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PETITIONER: STATE OF RAJASTHAN & ANR.

       Vs.

RESPONDENT: M/S.  MAHAVEER OIL INDUSTRIES & ORS.

DATE OF JUDGMENT:       22/04/1999

BENCH: Sujata V.Manohar, D.P.Mohapatra, R.C.Lahoti

JUDGMENT:

Mrs.  Sujata V.  Manohar, J.

     At  all material times the respondent was an  industry engaged in the business of oil extraction and manufacture in the State of Rajasthan.

     By  a  notification dated 23rd of May, 1987 issued  in the  exercise  of  its  powers under  Section  4(2)  of  the Rajasthan  Sales  Tax  Act, 1954, the appellant -  State  of Rajasthan   notified  a  Sales   Tax  Incentive  Scheme  for Industries,  1987 (hereinafter referred to as the "Incentive Scheme") under which it exempted (inter alia) new industrial units  from payment of tax on the sale of goods manufactured by them for sale within the State of Rajasthan in the manner and  to  the extent and for the period as specified in  that notification.  The operative period of the scheme under that notification  was from 5th of March, 1987 to 31st of  March, 1992.   It  was subsequently extended to 31st  March,  1997. The  incentive  scheme  was applicable, inter alia,  to  new industrial  units set up in areas mentioned in Annexure-A to the  notification.  Annexure-B sets out a list of industries which  were  not  eligible  for  the  benefit  of  the  said notification.   Oil extraction or manufacture was not listed in  appendix-  B.   Hence  this industry  was  eligible  for benefits under the scheme of 23rd of May, 1987.

     By another notification dated 23rd of May, 1987 issued under  Section  8(5) of the Central Sales Tax Act the  State Government  notified another sales tax incentive scheme  for industries  exempting (inter alia) new industrial units from payment  of  central sales tax on the inter- state  sale  of goods  manufactured  by them within the State of  Rajasthan. Under this notification also it was provided that industries listed  in appendix-B would not be eligible for the  benefit of the scheme.  Oil extraction or manufacture was not listed in  appendix-B  to this notification.  Hence oil  extraction units  were eligible for exemption from central sales tax in respect of inter-state sale of their goods.

     By a notification dated 6th of July, 1989 issued under Section  4(2)  of  the  Rajasthan Sales Tax  Act,  1954  the appellants  notified  Sales  Tax New  Incentive  Scheme  for Industries, 1989, to exempt industrial units from payment of tax  on sale of goods manufactured by them within the  State of  Rajasthan  in the manner and to the extent and  for  the

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period  covered  by  that notification.  The  new  Incentive Scheme  of 1989 was deemed to have come into operation  with effect  from  5th of March, 1987 and was to remain in  force upto  31st  of March, 1992.  A similar notification  of  the same  date  was issued in respect of the central  sales  tax exemption  for  the  said units under Section  8(5)  of  the Central  Sales  Tax  Act.    Under  this  notification  also appendix-B  contained a list of industries not eligible  for benefits  under  the  said  notification.   Once  again  oil extraction  or  manufacture was not listed in appendix-B  in either of the two notifications.

     By  two  notifications  dated 7th of May, 1990  -  one issued under the Rajasthan Sales Tax Act, 1954 and the other issued under the Central Sales Tax Act, the notifications of 23rd  of May, 1987 were amended.  As a result, by  amendment of  Annexure-B, oil extracting or manufacturing industry was added  as  an  entry, thus withdrawing the benefits  of  the incentive  scheme  from  oil  extracting  and  manufacturing industries  both  in respect of Rajasthan Sales Tax as  also Central  Sales  Tax.   Thereafter by  further  notifications dated  10.9.1990  issued under the Rajasthan Sales Tax  Act, 1954 and the Central Sales Tax Act, it was further notified, inter  alia,  that whenever an industry is included  on  any date  during  the  period  of operation  of  the  scheme  in Annexure-B,  the  units of such industry which have  started commercial  production  and whose applications  for  benefit under  the  scheme are pending on the said date  before  the appropriate  screening  committee will be entitled to  claim full benefit of the scheme.

     Thus by reason of the notifications issued on 7.5.1990 the  benefit of the incentive scheme was withdrawn from  oil extracting  and  manufacturing industries.   Thereafter  the position  was  reviewed  by the Finance Department  and  the Industry  Department of the State of Rajasthan.   Ultimately by  a notification dated 26.7.1991 the benefit of  exemption from  Central  Sales Tax was restored to oil extracting  and jmanufacturing  industry to the extent of 75% in the case of new  industries  and  to the extent of 60% in  the  case  of industries going for expansion or diversification.  Thus new industrial  units  established  after  7.5.1990  and  before 26.7.1991  alone  were  not entitled to the benefit  of  the Incentive  Scheme under the Central Sales Tax Act in respect of inter-state sales of their goods.

     The  respondents  commenced commercial  production  on 17th  of  February, 1991.  Prior thereto, on  2.4.1991  they applied for an eligibility certificate.  The appellants sent a  reply  dated  29.4.1991 pointing out that they  were  not eligible  for the benefit of the incentive schemes since the benefit  of the said schemes had been withdrawn with  effect from 7.5.1990 in respect of their industry.  The application of  the respondents was finally rejected on 30.11.1991.  The respondents  thereupon  filed writ petition no.2529 of  1992 before  the High Court challenging the two notifications  of 7.5.1990  issued under the Rajasthan Sales Tax Act, 1954 and the  Central  Sales  Tax Act.  Several such  petitions  were filed  between  the  years  1990 and  1992  by  various  oil industries  challenging  the two notifications of  7.5.1990. When  the  writ  petition  of the respondents  came  up  for hearing  before a learned Single Judge, one such petition in the  case of Govardhan Oil Mills had already been decided by the  same  High  Court  by  a  Single  Judge  quashing   the notifications of 7.5.1990.  Relying on the said judgment the

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Single Judge granted relief to the respondents setting aside the  notifications of 7.5.1990 and directing the  appellants to  issue  an  eligibility certificate  to  the  respondents within  six weeks.  An appeal filed by the appellant  before the  Division Bench of the High Court has been dismissed  by the impugned judgment dated 14.8.1995.

     During  the pendency of the appeal before the Division Bench in the present case, six other writ petitions filed by various  oil industries including Gopal Oil Mills were heard by  a  Division Bench of the same High Court and decided  on 12.1.1993.   By  the said judgment the High Court held  that the  notifications  of  7.5.1990 cannot be given  effect  to where all necessary acts for setting up the new industry had been done prior to 7.5.1990 and production had also started. The  High Court invoked the doctrine of promissory  estoppel and gave relief to the six industries before it, as also new industries set up before 31.3.1992.

     The  appellants  in those cases filed a special  leave petition  before this Court in which this Court on  4.4.1994 granted  an  interim stay of the judgment of the High  Court dated  12.1.1993.  Thereafter the appeals of Gopal Oil Mills and  other appeals were decided by this Court on  23.2.1995. Before  this  Court, the respondents in those  appeals  only pressed their claim for exemption from Central Sales Tax for the  period  7.5.1990 to 26.7.1991.  This Court came to  the conclusion  that there was no public interest in withholding the  benefit  in respect of Central Sales Tax for the  short period  7.5.1990 to 26.7.1991.  Therefore, it set aside  the notification  of 7.5.1990 issued under the Central Sales Tax Act  and  upheld the High Court judgment in respect  of  the said  notification  issued under the Central Sales Tax  Act. The  respondents in those appeals stated that they were  not pressing  their  challenge to the notification  of  7.5.1990 issued under the Rajasthan Sales Tax Act, 1954.  This Court, therefore,  by the impugned judgment set aside the order  of the  High Court and upheld the validity of the  notification of  7.5.1990 issued under the Rajasthan Sales Tax Act, 1954. However,  it also held that prior to 4.4.1994, which was the date  when  this Court stayed the judgment of  the  Division Bench under challenge, any benefit availed of under the High Court judgment could be retained by the said industry.

     In  the  present case, the appeal before the  Division Bench  was  decided  on  14.8.1995.  The  attention  of  the Division  Bench  does not appear to have been drawn  to  the decision  of  this  Court in Gopal Oil Mills  (Supra).   The Division  Bench  dismissed  the  appeal   of  the  State  of Rajasthan,  the  present appellants, on the ground that  the respondent-  industry had started its production much before 31.3.1992,  relying on the earlier judgment of the  Division Bench of the High Court dated 12.1.1993.

     We  have  to  consider whether  the  respondents  were rightly  given  by  the High Court the benefit of  the  said incentive  scheme in respect of exemption from Central Sales Tax  as  also  Rajasthan  Sales Tax.   The  notification  of 7.5.1990  issued under the Central Sales Tax Act withdrawing the   benefit  of  the  scheme   from  oil  extraction   and manufacturing  industries  in respect of  inter-state  sales effected  by them has already been quashed by this Court  by its  judgment  dated 23.2.1995 in State of Rajasthan &  Anr. v.   Gopal  Oil Mills & Anr.  being Civil Appeal No.5738  of 1994.   In view thereof, since the respondents have  started

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commercial  production on 17th of February, 1991 during  the subsistence  of  the said scheme, they are entitled  to  the benefit  of  the  said scheme pertaining to  exemption  from Central Sales Tax from the date of starting their commercial production.   To  this extent the judgment of  the  Division Bench must be upheld.

     However,  the respondents contend that the judgment of this Court in State of Rajasthan & Anr.  v.  Gopal Oil Mills &  Anr.  (Supra) should not be applied to them in so far  as that  judgment  upholds the validity of the notification  of 7.5.1990  withdrawing  the benefit of the  Incentive  Scheme under  the Rajasthan Sales Tax Act.  The respondents contend that  this Court did not consider the validity or  otherwise of  the notification of 7.5.1990 issued under the  Rajasthan Sales  Tax  Act,  on  merit.  This Court  quashed  the  said notification  in the said judgment merely on the basis of  a concession made by the respondent - oil industries that they were  not  challenging the validity of the  notification  of 7.5.1990  issued  under  the Rajasthan Sales Tax  Act.   The respondents  are  right in contending that the  validity  or otherwise  of the notification of 7.5.1990 issued under  the Rajasthan  Sales Tax Act has to be examined independently in their  case.   They  are also right in contending  that  its validity must be considered independently of the validity of the  notification of 7.5.1990 issued under the Central Sales Tax  Act.   The  notification of 7.5.1990 issued  under  the Central  Sales  Tax Act was withdrawn on 26.7.1991.  In  the light of this fact, this Court said that there was no public interest  in withholding the benefit of the incentive scheme granting   exemption  from  Central   Sales  Tax  from   oil industries  for the short period 7.5.1990 to 26.7.1991.   In the case of the notification of 7.5.1990 under the Rajasthan Sales Tax Act, no subsequent notification has been issued to restore  the  benefit  of  the   scheme  to  oil  extraction industries.  The ratio, therefore, on the basis of which the notification of 7.5.1990 under the Central Sales Tax Act was set   aside,   is  not   available  while  considering   the notification of 7.5.1990 under the Rajasthan Sales Tax Act.

     The appellant, State of Rajasthan, contends that it is open  to  it in public interest to withdraw any  concessions which it may have granted to oil extraction industries under the  incentive scheme.  In fact, the scheme itself  provides in  Clause 8 that the scheme can be reviewed or amended from time  to  time  during the subsistence of the  scheme.   The respondents,  however,  contend  that by  framing  the  said incentive  scheme  the  State of Rajasthan had  held  out  a promise  that  the benefit of the scheme would be  available for  all new industries set up during the period 5.3.1987 to 31.3.1992.   Relying  upon this promise the respondents  had taken  all effective steps to set up the new industrial unit within  that  period.   Hence  the  doctrine  of  promissory estoppel  would be attracted in the present case.  It  would not  be  open  to  the State of Rajasthan  to  withdraw  the benefit  of  the scheme during the subsistence of  the  said scheme by the notification of 7.5.1990.

     Are  the respondents justified in holding the State to the  promise  made by it in the form of an incentive  scheme which is made available for a specified period of time, when new  industries  are  set  up on the basis  of  that  scheme relying  on the promise of benefits held out by it?   Public interest  requires  that  the  State be held  bound  by  the promise  held out by it in such a situation.  But this  does

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not   preclude  the  State   from  withdrawing  the  benefit prospectively  even  during  the period of  the  scheme,  if public  interest so requires.  Even in a case where a  party has acted on the promise, if there is any supervening public interest which requires that the benefit be withdrawn or the scheme  be modified, that supervening public interest  would prevail over any promissory estoppel.

     After  examining  a large number of authorities,  this Court  in the case of Kasinka Trading and Anr.  v.  Union of India  and Anr.  (1995 (1) SCC 274) held that when there was a  supervening  public interest in withdrawing  the  promise held out, the Government cannot be estopped from withdrawing the  benefit held out under an existing scheme.  In the case of  Shrijee  Sales Corporation and Anr.  v.  Union of  India (1997  (3) SCC 398), once again this Court after examining a number  of  authorities  has held that  if  any  supervening public  interest so demands, the benefit under any incentive scheme  can  be  withdrawn.  The same view  has  been  again reiterated  in  Union  of  India  and  Ors.   v.   Godhawani Brothers and Anr.  (1997 (11) SCC 173).

     The  State Government has, with the permission of this Court,  relied  upon an affidavit in this  connection  which they  had  filed  in Civil Appeal No.5738 of 1994  State  of Rajasthan  and Anr.  v.  Gopal Oil Mills and Anr.   (Supra). The  appellant - State has pointed out that their experience with  regard to implementation of the said incentive  scheme during  the years 1988 and 1989 revealed that the object  of having  more new industries in the areas specified could not be  achieved,  particularly in the case of oil industry  and cotton  industry.  On the contrary, the policy had adversely affected  existing  units  in  the  State.   Since  the  tax liability  of new units was much less, and the tax liability on  the  old  units was high, old  units  gradually  started closing  down  while  new  units started coming  up.   As  a result,  in  the two years 1988 and 1989, 64 old units  were closed  down and 74 new units were started.  The closure  of old  units  and their replacement by new units  resulted  in blocking  of  capital and funds invested in the  old  units. Therefore,  in effect, the incentive scheme as operating for oil  industries  was resulting in closure of existing  units and  substitution of the same by new units - which was never the  intention of the incentive scheme.  It was,  therefore, decided  to  withdraw  the benefit of the scheme  in  public interest  in  respect of oil industry.  The notification  of 7.5.1990,  therefore,  was  clearly issued on account  of  a supervening public interest.

     Secondly,  in the present case the respondents do  not seem  to  have  taken  steps  which  can  be  considered  as effective  steps  for  starting  a new  unit  prior  to  the notification  of 7.5.1990, thereby entitling them to  invoke the  doctrine of promissory estoppel.  The respondents  rely upon  the  following for the purpose of invoking  promissory estoppel:

     1.    The   respondent  firm   got   its   provisional registration  certificate  on 15.2.1990.  This is  merely  a provisional  registration  issued  by   the  Directorate  of Industries.

     2.   They  applied for allotment of land and land  was allotted  to  them  by RIICO Limited, by  its  letter  dated 19.2.1990.   Possession  of  the  land was  handed  over  on

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7.3.1990  and  lease agreement was executed in March,  1990. For this land, only an amount of Rs.30,849/was invested.

     3.    The   respondent  firm   was  registered  as   a partnership firm with the Registrar of Firms on 6.3.1990.

     4.   On  2.4.1990  the  respondent  firm  applied  for registration  under  the Rajasthan Sales Tax Act  which  was granted on 17.4.1990.

     5.   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 7th of May, 1990.

     6.   Construction  of  building  was  started  by  the respondent on 20.4.1990 barely 3 weeks before the withdrawal of the benefit under the said scheme.

     7.   The respondents claim 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 respondent  to  anybody  before 7.5.1990.   The  respondents also claim to have applied  for power  connection,  to have installed a transformer  and  to have invested about Rs.15 lakhs in installing the industrial unit.   However,  there is no material to show that  any  of this  was done prior to 7.5.1990.  In fact, the  respondents could  commence commercial production only in February, 1991 long  after  the  benefit of the incentive scheme  had  been withdrawn.   Their  application for eligibility  certificate under  the said scheme was made only on 2.4.1991 long  after the  benefit of the scheme had been withdrawn in respect  of oil  industry.   In these circumstances, even if we were  to hold  that  the  doctrine  of  promissory  estoppel  can  be invoked,  the  same  cannot be invoked in the  case  of  the respondents.

     In  view  of the withdrawal of the benefits under  the said  incentive scheme by the notification of 7.5.1990 which was  issued in valid exercise of power by the appellant, the respondents are not entitled to the benefit of the incentive scheme  pertaining  to exemption from payment of  sales  tax under the Rajasthan Sales Tax Act, 1954.

     The  respondents,  however,  contend  that  they  were granted  a  certificate  of eligibility in respect  of  both Central  and State Sales Tax Schemes on 6.1.1993.  They have enjoyed the benefit of exemption from the State Sales Tax as well  as the Central Sales Tax throughout as a result of the said  certificate.   Their  unit has now  closed  down  with effect  from  31st of July, 1997.  In view of the  exemption granted  by the appellant to the respondents under both  the schemes,  the  respondents have not collected sales  tax  in respect  of  any  of  the transactions covered  by  the  two incentive  schemes.  Hence, now they should not be asked  to pay any amount by way of State Sales Tax on the transactions of  sale within the State during the period commencing  from 6th  of  January  1993  (the date of  grant  of  eligibility certificate).

     The  respondents  also  rely  upon  a  circular  dated 27.1.1994   issued  by  the   Directorate   of   Industries, Rajasthan,  Jaipur.   This circular states that it is  being issued in view of the Rajasthan High Court’s decision in the

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case  of  M/s.   Goverdhan Oil Mills and  M/s.   Bindal  Oil Mills.  Since there is some confusion, it has been clarified that in view of the above judgment of the High Court all oil manufacturing   units   which   commenced  production   upto 31.3.1992  are  entitled to the benefit under the  1987/1989 schemes  under  both  the Rajasthan Sales Tax  Act  and  the Central  Sales Tax Act.  We fail to see how this circular of 27.1.1994 can help the respondents.  The circular was issued entirely  on  account of the decision of the Rajasthan  High Court   and  was  meant   for  implementing  that  decision. Appeals,  however,  from the judgments referred to  in  that circular  as also similar judgments pronounced in respect of other  oil industries, were filed by the State and have been finally  decided  by  this  Court in the case  of  State  of Rajasthan  and Anr.  v.  Gopal Oil Mills and Anr.   (Supra). A  circular,  therefore, which was issued entirely  to  give effect  to  a  judgment  which   was  not  accepted  by  the department but was appealed against, cannot be considered as conferring any permanent rights thereby.  In the case of the respondents,  however,  they  were  granted  an  eligibility certificate  on  6.1.1993  long prior to the  said  circular entirely because of the directions contained in the judgment of the Single Judge dated 27.11.1992 in their writ petition. The respondents have been aware throughout that the judgment of  the  Single Judge was appealed against.  Even after  the Division  Bench dismissed the appeal the matter was  carried further  by filing the present special leave petition/appeal before  this Court.  The respondents continued to enjoy  the benefits of the said two schemes since no stay was obtained. Nevertheless,  the  question  whether  the  respondents  are entitled  to  the  said  benefits,   has  been  sub   judice throughout.   Since the appeal is now being decided  against the  respondents,  they  cannot  claim  the  benefit  of  an eligibility  certificate  which  was   granted  entirely  on account  of  a  judgment of a Single Judge in  their  favour which is now being set aside.

     The respondents, however, point out that this Court in its  judgment in State of Rajasthan and Anr.  v.  Gopal  Oil Mills  and  Anr.   (Supra)  allowed  the  respondent  -  oil industries to retain the benefit they had obtained under the scheme  framed  under  the  Rajasthan  Sales  Tax  Act  upto 4.4.1994.   This  was  on the ground that the  stay  of  the impugned  High Court judgment was granted by this Court only on 4.4.1994.  In the present case, the respondents cannot be discriminated  against.  They should, therefore, be  allowed to  retain  the  benefits they have enjoyed  at  least  upto 4.4.1994, just as the other oil industries have been allowed to retain benefits availed of upto 4.4.1994.  Looking to the benefits  which other oil industries have enjoyed in view of the  judgment  of this Court in State of Rajasthan and  Anr. v.   Gopal  Oil Mills and Anr.  (Supra);  we do not see  any reason  why  the respondents also should not have  the  same benefit.   They  cannot, however, retain the entire  benefit they  have received beyond 4.4.1994 or upto the date of this judgment  on  the  ground that no stay was granted  by  this Court  while  admitting  the special leave petition  of  the appellants.   The  eligibility  certificate, as far  as  the respondents  are concerned, was given entirely on account of a   judgment  delivered  in  the   course  of  the   present proceedings,  which judgment has been set aside.  Therefore, the benefits, flowing from that certificate were clearly sub judice  throughout  and were subject to the outcome  of  the proceedings.

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     In the premises, the judgment of the High Court, in so far  as  it sets aside the notification of  7.5.1990  issued under the Rajasthan Sales Tax Act, 1954 is set aside and the notification  of  7.5.1990 issued under the Rajasthan  Sales Tax Act, 1954 is upheld as valid.  The respondents, however, will  be  entitled to retain the benefits received  by  them under  the incentive scheme framed under the Rajasthan Sales Tax Act upto 4.4.1994.  The judgment of the High Court in so far  as  it quashes the notification of 7.5.1990  issued  in respect  of the incentive scheme under the Central Sales Tax Act  is upheld in the light of the decision of this Court in the case of State of Rajasthan and Anr.  v.  Gopal Oil Mills and  Anr.  (Supra).  The appeal is disposed of  accordingly. There  will, however, be no order as to costs looking to the circumstances of the present case.