible for.  In my view clause 10(d)  indicates what should necessarily be contained in  the eligibility certificate issued under clause 10(b).  This  therefore  could  also  be  indicative  of  the  parameters  of  the  authority  required  to  be  exercised by the Director of Industries in terms of  the notification.  What is required to be certified in  the  eligibility  certificate,  is  therefore  the  date  of  commencement of commercial production and the  monetary  limit  of  the  exemption that  the  unit  is  eligible for.  Can it be said that if these two factors  are certified, the unit in question would be entitled  to sales tax exemption?  If these two factors are  certified in the eligibility certificate issued by the  Director, does it oblige the Deputy Commissioner  of Commercial  Taxes to necessarily  consider the  unit in question as entitled for tax exemption?  Mr.  Vellapally contends that once the unit is certified  as eligible for tax exemption then the limited brief  available to the Secretary, Board of Revenue or the  Deputy Commissioner of Commercial Taxes (who  is  currently  the  competent  authority)  is  only  to  quantify the monetary limits of the tax exemption  that the unit is entitled to.”   

Contention No. 2 was dealt in paragraphs 33 to 36, concluding:

“(i) the  activity  carried  on  by  the  petitioner  in  its  unit  at  Kanjikode,  Palakkad,  engaged  in  the  production  of  soft  drinks  is  a  manufacturing activity within the meaning of SRO  1729/93.

(ii) In terms of the scheme for exemption from  payment of tax as contained in SRO No. 1729/93,  the  certificate  of  eligibility  to  be  issued  by  the  Director  is  intended  only  to  certify  the  actual  commencement  of  commercial  production of  the  

31

unit before the cut off date and the monetary limit  of  tax exemption  that  the  unit  would be eligible  for.  At the same time, the Director of Industries is  not required to certify the entitlement of the unit  for tax exemption.

(iii) The  entitlement  of  the  unit  for  exemption  from  payment  of  tax  is  to  be  certified  by  the  Deputy  Commissioner  of  sales  tax,  in  SRO No.  1729/1993.  Such certification of the entitlement is  to be contained in the exemption certificate issued  by the Deputy Commissioner.

(iv) Ext.  P24  order  passed  by  the  Deputy  Commissioner  cannot  be  said  to  be  without  jurisdiction.  It is with jurisdiction and the finding  therein  to  the  effect  that  the  petitioner  has  not  satisfied  the  conditions  mentioned  in  SRO  No.  1729/93  as  amended  by  SRO  1092/99  and  modified  by  SRO  No.  295/2000  is  correct  and  justified.   The said finding does  not  require  any  interference.

(v) Ext.  P24 is therefore upheld subject to the  finding in para (i) above viz. the activity carried on  by the petitioner in its unit for the production of  soft drinks is a manufacturing activity within the  meaning of SRO No. 1729/1993.”

It was opined:

“…In my view Ext. P2 judgment obviously cannot  be construed as conferring authority on the second  respondent  to  decide  the  question  of  eligibility  entitlement  of  the  petitioner  for  sales  tax  exemption.   If  the  direction  issued  in  Ext.  P2  judgment  is  construed  in  such  a  fashion,  it  will  amount to altering the scheme for tax exemption as  provided in the statutory application.”

32

31. Although  a  contention  has  been  raised  before  us  that  despite  

opportunities granted, the appellant had not adduced the additional evidence  

to establish compliance of the conditions precedent for grant of eligibility  

certificate, it has not been denied or disputed that even in the first round of  

litigation,  the  requisite  documents  formed  part  of  the  writ  petition.   The  

Deputy  Commissioner  (General)  Commercial  Taxes,  therefore,  in  our  

opinion,  even  it  be  assumed  that  he  was  not  totally  bound  by  the  

observations  made  therein,  should  have  taken  into  consideration  the  

interpretation of the notification adverted to by the learned Single Judge.

32. This brings us to the question of interpretation of the notifications.

The notification dated 3.11.1993 was issued in terms of an industrial  

policy; pursuant whereto exemption was to be granted for a period of seven  

years.  Appellant had placed orders for supply of plant and machinery both  

with advances and without advances.

33

What was necessary was to take effective steps for setting up of new  

industrial units.  A deeming provision existed in terms whereof the effective  

steps would be considered to have been taken; if it has :  

(a) obtained provisional registration (applicable only in the case of SSI  

units);  

(b) owned  or  acquired  or  has  been  allotted  land  for  establishing  the  

industrial  units  and applied  for  financial  support  from any  regular  

financial institution/ government before 1.1.2000; or  

(c) in the case of self financed units acquired or placed firm orders for the  

purchase of the necessary plant and machinery before 1.1.2000.

Although  clause  (a)  has  no  application  in  the  instant  case  but  it  

becomes  relevant  for  the  purpose  of  construing  the  notification  so  as  to  

measure the level of rigours imposed thereby.  In case of SSI units, thus,  

merely  a  provisional  registration  would  serve  the  purpose.   Even  no  

investment was necessary for obtaining the benefit.  So far as clause (b) is  

concerned, mere application for financial support from any regular financial  

institution again would entitle the entrepreneur to obtain the benefit of the  

exemption notification.   

It  is  in  the  aforementioned  context,  applications  for  grant  of  

exemption  by  the  self-financed  units  are  required  to  be  taken  into  

34

consideration.   They  are  either  to  acquire  or  place  firm  orders  for  the  

necessary plant and machinery.  It is not that order for entire machinery and  

equipment were required to be placed for before the first day of January,  

2000.  Even in relation thereto, a legal fiction has been created stating that if  

such unit had made  any advance payments therefor by means of demand  

draft or cheque, the requirements would stand satisfied.

33. The Director of Industries and Commerce,  as noticed hereinbefore,  

opined that apart from a few items, firm orders have been placed in respect  

of some machineries by means of demand draft or cheques and the same has  

been credited to the account of the sellor prior to the first day of January,  

2000.   

It is also of some significance to notice that the exemption notification  

appears to have been drafted having regard to the decision of this Court in  

State  of  Rajasthan  and  Another v.  Mahaveer  Oil  Industries  and  Others  

[(1999) 4 SCC 357].   

A  comparative  chart  placed  before  us  by  Mr.  Billimoria  may  be  

noticed :

Mahaveer Oil This Court’s  observation

Notification 1092/99 as  amended

35

The  respondent  –  firm  got  its  provisional  registration  certificate  on 15.2.1990.

This  is  merely  a  provisional  registration  issued  by  the  Directorate  of  Industries

Mere registration would  be good enough for SSI  units.

They  applied  for  allotment  of  land  and  land  was  allotted  to  them by RICO Limited,  by  its  letter  dated  19.2.1990.   Possession  of the land was handed  over  on  7.3.1990  and  lease  agreement  was  executed  in  March  1990.

For  this  land,  a  very  small amount was paid.

If  you  bought  or  were  allotted  land  and  had  merely  applied  for  a  loan  from  a  regular  financial  institution/  government,  before  the  relevant date it  is good  enough.

A loan of Rs. 7.5 lakhs  was  sanctioned  by  the  Rajasthan  Financial  Corporation  in  favour  of  the  respondents  on  17.4.1990.

It  is  not  stated  how  much loan was actually  availed  of  by  the  respondents  on  or  before 7.5.1990.

Mere  application  for  loan is good enough for  those  who  acquired  land.

Mahaveer  Oil  claimed  that  they  placed  orders  for  machinery  on  18.4.1990.

It  is,  however,  not  stated  whether  any  amount either as earnest  or  advance  for  the  purchase  of  machinery  was  paid  by  the  respondents to anybody  before 7.5.1990.

Show  payment  of  any  advance  towards  plant  and  machinery  and  it  will  be  deemed  that  necessary  orders  have  been placed.

The  aforementioned  comparative  chart  throws  a  light  on  the  

legislative intent and deliberate dilutions of the rigours as to what effective  

steps would merit consideration of the application for grant of exemption by  

an entrepreneur.

36

34. It is also of some significance that the said notification was withdrawn  

by a notification dated 31.12.1999, subject of course to an exception curved  

out therein, viz., the industries which had been set up on or before 1.1.2000  

and which have already commenced commercial production, set up or taken  

effective  steps  to  establish  industrial  unit  prior  to  1.1.2000  were  to  be  

allowed the benefit of exemption.  

 That notification stood amended on 31.3.2000 in terms whereof some  

benefits  had been given to  an entrepreneur  like  the  appellant,  as  noticed  

hereinbefore.

35. Appellant  need  not  have  questioned  the  validity  thereof  as  the  

notification in question was issued by relaxing the conditions imposed in the  

notification dated 31.12.1999 which was one of withdrawing the grant of  

earlier benefits.  Thus, by reason of the said notification, certain benefits had  

been confirmed on it.

36. There cannot be any doubt whatsoever that the burden of proof was on  

the appellant.  According to the Director of Industries, he had discharged the  

burden.   Only  because  the  procedural  sanction  of  grant  of  financial  

exemption was  to  be  received  from the  Deputy  Commissioner  (General)  

Commercial  Taxes,  the  same,  in  our  opinion,  would  not  mean  that  the  

37

conditions had not been satisfied.  In any event, the certificate granted by the  

Director deserved serious consideration.

Both  the  learned Single  Judge as  also  the  Division  Bench  did not  

consider this aspect of the matter.

37. Although payment of advance in respect of some machinery and plant  

would subserve the requirements for the purpose of obtaining the eligibility  

certificate, the learned Single Judge read the word ‘any’ to be synonymous  

to  the  word  ‘all’,  whereas  the  Division  Bench  considered  it  to  be  

“substantial”.   It  is  in that view of the matter  the opinion of the learned  

Single  Judge in  O.P.  No.  8563 of  2003 assumes  importance  wherein,  as  

noticed hereinbefore, it was categorically held:  

“…Regarding the third situation, it is stated that a  unit shall be deemed to have placed firm orders for  the purchase of plant, machinery and equipment if  such  units  had  made  any (emphasis  supplied)  advance  payments  therefor  by  means  of  demand  draft  or  cheque which have been credited  to the  account  of  the  seller  prior  to  the  first  day  of  January, 2000…”

The  High  Court  although  laid  emphasis  on  the  word  “any”  but  

proceeded on the basis as if, purchase of plant, machinery and equipment  

prior to 1st January, 2000 in their entirety, was imperative.  

38

38. Appellant’s bonafide is not in dispute.  The fact that it had set up an  

industry and started commercial production nine months prior to the cut-off  

date, viz., 31.12.2001 is also not disputed.

39. Ordinarily, this Court would not have gone into the findings of the  

fact arrived at by the statutory authorities but was only required to consider  

the correctness of judgment of the learned Single Judge as also the Division  

Bench  of  the  High  Court.   However,  even  in  a  case  of  this  nature,  the  

authorities stuck to their own stand which is not expected from a statutory  

authority.  See, however,  K.I. Shephard and Others v.  Union of India and  

Others (1987) 4 SCC 431 and  Rajesh Kumar and Others v.  Dy. CIT and  

Others (2007) 2 SCC 181]

40. Mr. Dave has placed strong reliance on a decision of this Court in  

Tata Iron & Steel Co. Ltd. v. State of Jharkhand and Others [(2005) 4 SCC  

272] wherein it was held:

“42. Eligibility clause, it is well settled, in relation  to  exemption  notification  must  be  given  a  strict  meaning. 43.  In  Collector  of  Customs  v.  Maestro  Motors  Ltd. this Court held: (SCC p. 418, para 9)

“It  is  settled  law  that  to  avail  the  benefit  of  a  notification  a  party  must  comply  with  all  the  conditions  of  the  notification.  Further,  a  

39

notification  has  to  be  interpreted  in  terms  of  its  language.””

The  aforementioned  observations  were  made  having  regard  to  the  

nature of exemption claimed by the appellant therein as also having regard  

to the industrial policy of the State of Jharkhand.

41. We may, however, notice that recently in Kusumam Hotels (P) Ltd. v.  

Kerala State Electricity Board & Ors.  [2008 (9) SCALE 448], this Court  

held:

“17. It is now a well settled principle of law that  the doctrine of promissory estoppel applies to the  State.”

The said principle was reiterated in M/s. Badri Kedar Paper Pvt. Ltd.  

v. U.P. Electricity Regulatory Commn. & Ors. [2009 (1) SCALE 137] in the  

following terms:

“…It is furthermore well known that even a right  under a mandatory provision can be waived. [See  Babulal  Badriprasad  Varma  v.  Surat  Municipal  Corporation  and  Ors.]  If  it  had  made  a  representation pursuant whereto or in furtherance  whereof  a  consumer  of  electrical  energy  had  altered  its  position,  the  doctrine  of  promissory  estoppel  shall  apply.  The doctrine  of  promissory  estoppel, it is now well-settled, applies also in the  realm of a statute.”

40

42. An exemption notification and a notification withdrawing the benefit  

granted would, however, stand on different footings.  For the said purpose,  

the industrial policy is required to be kept in mind.  It must also be taken  

into consideration for the purpose of construing the exemption notification.   

In  A.P.  Steel  Re-Rolling  Mill  Ltd. v.  State  of  Kerala  and  Others  

[(2007) 2 SCC 725], this Court held:

“32.  The  general  principles  with  regard  to  construction of  exemption notification are  not  of  much  dispute.  Generally,  an  exemption  notification is to be construed strictly, but once it is  found that  the entrepreneur  fulfils  the  conditions  laid  down therein,  liberal  construction  would  be  made. 34. A question as to whether, in a given situation,  an entrepreneur was entitled to the benefit under an  exemption notification or not, thus, would depend  upon the fact of each case. A bare perusal of the  notification  dated  6-2-1992  issued  by  the  first  respondent would show that the purport and object  thereof  was  to  grant  benefit  of  a  concessional  power tariff which came into force on and from 1- 1-1992.  The  phraseology  used  in  the  said  notification  postulates  that  the  benefit  was  to  be  granted in regard to the “enhanced power tariff”.  Thus, where the new units had started production  between  1-1-1992  and  31-12-1996,  such  exemption was available to the entrepreneurs. 35. Evidently, except in a situation as might have  been  existing  in  Hitech  Electrothermics  that  any  application filed by the entrepreneur had not been  processed within a reasonable time, in which case  

41

benefit might not be denied on equitable ground; in  cases where there has been a substantial failure on  the part of the industrial unit to obtain such benefit  owing to acts of omission and commission on its  part, in our opinion, no such benefit can be given.”

Yet again in U.P. Power Corporation Ltd. and Another v. Sant Steels  

& Alloys (P) Ltd. and Others [(2008) 2 SCC 777], it was opined:

“24. Learned Senior Counsel invited our attention  to a decision of this Court  in State  of Punjab v.  Nestle  India  Ltd.  in  which  a  representation  was  made by the Government in the manner dehors the  rules  but  a  statement  was  made  by  the  Finance  Minister  in  his  Budget  speech  for  1996-1997  making representation to the effect that the State  Government had abolished purchase tax on milk.  The  manufacturers  of  milk  products,  therefore,  were  not  paying  the  purchase  tax  on  milk  for  Assessment  Year  1996-1997  and  mentioned  this  fact  in  their  returns.  The  taxing  authority  entertained such returns. The manufacturers passed  on the benefit  of exemption to the dairy farmers  and milk producers. However, after expiry of the  said  assessment  year,  the  Government  took  a  decision not to abolish purchase tax on milk and  the taxing authority therefore raised a demand for  Assessment  Year  1996-1997.  On these facts,  the  Court  held  that  in  absence  of  proof  of  any  overriding  public  interest  rendering  the  enforcement  of  estoppel  against  the  Government  was  inequitable,  notwithstanding  that  no  exemption notification  as  required by  the  statute  was issued. It was held that the State Government  cannot resile from its decision to exempt milk and  raise a demand for the aforesaid assessment year.  However, the same principle of estoppel was not  invoked  after  Assessment  Year  1996-1997.  The  

42

Court  enforced the principle  of  estoppel.  All  the  earlier cases on the subject were reviewed by the  Court and ultimately it was concluded as follows:  (SCC pp. 481-82, para 47)

“47. The appellant has been unable to establish any  overriding  public  interest  which  would  make  it  inequitable  to  enforce  the  estoppel  against  the  State  Government.  The  representation  was  made  by  the  highest  authorities  including  the  Finance  Minister in his Budget speech after considering the  financial  implications  of  the  grant  of  the  exemption to milk.  It  was found that  the overall  benefit  to  the  State’s  economy  and  the  public  would be greater  if the exemption were allowed.  The respondents have passed on the benefit of that  exemption  by  providing  various  facilities  and  concessions  for  the  upliftment  of  the  milk  producers. This has not been denied. It would, in  the circumstances, be inequitable to allow the State  Government  now  to  resile  from  its  decision  to  exempt  milk  and  demand  the  purchase  tax  with  retrospective  effect  from  1-4-1996  so  that  the  respondents  cannot  in  any  event  readjust  the  expenditure  already  made.  The  High  Court  was  also  right  when it  held  that  the  operation  of  the  estoppel  would  come  to  an  end  with  the  1997  decision of the Cabinet.”

It was furthermore observed:

“35.  In  this  21st  century,  when  there  is  global  economy, the question of faith is very important.  The Government offers certain benefits to attract  the  entrepreneurs  and  the  entrepreneurs  act  on  those beneficial offers. Thereafter, the Government  withdraws those benefits. This will seriously affect  the credibility of the Government and would show  the short-sightedness of governance. Therefore, in  

43

order  to  keep  the  faith  of  the  people,  the  Government or its instrumentality should abide by  their  commitments.  In  this  context,  the  action  taken by the appellant Corporation in revoking the  benefits given to the entrepreneurs in the hill areas  will sadly reflect their credibility and people will  not  take  the  word  of  the  Government.  That  will  shake  the  faith  of  the  people  in  the  governance.  Therefore, in order to keep the faith and maintain  good  governance  it  is  necessary  that  whatever  representation is  made by the Government or  its  instrumentality  which  induces  the  other  party  to  act,  the  Government  should  not  be  permitted  to  withdraw from that. This is a matter of faith.”

Furthermore,  in  this  case,  the  appellant  admittedly  has  even  not  

realized  any  tax  from  its  purchasers.   Keeping  in  view  the  facts  and  

circumstances of the case, we are of the opinion, that the respondents must,  

thus, be held to be bound by the doctrine of promissory estoppel.

43. For the reasons aforementioned, the impugned judgment is set aside.  

The appeal is allowed.  However, in view of the fact that the appellant had  

instructed the Senior Counsel not to appear in the matter despite the fact that  

the same was heard in part, we not only deny cost to it but also direct that  

the appellant must pay a sum of rupees one lakh to the Kerala State Legal  

Services Authority within four weeks from date.

44

……………………………….J. [S.B. Sinha]

..…………………………..…J.  [Dr. Mukundakam Sharma]

New Delhi; May 11, 2009

45