AUGUSTAN TEXTILE COLOURS LIMITED (NOW AUGUSTAN TEXTILE COLOURS PVT LIMITED) versus DIRECTOR OF INDUSTRIES & ANR on 8 April 2022

1. The gap between the 2004 Government Order and theGovernment Order dated 21.11.2006 shows that the appellantwas enjoying the benefit for a fair duration. Significantly, the powerto grant such tax benefit is not seen in any other State Legislationbut only in Section 10(1) of the Kerala General Sales Tax Act,1963. The power to grant exemption under Section 10(1) ishowever in respect of a class of persons and was never intendedfor an individual industrial unit like the appellant. When thisaberration was noticed and it was seen that amongst similarlyengaged units in the same business, the appellant was the onlyone enjoying the benefit of exemption, the 2006 governmentorder was issued withdrawing the exemption granted on20.3.2004. [Para 20][115-G-H; 116-A-B]

2. Undoubtedly, the government was empowered underSection 10(3) to withdraw the exemption at any time and therefore,it cannot be said that the principle of promissory estoppel byitself, will facilitate the appellant to challenge the 2006Government Order. It must be pointed out that a number ofconcessions were offered to the appellant under the 2004Government order and it is discernible that payments underseveral heads were not set apart for the appellant, notwithstandingtheir role in revival of the sick unit. [Para 21][116-B-C]

3. The present dispute pertinently is only with regard tothe exemption relatable to sales tax/works contract tax and it isnobody’s case that past arrears of sales tax/works contract taxpayable by the sick units, were completely waived. Factoring this,the writ court as well as the Division Bench opined that sub-clause (1)(b) of 2004 Government Order relating to waiver of taxin the State is of such wide amplitude that the same must be seenas uncertain and vague. Also importantly, such exemption cannotcontinue indefinitely and particularly not beyond the point at whichthe revival of the sick unit is seen. [Para 22][116-D-E]

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A4. Section 10(1)(ii) of the KGST Act enables the State togrant exemption from sales tax only with respect to “any specificclass of persons in regard to the whole or any part of their turnover”and since the 2004 Government Order benefitted only a singleunit i.e. the appellant, it is difficult to accept that the solitaryindustrial unit which was being revived under the BIFR Scheme,Bwould form a class by itself. Therefore, contention to the contraryby the appellant is considered and rejected with the reasoningthat the exemption by 2004 Government Order was not madeapplicable to all sick industrial units of the state, engaged in thelike activities of bleaching, dyeing etc. [Para 23][116-E-G]

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5. On the argument of the appellant based on the principlesof promissory estoppel, as earlier noted, the tax exemption inthe present matter was not given to a class of persons and theappellant is made the sole beneficiary. This is contrary to Section10 of the KGST Act. The 21.11.2006 withdrawal order wasDtherefore issued, when it was discovered that this was a case ofexemption to an individual unit and that is impermissible underSection 10 of the KGST Act. Such being the position, the benefitof the equitable doctrine of estoppel cannot be extended for theappellant as in that case the State authority would be obliged toact in a manner which is contrary to the legislative mandate. [ParaE27][117-E-G]

6. The equitable principle of promissory estoppel cannotbe invoked for enforcing promises in the teeth of the provisionsof law. Having concluded that the Government Order(20.03.2004), granting Sales Tax/ Works Contract Tax exemptionFwas ultra vires the Section 10(1) of the KGST Act, the promise,in furtherance of Government Order, in the form of BIFR Schemedated 17.01.2005 being unlawful, cannot in our view, be enforcedon equitable consideration. [Para 31][118-F-G]

7. Even though the appellant was granted benefit of taxGexemptions under the 2004 government order, this was ultra viresthe Section 10 KGST Act. Such exemption cannot be continuedfor further assessment years, as that would amounts toperpetuating and condoning a wrong, which is opposed to publicpolicy. [Para 33][119-B-C]H

8. The Division Bench concluded that the appellant doesnot form a separate class of its own. Hence, the 2004 governmentorder was held to be ultra vires the Section 10(1) of the KGSTAct. The appellant has failed to bring to our attention, anyintelligible differentia, based on which it can be said that theyconstitute a unique, separate class of its own. In absence of suchdifferentiating factor, the benefit of tax exemptions being grantedto the appellant, to the exclusion of all other sick industriesinvolved in similar activities, do not appear to be reasonable andshould be seen as arbitrary. The 2004 government order was notonly ultra vires Section 10(1) of KGST Act, but also falls short byprinciple of reasonableness, fairness, and non arbitrariness. The2006 government order withdrawing the tax exemption was infact issued to remedy this very mischief. Hence, the appellantcannot invoke the principle of legitimate expectation against the2006 government order. [Para 41][122-B-D]

State of Gujarat vs. Arcelor Mittal Nippon Steel IndiaLtd. (2022) SCC OnLine SC 76 (14); Pournami OilMills and Others vs. State of Kerala and Anr. 1986(Supp) SCC 728 : [1987] 1 SCR 654 (18); M/s. Motilal20 Padampat Sugar Mills vs. State of Uttar Pradesh &Ors. (1979) 2 SCC 409 : [1979] 2 SCR 641 (28); AmritBanaspati Co. Ltd. vs. State of Punjab & Anr. (1992) 2SCC 411 : [1992] 2 SCR 13 (29); BangaloreDevelopment Authority vs. R. Hanumaiah (2005) 12SCC 508 : [2005] 3 Suppl. SCR 901 (30); Voltas Ltd.vs. State of A.P. (2004) 11 SCC 569 : (34); MonnetIspat & Energy Ltd. vs. Union of India (2012) 11 SCC1 : [2012] 7 SCR 644 (36); Pawan Alloys & CastingPvt. Ltd., Meerut vs. U.P. State Electricity Board andOthers (1997) 7 SCC 251 : [1997] 3 Suppl. SCR 266(42) – referred to.

MRF Ltd., Kottayam vs. Asst. Commissioner (Assessment)Sales Tax & Ors. (2006) 8 SCC 702 : [2006] 6 Suppl.SCR 417 (38) – distinguished.

Case Law Reference(2022) SCC OnLine SC 76referred to Para 14

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1. There is merit in the contention of the appellant that theexemption granted initially, dated 20.03.2004, was not one whichis premised under Section 10 of the Act. The exemption wasgranted in terms of the scheme under Section 19 of the Act. ThisDis an exemption which was given under statutory provisions. Inother words, consent being forthcoming from the state, a schemebeing sanctioned under section 19 providing for financialassistance in the form of tax exemption, inter alia, theGovernment became obliged to honour its consent and the dictateEof the statute. [Para 11][133-F-G]

2. It will be inequitable to the company and against publicinterest also, as it frustrates the object of law to allow a schemeto be sanctioned inducing all parties to proceed on the basis thata company would be redeemed from its financial dire-straits andFthe crucial financial assistance indispensable to the said processis not forthcoming from the State. The aforesaid interpretationplaced hereinbefore would harmonise the Central and the StateAct. It will also give life to the Sick Companies Act as it wouldclearly further the object of the law. Therefore, the exemptiongranted can be understood as springing from the provisions ofGSection 19(3) read with 19(1) in this regard. Thus, the exemptionis not to be treated as falling under Section 10 of the State Act. Inother words, Section 10 cannot be treated as the sole repositoryof power to grant exemption. [Para 12][133-G-H; 134-A-B]

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3. It is quite clear that the appellant cannot pitch its casehigher than at the limit under Order dated 25.11.1994. Therefore,exemption of sales tax is contemplated for a period of two years.However, it further provides that it cannot be for more than fiveyears or beyond the date the net worth of the company becomespositive whichever is earlier. Therefore, the maximum period inany case is 5 years. In the case of the appellant, the appellantenjoyed the benefit of the exemption till it was withdrawn on 21.112006. The said order in turn was withdrawn on 01.10.2007. It isno doubt true that on 29.02.2008, the order dated 01.10.2007came to be withdrawn. The writ petition was filed by the appellant.It would appear that for a period of nearly 4 years, the appellantenjoyed the benefit of exemption in all. No doubt, the appellantdid point out that there is no exercise carried out to find out as towhen the net worth has turned positive. [Para 19][135-H; 136-A-C]

Mahindra and Mahindra Limited and Ors. vs. State ofAndhra Pradesh and Ors. 1986 (63) STC 274 (16) –referred to.

Case Law Reference

1986 (63) STC 274 referred toPara 16CIVIL APPELLATE JURISDICTION : Civil Appeal No.2830of 2022.

From the Judgment and Order dated 28.09.2017 of the High Courtof Kerala at Ernakulam in Writ Appeal No.2021 of 2012.

Ritin Rai, Sr. Adv., Siddhartha Jha, Parth Maniktala, Advs. for theAppellant.

C. K. Sasi, Abdulla Naseeh V. T., Ms. Meena K. P., Advs. for theRespondents.

The Judgments of the Court were delivered by HRISHIKESH ROY, J.

Leave granted.

1. Heard Mr. Ritin Rai, the learned Senior Counsel representingthe appellant. Also heard Mr. C.K. Sasi, the learned counsel representingthe respondents.

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A2. The issue to be considered here is whether the benefit of taxexemption in respect of works contract granted in the process of revivalof the industry, under the relevant provisions of the Sick IndustrialCompanies Act, 1985 (for short “the SICA”) based on the KeralaGovernment communication dated 20.3.2004 (Ext. P-2) can bewithdrawn, by the subsequent government order dated 21.11.2006 (Ext.BP-3).

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3. It was the appellant’s say that they had taken over a sickindustrial unit by the name of M/s Teak Tex Processing Complex Ltd.,which was engaged in dyeing of clothes. The Kerala based unit was notoperational for a considerable period when attempt was made, for revivalCof the unit under SICA. In the proceedings that were pending before theBoard for Industrial and Financial Reconstruction (for short “BIFR”),the authorities were assessing the possibility of revival of the unit. Atthat stage, the appellant offered to make investment for revival of thecompany following which, discussions were held amongst theDstakeholders and various concessions were offered to the appellant.

4.1 In tune with the recommendation of the EmpoweredCommittee constituted for the purpose, the Government Order was issuedon 20.3.2004 whereby the recommendations of the Committee wereaccepted. The relevant clause incorporating the measures relating toESales Tax/Works Contract Tax, are as under:- “Sales Tax/Works Contract Tax (a)The past arrears of Sales Tax/Works contract tax will becompletely waived.

F(b)Works contract Tax on processing of Fabrics like bleachingand dyeing etc. will be exempted in the State”

4.2 In furtherance of the 2004 Government Order, the revivalproposal envisaged the taking over by the appellant entire assets of thesick unit for a sum of Rs.10 crores and the BIFR Sanctioned Schemedated 17.01.2005 mentioned the relief measures under clause 7.2.1Gpertaining to sales tax/works contract tax. They read as follows:- “7.2.1 Sales Tax/Works Contract Tax (a)To waive past arrears of Sale Tax Works Contract Taxcompletely H

(b) To exempt works contract tax on processing of fabrics likebleaching and dyeing etc. in future.”

5. The appellant availed the waiver benefit of past tax arrears ofthe sick unit on the basis of the BIFR Sanctioned Scheme dated 17.01.2005(Ext. P-1) which assured waiver of Works Contract Tax on processingof fabrics like bleaching and dyeing etc. After about 30 months of sucharrangement, the Government issued another Order on 21.11.2006exercising the power under Section 10(3) of the Kerala General SalesTax Act, 1963 (for short “the KGST Act”) where it was said that thebenefit of exemption can only be granted to a specified class of goods ora particular class of persons, and the appellant who is one amongst severalindustrial units doing similar nature of work within the State of Kerala,cannot be allowed the benefits of exemption of Works Contract Tax.After issuance of G.O. order dated 21.11.2006, withdrawing theconcession in question, on 1.10.2007, the Government has withdrawnG.O.No.110/06/1D dated 21.11.2006, as the concession was one alreadyallowed in the rehabilitation scheme of the BIFR of the company.However, on 29.02.2008 again, the Government in the Tax Departmentrequested to cancel the GO dated 01.10.2007 as it did not have anylegally binding effect and thereupon GO dated 01.10.2007 in turn wascancelled with immediate effect. Accordingly, it was decided to withdrawthe tax waiver/exemption granted to the appellant which prompted themto file the W.P.(C) No. 5677 of 2007 before the High Court of Kerala.

6. It was contended by the appellant that they attempted to reviveand nurse back a sick company under BIFR and with due deliberationsand the recommendations of the Empowered Committee, the incentivemeasures to be offered to the appellant, have been worked out andfinalized as per the scheme. The appellant is actively working in theprocess of revival of the sick unit and at that stage, it was not open to theState of Kerala to resile from their promise by issuing the GovernmentOrder dated 21.11.2006. According to the appellant, the exemption grantedvide the 2004 Government Order was issued as a “package deal” incourse of revival of the sick unit in conformity with the relevant provisionsof the SICA and once consent was given and proceedings were finalizedin terms of Section 19(1) or 19(2), the same would be binding upon allthe stakeholders as is provided under Section 19(3) of SICA. It wastherefore argued that the benefit of tax exemption granted by the Stateunder the Scheme, is binding on the State under the provisions of Section A

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A19(3) of SICA and the State must be held accountable to their promise.It was the say of the appellant that the incentives were not grantedunder Section 10(1) of the KGST Act, and therefore the tax exemptioncould not have been withdrawn by invoking the powers under Section10(3) of the same Act. The appellant unequivocally rejected a suggestionby this Court that the appellant might not constitute a unique class ofBone, in whose favour a tax exemption under Section 10(1) KGST Actcan be granted legally. The appellant however failed to point out anyother provision in any statute, which empowered the State Governmentto grant such tax exemptions. While reviving the sick unit, the appellantearned profit in 2015, but incurred loss in subsequent three years. TheCrecent years i.e., 2019 and 2020 are however profitable years for theappellant.

7. The respondents, on the other hand, contend that the 20.03.2004Government Order confers various benefits, and the exemption fromsales tax/works contract tax is only one of those benefits offered forDrevival of the sick unit. According to the learned Government Counsel,

the source of power to grant tax exemption is traceable only to Section10(1) of the KGST Act and merely because the 20.03.2004 GovernmentOrder does not specifically refer to the source of power, the same cannotaid the appellant, as specific reference is made to Section 10(3) of theKGST Act, while withdrawing the exemption. The learned governmentEadvocate further argues that when exemption is given, it is always openfor the government to cancel, vary or modify the same, bearing thepublic interest in mind, and since no time limit was specified on the liabilityin respect of sales tax/works contract tax, the withdrawal of benefit bythe Government Order dated 21.11.2006, is well within the power andFcompetence of the government.

8. The records available would show that the following benefits/concessions were extended to the appellant for revival of the sick unit:

“1) Sales Tax/Works Contract Tax

G2) Electricity Dues

3) Water Charges

4) Pollution Control Water Cess

5) Panchayat Taxes and Levies

6) The ownership of land”

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9. It is further seen that the benefits offered, inter alia, werewaiver of past arrears particularly under the Sales Tax/Works ContractTax. For other charges like electricity dues, water charges, PollutionControl Water Cess, the principal amount in the arrears were to be paidwithout the obligation to bear the interest or penalty burden, from thedate of commencement of the commercial production. Specifically forthe Sales Tax/Works Contract Tax, under clause 1(b), it is not very clearas to whether the benefit intended for process of fabrics like bleaching,dyeing etc. will be available individually to the appellant or was intendedto be availed by this class of industries, many of which are operating inthe State of Kerala. It further raises questions in regard to the scope andextent of exemption that could be provided under Section 10 of the KGSTAct.

10. Adverting to the mandate of Section 10 of the KGST Act, thelearned Single Judge of the High Court doubted whether the exemptioncould have been extended to the appellant alone as opposed to a class ofindustries and the court commented that “such a course of exemptionthroughout the State was not brought about”. The learned Judgeobserved that the 2004 Government Order was based on therecommendation of the Empowered Committee with due discussionamongst the stakeholders, and those were with specific reference to theconcessions to be extended to new promoters for revival of sick units, inlight of the government order dated 25.11.1994.

11. It was noted by the learned Single Judge upon perusal of the1994 Government Order that there are two separate channels of benefits/reliefs i.e. (a) non-fiscal; and (b) fiscal, and under item no. 2, theexemption was granted for works contract tax on processing of fabricslike bleaching, dyeing etc.

12. The above would show that the fiscal measures refer toexemption/deferment of sales tax, purchase tax, electricity dues for twoyears, but not exceeding five years or till the date, the net worth of thecompany became positive, whichever is earlier. Thus, the outer cap offive years was specified in the 1994 Government order and the benefitscould not have been intended to continue without limit.

13. Even though the 2004 Government Order, and the BIFRSanctioned Scheme of 2005 were enacted in furtherance of 1994Government Order, both these documents do not specify the time linefor tax exemptions prescribed in the 1994 government order.

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14. Recently this Court in the case of State of Gujarat Vs. ArcelorMittal Nippon Steel India Ltd.[1] has held that exemption provisions andnotifications are to be strictly interpreted in accordance with legislativeintent without any addition or subtraction. A Division Bench of this Courtspeaking through Justice M. R. Shah held that:

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B“14.2 It is settled law that the notification has to beread as a whole. If any of the conditions laid down in thenotification is not fulfilled, the party is not entitled to thebenefit of that notification. An exception and/or an exemptingprovision in a taxing statute should be construed strictly andit is not open to the court to ignore the conditions prescribedCin industrial policy and the exemption notifications.

14.3 The exemption notification should be strictlyconstrued and given meaning according to legislativeintendment. The Statutory provisions providing for exemptionhave to be interpreted in the light of the words employed inDthem and there cannot be any addition or subtraction fromthe statutory provisions.

14.4 As per the law laid down by this Court in catenaof decisions, in the taxing statute, it is the plain language ofthe provision that has to be preferred, where language is plainEand is capable of determining defined meaning. Strictinterpretation to the provision is to be accorded to each caseon hand. Purposive interpretation can be given only whenthere is an ambiguity in the statutory provision or it alleges toabsurd results, which is so not found in the present case.”

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15. Accordingly, in the present matter, the 2004 government ordergranting tax exemptions should be read as a whole and in absence ofany time line being prescribed, such a time line in our opinion, cannot beimported from the 1994 government order.

16. Furthermore, Sales tax in the State of Kerala is chargeableGunder Section 5 of the KGST Act which makes it obligatory upon theState to realize the tax in respect of sales transaction. Section 10 dealswith the power of exemption and sub-Section (3) thereof confers thepower to have the order of exemption “varied or modified”, in themanner specified.

H1 (2022) SCC OnLine SC 76.

17. The benefit of exemption to tax must therefore be traceableto powers conferred under the KGST Act and such benefits could nothave been granted in terms of the BIFR Scheme dated 17.01.2005 givingeffect to the Government Order issued on 20.3.2004. In the 2006Government Order withdrawing the benefits, the government hasspecifically adverted to Section 10 of KGST Act and as such the non-mentioning of the provisions of Section 10(1) of the KGST Act in the2004 Government Order, would not assist the appellant in any significantmeasure.

18. In Pournami Oil Mills and Others vs. State of Kerala andAnr.[2], Justice Ranganath Misra, as he was then, opined as follows:- “6……It is a well settled principle of law that where theauthority making an order has power conferred upon it bystatute to make an order made by it and an order is madewithout indicating the provision under which it is made, theorder would be deemed to have been made under the provisionenabling the making of it….”

The present understanding finds support from the above propositionof law laid down by this Court in Pournami Oil Mills (supra).

19. Insofar as the benefits of tax exemption from the works contracton processing of fabrics, being in conformity with the stipulations underparagraph 7.2.1 of the BIFR Scheme dated 17.01.2005, it must be noticedthat Sub-clause (b) of paragraph 7.2.1 is not exactly the same asparagraph 1(b) of the 2004 Government Order, as in the latter case, it iswith reference to proposed plan of action, to provide exemption to similarunits within the state of Kerala.

20. What is of significance is that similarly situated fabricprocessing units in the state are obliged to meet their tax obligation forthe Works Contract Tax and that is why in the 2006 Government Order,it was specifically stated that exemption for such taxable events, cannotbe confined to the appellant alone. The gap between the 2004 GovernmentOrder and the Government Order dated 21.11.2006 shows that theappellant was enjoying the benefit for a fair duration. Significantly, thepower to grant such tax benefit is not seen in any other State Legislationbut only in Section 10(1) of the KGST Act. The power to grant exemptionunder Section 10(1) is however in respect of a class of persons and was A

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Anever intended for an individual industrial unit like the appellant. Whenthis aberration was noticed and it was seen that amongst similarly engagedunits in the same business, the appellant was the only one enjoying thebenefit of exemption, the 2006 government order was issued withdrawingthe exemption granted on 20.3.2004.

B21. Undoubtedly, the government was empowered under Section10(3) to withdraw the exemption at any time and therefore, it cannot besaid that the principle of promissory estoppel by itself, will facilitate theappellant to challenge the 2006 Government Order. It must be pointedout that a number of concessions were offered to the appellant underthe 2004 Government Order and it is discernible that payments underCseveral heads were not set apart for the appellant, notwithstanding theirrole in revival of the sick unit.

22. The present dispute pertinently is only with regard to theexemption relatable to sales tax/works contract tax and it is nobody’scase that past arrears of sales tax/works contract tax payable by theDsick units, were completely waived. Factoring this, the writ court as wellas the Division Bench opined that sub-clause (1)(b) of 2004 GovernmentOrder relating to waiver of tax in the Stateis of such wide amplitude thatthe same must be seen as uncertain and vague. Also importantly, suchexemption cannot continue indefinitely and particularly not beyond theEpoint at which the revival of the sick unit is seen.

23. As earlier discussed, Section 10(1)(ii) of the KGST Act enablesthe State to grant exemption from sales tax only with respect to “anyspecific class of persons in regard to the whole or any part of theirturnover” and since the 2004 Government Order benefitted only a singleFunit i.e. the appellant, it is difficult to accept that the solitary industrialunit which was being revived under the BIFR Scheme, would form aclass by itself. Therefore, contention to the contrary by the appellant isconsidered and rejected with the reasoning that the exemption by 2004Government Order was not made applicable to all sick industrial units ofthe state, engaged in the like activities of bleaching, dyeing etc.G

24. It is also relevant to point out that the government order dated25.11.1994 clearly reflected the government’s intention to consider eachsick industrial unit on a case to case basis.

25. Next, the Court must examine whether the appellant can raisecontention on the validity of 2006 Government Order in the context ofH

AUGUSTAN TEXTILE COLOURS LTD. (NOW AUGUSTAN TEXTILECOLOURS PVT LTD.) v. DIRECTOR OF INDUSTRIES [HRISHIKESH ROY, J.]

the sanctioned scheme of restriction approved by the BIFR and thebinding nature of the scheme under Section 19(3) of SICA. This questionarises since the contentions in this regard were earlier argued and rejectedby the learned Single Judge, and the judgment, dated 13.3.2012 in WritPetition No.5677 of 2007 has worked itself out with the representationssubmitted by the appellant pursuant to the Writ Court’s judgment and thespeaking order passed thereafter by the government on 5.10.2012 rejectingthe appellant’s representation. Significantly, the speaking order was notchallenged. Instead, the appellant filed the Writ Appeal against the learnedSingle Judge’s order, granting limited relief of enabling them to file arepresentation and directing the State to pass a speaking order afteraffording hearing to the appellant. As the appellant had presented theirrepresentation on the strength of the order of the Writ Court and therebyhave accepted the judgment, the appellant cannot thereafter in our view,challenge the said judgment through a Writ Appeal when an adverseorder is passed against them, by the government.

26. One is certain that it would be legally impermissible to granttax exemption, contrary to the provisions of the KGST Act. The specialexemption is provided to a single unit under the BIFR proceeding andthe State cannot in our opinion be compelled to act contrary to theprovisions of the KGST Act, on the strength of binding nature of thescheme under Section 19(3) of SICA.

27. On the argument of the appellant based on the principles ofpromissory estoppel, as earlier noted, the tax exemption in the presentmatter was not given to a class of persons and the appellant is made thesole beneficiary. This is contrary to Section 10 of the KGST Act. The21.11.2006 withdrawal order was therefore issued, when it wasdiscovered that this was a case of exemption to an individual unit andthat is impermissible under Section 10 of the KGST Act. Such being theposition, the benefit of the equitable doctrine of estoppel cannot beextended for the appellant as in that case the State authority would beobliged to act in a manner which is contrary to the legislative mandate.

28. The equitable principle of promissory estoppel was propoundedby this Court in the case of M/s. Motilal Padampat Sugar Mills Vs.State of Uttar Pradesh & Ors.[3] In the same very case, it was howeverobserved that the legal principle cannot be invoked to compel anyone to A

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Ado anything, contrary to law. Justice P. N. Bhagawati for the DivisionBench wrote the following:- “28…It may also be noted that promissory estoppel cannotbe invoked to compel the Government or even a private partyto do an act prohibited by law…”

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29. The above judgment in Motilal Padampat(Supra) wasfollowed in the case of Amrit Banaspati Co. Ltd. Vs. State of Punjab& Anr.[4]wherein, this Court carved out unlawful/illegal promise as anexception to the principle of promissory estoppel. But, the observation inthis case in reference to an unlawful promise was not laid down as aCratio, but at best an Obiter dicta.

30. In the later case of Bangalore Development Authority Vs.R. Hanumaiah[5], it was however specifically declared that the equitableprinciple of promissory estoppel cannot be invoked for condoning orenforcing a promise, expressly prohibited by a statute. This Court speakingDthrough Justice Ashok Bhan pronounced as under:

“34. …In absence of any provision in the Act or the Rulesframed thereunder authorizing BDA to reconvey the land,direction cannot be issued to BDA to reconvey a part of theland on the ground that it had promised to do so. The rule ofEpromissory estoppel cannot be availed to permit or condonea breach of law. It cannot be invoked to compel theGovernment to do an act prohibited by law. It would be goingagainst the statute. The principle of promissory estoppel wouldunder the circumstances be not applicable to the case in hand.”

F31. From the above reading of the relevant judgments, it isabundantly clear that the equitable principle of promissory estoppel cannotbe invoked for enforcing promises in the teeth of the provisions of law.Having concluded that the Government Order (20.03.2004), grantingSales Tax/ Works Contract Tax exemption was ultra vires theSection10(1) of the KGST Act, the promise, in furtherance of Government Order,Gin the form of BIFR Scheme dated 17.01.2005 being unlawful, cannot inour view, be enforced on equitable consideration.

32. Further, in Arcelor Mittal Nippon Steel (Supra) this Courthas held that:

AUGUSTAN TEXTILE COLOURS LTD. (NOW AUGUSTAN TEXTILECOLOURS PVT LTD.) v. DIRECTOR OF INDUSTRIES [HRISHIKESH ROY, J.]

“22….The principle of promissory estoppel shall not beapplicable contrary to the Statute. Merely becauseerroneously and/or on misinterpretation, some benefits in theearlier assessment years were wrongly given, cannot be aground to continue the wrong and to grant the benefit ofexemption though not eligible under the exemptionnotification.”

33. In the case at hand, even though the appellant was grantedbenefit of tax exemptions under the 2004 government order, this wasultra vires the Section 10 KGST Act. Such exemption cannot becontinued for further assessment years, as that would amounts toperpetuating and condoning a wrong, which is opposed to public policy.

34. It would be apposite now to advert to Voltas Ltd. Vs. State ofA.P.,[6] where a BIFR proceeding was being considered and the ratiotherein will shed some light on the present matter. In that case, the VoltasLtd. agreed to take over the refrigeration unit of ‘Hyderabad AllwynLtd.’ (A Sick Company) vide a Memorandum of Understanding with thestate government, subject to BIFR approval. The state government, forincentivizing the appellant, issued government order dated 20.01.1994granting sales tax deferral for a period of 7 years. The said deferral wasreflected in the BIFR Sanctioned Scheme dated 04.04.1994. Later, thestate government issued another order on 18.08.1995, whereby 18%interest was levied on the sales tax component so deferred. The interestsum was payable after 7 years in lump sum. Dealing with the challengeto the government decision, this Court by a short order upheld theGovernment Order dated 18.08.1995 with the observation that the interestwas imposed under relevant provisions of AP General Sales Tax Act,1957 (APGST Act). Further, even though the payment of sales tax wasdeferred for 7 years vide Government Order dated 20.01.1994 and theBIFR sanctioned scheme dated 04.04.1994, both pertinently were silenton the interest aspect. Hence, this Court held that as there was no expresswaiver of interest, the provisions of APGST Act would prevail over theBIFR scheme.

35. In the case at hand, the government order dated 20.03.2004,as well as the BIFR sanctioned scheme, are silent on the duration of taxexemption for the works contract. In any case the tax exemptions cannotcontinue indefinitely. Hence, the ratio in Voltas Ltd. (Supra) involving a6 (2004) 11 SCC 569.

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ABIFR scheme and a government decision which diminishes the incentivesfor the company, do lend support for the impugned decisions of the HighCourt. In other words, the Kerala government, notwithstanding the BIFRscheme for the sick company was entitled to withdraw the taxexemptions, by issuing the government order dated 21.11.2006 underSection 10(3) of the KGST Act.B

36. Justice H. L. Gokhale, in his concurring judgment in the caseof Monnet Ispat & Energy Ltd. Vs. Union of India,[7] highlighted thedifference between the doctrine of promissory estoppel and the doctrineof legitimate expectation:C“289.As we have seen earlier, for invoking the principle ofpromissory estoppel there has to be a promise, and on thatbasis the party concerned must have acted to its prejudice…

290….Alternatively, the appellants are trying to make a caseunder the doctrine of legitimate expectations. The basis ofDthis doctrine is in reasonableness and fairness. However, itcan also not be invoked where the decision of the publicauthority is founded in a provision of law, and is in consonancewith public interest…”

37. While the equitable principle of promissory estoppel requiresEa valid promise, based on which the promisee has changed its position, itis necessary to observe that the principle of legitimate expectation doesnot take into account such considerations. Instead, it is rooted infundamental ideas like reasonableness, fairness and non-arbitrariness.

38. In the case of MRF Ltd., Kottayam Vs. Asst. CommissionerF(Assessment) Sales Tax & Ors.[8 ]the Kerala government in order toincentivize investment and industrial growth, entered into a Memorandumof Understanding on 06.10.1993, under which tax incentives were offeredto the company if they invested above Rs. 50 crores for expanding theexisting industrial unit in the State. In the government order dated03.11.1993 issued under Section 10 of KGST Act, exemptions wereGprovided for 7 years for all expanding industrial units. An addendum tothe Memorandum of Understanding was executed on 10.04.1996,explicitly stating that the industry was eligible for tax exemptions undergovernment Order dated 03.11.1993. Pursuant to such encouragement,

MRF Ltd. invested Rs. 80 Crores for expansion, and then commencedoperations on 31.12.1996. They were also issued the eligibility certificateon 10.11.1997, granting tax exemption from 31.12.1996 to 29.12.2003,by the Kerala government. Subsequently the government order was issuedon 15.01.1998, amending its 1993 Order adding sub-clause (h) to thenegative list. This excluded MRF’s activities from the definition of‘manufacture’. The same in effect extinguished the tax exemptionsgranted vide the 1993 government order. By another Notification dated31.12.1999, the Kerala government notified that the exemptionssanctioned before 01[st] January, 2000 in furtherance of 1993 governmentorder would continue for full period of 7 years. In this background, theauthorities issued a demand notice, seeking to levy purchase tax from15.01.1998, relying on the 15.1.1998 government order. When this waschallenged and the matter eventually came to this Court, the DivisionBench speaking through Justice Ashok Bhan, held that the stateauthority’s demand for purchase tax under KGST Act from 15.01.1998,is barred by principle of promissory estoppel since the state cannotrenegade its earlier promise of tax exemption for 7 years until 29.12.2003.This Court held that the state’s action of retrospectively amending its1993 government order, by subsequent order dated 15.01.1998 wasarbitrary and unreasonable. The 1998 government order was found tobe discriminatory and hit by the principles of Article 14 of the Constitution.Thus, holding the state bound to its promise, MRF was found to be entitledfor tax exemptions for the 7 year period, in terms of government orderdated 03.11.1993.

39. But, the above judgment of this Court in the case of MRFLtd., Kottayam(Supra) is distinguishable from the facts in the presentcase. In the above case, the government order granting tax exemptions,clearly mentioned a period of 7 years, before which the tax exemptionscould not have been revoked. But, in this case, no such time period wasexplicitly prescribed. Neither did the state seek to revoke the exemptionretrospectively. The appellant here, enjoyed the benefit of exemptionsfor a considerable period and is now in profit. Hence, it is not open forthe appellant to claim legal entitlement to tax exemption for the period of5 years.

40. The learned Division Bench of the Kerala High Court hasgiven categorical findings in reference to the 20.03.2004 governmentorder i.e. a) the said government order is issued only in the appellant’s AB

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Afavor; b) It was not contended that similar concessions were accordedto any other sick industry engaged in activities of bleaching, dyeing, etc.;c) Vide the 1994 government order, the state has simply promised toconsider other sick industries for similar exemptions.

41. Based on the above findings, the learned Division BenchBconcluded that the appellant does not form a separate class of its own.Hence, the 2004 government order was held to be ultra vires the Section10(1) of the KGST Act. The appellant has failed to bring to our attention,any intelligible differentia, based on which it can be said that they constitutea unique, separate class of its own. In absence of such differentiatingfactor, the benefit of tax exemptions being granted to the appellant, toCthe exclusion of all other sick industries involved in similar activities, donot appear to be reasonable and should be seen as arbitrary. The 2004government order was not only ultra vires Section 10(1) of KGST Act,but also falls short by principle of reasonableness, fairness, and non-arbitrariness. The 2006 government order withdrawing the tax exemptionDwas in fact issued to remedy this very mischief. Hence, the appellantcannot invoke the principle of legitimate expectation against the 2006government order.

42. Reverting now to another appropriate aspect as presented inPawan Alloys & Casting Pvt. Ltd., Meerut Vs. U.P. State ElectricityEBoard and Others[9 ]where it was propounded that if the state, in exerciseof its sovereign powers, grants any tax exemptions for a specified period,the principle of promissory estoppel does not bar the grantor fromprematurely withdrawing such exemptions, if such measure is necessitatedfor protecting public interest. In other words, public interest wouldoutweigh the interest of the individual grantee.F

43. While reflecting upon the element of public interest asenunciated in Pawan Alloys (supra),in granting or refusing relief on theprinciple of promissory estoppel, the last public address of the lawyerstatesman Abraham Lincoln who served as the 16[th] President of USA,intrudes into our thought process. Taking a strong stand in support ofGBlack suffrage, Abraham Lincoln, soon after winning the Civil War,refused to give in to his earlier promise of re-construction to the state ofLouisiana, with the following resounding words:- “But, as bad promises are better broken than kept, I shalltreat this as a bad promise, and break it, whenever I shall beH9 (1997) 7 SCC 251

convinced that keeping it is adverse to the public interest.But I have not yet been so convinced.”

Taking a cue from above, and bearing in mind that the appellanthere has already availed the exemption benefits for a substantial periodand was the only one of its category which enjoyed such advantage inthe State of Kerala and also regard being had for the fact that now theappellant is out of the red and more importantly in a situation whereenforcing the promise against the State is likely to affect public interest,we find supplementary support for our present conclusion, in the abovequoted insightful words of Abraham Lincoln.

44. In view of the foregoing discussion, this Court, with theadditional reasoning in the preceding paragraphs, is persuaded to upholdthe impugned judgment of the High Court. Accordingly, the appeal standsdismissed without any order on cost.

K. M. JOSEPH, J.

1. While I am in agreement with the final conclusion reached bymy esteemed and learned brother that the appeal must be dismissed, inthe nature of the questions which arise and the reasoning which appealsto me, I am inclined to author a separate though concurring judgment.

2. The facts have been set out by my learned brother. The principalcontention of the appellant is that Section 10 of the Kerala General SalesTax Act, 1963 (hereinafter referred to as ‘the State Act’) does not exhaustthe power to grant exemption inter alia. Section 10 of the State Actreads as follows:

“10. Power of Government to grant exemption and reduction inrate of tax:-

(1) The Government may, if they consider it necessary in thepublic interest, by notification in the Gazette, make an exemptionor reduction in rate, either prospectively or retrospectively inrespect of any tax payable under this Act,

(i) on the sale or purchase of any specified goods or class ofgoods, at all points or at a specified point or points in the seriesof sales or purchases by successive dealers, or

(ii) by any specified class of persons in regard to the whole orany part of their turnover A

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A(2) Any exemption from tax, or reduction in the rate of tax, notifiedunder sub-section (1) - (a) may extend to the whole State or to any specified area orareas therein, (b) may be subject to such restrictions and conditions as mayBbe specified in the notification

(3) The Government may by notification in the Gazette, cancel orvary any notification issued under sub-section(1).

3. In order to appreciate whether the exemption in favour of theCappellant would be ultra vires Section 10 of the State Tax Law andwhether there is merit in the case of the appellant that actually theexemption was not given under Section 10, I may briefly evaluate theSick Industrial Companies (Special Provisions) Act, 1985, hereinafterreferred to as ‘the Act’. The Act defined ‘Sick Industrial Company’w.e.f. 01.02.1994 as follows:D

“3(o) sick industrial company means an industrial company (beinga company registered for not less than five years) which has atthe end of any financial year accumulated losses equal to orexceeding its entire net worth.

EExplanation: For the removal of doubts, it is hereby declared thatan industrial company existing immediately before thecommencement of the Sick Industrial Companies (SpecialProvisions) Amendment Act, 1993, registered for not less thanfive years and having at the end of any financial year accumulatedlosses equal to or exceeding its entire net worth, shall be deemedFto be a sick industrial company;”

4. The Act envisaged a Board and also an appellate authority.Section 15 contemplated a reference by the Board of Directors of SickCompanies. The Board under the Act was to conduct an inquiry as towhether any industrial unit had become a sick industrial company. SectionG17 contemplated, inter alia, suitable orders being passed on completionof inquiry. Section 17 reads as follows: - “17. Powers of Board to make suitable order on the completionof inquiry. — (1) If after making an inquiry under section 16, theBoard is satisfied that a company has become a sick industrialHcompany, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be byorder in writing, whether it is practicable for the company to [makeits net worth exceed the accumulated losses] within a reasonabletime.

(2) If the Board decides under sub-section (1) that it is practicablefor a sick industrial company to make its net worth positive withina reasonable time, the Board, shall, by order in writing and subjectto such restrictions or conditions as may be specified in the order,give such time to the company as it may deem fit to [make its networth exceed the accumulated losses].

Sub-Section (3) of Section 17 dealt with a different class of sickcompany:

(3) If the Board decides under sub-section (1) that it is notpracticable for a sick industrial company to [make its net worthexceed the accumulated losses] within a reasonable time and thatit is necessary or expedient in the public interest to adopt all orany of the measures specified in section 18 in relation to the saidcompany it may, as soon as may be, by order in writing, direct anyoperating agency specified in the order to prepare, having regardto such guidelines as may be specified in the order, a schemeproviding for such measures in relation to such company.

Section 17 further provided:

(4) The Board may, —

(a) if any of the restrictions or conditions specified in an ordermade under sub-section (2) are not complied with by the companyconcerned, 1 [or if the company fails to revive in pursuance of thesaid order,] review such order on a reference in that behalf fromany agency referred to in sub-section (2) of section 15 or on itsown motion and pass a fresh order in respect of such companyunder sub-section (3); (b) if the operating agency specified in an order made under sub-section (3) makes a submission in that behalf, review such orderand modify the order in such manner as it may deem appropriate.”

5. It is clear that under Section 17(3) if the Board decided that itis not practicable within a reasonable time to make the company’s net A

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Aworth exceed the accumulated losses, a scheme may be provided asprovided under Section 18. Section 18, therefore, dealt with thecircumstances obtaining under Section 17(3) to prepare and sanctionthe scheme. Section 18 provided in detail as to what could be providedfor in the scheme. It reads as follows: - B“18. Preparation and sanction of schemes. — (1) Where an orderis made under sub-section (3) of section 17 in relation to any sickindustrial company, the operating agency specified in the ordershall prepare, as expeditiously as possible and ordinarily within aperiod of ninety days from the date of such order, a scheme withrespect to such company providing for any one or more of theCfollowing measures, namely:—

(a) the financial reconstruction of the sick industrial company; (b)the proper management of the sick industrial company bychange in, or take over of, management of the sick industrialDcompany;

(c) the amalgamation of—

(i) the sick industrial company with any other company, or

(ii) any other company with the sick industrial company; E(hereafter in this section, in the case of sub-clause (i), the othercompany, and in the case of sub-clause (ii), the sick industrialcompany, referred to as “transferee company”;

(c) the sale or lease of a part or whole of any industrialundertaking of the sick industrial company; F(da)the rationalisation of managerial personnel, supervisory staffand workmen in accordance with law; (d) such other preventive, ameliorative and remedial measures asmay be appropriate; G

(f) such incidental, consequential or supplemental measures asmay be necessary or expedient in connection with or for thepurposes of the measures specified in clauses (a) to (e).

(2) The scheme referred to in sub-section (1) may provide forHany one or more of the following, namely: —

AUGUSTAN TEXTILE COLOURS LTD. (NOW AUGUSTAN TEXTILECOLOURS PVT LTD.) v. DIRECTOR OF INDUSTRIES [K. M. JOSEPH, J.]

(a) the constitution, name and registered office, the capital, assets,powers, rights, interests, authorities and privileges, duties andobligations of the sick industrial company or, as the case may be,of the [transferee company]; (b) the transfer to the transferee company of the business,properties, assets and liabilities of the sick industrial company onsuch terms and conditions as may be specified in the scheme;

(c) any change in the Board of Directors, or the appointment of anew Board of Directors, of the sick industrial company and theauthority by whom, the manner in which and the other terms andconditions on which, such change or appointment shall be madeand in the case of appointment of a new Board of Directors or ofany director, the period for which such appointment shall be made; (d) the alteration of the memorandum or articles of association ofthe sick industrial company or, as the case may be, of the transfereecompany for the purpose of altering the capital structure thereofor for such other purposes as may be necessary to give effect tothe reconstruction or amalgamation; (e) the continuation by, or against, the sick industrial company or,as the case may be, the transferee company of any action orother legal proceeding pending against the sick industrial companyimmediately before the date of the order made under sub-section(3) of section 17; (f) the reduction of the interest or rights which the shareholdershave in the sick industrial company to such extent as the Boardconsiders necessary in the interests of the reconstruction, revivalor rehabilitation of the sick industrial company or for themaintenance of the business of the sick industrial company;

(g) the allotment to the shareholders of the sick industrial companyof shares in the sick industrial company or, as the case may be, inthe [transferee company] and where any shareholder claimspayment in cash and not allotment of shares, or where it is notpossible to allot shares to any shareholder the payment of cash tothose shareholders in full satisfaction of their claims—

(i) in respect of their interest in shares in the sick industrialcompany before its reconstruction or amalgamation; or A

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(ii) where such interest has been reduced under clause (f) inrespect of their interest in shares as so reduced; (h) any other terms and conditions for the reconstruction oramalgamation of the sick industrial company;

(i) sale of the industrial undertaking of the sick industrial companyfree from all encumbrances and all liabilities of the company orother such encumbrances and liabilities as may be specified, toany person, including a co-operative society formed by theemployees of such undertaking and fixing of reserve price forsuch sale; (j) lease of the industrial undertaking of the sick industrial companyto any person, including a co-operative society formed by theemployees of such undertaking; (k) method of sale of the assets of the industrial undertaking ofthe sick industrial company such as by public auction or by invitingtenders or in any other manner as may be specified and for themanner of publicity therefor;

(l) transfer or issue of the shares in the sick industrial company atthe face value or at the intrinsic value which may be at discountvalue or such other value as may be specified to any industrialcompany or any person including the executives and employeesof the sick industrial company; (m) such incidental, consequential and supplemental matters asmay be necessary to secure that the reconstruction oramalgamation or other measures mentioned in the scheme arefully and effectively carried out.

(3) (a) The scheme prepared by the operating agency shall beexamined by the Board and a copy of the scheme withmodification, if any, made by the Board shall be sent, in draft, tothe sick industrial company and the operating agency and in thecase of amalgamation, also to any other company concerned, andthe Board shall publish or cause to be published the draft schemein brief in such daily newspapers as the Board may considernecessary, for suggestions and objections, if any, within such periodas the Board may specify; (b) The Board may make such modifications, if any, in the draftscheme as it may consider necessary in the light of the suggestionsand objections received from the sick industrial company and theoperating agency and also from the transferee company and anyother company concerned in the amalgamation and from anyshareholder or any creditors or employees of such companies:

Provided that where the scheme relates to amalgamation the saidscheme shall be laid before the company other than the sickindustrial company] in the general meeting for the approval of thescheme by its shareholders and no such scheme shall be proceededwith unless it has been approved, with or without modification, bya special resolution passed by the shareholders of the companyother than the sick industrial company.

(4) The scheme shall thereafter be sanctioned, as soon as maybe, by the Board (hereinafter referred to as the “sanctionedscheme”) and shall come into force on such date as the Boardmay specify in this behalf:

Provided that different dates may be specified for differentprovisions of the scheme.

(5) The Board may on the recommendations of the operatingagency or otherwise, review any sanctioned scheme and makesuch modifications as it may deem fit or may by order in writingdirect any operating agency specified in the order, having regardto such guidelines as may be specified in the order, to prepare afresh scheme providing for such measures as the operating agencymay consider necessary.

(6) When a fresh scheme is prepared under sub-section (5), theprovisions of sub-sections (3) and (4) shall apply in relation theretoas they apply to in relation to a scheme prepared under sub-section(1).

(6A) Where a sanctioned scheme provides for the transfer ofany property or liability of the sick industrial company in favour ofany other company or person or where such scheme provides forthe transfer of any property or liability of any other company orperson in favour of the sick industrial company, then, by virtue of,and to the extent provided in, the scheme, on and from the date ofcoming into operation of the sanctioned scheme or any provision AB

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thereof, the property shall be transferred to, and vest in, and theliability shall become the liability of, such other company or personor, as the case may be, the sick industrial company.

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(7) The sanction accorded by the Board under sub-section (4)shall be conclusive evidence that all the requirements of thisBscheme relating to the reconstruction or amalgamation, or anyother measure specified therein have been complied with and acopy of the sanctioned scheme certified in writing by an officerof the Board to be a true copy thereof, shall, in all legal proceedings(whether in appeal or otherwise) be admitted as evidence.

(8) On and from the date of the coming into operation of thesanctioned scheme or any provision thereof, the scheme or suchprovision shall be binding on the sick industrial company and thetransferee company or, as the case may be, the other companyand also on the shareholders, creditors and guarantors andemployees of the said companies.

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(9) If any difficulty arises in giving effect to the provisions of thesanctioned scheme, the Board may, on the recommendation ofthe operating agency or otherwise, by order to anything, notinconsistent with such provisions, which appears to it to benecessary or expedient for the purpose of removing the E

difficulty.

(10) The Board may, if it deems necessary or expedient so to do,by order in writing, direct any operating agency specified in theorder to implement a sanctioned scheme with such terms andFconditions and in relation to such sick industrial company as maybe specified in the order.

(11) Where the whole of the undertaking of the sick industrialcompany is sold under a sanctioned scheme, the Board maydistribute the sale proceeds to the parties entitled thereto inaccordance with the provisions of section 529A and otherGprovisions of the Companies Act, 1956 (1 of 1956).

(12) The Board may monitor periodically the implementation ofthe sanctioned scheme.”

6. Section 19 provided for rehabilitation giving financial assistance.HIt reads as follows:

“19. Rehabilitation by giving financial assistance.—(1) Wherethe scheme relates to preventive, ameliorative, remedial and othermeasures with respect to any sick industrial company, the schememay provide for financial assistance by way of loans, advancesor guarantees or reliefs or concessions or sacrifices from theCentral Government, a State Government, any scheduled bank orother bank, a public financial institution or State level institution orany institution or other authority (any Government, bank, institutionor other authority required by a scheme to provide for suchfinancial assistance being hereafter in this section referred to asthe person required by the scheme to provide financial assistance)to the sick industrial company.

(2) Every scheme referred to in sub-section (1) shall be circulatedto every person required by the scheme to provide financialassistance for his consent within a period of sixty days from thedate of such circulation [or within such further period, notexceeding sixty days, as may be allowed by the Board, and if noconsent is received within such period or further period, it shall bedeemed that consent has been given].

(3) Where in respect of any scheme the consent referred to insub-section (2) is given by every person required by the schemeto provide financial assistance, the Board may, as soon as maybe, sanction the scheme and on and from the date of such sanctionthe scheme shall be binding on all concerned.

(3A) On the sanction of the scheme under sub-section (3), thefinancial institutions and the banks required to provide financialassistance shall designate by mutual agreement a financialinstitution and a bank from amongst themselves which shall beresponsible to disburse financial assistance by way of loans oradvances or guarantees or reliefs or concessions or sacrificesagreed to be provided or granted under the scheme on behalf ofall financial institutions and banks concerned.

(3B) The financial institution and the bank designated under sub-section (3A) shall forthwith proceed to release the financialassistance to the sick industrial company in fulfilment of therequirement in this regard.

(4) Where in respect of any scheme consent under sub-section

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Afinancial assistance, the Board may adopt such other measures,including the winding up of the sick industrial company, as it maydeem fit.”

(Emphasis supplied)

7. Section 20 provided for winding up. Even though the SickBIndustrial Companies (Special Provisions) Repeal Act, 2003 was passedrepealing the Act, it was not enforced, and it is only with effect from1.12.2016 when the IBC came into force that the Act was repealed.

8. The definition of Sick Industrial Company has been noticed. Itis to be further noticed that not every sick industrial company becomesCthe subject matter of a scheme contemplated under Section 18 readwith Section 19 of the Act. Not every sick industrial unit which becomesthe subject matter of the draft scheme becomes the beneficiary of thefinal scheme or sanctioned scheme. The procedure by which it attainsfinality does involve affording an opportunity to every person requiredDby the scheme to providing financial assistance. Either express consentis granted or there is deemed consent under Section 19(2). It may bepossible to find that a sick industrial company as defined is differentfrom a sick industrial company which is the subject matter of the finalscheme under Section 19(3). The processes that are involved and theprocedures that are undergone may result in the particular companyEwhich is at the centre stage of the final scheme being entitled to betreated in terms thereof.

9. Therefore, on the scheme of the Sick Industrial CompaniesAct, the law contemplated concessions, and sacrifices inter alia beingundertaken by the State Government inter alia in terms of financialFassistance. Section 19(4) appears to indicate that if consent is not givento any person, the Board is free to adopt other measures including windingup of the sick industrial company. A sick industrial company is defined inthe Act. In terms of the definition, it is undoubtedly true that there maybe more than one sick industrial companies operating in the samebusiness or rather dealing in the same goods and services. The schemeGof Section 17 appears to be that such sick industrial companies thatcould be nursed back to health under section 17(1) and 17(2), did not goon to be dealt with under Section 18 and 19. It is in regard to a sickindustrial company which fell within the four walls of Section 17(3) thatthe special provisions under sections 18 and 19 were applicable. It isHsuch a company on account of the acuteness of the problem that cried out to be dealt with, as contemplated in Sections 18 and 19. The lawcontemplated the deliberative process involving all parties having a stake.Draft scheme may give way to a final one. Section 19 dealt with ascheme envisaging financial assistance. Having regard to Section 19(1),which, inter alia, contemplated financial assistance in the form ofconcessions or sacrifices from the State Government, it may beincongruous to not read the words ‘reliefs or concessions or sacrifices’as not meaning a tax exemption or a reduction in the rate of tax. It isonly when the State gave consent or there was deemed consent underSection 19(2), that Section 19(3) kicked in, and the scheme on beingsanctioned by the Board was binding on all concerned.

10. There is the aspect of fairness involved. An exemption underSection 10 cannot ordinarily be claimed as a legal right. The provisionsof Section 19 of the Act made an inroad into the said principle. In otherwords, when to a scheme under Section 19 of the Act the StateGovernment has given consent or its deemed consent, the lawcommanded the State Government to honour its consent. In this regardwe may notice that under Section 19(4), if consent is not given, theBoard was left free to take appropriate steps including the winding up ofthe company. To give consent and to allow the State to renege on itsconsent and defy the binding nature of the sanctioned scheme wouldenable the State to frustrate the scheme. In fact, if consent is refused atthe early and appropriate stage, as contemplated under Section 19(4),then the Board is left free to take action including winding up the companyas is considered appropriate.

11. There is merit in the contention of the appellant that theexemption granted initially, dated 20.03.2004, was not one which ispremised under Section 10 of the Act. The exemption was granted interms of the scheme under Section 19 of the Act. This is an exemptionwhich was given under statutory provisions. In other words, consentbeing forthcoming from the state, a scheme being sanctioned undersection 19 providing for financial assistance in the form of tax exemption,inter alia, the Government became obliged to honour its consent and thedictate of the statute.

12. It will be inequitable to the company and against public interestalso, as it frustrates the object of law to allow a scheme to be sanctionedinducing all parties to proceed on the basis that a company would beredeemed from its financial dire-straits and the crucial financial assistance AB

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Aindispensable to the said process is not forthcoming from the State. Theaforesaid interpretation placed in para 11 hereinbefore would harmonisethe Central and the State Act. It will also give life to the Sick CompaniesAct as it would clearly further the object of the law. Therefore, theexemption granted can be understood as springing from the provisionsof Section 19(3) read with 19(1) in this regard. Thus, the exemption isBnot to be treated as falling under Section 10 of the State Act. In otherwords, Section 10 cannot be treated as the sole repository of power togrant exemption.

13. The Government of Kerala, had in fact issued G.O.M.S. dated25[th] November 1994. It, inter alia, deals with the aspect of benefitsCgiven under the Act. In fact, the said order provided for guidelines in themodel package which is appended to be followed by government whileformulating rehabilitation scheme within the purview of the Sick IndustrialCompanies (Special Provisions) Act, 1985. Relief and concessions wereto be extended on a case-to-case basis, keeping in view all relevantDfactors by the government in the Industries Department. Therein, underthe heading ‘fiscal’, the following is relevant:

“FISCAL

1. Exemption/deferment of sales tax, purchases tax and electricityduty for two years but not exceeding 5 years or the date the netEworth of the company become positive, which ever is earlier. Thedeferment will be interest free/simple interest not exceeding 12per cent per annum. Dues deferred repayable in, say, 36 monthlyinstalments, repayment commencing after one/two years’moratorium from date of sanction of B.I.F.R. scheme.”F14. This again fortifies the view that no resort to Section 10 of theState Act is necessary. The Government Order dated 25.11.1994 providessupport to the working of the scheme.

15. The expression ‘class of persons’ in Section 10 of the StateAct, no doubt, acts as a limitation on the power of the state in exerciseGof its power. It also is an indication of the extent of the power. Then thequestion would arise as to whether a class of persons includes a singleperson. To break it down, whether the words ‘persons’ is capable ofcomprehending a single person. Would the plural include the singular?16. The High Court has proceeded on the basis that the powerHunder Section 10(1) can be exercised in favour of only a class of persons and not qua an individual unit like the appellant. It has also proceeded onthe basis that had the exemption been made applicable to all sick industrialunits which is in the activity of bleaching etc, there would have beenforce in the contention that the appellant would form a class by itself.The sick company, which falls to be dealt with under Section 17(3) readwith Section 18 and finally Section 19, is clearly distinct from thegenerality of sick companies both under the definition of a sick companyand even those which are covered by Section 17(1) and 17(2) of theAct. Therefore, the question would arise as to whether the appellantwould constitute a class by itself. In this regard, we may notice thedecision of Andhra Pradesh High Court in Mahindra and MahindraLimited and Ors. vs. State of Andhra Pradesh and Ors.1. Section 9of the Andhra Pradesh General Sales Tax Act is similarly worded asSection 10 of the State Tax Law with which we are concerned. Areduction of tax was given to the second respondent therein. The secondrespondent was a Government Company. We notice the followingobservations:

“27. …. Apart from that, we are of the opinion taking into accountthat the second respondent is a Government company, and, it isestablished in a centrally notified backward area, and it providesemployment opportunities to those people in that area and it is anew entrant in the filed, the concession shown to the secondrespondent is clearly sustainable as the second respondent unitconstitutes a class by itself and the classification so made in itsfavour is justified with the object in view as stated above.”

17. A sick industrial company which is the subject matter of thesanctioned scheme may constitute a class by itself. However, it is notnecessary to explore this aspect further as the exemption granted to thesick company covered by Section 19(3) is safely anchored in Section 19of the Act.

18. The question would arise as to whether on the said view theappellant should be granted relief? There is merit in the view that theexemption does not envisage any outer time limit. But it is obvious that itcould not be an unending bonanza even after the company breaks evenand even made profits.

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A14. Therefore, exemption of sales tax is contemplated for a period oftwo years. However, it further provides that it cannot be for more thanfive years or beyond the date the net worth of the company becomespositive whichever is earlier. Therefore, the maximum period in any caseis 5 years. In the case of the appellant, the appellant enjoyed the benefitof the exemption till it was withdrawn on 21.11 2006. The said order inBturn was withdrawn on 01.10.2007. It is no doubt true that on 29.02.2008,the order dated 01.10.2007 came to be withdrawn. The writ petitionwas filed by the appellant. It would appear that for a period of nearly 4years, the appellant enjoyed the benefit of exemption in all. No doubt,the learned counsel for the appellant did point out that there is no exerciseCcarried out to find out as to when the net worth has turned positive. Theconduct of the appellant submitting a representation in terms of thejudgment of the learned judge has been noticed by my learned brother.20. As noted in the Judgment of my learned Brother, appellant isa company which is out of the woods and making profits. Therefore, IDwould concur with the final conclusion that the appeal must fail thoughon grounds as stated hereinbefore. The appeal will stand accordinglydismissed, however, without any order as to costs.

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Ankit Gyan(Assisted by : Aarsh Choudhary, LCRA)

Appeal dismissed.

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