Erroneous Benefits Given in Earlier Assessment Years Cannot be a Ground to Continue the Wrong Exemption: SC

The Relevant Text of the Order is Given Below:

11. In the present case, it is an admitted position that after furnishing a declaration in Form No.26, the goods – raw materials, processing materials or consumable stores so purchased were to be used by ESL, but the respondent – ESL after purchase of raw materials – Naphtha and Natural Gas and after availing the benefit of exemption from the payment of purchase tax did not himself/itself used the same, but, instead, sold the same to another entity – EPL and the said another entity – EPL used the said raw materials for generating the electricity, which thereafter came to be sold to the respondent – ESL pursuant to the power purchase agreement. The submission on behalf of the respondent that as Naphtha and Natural Gas were transferred to EPL for generating the electricity, which in turn came to be used by the respondent – ESL for manufacture of HRC, and it cannot be said that there is a breach of conditions of original Entry No.255(2) dated 05.03.1992, cannot be accepted.

11.1 The original Entry No.255(2) dated 05.03.1992 does not provide that the eligible unit after purchase of the raw materials instead of using the same by itself or himself can transfer/sold to another unit and the another unit can use the said raw materials. If the submission on behalf of the respondent is accepted, in that case, it will be varying the conditions imposed in the original Entry No.255(2) dated 05.03.1992 and it shall tantamount to adding something more than what is not provided in the exemption notification/original entry, which is not permissible. The original notification does not at all permit such transfer and use of the raw materials after availing the exemption for use of another unit, who, as such is otherwise not entitled to any exemption as per the incentive policy.

12. At this stage, it is required to be noted that as per the incentive policy, the actual benefit of exemption was available to certain industries as per the list of ‘eligible’ industries. The power producing companies were specifically put in the list of ‘ineligible’ industries for any exemption from sale/purchase tax on procurement of raw materials. Thus, the Essar Power Limited being a power producing company was not eligible at all for any exemption from sale/purchase tax on procurement of raw materials. Therefore, as such, by such transfer and sale of raw materials by ESL to EPL, EPL got the benefit of exemption, which otherwise being a power producing company was not eligible for such an exemption.

13. Learned counsel appearing on behalf of the State is right in submitting that if such an interpretation put forward by the respondent is accepted, in that case, it would completely defeat the purpose of the exemption and it would permit industries, which are eligible for exemption to simply purchase the raw materials; not use them for manufacturing in their own units, and simply transmit them for use and manufacture to other units, even though such units are not eligible for exemption under the notification.

14. Thus, by transfer of Naphtha and Natural Gas by the eligible unit – ESL to another unit – EPL, after availing the exemption from payment of purchase tax and not using the Naphtha and Natural Gas (raw materials) for its own use for manufacture of the goods so manufactured by it, it can be said to be violating the eligibility criteria/condition mentioned in the original Entry No.255(2) dated 05.03.1992 and it can be said that the respondent -Essar Steel Ltd. Committed a breach of the declaration given in Form No.26. Therefore, the High Court has committed an error in holding that the respondent did not commit any breach of any of the conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and that the respondent fulfilled all the conditions provided in the said Entry and that there was no breach of any of the conditions provided in the original Entry No.255(2) dated 05.03.1992.

14.1 While the exemption notification should be liberally construed, beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise.

14.2 It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. An exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications.

14.3 The exemption notification should be strictly construed and given meaning according to legislative intendment. The Statutory provisions providing for exemption have to be interpreted in the light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions.

14.4 As per the law laid down by this Court in catena of decisions, in the taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining defined meaning. Strict interpretation to the provision is to be accorded to each case on hand. Purposive interpretation can be given only when there is an ambiguity in the statutory provision or it alleges to absurd results, which is so not found in the present case.

14.5 In the present case, the intention of the State to provide the incentive under the incentive policy was to give benefit of exemption from payment of purchase tax was to the specific class of industries and, more particularly, as per the list of ‘eligible industries’. Exemption was not available to the industries listed in the ‘ineligible’ industries. It was never the intension of the State Government while framing the incentive policy to grant the benefit of exemption to ‘ineligible industries’ like the power producing industries like the EPL, which as such was put in the list of ‘ineligible’ industries.

14.6 Now, so far as the submission on behalf of the respondent that in the event of obscure in a provision in a fiscal statute, construction favourable to the assessee should be adopted is concerned, the said principle shall not be applicable to construction of an exemption notification, as it is clear and not ambiguous. Thus, it will be for the assessee to show that he comes within the purview of the notification. Eligibility clause, it is well settled, in relation to exemption notification must be given effect to as per the language and not to expand the scope deviating from the language. There is a vast difference and distinction between a charging provision in a fiscal statute and an exemption notification.

15. Now, the next question, which is posed for the consideration of this Court is whether the subsequent amended Entries vide notifications dated 14.11.2000 and 16.01.2002 can be said to be clarificatory and/or take away any of the rights under the original Entry No.255(2) dated 05.03.1992 and/or the subsequent notifications modifies/amends the basic conditions for availing the exemption under the original Entry No.255(2) dated 05.03.1992?

15.1 Having gone through the second notification dated 14.11.2000/the amended Entry No.255(2), it can be seen that the same is clarificatory in nature and there is no change in the basic eligibility criteria/conditions mentioned in the original Entry No.255(2). In the subsequent notification, instead of the word “him”, the word used is “it” and it is specifically made clear that the raw materials so purchased shall be used in its industrial unit for which it has obtained the eligibility certificate for the manufacture of goods for sale within the State or outside the State of Gujarat or as packing materials in the packing of goods so manufactured. Even as per the original Entry No.255(2) dated 05.03.1992 and even as per the Form No.26 appended thereto, the eligible unit was required to actually use the raw materials purchased. In the subsequent notification, it is made explicitly clear that the raw materials so purchased are to be used by the eligible unit in its industrial unit. Therefore, the basic requirement that the eligible unit has to actually use such raw materials purchased by him is in no way modified and/or amended. On the contrary, the subsequent amended Entry No.255(2) dated 14.11.2000 can be said to be expanding the scope of eligibility as it was. Earlier the eligible unit was required to actually use the goods purchased within the State of Gujarat and as per the subsequent amended Entry No.255(2) dated 14.11.2000 even if such goods are used by it outside the State of Gujarat in that case also such eligible unit was held to be eligible for exemption. Even as per the condition No.6 in the amended Entry No.255(2) dated 14.11.2000, it is specifically mentioned that the eligible unit shall actually use the goods purchased, which was the requirement in the first notification also. Therefore, the subsequent amended Entry No.255(2) vide notification dated 14.11.2000 can be said to be clarificatory and/or expanding the scope of eligibility, but in no case, it can be said to be taking away any right under the original Entry No.255(2) dated 05.03.1992.

16. Similarly, even the third amended Entry No.255(2) dated 16.01.2002 also cannot be said to be taking away any right available under the original Entry No.255(2) dated 05.03.1992.

16.1 Even the subsequent amended Entry No.255(2) vide notification dated 16.01.2002 also can be said to be expanding the scope of eligibility and in no way can be said to be taking away the rights available to the eligible unit under the original Entry No.255(2) dated 05.03.1992. The eligibility criteria/condition that the eligible unit “shall actually use the goods” remain the same even in the said amended Entry No.255(2) dated 16.01.2002. Therefore, the subsequent notifications/amended Entries cannot be said to be in any way in conflict with the first/parent notification/Entry No.255(2).

17. As observed hereinabove, even under the first/ original Entry No.255(2) dated 05.03.1992 and even as per the declaration furnished in Form No.26, the eligible unit – respondent – ESL was required to actually use the goods by him/within the State of Gujarat as raw materials, for manufacture of goods by him. But by actually not using the raw materials so purchased by which it got the benefit of exemption from payment of purchase tax, sold the said raw materials, which in fact were required to be used by him, to another unit/entity, which another unit used it for manufacture of its goods – generating the electricity and which in turn the EPL sold to the ESL. Thus, the ESL– eligible unit did not comply with and/or fulfilled the eligibility criteria/conditions even as per the original Entry No.255(2) and therefore, was/is not entitled to the exemption from payment of the purchase tax as per the exemption notification dated 05.03.1992 vide original Entry No.255(2). Therefore, even assuming that the subsequent amended Entries vide second and third notifications are not to be made applicable in that case also the respondent -Essar Steel Ltd. being eligible unit was required to comply with and/or fulfill all the eligibility criteria/conditions mentioned in the original Entry No.255(2), which as observed hereinabove, by not actually using the raw materials by himself and transferring/selling the same to the non-eligible unit, the respondent was not entitled to avail the benefit of exemption even under the original Entry No.255(2).

18. Even as per Form No. 26 (Entry No.255), as per the declaration filed by the respondent, being ‘eligible’ unit while purchasing goods for use in manufacturing goods, it was declared that the raw materials so purchased will be used by it in the manufacture of goods for sale. Thus, by not using the raw materials so purchased by it, the respondent – eligible unit – ESL has violated the declaration given in Form No.26. Therefore, the respondent was not entitled to the exemption even under the first/parent notification.

19. Even the reasoning given by the Tribunal and the High Court that the demand of purchase tax is hit by the principle of promissory estoppel also cannot be accepted. In the present case, first of all, the principle of promissory estoppel to the exemption sought ought not to have been applied at all. Each assessment year/period is independent. Even otherwise, in the facts and circumstances of the case, the principle of promissory estoppel shall not be applicable. In the present case, as observed hereinabove, the respondent – eligible unit as such was not entitled to the exemption even under the first notification as it violated the declaration given in Form No.26 as well as did not comply with and/or fulfilled the eligibility criteria/conditions required to be fulfilled while availing benefit of exemption. As observed hereinabove, the respondent did not actually use the raw materials purchased by him/it and availed the exemption and after availing the exemption sold the said raw materials to ‘ineligible’ unit – EPL and the EPL used the same for manufacture of its goods – generating the electricity, which subsequently again sold to the ESL – eligible unit on payment of sale consideration.

20. At the cost of repetition, it is observed that as per the incentive policy declared by the State Government, the power generating company was put in the list of ‘ineligible industries’ and thus, independently was not entitled to the exemption under the original Entry No.255(2). Thus, by such a transfer/sale from the eligible unit to another unit the benefit of exemption is availed by the ‘ineligible’ industry, which is wholly impermissible and that cannot be said to be the intention of the Government while providing the incentive in the form of exemption from payment of purchase tax. Such a benefit of exemption was available only to eligible units/industries and the steel industry of which Essar Steel Ltd. belonged being one of the eligible industries. Therefore, there was no question of applicability of principle of promissory estoppel.

20.1 Even otherwise in the facts and circumstances of the case narrated hereinabove, the principle of promissory estoppel shall not be applicable. ESL had furnished wrong and false declarations. In the original notification/entry, it was not provided that even if the raw materials so purchased is not used by itself after availing the exemption, the same can be sold to another entity, which is ‘ineligible’ industry. It did not provide that in such a situation also and despite the fact that raw material is not actually used by the eligible unit, which was required to be used even as per the declaration in Form No.26, such eligible unit shall be entitled to the exemption. No such promise was given. The wordings and the language used in the exemption notifications are very clear, simple and unambiguous. Therefore, when there was no such promise and/or representation, the demand cannot be said to be hit by the principle of promissory estoppel as observed and held by the Tribunal as well as the High Court in the impugned judgment and order.

20.2 The doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case and not straitjacketed into pigeonholes. In other words, there cannot be any hard and fast rule for applying the doctrine of promissory estoppel but the doctrine has to evolve and expand itself so as to do justice between the parties and ensure equity between the parties. In the present case, the principle of promissory estoppel shall not be applicable.

20.3 In taxing matters, the doctrine of promissory estoppel as such is not applicable and the Revenue can take a position different from its earlier stand in a case with established distinguishing features. [See Commissioner of Central Excise, Bangalore – 1 Vs. Bal Pharma Limited, Bangalore and Ors., (2011) 2 SSC 620].

20.4 The rules of promissory estoppel and estoppel by conduct may not be applied to alter or amend the specific terms and against statutory provisions. All the terms and conditions contained in the exemption notification shall prevail and the person claiming the exemption has to fulfil and satisfy all the eligibility criteria/conditions mentioned in the exemption notification.

21. Now, so far as the submission on behalf of the respondent that prior to 14.11.2000, there was no demand of the purchase tax and/or the exemption from payment of purchase tax was made available in the earlier assessment years and, therefore, in the subsequent assessment years also, the respondent – assessee shall be entitled to the exemption is concerned, the aforesaid has no substance. In the taxation matters, every assessment year/period is a different year/period.

21.1 The Scheme of the Statute does not in any manner indicate that the incentive provided has to continue for the consecutive years irrespective of the fulfilling of the eligibility conditions. Applicability of the incentive is directly related to the eligibility and not dehors the same. If it is found that the industrial undertaking does not fulfil the eligibility criteria, it cannot claim the incentive/exemption.

22. Therefore, the submission on behalf of the respondent-assessee that as in the earlier assessment years benefit of exemption was granted to the respondent and, therefore, in the subsequent assessment years also, despite the fact that it is found that the respondent was/is not eligible for the benefit of exemption under the original Notification/Entry No.255(2) cannot be accepted. If such a submission is accepted in that case it will be perpetuating the illegality and granting the benefit of exemption to ‘ineligible industry’, who did not fulfill and/or comply with the eligibility criteria/conditions mentioned in the exemption notification. The principle of promissory estoppel shall not be applicable contrary to the Statute. Merely because erroneously and/or on misinterpretation, some benefits in the earlier assessment years were wrongly given, cannot be a ground to continue the wrong and to grant the benefit of exemption though not eligible under the exemption notification.

23. Now, so far as the levy of penalty is concerned, it is to be noted that the penalty is leviable under Section 45 and such a penalty is leviable under sub-sections (5) and (6) of Section 45 of the Act, 1969 and the penalty is leviable on purchase tax assessed. It provides that if the difference of tax paid and tax leviable/assessed is more than twenty-five percent, in that case, the dealer shall be deemed to have failed to pay the tax to the extent of the difference between the amount so assessed/re-assessed and the amount paid and, in that case, there shall be levied on such dealer a penalty not extending one and one-half times the difference as per sub-section (5). Therefore, there being difference of more than twenty-five percent, penalty to the aforesaid extent shall be leviable. This is a clear case of false and wrong claim of exemption, as the exempted goods were transferred to a third person and used in an ‘ineligible’ industry. This is a case of deliberate violation and evil doing.

23.1 In the present case, as the difference between total tax paid and the purchase tax is more than twenty-five percent, the respondent is deemed to have failed to pay the tax as per sub-section (5) of Section 45 and, therefore, liable to pay the penalty not exceeding one and one-half times. The words used in sub-section (6) of Section 45 is “there shall be levied on such dealer a penalty not exceeding one and one-half times the difference”. As noted above, in the present case, the modus operandi which was adopted by the respondent – Essar Steel warrants a penalty. Though the raw material was required to be used by itself for the manufacture of their goods, after availing the exemption as eligible unit and instead of using the same for itself/himself, the ESL sold the raw materials to an ‘ineligible’ entity – EPL, who used it for manufacture of its own goods – generating the electricity, which again came to be sold to ESL under the power purchase agreement.

23.2 As observed hereinabove, as such the EPL, under the incentive scheme, was not eligible at all for exemption from payment of purchase tax as in fact power generating companies were put in the list of ‘ineligible industries’. Therefore, by such a modus operandi, the benefit, which was not available to the EPL was made available by such transfer of raw materials by the Essar Steel Ltd. to Essar Power Limited. As observed hereinabove, there is a breach of declaration in Form No.26 also. Therefore, in the facts and circumstances of the case, the levy of penalty is justified and warranted. The Joint Commissioner, the Tribunal as well as the High Court have committed a grave error in quashing and setting aside the penalty imposed by the Assessing Officer.

24. In view of the above and for the reasons stated above, the impugned common judgment and order passed by the High Court as well as that of the Tribunal quashing and setting aside the demand of purchase tax from the respondent are hereby quashed and set aside. It is held that the respondent -Essar Steel Ltd. – the eligible unit was not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) dated 05.03.1992, firstly, on the ground that it did not fulfill the eligibility criteria/conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and secondly that there was a breach of declaration in Form No.26 furnished by the respondent – eligible unit – Essar Steel Ltd. The orders setting aside the penalty imposed by the Assessing Officer are also hereby quashed and set aside. The order passed by the Assessing Officer levying the demand of purchase tax and imposing the penalty is hereby restored.

25. Present appeals are accordingly allowed. In the facts and circumstances of the case, there shall be no order as to costs.

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