# ST A TE OF RAJASTHAN AND ANR v. J.K. UDAIPUR UDYOG LTD. AND ANR

- **Citation:** [2004] Supp. 4 S.C.R. 812
- **Court:** Supreme Court of India
- **Decided:** 2004-09-28
- **Case number:** Civil Appeal No. 8193 of2003
- **Bench:** Ruma Pal, Arun Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/st-a-te-of-rajasthan-and-anr-v-j-k-udaipur-udyog-ltd-and-anr-20232
- **Pages:** 28

## Headnote

Rajasthan Sales Tax Exemption Scheme for Industries, 1988: Annexure
'B', Sri. Nos. I, 2, 3. 4(a) & (b).
Sales Tax-Exemption--F ourth Industrial Policy-Scheme framed under
Sought to make Rajasthan "a most favoured destination for industries"-
Scheme provided for exemption from sales tax for certain industrial units~
Industries were classified into three categories under Sri. Nos. I, 2 and 3
of Annexure 'B '-Such industries entitlecf to exemption at a flat rate of 2 5%
for eleven years-New units were placed at Sri. No. I-Two companies
manufacturing cement applied for exemption on par with units under Sri. No.
I-While the said applications were pending a corrigendum was issued
replacing the words "new units at Sri. No. I" by "new units at Sri. Nos. I,
2 and 3 as the case maybe" Corrigendum was to take effect prospective/j;-
Sick units were thus placed under Sri. No. 4(a) on par with cement units under
Sri. No. 3-Validity of-Held: Scheme was notified under S. I 5 RST Act and
S. 8(5) CST Act and, therefore, Government was competent to modify or
revoke the grant of exemption-It is more so as there was no promissory
estoppe/-The cement units had no indefeasible rights for the grant of
exemption Apart from this, exemption being a creature of the Scheme
Government had the right to review or modify the Scheme-The Fourth
Industrial Policy wasframed in public interest-Therefore the corrigendum
issued with the intention to effectuate the policy is in public interest-Benefits
given to sick industrial units which had not availed of such benefits in the
past at par· with new units did not refer to industries at Sri. No. I-Sick
cement plants would be covered by the words "all categories" of cement
plants/units at Sri. No. 3-Since the original scheme did not declare the
intention of the Government to make Rajasthan a "most favoured destination
for industries" the corrigendum was issued to remove this ambiguity-Hence,
corrigendum not violative of Art. I 4 of the Constitution--Rajasthan Sales Tax
Act, 1994,- S. 15--Central Sales Tax Act, 1956, S. 8(5).
Sales Tax-Exemption-High Court quashed notification reducing rate
812
-
STATE v. J.K. UDAIPUR UDYOG LTD.
813
of exemption-Appeal against the said decision admitted-But no stay was
A
granted-Ultimately High Court's decision reversed-Liability to tax-Held:
the primary liability to pay sales tax is on the seller-Although the seller
could not recover sales tax from its customers till the High Court's decision
was reversed, yet they are liable to pay the differential amount of taxHowever, no interest or penalty could be charged during the period the
B
matter was subjudice before the Supreme Court provided the principal
amount is paid within the time specified by the Government.
Words & Phrases:
"Exemption "-Meaning and nature of-Explained.
C
The appellant-State framed a scheme granting exemption to
industrial units from payment of sales tax on intra-state and inter-state
sale of goods and by-products manufactured within the State. The scheme
was part of the New Fourth Industrial Policy of the State. D
The Policy stated that the object of the scheme was to make the State
"a most favoured destination for industries" and to encourage the setting
up of industries in the State. Pursuant to this Policy the Rajasthan Sales
Tax/Central Sales Tax Exemption Scheme for industries. 1998 was framed
and notified under Section 15 of the Rajasthan Sales Tax Act, 1994 and
Section 8(5) of the Central sales Tax Act, 1956. The scheme came into
E
force on 1.4.1998.
For the purpose of exemption. Annexure 'B' to the Scheme classified
the industries into three categories under Sri. Nos. 1, 2 and 3 accordi~g
to the kind of industry. All categories of cement plants/units were placed
F
under Sri. No. 3 and were entitled to exemption at flat rate of 25% for
eleven years. Sick units were placed under Sri. No. 4; Clause (a) thereof
covering sick units, which had not availed of benefits, previously, provided
for same benefits, which

## Text

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B
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ST A TE OF RAJASTHAN AND ANR.
v.
J.K. UDAIPUR UDYOG LTD. AND ANR.
SEPTEMBER 28, 2004 ·
[RUMA PAL AND ARUN KUMAR, JJ.]
Rajasthan Sales Tax Exemption Scheme for Industries, 1988: Annexure
'B', Sri. Nos. I, 2, 3. 4(a) & (b).
Sales Tax-Exemption--F ourth Industrial Policy-Scheme framed under
Sought to make Rajasthan "a most favoured destination for industries"-
Scheme provided for exemption from sales tax for certain industrial units~
Industries were classified into three categories under Sri. Nos. I, 2 and 3
of Annexure 'B '-Such industries entitlecf to exemption at a flat rate of 2 5%
for eleven years-New units were placed at Sri. No. I-Two companies
manufacturing cement applied for exemption on par with units under Sri. No.
I-While the said applications were pending a corrigendum was issued
replacing the words "new units at Sri. No. I" by "new units at Sri. Nos. I,
2 and 3 as the case maybe" Corrigendum was to take effect prospective/j;-
Sick units were thus placed under Sri. No. 4(a) on par with cement units under
Sri. No. 3-Validity of-Held: Scheme was notified under S. I 5 RST Act and
S. 8(5) CST Act and, therefore, Government was competent to modify or
revoke the grant of exemption-It is more so as there was no promissory
estoppe/-The cement units had no indefeasible rights for the grant of
exemption Apart from this, exemption being a creature of the Scheme
Government had the right to review or modify the Scheme-The Fourth
Industrial Policy wasframed in public interest-Therefore the corrigendum
issued with the intention to effectuate the policy is in public interest-Benefits
given to sick industrial units which had not availed of such benefits in the
past at par· with new units did not refer to industries at Sri. No. I-Sick
cement plants would be covered by the words "all categories" of cement
plants/units at Sri. No. 3-Since the original scheme did not declare the
intention of the Government to make Rajasthan a "most favoured destination
for industries" the corrigendum was issued to remove this ambiguity-Hence,
corrigendum not violative of Art. I 4 of the Constitution--Rajasthan Sales Tax
Act, 1994,- S. 15--Central Sales Tax Act, 1956, S. 8(5).
Sales Tax-Exemption-High Court quashed notification reducing rate
812
-
STATE v. J.K. UDAIPUR UDYOG LTD.
813
of exemption-Appeal against the said decision admitted-But no stay was
A
granted-Ultimately High Court's decision reversed-Liability to tax-Held:
the primary liability to pay sales tax is on the seller-Although the seller
could not recover sales tax from its customers till the High Court's decision
was reversed, yet they are liable to pay the differential amount of taxHowever, no interest or penalty could be charged during the period the
B
matter was subjudice before the Supreme Court provided the principal
amount is paid within the time specified by the Government.
Words & Phrases:
"Exemption "-Meaning and nature of-Explained.
C
The appellant-State framed a scheme granting exemption to
industrial units from payment of sales tax on intra-state and inter-state
sale of goods and by-products manufactured within the State. The scheme
was part of the New Fourth Industrial Policy of the State. D
The Policy stated that the object of the scheme was to make the State
"a most favoured destination for industries" and to encourage the setting
up of industries in the State. Pursuant to this Policy the Rajasthan Sales
Tax/Central Sales Tax Exemption Scheme for industries. 1998 was framed
and notified under Section 15 of the Rajasthan Sales Tax Act, 1994 and
Section 8(5) of the Central sales Tax Act, 1956. The scheme came into
E
force on 1.4.1998.
For the purpose of exemption. Annexure 'B' to the Scheme classified
the industries into three categories under Sri. Nos. 1, 2 and 3 accordi~g
to the kind of industry. All categories of cement plants/units were placed
F
under Sri. No. 3 and were entitled to exemption at flat rate of 25% for
eleven years. Sick units were placed under Sri. No. 4; Clause (a) thereof
covering sick units, which had not availed of benefits, previously, provided
for same benefits, which were available to "new units at Sri. No. 1". The
benefits ranged from 100% in 1st year to 30% in 11th year. Clause (b)
covering other sick units provided for lesser benefits which were, however,
G
higher than those available to units under Sri. No. 3. Clause 4 further
provided for obtaining sanction from the appropriate Screening
Committee for availing of the benefits under the Scheme. Thereafter an
eligibility certificate was to be issued to the applicant unit by the assessing
authority. Clause 4 further provided that the benefits under the scheme H
814
SUPREME COURT REPORTS [2004) SUPP. 4 S.C.R.
A
would be available from the date of the application filed by the applicantunit complete in all respects, as certified by the authorized officer.
B
c
D
E
F
The respondent-companies were manufacturers of cement in
different units within the State and were sick companies. The respondentcompany applied for ex.emption under the scheme claiming benefits at
par with units under Sri. No. I. The director of Industries certified that
the application of one of the companies was complete. The certificate
stipulated that the incentive, if any, availed of by the said company
would be entirely at its risk subject to the decision of the Screening
Committee. The company also gave an undertaking that in the event of
refusal of sanction it would pay the tax. While the application of the said
company was pending, the Government issued a corrigendum replacing
• the words "New units at Sri. No. 1" with "New units under Sri. No. 4
as the case may be". Thus sick cement units under Sri. No. 4(a) were
expressly put on par with new cement units under Sri. No. 3. The said
company subn.iitted a representation to the Screening Committee that
the corrigendum should not affect the company .. While deferring the
case, the Screening Committee said that the unit could avail of the
benefit's under. the scheme to the extent permissible under the
corrigendum from the date of its issuance. Neither any sanction under
clause 4(e) nor an. eligibility certificate under clause 4(f) had been issued
to the said company under the scheme till date.
As far as the other respondent-company was concerned,
its application under the scheme was certified as complete and
was sanctioned. However the quantum of benefits was granted
in terms of the corrigendum from the date of issuance of the
Corrigendum. Accordingly the eligibility certificate was issued to this
company restricting t~e benefits under the scheme on the basis of the
corrigendum.
Since the respondents had been availing of the higher rates of
G
exemption against Sri. No. 1, consequent upon the decision of the
Screening Committee granting tire benefits under the corrigendum.
provisional assessment orders and notices were issued to both the
respondent companies. by the Sales Tax Authorities over the differential
sales tax.
H
The respondent-companies filed writ petitions before the High Court
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...
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STA TE v. J.K. UDAIPUR UDYOG LTD .
815
claiming that their rights under the scheme were crystallized with effect
A
from the date of the certification of their applications under clause 4(h)
of Annexure 'B' to the scheme, which could not be taken away by the
corrigendum with retrospective effect.
A Single Judge held that the impugned corrigendum amounted to
B
an amendment of the scheme and that the corrige~dum would operate
prospectively from the date of its publication in the official gazette. The
Division Bench, while upholding this decision, further held that the rights
available to the respondent-companies under the official scheme were
substantive right5; and that these rights could not be affected adversely
unless the subsequent notification clearly manifested an intention to do
C
so and that there was no such manifest intention. It was further held
that the amendment was arbitrary and violative of Article 14 being
discriminatory vis-a-vis other sick industries. It was also held that the.
amendment could not discriminate against sick cement plants which
had not availed of benefits of tax exemption earlier, so that such sick
industries were treated in a manner worse than sick cement industries
which had availed of exemptions from sales tax earlier. '.l'he Division
Bench accordingly held that the respondent-companies were entitled to
avail of the benefits under the scheme as originally notified and that
such rights were not affected by the corrigendum. However, the
corrigendum notification was not quashed. Hence the appeal.
On behalf of the appellant-State, it was contended that the
respondents had no vested right to the benefits of the scheme as available
D
E
to new units under Sri. No. 1 of Annexure 'B' to the scheme: that the
impugned corrigendum merely made explicit the intention of the State
F
Government to treat the sick units of a particular industry on par with
new units of such industries; that the State Government had. the power
to withdraw or modify the benefit of the scheme not only under Section
15 of the RST Act read with Section 8 of the CST Act but also under
Clause 9 of the scheme; that the respondents had failed to establish that
the State Government was bound by the principle of promissory estoppel G
from modifying or withdrawing the concession: that the corrigendum
was not discriminatory and merely treated sick cement units and new
cement units equally; and that the appellant-State did not intend to take
away the benefits enjoyed by the respondents prior to the date of
publication of the corrigendum.
H
A
B
816
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
On behalf of the respondents-companies, it was contended that
there was no power under Section 8(5) of the CST Act to withdraw an
exemption with retrospective effect; that on the date on which the
respondent-companies' applications were certified as being complete,
rights accrued to the industrial units which could not be withdrawn and
it was not necessary to rely upon the principle of promissory estoppel
for the. purpose of claiming continued exemption; that the subsequent
notification was not a corrigendum but an amendment of the scheme
and could not be construed as amounting to withdrawal of the rights
conferred under the scheme as originally published: that sick units had
been treated as a class apart irrespective of the nature of the industry;
C
that the corrigendum if construed in the manner suggested by the
appellants would be violative of Article 14; that in any event this Court
should protect the respondent-companies in so far as they had availed
of the benefits of the scheme as originally published at least from the
date of the order of the High Court: and that the decision of the High
D
Court not having been stayed by this Court, the respondent-companies
had not recovered sales tax from their customers by virtue of Section
14(2) of the RST Act and it would in these circumstances be inequitable
to saddle them with sales tax liability for the period subsequent to the
decision of the High Court.
E
Allowing the appeals, the Court
F
G
H
HELD: 1. The answer to the question whether the subsequent
notification could operate as far as the respondent-companies are
concerned with effect from the date of publication of the corrigendum
in the official gazette would depend upon the nature of the rights of the
respondent-companies under the scheme. [832-A-B-C-D)
·
2. An exemption is by definition a freedom from an obligation,
which the exemptee is otherwise liable to discharge. It is a privilege
granting an advantagt: not available to others. An exemption granted
under a statutory provision in a fiscal statute is a concession granted by
the State Government so that the beneficiaries of such concession are
not required to pay the tax or duty they are otherwise liable to pay
under such statute. The recipient of a concession has .no legally
enforceable right against the Government to grant a concession except
to enjoy the benefits of the concession during the period of its grant.
·~
STATEv. J.K. UDAIPUR UDYOG LTD.
817
This right to enjoy is a defeasible one in the sense that it may be taken
away in exercise of the very power under which the exemption was
granted. (832-D-E-F]
Shri Baku/ Oil Industries v. State of Gujarat, [1987] SCC 31; Kasinka
Trading v. Union of India, (1995) 1 SCC 274 and Shrijee Sales Corpn. v.
Union of India, [1997) 3 SCC 398, relied on.
3.1. In the present case the scheme having been notified under the
power in the State Government to grant exemptions both under Section 15
of the Rajas!han Sales Tax Act, 1994 and Section 8(5) of the Central Sales
A
B
Tax Act, 1956 in the public interest, the State Government was competent
C
to modify or revoke the grant for the same reason. Thus what is granted can
be withdrawn unless the Government is precluded from doing so on the
ground of promissory estoppel, which principle is itself subject to
considerations of equity and public interest. [832-F-G-H]
Sales Tax Officer v. Shree Durga Oil Mills, [1998) l SCC 572, relied
on.
D
3.2. The vesting of a defeasible right is, therefore, a. contradiction in
terms. There being no indefeasible right to the continued grant of an
exemption (absent the exception of promissory estoppel), the question of E
the respondent-companies having an indefeasible right to any facet of such
exemption such as the rate, period etc. does not arise. [832-H; 833-A-B]
4. In any event, the High Court erred in fact in holding that one of the
respondent-companies had a vested right to the benefits of the scheme.
Clause 4 of the scheme clearly provides that the benefits under the scheme
F
were subject to the sanction of the Screening Committee. No sanction has
been issued to the said respondent-company till date. (833-B-C]
5. Apart from this, the exemption being a creature of the scheme is
subject to the scheme. Clause 9 of the scheme makes it clear that the right
under the scheme was temporary in the sense that the scheme could be
modified or reviewed. It is true that clause 9 also provides that such review
or modification could take place only in the public interest. But nevertheless
the right conferred was a modifiable or revocable one. If any right under
G
the scheme were held to be unmodifiable it would be contrary to the scheme
itself. Therefore even if one were to assume that the respondent companies
H
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..
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818
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
were entitled to the benefits of the scheme on par with new units under Sri.
No. I with ef(eet from the date of the certification of their application under
clause 4(h), the right could be modified with effect from the date on which
the scheme was modified. The further argument of the respondent that the
subsequent notification could not be construed asa modification and would
apply only to subsequent applicants is unacceptable. There is no ambiguity
in the language of the subsequent notification. On the contrary the use of
the word c?rrigendum itself indicates the intention was to correct and to
rectify what the State Government thought had been erroneously done.
[833-C, D, E, F]
6. The New Industrial Policy. pursuant to which, the scheme had
been framed by the State Government was indisputably in the public
interest. Therefore, if the intention of the State Government was to
effectua!e the policy by issuing the subsequent notification it cannot be
said that the St~te Government was not acting in the public interest.
The Industrial Policy which resulted in the exemption scheme expressly
provided that the rate of benefits which were to be given to sick industrial
units which had not availed of any such benefits in the past would be at
par with a n~w· unit. But that does not mean that the words "new unit"
in the policy referred to industries under Sri. No. I of ~nnexure 'B'. Sri.
No. 3 of Annexure 'B' refers to "all c~tegories" 9f cement plants except
mini ce"!ent plants mentioned in .Annexure 'A' !O the scheme. If "All
categories" would necessarily include new cement plants and sick
industrial units falling within the definition of Clause 2(k)(ii), which
were also entitled to the sam'e level of benefit as all other new cement
Units. It would be incongruous to grant sick industrial units, which' do
not fall within clause 2(k)(ii) higher benefits than sick industrial units,
which do. [833-F, G, H; 834-A, C, D, E, F]
,
-
7. The thrust of the industri.al policy was to give an incentive to
new entrepreneurs. It is true that there are separate provisions for sick
industries but given the main object of the policy to make Rajasthan a
"most favoured destination for industries", it could not have been the,
intention of the State.Government to give a lower benefit to new industries
and to give higher·benefits tq, sick industrial units already.established in
the State. However, when the scheme was first notified although the
body of the scheme effectuated the objective, t.he entry under column 3
against Sri. No. 4 in Annexure B did not clearly reflect this. It was to
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ST ATE v. J.K. UDAIPUR UDYOG LTD.
819
clarify this ambiguity that the subsequent notification was issued by the
State Government. [834-H; 835-A, B, C, D]
8. The corrigendum cannot be said to be violative of Article 14. Although
Sri. No. 3 would include all categories of cement industries, the question
whether Sri. No. 4(b) would relate to sick cement industries not covered by
clause 2(k)(iii) or Sri. No. 4(a) is not an issue, which requires to be finally
decided in the present case. The finality given to the decision of the Screening
Committee in terms of Clause 4(a) is "subject to other provisions provided
for in the scheme". Any dec_ision of the Screening Committee cannot be
contrary to the provisions of the scheme. Besides, all that the Screening
Committee has held is that the respondent companies are to be treated on
par with other cement companies, with effect from the date of the subsequent
notification. [835-D-E-F-G; 836-A-B-C]
9. The Division Bench had not quashed the corrigendum notification
but had contented itsetf with construing it. The mere fact that this Court
has not granted a stay of operation of the decision of the High Court
would not give the respondent-companies any right to the fruits of that
decision if the decision is ultimately reversed by this Court. Besides the
respondent-companies should have been aware that with the admission
of the appeal from the High Court's order their rights thereunder were
precarious. [836-F-G-H]
Union of India v. West Coast Paper Mills Ltd, [2004) 2 SCC 747,
relied on.
A
B
c
D
E
10. The mere circumstance that the respondent-companies having
availed of the exemption scheme were prohibited from collecting the tax
F
from its, customers or that they had not collected the sales tax from their
customers is of no consequence. The primary liability to pay the sales tax
is on the seller. The seller ma~ or may not be entitled to recover the same
from the purchaser. The State Government is entitled to recover the same
from the respondent-companies irrespective of the fact that the respondentcompanies may have lost the chance of passing on their liability to pay sales
tax to their purchasers. [836-H, 837-A, B, C]
British Physical Lab India Ltd. v. State of Karnataka, [1999) 1 SCC
G
170; Shree Cement Ltd. v. State of Rajasthan, [2001] l SCC 765; Shree
Digvijay Cement Co. Ltd. v. State of Rajasthan, [2000] I SCC 688 and State
H
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SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
A
of Rajasthan v. Mahaveer Oil Industries Ltd, [1999) 4 SCC 357, held
inapplicable.
B
Shree Digvijay Cement Co. v. State of Rajasthan, [1997) 5 SCC 406,
referred to.
11. As tar as the other respondent is concerned, its right to obtain
benefits under the scheme by reason of clause 4(b) of Annexure 'B'
was in any event provisional since no sanction has been granted to
the company. The undertaking given by this company was to the
effect that the benefits of the scheme were being availed of at the
C
risk of the company till the sanction was granted by the Screening
Committee. [838-F, G, H)
12. In such circumstances it must be open to the State Government
to recover sales tax dues allowing the respondent-companies to only
keep such benefits as had been already availed of by them up to the date
D
of publication of the scheme in the official gazette and thereafter at the
rates specified and according to the provisions of the scheme as modified
by the corrigendum notification. However no interest or penalty will be
charged from the respondent-companies by the appellants on the
differential amounts for the period the matter was sub judice before this
E ·Court provided the respondent-companies pay the principal amount of
sales tax within such time as may be specified by the appellants in this
regard. [838-H; 839-A, B, C)
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8193 of2003.
F
From the Judgment and Order dated 11.12.2001 of the Rajasthan High
G
Court in D.B.C.S.A. No. 337 of 2001.
WITH
C.A. Nos. 8194-8201, 8203-8206 of 2003.
C.S. Vaidyanathan, Aruneshwar Gupta, Additional Advocate General
for State and Arparjit Singh Bedi for the Appellants.
S. Ganesh, U.A. Rana, M.L. Patodi, Arvind Kumar, Sadeep Kharel for
H
Mis. Gagrat & Co. for the Respondents.
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STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.]
821
The Judgment of the Court was delivered by
RUMA PAL : A scheme was framed by the first appellant granting
exemption to industrial units from payment of sales tax on intra-state. and
inter-state sale of goods and by-products manufactured within the State of
Rajasthan. By a subsequent notification the extent of the percentage of
exemption available to sick industries was sought to be corrected. The
disputes in these appeals relate to the interpretation of the scheme and the
effect of the corrigendum.
The scheme was part of the New 4th Industrial Policy of the State. The
Policy stated that the object of the scheme was to make Rajasthan "a most
favoured destination for industries" and to encourage the setting up of
industries in the State. The policy describes the nature of the exemptions
which were sought to be granted to the different kinds of industries with
exemption/deferment incentives for 11 years in respect of some industries
and 14 years for others. A greater incentive was granted to industries being
set up in the five industrial growth centres in the State. The incentives
available during the first year were to be gradually tapered off to a particular
percentage of the fixed capital investment at different rates in respect of some
industries. However, in respect of cement industries the percentage of
exemption proposed was at a flat rate of 25% for 11 years. According to the
policy the scheme would also give benefits for the first time to sick units.
The sick units were classified into two categories as follows:
(1)
"Those units which have not availed of any benefits in the past
will get full benefits at par with a new unit.
A
B
c
D
E
(2)
Those units which have availed of sales tax benefits in the past
F
will get ST benefit on a tapering basis up to 11 years
(maximum 80% and minimum l 0% exemption/deferment on a
t~ering basis)".
Pursuant to this Policy the Rajasthan Sales Tax/Central Sales Tax
Exemption Scheme for Industries, 1998 (referred to as 'the scheme') was
framed and notified in exercise of the powers conferred on the State
Government by section 15 of'.the Rajasthan Sales Tax Act, 1994 (referred
to as "RST Act") and by sub~section (5) of Section 8 of the Central Sales
Tax Act, 1956 (referred to as 'the CST Act"), The scheme came into force
from 1st April 1998. Clause 1-(b) of the scheme envisages that "an industrial
G
H
822
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
A
unit which commences commercial production during the operative period
of this scheme, shall be entitled to claim benefits under this scheme." Clause
3(a) provides that the scheme shall be applicable to:
B
c
D
E
F
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H
(i)
the new industrial units;
(ii) the industrial units going for expansion;
(iii) the industrial units launch,ing diversification; and
(iv) the sick industrial units.
A "New Industrial Unit" has been defined in clause 2(k) as:-
(i)
"New Industrial Unit" means an industrial unit which.
commences commercial production during the operative period
of this Scheme including a unit set up on the site of an existing
industrial unit by making separately identifiable ·capital
investment; subject however, that where an industrial unit
manufacturing the same product is established on the site of
an existing unit, the benefit penhissible for a new unit shall be
available to it only on the production in excess of 80% of the
installed capacity of the existing unit.
(ii)
"New Industrial Unit" shall also include a sick unit:-
(a)
which has not availed of any benefits of exemption from
tax or deferment of tax;
(~) which has been appraised by financial institution and
appropriate rehabilitation plan has been formulated; and
( c)
which has been purchase:d by a new management other
than by way of collusive transfer and such management
has made additional fixed! capital investment not less than
25% of the depreciated value_ of the assets of such unit".
Tb; respondents ·in these appeal~ vliz Mis. J.K. Udyog and J.K.
Synthetics Ltd were writ petitioners before the High Court of Rajasthan and
are companies which manufacture cement in different units within the State
STATE v. J.K. UDAIPUR UDYOG LTff [RUMA PAL, J.]
823
of Rajasthan. The respondent-companies in these appeals are undisputedly
A
'sick'.
The description of the type of units, exten~ of the percentage of
exemption from tax liability, the maximum exemption permissible under the
scheme and the maximum time limit for availing the exemption under the
scheme have been set out in Annexure 'B' to the Scheme.
We set out below the material portion of Annexure B to the exemption
scheme.
SI.
Type of Units
Extent of the
Maximum exemption
Maximum
No.
percentage of
in tenns of percentage
availing .
exemption from
of eligible fixed capital limit for
total tax liability
investment (FCI)
exemption
from tax.
1
2
3
4
5
J.
New Units other
1st year
100%
100% of eligible fixed Eleven
than the units
2nd year
90%
capital investment in
years
mentioned at
3rd year
80%
cases where such .
S.No. 2 and 3 and
4th year
70%
investment exceeds
units.going in for
5th year
60%
Rs. 1,50,00 lacs, and
expansion or
6th year
50%
125% of eligible FCI
diversification
7th year
50%
in cases where such
8th year
40%
investment does not
9th year
40%
exceed Rs. 150,00 lacs
I Ith year
30%
30%
2.
(a) New Units of
)st year
100%
125% of eligible fixed Thirteen
knitwears, gems and
2nd year
100%
capital investment
years
jewellery, textile,
3rd year
90%
electronics and
4th year
80%
telecommunications,
5th year
70%
computer software,
6th year
60%
foot wears and
7th year
50%
leather goods, and
8th year
50%
ceramic
9th year
40%
(b) Very Prestigious
10th year
40%
Units
I Ith year
30%
12th year
30%
13th year
30%
30%
B
c
D
E
F
G
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A
B
c
D
E
F
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824
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
3.
All categories of
25% of
I 00% of eligible FCI
Eleven
cement Plants/units
total
years
including pioneering
liability
to Prestigious unit
Very prestigious/
Premier
Units except mini
cement plants mentioned in Annexure-A
4.
Sick Units:
Same
Eleven
(a) Sick units which
which are
years
have not availed of
available
benefits of
to new
exemption from tax
Units at
or determent of tax
S.No. I
previously,
(b) Other sick units
!st year
80%
100% of eligible
Eleven
which have availed
2nd year
70% fixed capital
years
of the benefits of
3rd year
60% investment
exemption from tax
4th year
50%
in cases where such
or deferment of tax
5th year
40% investment exceeds
6th year
30% Rs. 150.00 lacs and
7th year
20%
125% of FCI in cases
8th year
10% where s~ch investment
9th year
10% does not exceed
10th year
10% Rs. 150.00 lacs
1 lth year
10%
It is apparent from this annexure that for the purposes of deferring the
rate of exemption the industries were classified into three categories under
Sri. Nos. I, 2 and 3 according to the kind of Industry. Cement plants/units
have been separately placed in Sri.No. 3.
According to the respondent-companies, however, sick units were
treated as a special category, and irrespective of the nature of the industry,
were covered by Srl.4. It is the respondent's case that as far as their cement
units were concerned they were not covered by Sri. No. 3 but by Sri. No.
4 (a) and thus, according to them, they were entitled to the higher benefits
accorded to new units under Sri. No. I. According to them the words under
column 3 against Sri. No. 4 made this clear.
According to the appellants on the other hand, this was never the
intention of the State Government which had wanted to treat sick industrial
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.]
825
units of a particular kind on par with new industrial units of that kind in the
matter of grant of exemption. But we are anticipating the dispute which is
considered in detail subsequently. Returning to the scheme : - the procedure
for obtaining exemption under the scheme has been provided in clause 4, the
relevant extract of which reads as under:
"Sanction of benefits under the Exemption Scheme and issue
of Eligibility Certificate:-
A
B
(a)
In order to avail the benefit under this Scheme, the applicant
industrial unit shall have to obtain sanction from the State
Level Screening Committee or District Level Screening
C
Committee, as the case may be. The Screening Committees
shall act as quasi-judicial authorities whose decisions shall be
final subject to other provisions provided for in this Scheme.
(b)
(c)
(d)
................ .
(e)
The appropriate Screening Committee shall, .after having
examined the application of an industrial unit and after having
gathered or collected such other information, documents or
evidence as may be considered necessary and after having got
conducted such further enquiry as deemed proper in the
circumstances of the case, sanction the benefits under this
Scheme to the said unit if it is found fully covered by the
provisions of this Scheme and is not in any way debarred or
disqualified to claim the said benefits. However, in particular,
the said Screening Committee shall reject the application of the
applicant, unit
(i)
where its case does not fall within the parameters of this
Scheme, or
(ii) where it has failed in spite of adequate opportunity being
given, to supply any information asked for or adduce any
evidence required for; or
D
E
F
G
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826
A
B
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
(iii) where any case of avoidance or evasion of tax is pending
against it at any forum or it is found penalized _for such
offence, within a period of two years immediately
preceding the date of the filing of the application; however,
the said Screening Committee may waive this
disqualification in an appropriate case if the offence is
technical or venial in nature or has been compounded .
•
(t)
In case of sanction of benefits under the Scheme, such sanction
shall be communicated in writing to the Assessing Authority
of the applicant unit, who shall issue Eligibility Certificate to
C
the said unit in Form C, appended to this notification, within
a period of seven days from the date of the receipt of the
sanction, and a copy of such Certificate shall also be sent to
the Member Secretary of the concerned Screening Committee.
D
E
p·
G
(g)
The Eligibility Certificate issued under this Scheme shall
remain in force till the permissible exemption from tax in
accordance with the provisibns of this scheme is not exhausted,
or till such Certificate is not amended, suspended or revoked.
(h)
The benefits under this Scheme shall be available from the date
of the application filed by the applicant unit completed in all
respects, as certified by the member Secretary of the appropriate
Screening Committee.
(i) .
During the currency of the Eligibility Certificate, the unit
concerned shall be exempted from payment of tax on
the intra-State sales/inter-State sales of the goods and
by-products manufactured by it within the State including the
waste items derived therefrom ~d the packing matei-ial used
therewith."
The order in which the steps envisaged for grant of benefits under this
clause of the scheme was therefore;
I)
making of an application by the industrial unit;
2)
the certification of the application as complete and the provisional
H
availability of the benefits (clause 4(h) );
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.]
827
3)
The examination of the application by the Screening Committee
A
after collecting infonnation/enquiry etc Clause (4( e));
4)
The sanction or rejection of the application by the Screening
Committee. (Clause (4(e));
5)
In case of sanction, the communication of the sanction to the
Assessing Authority. (Clause (4(f))
6)
The issuance of Eligibility Certificate by the Assessing Authority
within seven days. (Clause 4(t));
7)
The availability of exemption from payment of tax during the
currency of the Eligibility Certificate until the exemption was
either exhausted or unless the certificates were amended, suspended
or revoked. (Clauses 4(i)).
B
c
The respondent companies applied for exemption under the scheme
D
claiming benefits at par with units under Sri. No. l. As far as Mis. J.K.
Synthetics Limited is concerned, the Director of Industries certified that the
application was complete. The certificate issued under Section 4(h) on 20th
February, 1999 made it clear:
"This certificate will not be treated as sanction of incentive under
the Sales Tax Exemption Scheme, I 998. Incentive if any availed
under Clause 4(h) of the aforesaid scheme will be entirely at the risk
of the unit, subject to decision of the Slate level Screening Committee.
A suitable undertaking shall be taken by the concerned assessing
authority in this regard from the unit."
In tenns of the requirement, Mis. J.K. Synthetics Limited gave an
undertaking in writing to the effect that the incentives availed by the company
from the date of completion of the application till the grant of sanction of
eligibility certificate would be entirely at the risk of the company and in case
the company's application was rejected for any reason, the company shall
pay the tax which was being availed of on the basis of the certificate of
completion.
E
F
G
While the application of M/s. J.K. Synthetics was pending for
consideration by the Screening Committee, the corrigendum was issued on
H
828
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
A
30th September, 1999, by the Finance Department inter-alia, amending the
third column against Sri.No. 4 of Annexure B by replacing the phrase "New
units at Sri. No. I" with "New units at Sri. No. 1,2 and 3 as the case may
be". Thus sick cement units under Sri.No. 4 (a) were expressly put on par
with new cement units under Sri.No. 3.
B
c
D
E
Mis. J .K. Synthetics Limited submitted a representation to the Screening
Committee that the corrigendum should not affect the company. The
Screening Committee deferred its decision on the ground that as the particular
unit of Mis. J.K. Synthetics Limited in respect of which the exemption was
claimed was not sick, although the company itself had been declared sick,
it should await the rehabilitation programme duly approved by the BIFR
providing the benefit of sales tax incentives scheme to all such units. While
deferring the case till the approval of the rehabilitation programme by BIFR,
the Screening Committee said that the unit could avail of the benefit under
the scheme to the extent permissible under the corrigendum. Neither any
sanction under clause 4( e) and consequently no Eligibility Certificate under
clause 4(f) have been issued to Mis. J.K. Synthetics Limited under the scheme
till today.
As far as Mis. Udaipur Udyog Limited is concerned, its application
under the scheme was certified as complete under Clause 4(h)on 26th July,
1999 and was sanctioned on 30th December, 1999. However, the quantum
of benefit was granted in terms of the corrigendum from the date of issuance
of the corrigendum. The eligibility certificate was issued to
Mis. J.K. Udyog on 29th February, 2000 also restricting the benefits under
the scheme on the basic; of the corrigendum.
F
Since the respondent had been availing of the higher rates of exemption
against Sri.No. l, consequent upon the decision of the Screening Committee
granting the benefits under the corrigendum, provisional assessment orders
and notices were issued to both the respondent companies by the Sales Tax
Authorities over the differential sales tax.
G
Mis. J.K. Synthetics Limited and J.K. Udyog Limited filed separate writ
petitions before the High Court of Rajasthan challenging the corrigendum
dated 30th September, 1999; in the alternative a prayer was made to hold
that the corrigendum had no application to the respondent companies; for
quashing the decisions of the Screening Committee in so far as the respondent
H
companies were given the benefit of the exemption scheme on the basis of
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.]
829
the corrigendum and for quashing the provisional assessment orders and
A
notices.
The submission of the respondent companies before the High Court
inter alia was that the scheme as originally framed allowed the companies
to avail of the benefit of the exemption scheme under the Sri.No. 4(a) read
with Sri. No. 1 for a period of 11 years up to a maximum limit of hundred
percent of the companies' eligibility fixed capital investment at percentages
of the total tax liability ranging from 100% in the first year to 30% in the
11th year. These rights of the companies under the scheme were claimed to
be crystalised with effect from the date of the certification of their applications
under clause 4 (h), which could not be taken away by the corrigendum with
retrospective effect.
The learned single judge accepted the submission of the respondent
companies that the impugned corrigendum really amounted to an amendment
B
c
of the scheme. But it was held that the State Government was competent to
modify the scheme and, therefore, the respondent companies were entitled
D
to relief in terms of the scheme as originally notified up to the date of
amendment and subsequent thereto as provided in the corrigendum. Since the
corrigendum had been published in the Official Gazette on 7th January, 2000
it was held that it would be applicable with effect from that date.
Several appeals were preferred both by the State of Rajasthan as well
as by the respondent companies from the decision of the learned Single
Judge. The Division Bench disposed of all the appeals by the judgment
impugned before us. The Appellate Court agreed with the learned Single
Judge that the corrigendum notification was in fact an amendment of the
scheme and therefore, this would operate only prospectively i.e. from 7th
January, 2000. The plea of the respondent companies thatthe State Government
was bound by the principles of promissory estoppel from modifying or
amending the scheme was negated by the Division Bench. The respondent
companies have not sought to challenge this conclusion before us. The
Division Bench however held that the rights of the respondent companies of
enjoying the benefit under the original scheme including the maximum
amount of exemption, the maximum period of exemption, and the percentage
of exemption were available to the respondent companies with effect from
the date of certification of their applications under clause 4(h) and were
substantive and that these rights could not be affected adversely unless the
subsequent notification clearly manifested an intention to do so. It was held
E
F
G
H
A
B
c
D
E
F
G
H
830
SUPREME COURT REPORTS (2004] SUPP.