State of Gujarat vs Arcelor Mittal Nippon Steel (India) Ltd.

CIVIL APPEAL NOS. 7710-7714 OF 2021

State of Gujarat …Appellant(s)

Versus

Arcelor Mittal Nippon Steel India Limited …Respondent(s)

JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned common

judgment and order passed by the High Court of Gujarat dated

06.05.2016 passed in Tax Appeal Nos. 136 of 2016 to 140 of 2016 by

which the High Court has dismissed the said appeals preferred by the

State and has upheld the common order dated 29.01.2015 passed by

the Gujarat Value Added Tax Tribunal, Ahmedabad (hereinafter referred

to as the “Tribunal”) in Second Appeal Nos.420 to 423 of 2013 by which

the Tribunal held that the respondent is entitled to the exemption from

payment of amount of sales tax as per the original Entry No.255(2) vide

F.D.’s Notification dated 05.03.1992, which was issued under Section Signature Not Verified Digitally signed by R

49(2) of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as “Act, Natarajan Date: 2022.01.21 16:43:58 IST Reason:

1969”), the State of Gujarat has preferred the present appeals.

1

2. That the respondent herein – assessee -dealer (earlier known as

Essar Steel Ltd.) is engaged in the activity of manufacture and sale of

Hot Briquetted Iron (HBI) and Hot Rolled Coil (HRC) at its two units

located at Hazira in Surat, Gujarat. The respondent holds registration

certificate under the Gujarat Sales Tax Act, 1969 and also under the

Central Sales Tax Act, 1956. The respondent made eligible investment

in Unit No.1 pursuant to Resolution dated 07.05.1986 issued by the

Industries, Mines and Energy Department of the Government of Gujarat.

Therefore, the respondent was certified as entitled to avail incentives

during the eligible period from 01.08.1990 to 31.07.2004 up to the upper

monetary limit of Rs.237.59 crores.

2.1 The Government of Gujarat vide Resolution dated 26.07.1991

announced a scheme known as "The Scheme for Special Incentives to

Prestigious Units 1990-95 (modified)" for attracting investments in core

sector industries. Under the said scheme, a prestigious unit was eligible

for incentives up to 90% of the fixed capital investment. That pursuant to

the said Scheme, the respondent – Essar Steel Ltd. (hereinafter referred

to as “ESL”) invested approximately Rs.5000 crores for manufacture of

HRC. That the said exemption was provided as per Entry 255 of the

notification issued by the Government of Gujarat under Section 49(2) of

the Act, 1969. That the Unit No.2 of the ESL was granted Sales Tax

2 exemption in terms of Entry No.255(2) of the Notification dated

05.03.1992 issued under Section 49(2) of the Act, 1969 for the period

from 22.02.1993 to 21.02.2007 up to a maximum monetary limit of Rs.

2050 crores.

2.2 At this stage, it is required to be noted that the said exemption as

per Entry No.255(2) vide Notification dated 05.03.1992 was subject to

fulfilling certain conditions provided in the said original Entry No.255(2),

which shall be dealt with hereinafter below.

2.3 That the exemption granted to Unit No.2 of the respondent was an

exemption from payment of purchase tax on raw materials for (i)

Naphtha; and (ii) Natural Gas. The applicable purchase tax at the

relevant time on Naphtha was @16% on the taxable value and for

Natural Gas, it was @20% on taxable value. At this stage, it is also

required to be noted that this exemption had been made available to

steel manufacturing units and the units/entities engaged in generating

electricity were specifically excluded from this exemption by placing

them in the list of industries “Not Eligible” for this incentive.

2.4 As per the original Entry No.255(2) dated 05.03.1992, the

condition No.6 required the eligible units to actually use the goods

purchased within the State of Gujarat as raw materials, processing

3 materials or consumable stores in the manufacture of goods for sale

within the State of Gujarat or outside the State of Gujarat or as packing

materials in packing of the goods so manufactured.

2.5 That thereafter vide Government Notification dated 14.11.2000,

Entry No.255(2) came to be amended w.e.f. 14.11.2000 whereby it was

provided that the goods were to be actually used by the eligible units as

raw materials, processing materials or consumable stores in its industrial

units for which it has obtained the eligibility certificate. That thereafter

Entry No.255(2) came to be further amended vide Notification dated

16.01.2002, which provided that the eligible units, who claim exemption

from purchase tax on purchase of the goods even if the goods are used

as raw materials, processing materials or consumable stores in its

industrial units for which it has obtained the eligibility certificate in the

manufacturing of goods for dispatch to its another unit or division

situated within the State of Gujarat or outside the State of Gujarat for

use in the manufacture of other goods for sale by such other unit.

2.6 At this stage, it is required to be noted that under all the aforesaid

three notifications, one of the main requirements was that the eligible

unit furnishes to the selling dealer a certificate in Form No. 26 and

obtained from the registering authority, declaring inter alia that the goods

shall be used by it as raw materials, processing materials or consumable

4 stores in its industrial unit for which it has obtained the eligibility

certificate, for the manufacture of goods in its industrial unit as per the

conditions provided under the three notifications.

2.7 On commissioning of the Unit No.2, the Natural Gas and Naphtha

purchased by the respondent – ESL, against declarations in Form No.26

were sold to Essar Power Limited (another company) (hereinafter

referred to as “EPL”) and the EPL utilized the Natural Gas and Naphtha

purchased from ESL for the purpose of generating/manufacturing

electricity, which came to be sold to the ESL by the EPL. It is the case

on behalf of the respondent – ESL that the said electricity generated by

EPL was used by it for the purpose of manufacturing HRC in its

industrial unit.

2.8 The Officers of the Sales Tax conducted a surprise visit at the

premises of the respondent – ESL in the month of July, 2001. A notice

was issued by the Sales Tax Officer calling for certain information

including details of branch transfers, deemed exports, transfer of finished

goods etc. The Sales Tax Department thereafter raised a dispute inter

alia regarding breach of declaration given in Form No.26 while

purchasing Naphtha/Natural Gas having been committed by the

respondent – ESL on the ground that the goods so purchased were

transferred to EPL for generation of electricity, which was then used in

5 Unit No.2 for the manufacture of HRC. A notice was issued on

30.06.2002 by the Sales Tax Officer calling upon the ESL to give

clarification in respect of the purported breach of conditions of

exemptions, including the transfer of Naphtha/Natural Gas to EPL for

generation of electricity. That the Assessing Officer passed the

Assessment Orders in respect of Unit No.2 for Assessment Years 1995-

1996 to 1997-1998 and 2000-2001 holding inter alia that no tax was due

and payable by the respondent – ESL on account of any purported

breach of the conditions of the exemption admissible under Entry 255(2).

2.9 Subsequently, a notice dated 30.05.2005 came to be issued by the

Deputy Commissioner of Sales Tax for initiating levy of purchase tax of

Rs.480.99 crores and for levying penalty for the period 1995-1996 to

2005-2006 on the ground that the respondent – ESL has contravened

the provisions of the Act, more particularly, Entry No.255 and availed the

exemption wrongly. The respondent - ESL filed a writ petition before the

High Court challenging the notice issued by the Deputy Commissioner.

By order dated 28.03.2006, the High Court restrained the departmental

authorities from implementing or enforcing the assessment orders

subject to the condition that in respect of Unit No.2, the respondent –

ESL should deposit 50% of the tax dues within the time stipulated in the

order. The assessment orders by the Deputy Commissioner of Sales

Tax came to be challenged by way of appeals before the Joint

6 Commissioner. The Joint Commissioner – the first Appellate Authority

vide order dated 30.04.2013 imposed purchase tax under Section 50 of

the Act for the years 1998-1999 and 1999-2000. However, the first

Appellate Authority accepted in the first appeal that till the amendment

took place in Entry No.255 on 14.11.2000, even if the purchased goods

were used for manufacture at any place in the State of Gujarat, there

was no breach of the conditions stipulated in Form No.26 and for the

said assessment years, the purchase tax together with interest and

penalty imposed came to be set aside. Thus, the Joint

Commissioner/first Appellate Authority confirmed the levy of purchase

tax in respect of the purchase of goods till 14.11.2000.

2.10 Being aggrieved against the order passed by the Joint

Commissioner dated 30.04.2013, both, the respondent -dealer – ESL

and the State Government preferred the appeals before the Tribunal.

That by order dated 29.01.2015, the Tribunal allowed the second

appeals preferred by the respondent- ESL holding that the respondent –

ESL is not liable to pay any tax, interest or penalty on the disputed

transactions and dismissed the cross objections of the State.

2.11 Feeling aggrieved and dissatisfied with the orders passed by the

Tribunal allowing the second appeals preferred by the respondent –

dealer - assessee and dismissing the cross objection preferred by the

7 State and holding that the respondent – ESL is not liable to pay any tax,

interest or penalty on the disputed transactions, the State preferred the

present appeals before the High Court being Tax Appeal Nos. 136 of

2016 to 140 of 2016. By impugned common judgment and order, the

High Court has dismissed the said appeals mainly on the ground of

promissory estoppel and also observing that the respondent – ESL has

not violated any of the conditions provided under the original Entry

No.255(2) dated 05.03.1992.

2.12 Feeling aggrieved and dissatisfied with the impugned common

judgment and order passed by the High Court, the State has preferred

the present appeals.

3. Shri Maninder Singh, learned Senior Advocate appearing on behalf

of the appellant – State of Gujarat has vehemently submitted that the

impugned common judgment and order passed by the High Court is

patently erroneous and unsustainable.

3.1 It is vehemently submitted by Shri Maninder Singh, learned senior

counsel appearing on behalf of the State that in the present case, the

Notification dated 05.03.1992 can be said to be a parent notification and

all other subsequent Notifications dated 14.11.2000 and 16.01.2002

were either clarificatory in nature and/or expanding the scope of

8 exemption. It is submitted that in any case, subsequent Notifications

dated 14.11.2000 and 16.01.2002 amending the original Entry No.255(2)

cannot be said to be taking away any rights, which were conferred under

the parent Notification dated 05.03.1992. It is submitted that therefore

there is no question of the promissory estoppel as applied by the High

Court and the Tribunal.

3.2 It is submitted by Shri Singh, learned Senior Advocate appearing

for the State that as per the original Notification dated 05.03.1992 and as

per the original Entry No. 255(2) and the statutory Form No.26, it is

abundantly clear that the parent Notification dated 05.03.1992 extends

the exemption only to ‘the eligible unit’ for utilizing the raw materials for

manufacture of goods in that unit itself. It is submitted that the wordings

used in the notification are clear and unambiguous that the exemption

shall become available only if the said eligible unit utilizes the raw

materials for manufacture of goods in the very same ‘eligible unit’. It is

submitted that therefore the raw materials – Naphtha and Natural Gas

were required to be used by the ‘eligible unit – Essar Steel Ltd.’ in the

very same steel unit and for manufacture of the steel only.

3.3 It is submitted that if the interpretation made by the High Court and

the Tribunal is accepted, in that case, even when the eligible unit does

not itself utilizes the raw materials, it may, after availing the exemption,

9 simply transmit the raw materials to any other unit or entity, even the

said entities are ‘not eligible’ to the exemption and such entities though

are ‘not eligible’ would then get the benefit of exemption. It is submitted

that that could not be the object and purpose of granting exemption to

the ‘eligible units’ only.

3.4 It is submitted that while introducing the incentive scheme, the

Department issued the list of industries of ‘eligible units’ and ‘non eligible

units’ for any exemption from sale/purchase tax on procurement of raw

materials. It is submitted that in the present case the power generating

companies were specifically put in the ‘non eligible units’ category. It is

submitted that in the present case despite being fully aware of the clear

and unambiguous terms and conditions of the notifications wherein the

power producing companies were specifically made ‘ineligible’ for

availing the exemptions and though ESL was required to use the raw

materials - Naphtha and Natural Gas in their own unit, after availing the

exemption from payment of purchase tax, the ESL did not use the said

raw materials in its unit but sold the said raw materials to another

company – EPL, and EPL used the said raw materials – Naphtha and

Natural Gas for generating the electricity, which came to be

subsequently sold to the ESL. It is submitted that, thus, through such

circuitous method, the ESL passed on the benefit of exemption to EPL,

which otherwise the EPL was not eligible and/or entitled to. 10 3.5 It is submitted that, thus, the interpretation advanced by the

assessee – ESL accepted by the High Court and the Tribunal would

completely defeat the purpose of exemption notifications and would be

giving premium to such dishonest assessee/dealer, who after availing

the exemption would sell the raw materials to another industry/entity,

who as such are not entitled to and/or eligible for such an exemption. It

is submitted that if the interpretation advanced by the assessee is

accepted, in that case, it would permit industries, which are eligible for

exemption to simply purchase the raw materials; not use them for any

manufacturing in their own units, and then simply transmit them for use

and manufacture by other units, even though such units are not eligible

for exemption under the notification/policy.

3.6 It is further submitted by Shri Maninder Singh, learned Senior

Advocate appearing on behalf of the State that in the present case, the

wordings used in the parent exemption notification and Entry No. 255(2)

dated 05.03.1992 are very much clear and unambiguous. It specifically

provides the conditions for availing the exemption and the eligible units

have to fulfill all the conditions stipulated in the parent Entry No. 255(2)

dated 05.03.1992.

11 3.7 It is submitted that as per the law laid down by this Court in catena

of decisions, the provisions of an exemption notification are to be

construed strictly. It is submitted that even in the case of any perceived

ambiguity, the provision has to be construed in favour of the Revenue.

Reliance is placed on the decision of the Constitution Bench of this

Court in the case of Commissioner of Customs (Import), Mumbai Vs.

Dilip Kumar and Company and Others, (2018) 9 SCC 1 (para 66) as

well as another decision of this Court in the case of Union of India and

Anr. Etc. Etc. Vs. V.V.F. Limited and Another, Etc. Etc., (2020) SCC

Online SC 378 (paras 53-55).

3.8 It is further submitted by Shri Maninder Singh, learned Senior

Advocate appearing on behalf of the State that what is weighed with

High Court that levy of the purchase tax is hit by the principle of

promissory estoppel by observing that by the subsequent Notifications

dated 14.11.2000 and 16.01.2002, the State could not have taken the

rights which are available under the parent Notification dated

05.03.1992.

3.9 It is submitted that as such the subsequent Notification dated

14.11.2000 can be said to be clarificatory in nature and therefore,

conditions provided in the parent Entry No. 255(2) dated 05.03.1992

cannot be said to have been affected by subsequent notifications. It is 12 submitted that as such by the subsequent Notification dated 14.11.2000,

the conditions in the original Entry No. 255(2) dated 05.03.1992 have

been explicitly made clear and as such there is no basic modification of

the conditions imposed in the parent Entry No.255(2) dated 05.03.1992.

It is submitted that both the Notifications dated 05.03.1992 and

14.11.2000 provided the basic condition that the eligible unit shall have

to furnish to the selling dealer a certificate in Form No.26 that the raw

materials purchased shall be used as input in its industrial unit only. It is

therefore submitted that as such the subsequent Notification dated

14.11.2000 by no stretch of imagination can be said to be modifying the

basic conditions of availing the exemption provided in the parent Entry

No.255(2) dated 05.03.1992.

3.10 It is submitted that as such the clarificatory notification dated

14.11.2000 had made it abundantly clear and beyond any pale of doubt

that any such exemption on purchase of raw materials, shall be available

only to the unit when it is consuming the raw materials for manufacture

of goods in the very same unit. It is submitted that it is a settled position

of law that any such amendment being only clarificatory in nature,

applies to all entities uniformly and from the date of original notification

granting the exemption itself. Reliance is placed on the decision of this

Court in the cases of Union of India and Anr. Etc. Etc. Vs. V.V.F.

Limited and Another, Etc. Etc. (supra) and Bengaluru Development 13 Authority Vs. Sudhakar Hegde and Ors., (2020) 15 SCC 63 (paras 32

to 35). It is submitted that therefore the view taken by the High Court in

the impugned judgment that the Notification dated 14.11.2000 would

apply only to such units, which get established after 14.11.2000 is

unsustainable and deserves to be reversed by this Court.

3.11 It is further submitted that even the further amended Entry No.

255(2) dated 16.01.2002 can be said to be expanding the scope of

eligibility for availing the exemption. It is submitted that the subsequent

Entry No. 255(2) dated 16.01.2002 cannot be said to be taking away

something what was provided in the parent Entry No. 255(2) dated

05.03.1992. it is submitted that therefore the High Court has erred in

applying the principle of promissory estoppel to hold that by subsequent

notifications the benefit of exemption under Entry No.255(2) dated

05.03.1992 cannot be taken away.

3.12 It is further submitted by Shri Maninder Singh, learned Senior

Advocate appearing on behalf of the State that even the High Court has

erred in observing that denying the benefit of exemption under 1992

notification would result in denying the respondent – ESL facility of using

the electricity generated by EPL. It is submitted that the said finding of

the High Court is patently erroneous and unsustainable. It is submitted

that as per the settled proposition of law, any tax exemption granted

14 under a statutory provision by the Government is a concession, which

does not create any legally enforceable right against the Government

and the Government is always empowered to vary or withdraw the said

exemption and that the principle of promissory estoppel shall have no

applicability in this behalf. Heavy reliance is placed on the decision of

this Court in the case of Union of India and Anr. Etc. Etc. Vs. V.V.F.

Limited and Another, Etc. Etc. (supra) (paras 40 to 45) and another

decision of this Court in the case of Kothari Industrial Corporation

Limited Vs. Tamil Nadu Electricity Board and Anr., (2016) 4 SCC 134

(paras 10 to 14). It is further submitted that the aforesaid findings that to

deny the exemption to the respondent – ESL under the parent Entry No.

255(2) dated 05.03.1992 would be denying the respondent – ESL the

facility of using the electricity generated by EPL is absolutely erroneous

and is unsustainable. It is submitted that the arrangement between the

respondent –assessee – ESL and EPL as such has no bearing on the

liability of the respondent – assessee to fulfill its tax obligation. It is

submitted that even otherwise in the present case, the raw materials –

Naphtha and Natural Gas purchased by the eligible unit – ESL though

was required to be used by Essar Steel in its own units, the ESL sold the

same to the EPL and EPL used the said raw materials for generation of

electricity, which came to be sold to the ESL under the power purchase

agreement. It is submitted that as submitted hereinabove, the electricity

generation companies were as such put in the ‘not eligible’ list and, 15 therefore, as such the EPL was not eligible for exemption under parent

Entry No.255(2) dated 05.03.1992 and, thus, through the circuitous

methodology or modus operandi, the EPL got the benefit of exemption

though ‘not eligible’.

3.13 In the alternatively, it is submitted by Shri Maninder Singh, learned

Senior Advocate appearing on behalf of the State that even assuming

that the subsequent amended Entry No. 255(2) issued vide Notifications

dated 14.11.2000 and 16.01.2002 are not to be made applicable, which

according to the High Court was hit by principle of promissory estoppel,

in that case also, the respondent – assessee – ESL was required to

satisfy all the conditions, which are provided in the parent Entry

No.255(2) dated 05.03.1992, which the ESL failed to fulfill/satisfy.

3.14 It is further submitted that in the field of taxation, every assessment

year is an independent year and merely because in the earlier

assessment years, some benefit, though was not available, was wrongly

given, the same can be corrected in the subsequent assessment years

and the tax is to be permitted to be levied as per the law. It is submitted

that in the present case, it can be said that though right from the very

beginning, the ESL did not comply with the requisite conditions provided

in the parent Entry No.255(2) dated 05.03.1992, still they got the

exemption benefit for the period prior to 2000 erroneously. It is

16 submitted that that does not take away the right of the State to levy the

tax, which otherwise is permissible under the law and which is levied in

accordance with law.

3.15 It is further submitted that in the present case, considering the

modus operandi adopted by the ESL and the EPL and despite being fully

aware of the clear and unambiguous terms of the exemption notification

and despite the power producing companies were specifically made

‘ineligible’ for availing the exemption and despite the fact that as per the

conditions provided in the parent Entry, the raw materials – Naphtha and

Natural Gas were required to be used by the assessee – ESL in its own

unit, the raw materials came to be sold to an ‘ineligible’ entity – EPL and

the ‘ineligible unit’ indirectly/directly got the benefit of exemption though

not entitled to and/or eligible and used the said raw materials in their

own unit for generation of electricity, the respondent – assessee is liable

to pay the penalty in terms of Section 45(5). It is submitted that

therefore the orders passed by the Joint Commissioner setting aside the

penalty confirmed by the Tribunal and the High Court also deserve to be

quashed and set aside.

3.16 Making above submissions and relying upon the above decisions,

it is prayed to allow the present appeals.

17

4. Present appeals are vehemently opposed by Shri Ritin Rai,

learned Senior Advocate appearing on behalf of the respondent –

assessee.

4.1 It is submitted that the respondent was previously named as Essar

Steel Ltd., which was then changed to Essar Steel India Limited (ESIL).

It is submitted that Essar Steel India Limited was admitted into

insolvency under the Insolvency and Bankruptcy Code, 2016 ("IBC") on

02.08.2017 and the Corporate Insolvency Resolution Process has been

concluded in the approval of a Resolution Plan for ESIL submitted by

Arcelor Mittal India Private Limited, which has been upheld by this Court

vide its judgment and order in Committee of Creditors of Essar Steel

India Limited Vs. Satish Kumar Gupta & Ors., (2020) 8 SCC 531). It is

submitted that pursuant to the same, the 100% shareholding of the

respondent- Essar Steel India Limited now vests with the Arcelor Mittal

India Private Limited. It is submitted that even subsequently, the name of

ESIL has been changed to Arcelor Mittal Nippon Steel India Limited.

4.2 It is submitted by Shri Rai, learned Senior Advocate appearing on

behalf of the respondent that in the present case there are concurrent

findings in favour of the original writ petitioner - respondent herein by

both, the Tribunal as well as the High Court, whereby it is held that the

Essar Steel Ltd. is eligible for exemption under the parent Entry

No.255(2) vide F.D.’s Notification dated 05.03.1992. It is submitted that 18 there are concurrent findings by the Tribunal as well as the High Court

that the subsequent amended Entry No.255(2) issued vide Government

Notifications dated 14.11.2000 and 16.01.2002 are not applicable to the

respondent and accordingly the question of imposition of penalty would

not arise. It is submitted that even otherwise in absence of any mala

fides proved on the part of the respondent, there shall not be any levy of

penalty.

4.3 It is submitted that the respondent made eligible investment in its

first unit (Unit No. 1) pursuant to the Resolution dated 07.05.1986 issued

by the Industries, Mines and Energy Department of the Government of

Gujarat, and, therefore, was certified as entitled to avail incentives during

the eligible period from 01.08.1990 to 31.07.2004 up to upper monetary

limit of Rs.237.59 crores. It is submitted that, thus, the investment made

in Unit No. 1, started manufacturing HBI for which sales tax exemption

incentives were admissible under Entry 118 of the notification issued by

the Government of Gujarat under Section 49(2) of the Gujarat Sales Tax

Act, 1969.

4.4 It is submitted that on 26.07.1991, the State of Gujarat by way of a

resolution announced a Scheme known as "The Scheme for Special

Incentives to Prestigious Units, 1990-95 (Modified)" for attracting

investment in core sector industries. Pursuant to the aforesaid scheme, 19 the respondent undertook investment of approximately Rs.5,000 crores

for the manufacture of HRC in its second unit (Unit No. 2) and it was

entitled to incentives during the eligible period from 22.02.1993 to

21.02.2007 up to the monetary limit of Rs. 2050 crores. It is submitted

that for Unit No. 2 as an eligible unit, the respondent was entitled to

exemption under Entry 255 of the Notification issued by the Government

of Gujarat under Section 49(2) of the Act, 1969.

4.5 It is further submitted that the respondent, in accordance with the

eligibility certificate and the exemption granted as aforesaid, availed

exemption from payment of purchase tax and sales-tax. It is submitted

that as such the respondent had always intended to install a captive

power plant up to 200 MW, but due to the requirement of the appellant-

State, a separate power plant was commissioned by Essar Power

Limited, a group company of erstwhile Essar Steel India Limited. It is

submitted that on commissioning of Unit No. 2, Natural Gas and

Naphtha purchased by the respondent – Essar Steel Ltd. against

declarations in Form No.26 were converted into electricity through Essar

Power Limited and utilized as an input for the purpose of manufacturing

HRC in the industrial unit of the respondent – ESL. It is submitted that

this was done by nature of a job-work arrangement and after complying

with all the necessary statutory formalities from 1994-95.

20 4.6 It is submitted that the respondent was/is duly eligible under the

parent Entry No.255(2)/parent Notification dated 05.03.1992 to seek

exemption from payment of the purchase tax. It is submitted that even

the Commissioner of Sales Tax in its earlier order dated 16.8.2002 and

thereafter by the Assessing Officer in the assessment orders for the

Assessment Years 1995-1996 to 1997-1998 and 2000-2001 also

allowed and/or permitted the respondent-Essar Steel Ltd. to avail the

exemption under parent Entry No.255(2) dated 05.03.1992. It is

submitted that in the present case, even for the subsequent Assessment

Years also the Tribunal as well as the High Court have also held that the

respondent- Essar Steel Ltd. was/is entitled to the exemption from

payment of purchase tax as per parent Entry No.255(2) dated

05.03.1992.

4.7 It is submitted that as such and even as observed and held by the

High Court, the respondent – ESL met with the conditions prescribed

under original parent Entry No.255(2) dated 05.03.1992 and so at the

relevant time, it was granted the benefit of the Scheme. It is submitted

that as such the respondent – ESL was granted the exemption under

parent Entry No.255(2) dated 05.03.1992 for the Assessment Years prior

to 14.11.2000.

21 4.8 It is submitted that as such the respondent – ESL fulfilled/complied

with all the eligibility criteria/conditions required to avail the exemption

under the first/ parent Entry No.255(2) dated 05.03.1992. It is submitted

that eligibility criteria to avail the exemption under the first/parent

notification was that the goods so purchased must be used in the unit

and anywhere within the State of Gujarat. It is submitted that the

conditions mentioned in the first/parent notification does not restrict the

use of goods in the eligible unit, but on the contrary, it provides for use

anywhere within the State of Gujarat. It is submitted that even as per

the condition No.6, the eligible unit was permitted to actually use the

goods purchased within the State of Gujarat as raw materials.

4.9 It is therefore submitted that when the goods were transferred to

Essar Power Limited, which is situated within the State of Gujarat for

conversion to electricity, on job-work basis and the power so generated

was used in the manufacturing of goods by the respondent –Essar Steel,

the conditions set out in the first/parent notification stood fully satisfied.

It is submitted that the Scheme under the first/parent notification never

envisaged or provided for use of goods in the same form in which they

were purchased. It is submitted that in the present case, Naphtha and

Natural Gas purchased, were used in the form of power in Unit No. 2

and, therefore, there was no breach of declarations given in Form No.26

for purchase of these goods.

22 4.10 It is submitted that as per the settled law, while deciding whether

an entity is entitled to incentives, a strict interpretation of the provisions

should be made. However, after accepting that an entity is entitled to the

incentives, when determining any questions arising qua the scope of the

incentives, a liberal approach should be adopted. Reliance is placed on

the decision of this Court in the case of Assistant Commissioner (CT)

LTU and Anr. Vs. Amara Raja Batteries Limited, (2009) 8 SCC 209.

4.11 It is submitted that admittedly, the respondent's Unit No.2 was

eligible to get the exemption prior to the second notification. The

appellant - State did not raise any objection, nor did they levy any tax

liability prior to the second notification. It is submitted that rather vide

letter dated 16.08.2002 issued by the Commissioner of Sales Tax, the

appellant – State confirmed that there has been no breach by the

respondent. It is submitted that therefore, once the Unit No.2 was found

to be eligible under the parent notification, unless it changed its modus

operandi, it ought to have been given the exemption under the

first/parent notification.

4.12 It is further submitted that it was never the case on behalf of the

State that the respondent was in breach of the first/parent notification. It

merely alleged that the conditions as substituted under second

23 notification have been violated. It is submitted that therefore it is

imperative to assess if the second and third notifications were at all

applicable to the respondent – Essar Steel Ltd.

4.13 It is submitted that in any event the first/parent notification also

stated that “if the eligible unit fulfills the conditions specified hereunder

and further conditions as may be laid down from time to time”. It is

submitted that while the appellant State may further add to the

conditions provided under the first/parent notification, such further

additional condition could not be in effect to alter/amend the original

condition, i.e., the goods are to be used within the State of Gujarat.

4.14 It is submitted that by the second notification, the original eligibility

condition was amended and the requirement of use within the State of

Gujarat was changed to within the industrial unit for which the eligibility

certificate was obtained. It is submitted that this change in the original

condition was not permitted since the first/parent notification only

stipulated imposition of additional conditions and did not envisage an

amendment of the original condition.

4.15 It is further submitted that the second notification would be

applicable only for the industries that were setup after 14.11.2000. It is

submitted that the first notification was issued pursuant to the incentive

24 Scheme. It is submitted that in terms of the said Scheme, the

respondent was entitled to incentives during the eligible period from

22.02.1993 to 21.02.2007 up to the monetary limit of Rs. 2050 crores if

the conditions prevalent at the time of grant of the incentives were met.

4.16 It is submitted that a conjoint reading of the Scheme along with the

first notification would indicate that the State invited industries to invest

in its State by offering incentives, which once granted would be valid for

a fixed period i.e., till 21.02.2007 in case of the respondent, subject to

the eligibility conditions being met. It is submitted that the first notification

only stipulated imposition of additional conditions which had to be

complied with by the eligible entities.

4.17 It is further submitted that the third notification by which the parent

Entry No.255(2) dated 05.03.1992 came to be amended, further

provided that eligible unit could claim exemption from purchase tax on

purchases of goods even if the goods are used as raw materials,

packing materials, consumable stores in its industrial unit for which it had

obtained the eligibility certificate for the manufacture of goods for

dispatch to its another unit or division situated within the State of Gujarat

for use in the manufacture of another goods for sale by such another

unit or division or to such another unit or division situated outside the

25 State for use in the manufacture of other goods for sale by such other

unit.

4.18 It is submitted that the Scheme and the first notification as initially

enacted permitted the use of Natural Gas and Naphtha for generation of

electricity outside the unit when the electricity was used in the eligible

unit as was accepted in the assessment orders for the preceding years.

Similarly, the amendments made vide third notification permit the use of

purchased goods in the manufacture of goods in the unit, for transfer to

other unit as well, within or even outside the State of Gujarat for use in

the manufacture of other goods. It is submitted that, thus, pursuant to

the amendment, use of the goods even in other unit within or outside the

State of Gujarat has been permissible.

4.19 It is submitted that therefore when the notification initially enacted

on 05.03.1992 and amended vide third notification w.e.f. 16.01.2002

permitted the use of goods outside the unit, it cannot be said that only

for a short intervening period between 14.11.2000 to 15.01.2002, the

Government had different intentions to restrict the use entirely in the

eligible unit only and that the conditions under the Scheme which

granted incentives for a tenure of 14 years would be changed on yearly

basis.

26 4.20 It is submitted that the scheme never envisaged or provided for

use of goods in the same form in which they were purchased, and

Naphtha and Natural Gas purchased by the respondent were used in the

form of power in Unit No. 2 and, therefore, there was no breach of

declarations given in Form No. 26 for purchase of these goods.

4.21 It is further submitted that even otherwise any amendment made to

the original eligibility condition, would be prospective in nature and

applicable only to fresh industrial units/entities which would become

eligible after 14.11.2000. The amended notification would not be

applicable on industries that were setup pursuant to, and eligible under

the first notification and whose rights had crystallised for 14 years under

the first notification.

4.22 It is submitted that as such the respondent – Essar Steel has not

committed any breach of declarations given in Form No. 26. Merely

because Natural Gas and Naphtha were used for generation of

electricity through EPL, which was ultimately used in the eligible unit, the

respondent – ESL cannot be said to have breached the given conditions.

4.23 It is submitted that even assuming that the second and the third

notifications were applicable to the respondent – ESL, the amended

condition does not require "direct" use of purchased goods in the unit

27 and therefore even when Natural Gas/Naphtha after conversion into

electricity is used in the unit, the condition is satisfied. It is submitted that

there are concurrent findings of fact both, by the High Court and the

Tribunal that there is no diversion of the fuel purchased by the

respondent- ESL at a concessional rate, and the same was given to EPL

only for a limited purpose for conversion to electricity and was thereafter

used by the respondent – Essar Steel in its manufacturing process.

4.24 It is further submitted by Shri Rai, learned Senior Advocate

appearing on behalf of the respondent – ESL that even otherwise the

demand of the purchase tax was barred by the Rule of promissory

estoppel and legitimate expectation as observed and held by the

Tribunal as well as by the Hon’ble High Court.

4.25 It is submitted that the respondent invested a sum of Rs.5000

crores for the manufacture of HRC in its Unit No. 2 by relying upon the

incentives provided by the appellant-State. The said incentive provided

in the Scheme and the first notification imposes a condition that the

goods purchased by the eligible entity would be used by it within the

State of Gujarat as raw materials, processing materials or consumable

stores in the manufacture of goods to be sold by the eligible entity. It is

submitted that therefore thereafter the State is estopped from amending

the conditions required to be met for obtaining the incentives, since the 28 respondent acted upon the assurance of the State that as long as it met

the conditions, it would be eligible for receiving exemptions for a fixed

amount of time as contemplated under the Scheme.

4.26 It is submitted that based on the assurance of the State, the

respondent had changed its position irretrievably by making huge

investments in Unit No. 2 and by entering into various agreements

including the one with Essar Power Limited for supply of electricity. It is

submitted that therefore the Hon’ble High Court and the Tribunal were

correct in invoking the principle of promissory estoppel as a rule of

evidence to recognize the crystallised rights of the respondent.

4.27 It is further submitted that even otherwise in any case the

imposition of penalty by the State upon the respondent is illegal and

without any basis in law. It is submitted that (a) the respondent has not

breached the conditions as stipulated in the first notification; (b) the

second and the third notifications are not applicable to the respondent

and; (c) even assuming that the second and third notifications are

applicable to the respondent, the conditions therein have not been

breached by the respondent, the question of imposition of penalty would

not arise.

4.28 It is further submitted that even otherwise, the State has

mechanically imposed the penalty, at the maximum rate of 150%, 29 without any application of mind or adjudication. It is submitted that

therefore, the imposition of penalty without appreciating the factual

circumstances surrounding the dispute is arbitrary, unjust, and illegal,

and therefore the Tribunal as well as the Hon'ble High Court has rightly

set aside the imposition of penalty.

4.29 It is further submitted that as held by this Court in several

judgments the imposition of penalty is the result of a quasi-criminal

adjudication. Reliance is placed upon the decision of this Court in

Hindustan Steel Ltd. Vs. State of Orissa, (1969) 2 SCC 627 and Excel

Crop Care Limited Vs. Competition Commission of India and Anr.,

(2017) 8 SCC 47.

4.30 It is submitted that in the facts of the present case the respondent

had been under a genuine bona fide belief that it was eligible to claim

exemption under the first notification based on the declaration made in

Form No. 26 and that the amended notifications would not govern the

respondent since the incentives had been assured under the Scheme for

a fixed period of time and such belief of the incentive was also upheld by

the letter dated 16.08.2002 issued by the Commissioner of Sales Tax,

which confirmed that there has been no breach by the respondent and

that the State has not made out a case of mala fide intention or willful

30 and deliberate contravention of the statutory provisions by the

respondent, there is no justification at all for levy of the penalty.

4.31 Making above submissions, it prayed to dismiss the present

appeal.

5. Heard the learned counsel appearing for the respective parties at

length.

6. The questions which are posed for consideration of this Court in

the present appeals are:

(i) Whether the respondent -dealer-assessee – Essar Steel Ltd.

(erstwhile) was/is entitled to the exemption from payment of

the purchase tax as per the original Entry No.255(2) vide

F.D.’s notification dated 05.03.1992?

(ii) Whether subsequent amended Entry No.255(2) issued vide

Notifications dated 14.11.2000 and 16.01.2002 in any way

alters or amends the basic requirements/conditions

stipulated as per the first notification dated 05.03.1992?

(iii) Whether the subsequent amended Entry vide Government

Notifications dated 14.11.2000 and 16.01.2002 in any way

takes away the right of the respondent to avail the exemption

under the first/parent Entry No.255(2) issued vide Notification

dated 05.03.1992?

31

(iv) Whether there was any breach of the declaration filed by the

respondent as per Form No.26?

(v) Whether in the facts and circumstances of the case, the

demand of the purchase tax on and after 14.11.2000 was hit

by the principle of promissory estoppel?

7. While answering the aforesaid questions, the original Entry

No.255(2) vide Notification dated 05.03.1992 and the subsequent

amended Entry No.255(2) amended by Notifications dated 14.11.2000

and 16.01.2002 and the conditions/eligibility criteria mentioned in the

said notifications are required to be referred to, which read as under:-

1. Original Entry No.255 (2) vide F.D's Notification dated 05.03.1992.

Entry Class of Sales of Conditions No. Purchases

255 Sale or raw (1)If the eligible unit furnishes to (2) materials, the selling dealer a certificate processing in Form 26 appended hereto materials, declaring inter alia that the consumable goods are required for use by stores or packing him within the State of Gujarat materials by a as raw materials, processing registered dealer materials or consumable to an eligible unit. stores in the manufacture of goods for sale within the State of Gujarat or as packing materials in packing of the goods so manufactured.

(2)If the eligible unit fulfils the conditions specified hereunder and further conditions as may 32 be laid down from time to time.

Conditions:- 6. The eligible unit shall actually use the goods

purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of the goods so manufactured.

2. Amendments in Entry No.255(2) vide Government Notification dated 14.11.2000

Entry Class of Sales of Conditions No. Purchases

255 Sale or raw (1) If the eligible unit furnishes to (2) materials, the selling dealer a certificate processing in Form 26 appended hereto materials, and obtained from the consumable registering authority, stores or packing declaring inter alia that the materials by a goods shall be used by it as registered dealer raw materials, processing to an eligible unit. materials or consumable stores in its industrial unit for which it has obtained the eligibility certificate in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of goods so manufactured.

Conditions:

6. The eligible unit shall actually use the goods purchased as raw materials, processing materials or consumable stores in its industrial unit for which it has obtained the eligibility certificate in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat, or as packing materials in the packing of goods so manufactured.

33 (c) In Form 26, for the words "within the State of Gujarat"

the words "in the industrial unit for which the eligibility certificate has been obtained" have been substituted.

3. Amendment in Entry No.255(2) vide Government Notification dated 16.01.2002.

Entry Class of Sales of Conditions No. Purchases

255 Sale or raw (1)Insertion of condition (IA) after (2) materials, condition (I) or processing materials, (IA) If the eligible unit furnishes to consumable the selling dealer a certificate stores or packing in Form 26 appended hereto materials by a and obtained from the registered dealer registering authority, declaring to an eligible unit. inter alia that the goods shall be used by it as raw materials, processing materials or consumable stores in its industrial unit for which it has obtained the eligibility certificate, in the manufacture of goods for dispatch to its another unit or division situated within the State for use in the manufacture of another goods for sale by such another unit or division or to its another unit or division situated outside the State for use in the manufacture of other goods.

(b) Insertion of condition 6(A) after condition 6

(6A) The eligible unit shall actually use the goods so purchased as raw material, processing material or consumable stores in its industrial unit for which it has obtained the eligibility certificate, in the manufacture of goods, which are dispatched to its another unit or 34 division situated within the State for use in the manufacture of other goods for sale by such another unit or division or to its another unit or division situated outside the State for use in the manufacture of other goods.

8. Form No.26 applicable in 1992 reads as under:-

“FORM-26 [Entry 255]

Certificate by an eligible unit purchasing, goods for use in manufacturing goods.

[See Entry at serial No.255 inserted by Government Notification, Finance Department No. (GHN-8) GST-1092/ (S.49)-(249)-TH dated the 5th March, 1992 issued under section 49(2) of the Gujarat Sales Tax Act,1969]

I, ________ of M/s. Address ____________ certify the I/the said ______ as/is a registered dealer holding a certificate of registration No._____ dated ______ and also holding a certificate No. ________ dated _______ granted by the Commissioner of Sales Tax, Gujarat State under Government Notification No. (GHN-8) GST-1092 (S.49)-(249) TH, dated the 5th March, 1992 and that the goods being raw materials, processing materials mentioned in bills/cash memo/invoice No. ______ dated ___________ of M/s ___________ will be used by me/the said _______ in the manufacture of goods for sale or being the packing materials mentioned in bill/cash memo/invoice No._______ dated _________ of M/s. _________ will be used in the packing of the goods so manufactured, namely _____________

I further certify that the aforesaid certificate was in force on the date of the aforesaid purchase of goods.

Place: Signature : Date: Status :”

35

9. Form-26 (Entry No.255) as applicable in years 2000/2002 after the

amended Entry No.255(2) vide Notifications dated 14.11.2000 and

16.01.2002 reads as under:-

“FORM-26 [Entry 255]

Certificate by an eligible unit purchasing, goods for use in manufacturing goods.

[See Entry at serial No.255 inserted by Government Notification, Finance Department No. (GHN-8) GST-1092/ (S.49)-(249)-TH dated the 5th March, 1992 issued under section 49(2) of the Gujarat Sales Tax Act,1969]

I, ________ of M/s. Address ____________ certify the I/the said ______ as/is a registered dealer holding a certificate of registration No._____ dated ______ and also holding a certificate No. ________ dated _______ granted by the Commissioner of Sales Tax, Gujarat State under Government Notification No. (GHN-8) GST-1092 (S.49)-(249) TH, dated the 5th March, 1992 and that the goods being raw materials, processing materials mentioned in bills/cash memo/invoice No. ______ dated ___________ of M/s ___________ will be used by me/the said ______ (1) [in the industrial unit for which the eligibility certificate has been obtained] in the manufacture of goods for sale (2) [within the State or outside the State of Gujarat or for dispatch either to its another unit or division situated within the State for use in the manufacture of other goods for sale by such another unit or division, or to its another unit or division situated outside the State for use in the manufacture of other goods] or being the packing materials mentioned in bill/cash memo/invoice No._______ dated _________ of M/s. _________ will be used in the packing of the goods so manufactured, namely _____________

I further certify that the aforesaid certificate was in force on the date of the aforesaid purchase of goods.

Place: Signature : Date: Status :

(1) These words were substituted for "within the state of Gujarat" by s-49 (332) dt. 14-11-2000.

36 (2) These words were inserted by s-49 (357) dt. 16-01-

2002.”

10. Thus, as per the original Entry No.255(2) issued by Notification

dated 05.03.1992 while claiming the exemption from payment of

purchase tax of raw materials, processing materials or consumable

stores, the following conditions were required to be fulfilled/complied

with:-

(i) That the eligible unit was required to furnish to the selling dealer

a certificate in Form No.26 declaring inter alia that the goods

are required for use by him/it within the State of Gujarat as raw

materials, processing materials or consumable stores in the

manufacture of goods for sale within the State of Gujarat or as

packing materials in packing of goods so manufactured; and

(ii) That the eligible unit shall actually use the goods purchased

within the State of Gujarat as raw materials, processing

materials or consumable stores in the manufacture of goods for

sale within the State of Gujarat or outside the State of Gujarat

as packing materials for the packing of the goods so

manufactured.

10.1 Therefore, only in a case where the raw materials, processing

materials or consumable stores are used by the eligible unit and the

eligible unit actually uses the goods purchased within the State of 37 Gujarat as raw materials, processing materials or consumable stores in

the manufacture of goods, there shall be exemption from payment of

purchase tax/sales tax to the extent provided in the said Entry.

11. In the present case, it is an admitted position that after furnishing a

declaration in Form No.26, the goods - raw materials, processing

materials or consumable stores so purchased were to be used by ESL,

but the respondent - ESL after purchase of raw materials – Naphtha and

Natural Gas and after availing the benefit of exemption from the payment

of purchase tax did not himself/itself used the same, but, instead, sold

the same to another entity – EPL and the said another entity – EPL used

the said raw materials for generating the electricity, which thereafter

came to be sold to the respondent - ESL pursuant to the power purchase

agreement. The submission on behalf of the respondent that as

Naphtha and Natural Gas were transferred to EPL for generating the

electricity, which in turn came to be used by the respondent – ESL for

manufacture of HRC, and it cannot be said that there is a breach of

conditions of original Entry No.255(2) dated 05.03.1992, cannot be

accepted.

11.1 The original Entry No.255(2) dated 05.03.1992 does not provide

that the eligible unit after purchase of the raw materials instead of using

the same by itself or himself can transfer/sold to another unit and the

38 another unit can use the said raw materials. If the submission on behalf

of the respondent is accepted, in that case, it will be varying the

conditions imposed in the original Entry No.255(2) dated 05.03.1992 and

it shall tantamount to adding something more than what is not provided

in the exemption notification/original entry, which is not permissible. The

original notification does not at all permit such transfer and use of the

raw materials after availing the exemption for use of another unit, who,

as such is otherwise not entitled to any exemption as per the incentive

policy.

12. At this stage, it is required to be noted that as per the incentive

policy, the actual benefit of exemption was available to certain industries

as per the list of ‘eligible’ industries. The power producing companies

were specifically put in the list of ‘ineligible’ industries for any exemption

from sale/purchase tax on procurement of raw materials. Thus, the

Essar Power Limited being a power producing company was not eligible

at all for any exemption from sale/purchase tax on procurement of raw

materials. Therefore, as such, by such transfer and sale of raw

materials by ESL to EPL, EPL got the benefit of exemption, which

otherwise being a power producing company was not eligible for such an

exemption.

39

13. Learned counsel appearing on behalf of the State is right in

submitting that if such an interpretation put forward by the respondent is

accepted, in that case, it would completely defeat the purpose of the

exemption and it would permit industries, which are eligible for

exemption to simply purchase the raw materials; not use them for

manufacturing in their own units, and simply transmit them for use and

manufacture to other units, even though such units are not eligible for

exemption under the notification.

14. Thus, by transfer of Naphtha and Natural Gas by the eligible unit –

ESL to another unit – EPL, after availing the exemption from payment of

purchase tax and not using the Naphtha and Natural Gas (raw materials)

for its own use for manufacture of the goods so manufactured by it, it

can be said to be violating the eligibility criteria/condition mentioned in

the original Entry No.255(2) dated 05.03.1992 and it can be said that the

respondent -Essar Steel Ltd. Committed a breach of the declaration

given in Form No.26. Therefore, the High Court has committed an error

in holding that the respondent did not commit any breach of any of the

conditions mentioned in the original Entry No.255(2) dated 05.03.1992

and that the respondent fulfilled all the conditions provided in the said

Entry and that there was no breach of any of the conditions provided in

the original Entry No.255(2) dated 05.03.1992.

40 14.1 While the exemption notification should be liberally construed,

beneficiary must fall within the ambit of the exemption and fulfill the

conditions thereof. In case such conditions are not fulfilled, the issue of

application of the notification does not arise.

14.2 It is settled law that the notification has to be read as a whole. If

any of the conditions laid down in the notification is not fulfilled, the party

is not entitled to the benefit of that notification. An exception and/or an

exempting provision in a taxing statute should be construed strictly and it

is not open to the court to ignore the conditions prescribed in industrial

policy and the exemption notifications.

14.3 The exemption notification should be strictly construed and given

meaning according to legislative intendment. The Statutory provisions

providing for exemption have to be interpreted in the light of the words

employed in them and there cannot be any addition or subtraction from

the statutory provisions.

14.4 As per the law laid down by this Court in catena of decisions, in the

taxing statute, it is the plain language of the provision that has to be

preferred, where language is plain and is capable of determining defined

meaning. Strict interpretation to the provision is to be accorded to each

case on hand. Purposive interpretation can be given only when there is

41 an ambiguity in the statutory provision or it alleges to absurd results,

which is so not found in the present case.

14.5 In the present case, the intention of the State to provide the

incentive under the incentive policy was to give benefit of exemption

from payment of purchase tax was to the specific class of industries and,

more particularly, as per the list of ‘eligible industries’. Exemption was

not available to the industries listed in the ‘ineligible’ industries. It was

never the intension of the State Government while framing the incentive

policy to grant the benefit of exemption to ‘ineligible industries’ like the

power producing industries like the EPL, which as such was put in the

list of ‘ineligible’ industries.

14.6 Now, so far as the submission on behalf of the respondent that in

the event of obscure in a provision in a fiscal statute, construction

favourable to the assessee should be adopted is concerned, the said

principle shall not be applicable to construction of an exemption

notification, as it is clear and not ambiguous. Thus, it will be for the

assessee to show that he comes within the purview of the notification.

Eligibility clause, it is well settled, in relation to exemption notification

must be given effect to as per the language and not to expand the scope

deviating from the language. There is a vast difference and distinction

42 between a charging provision in a fiscal statute and an exemption

notification.

15. Now, the next question, which is posed for the consideration of this

Court is whether the subsequent amended Entries vide notifications

dated 14.11.2000 and 16.01.2002 can be said to be clarificatory and/or

take away any of the rights under the original Entry No.255(2) dated

05.03.1992 and/or the subsequent notifications modifies/amends the

basic conditions for availing the exemption under the original Entry

No.255(2) dated 05.03.1992?

15.1 Having gone through the second notification dated 14.11.2000/the

amended Entry No.255(2), it can be seen that the same is clarificatory in

nature and there is no change in the basic eligibility criteria/conditions

mentioned in the original Entry No.255(2). In the subsequent

notification, instead of the word “him”, the word used is “it” and it is

specifically made clear that the raw materials so purchased shall be

used in its industrial unit for which it has obtained the eligibility certificate

for the manufacture of goods for sale within the State or outside the

State of Gujarat or as packing materials in the packing of goods so

manufactured. Even as per the original Entry No.255(2) dated

05.03.1992 and even as per the Form No.26 appended thereto, the

eligible unit was required to actually use the raw materials purchased. In

43 the subsequent notification, it is made explicitly clear that the raw

materials so purchased are to be used by the eligible unit in its industrial

unit. Therefore, the basic requirement that the eligible unit has to

actually use such raw materials purchased by him is in no way modified

and/or amended. On the contrary, the subsequent amended Entry

No.255(2) dated 14.11.2000 can be said to be expanding the scope of

eligibility as it was. Earlier the eligible unit was required to actually use

the goods purchased within the State of Gujarat and as per the

subsequent amended Entry No.255(2) dated 14.11.2000 even if such

goods are used by it outside the State of Gujarat in that case also such

eligible unit was held to be eligible for exemption. Even as per the

condition No.6 in the amended Entry No.255(2) dated 14.11.2000, it is

specifically mentioned that the eligible unit shall actually use the goods

purchased, which was the requirement in the first notification also.

Therefore, the subsequent amended Entry No.255(2) vide notification

dated 14.11.2000 can be said to be clarificatory and/or expanding the

scope of eligibility, but in no case, it can be said to be taking away any

right under the original Entry No.255(2) dated 05.03.1992.

16. Similarly, even the third amended Entry No.255(2) dated

16.01.2002 also cannot be said to be taking away any right available

under the original Entry No.255(2) dated 05.03.1992.

44 16.1 Even the subsequent amended Entry No.255(2) vide notification

dated 16.01.2002 also can be said to be expanding the scope of

eligibility and in no way can be said to be taking away the rights

available to the eligible unit under the original Entry No.255(2) dated

05.03.1992. The eligibility criteria/condition that the eligible unit “shall

actually use the goods” remain the same even in the said amended

Entry No.255(2) dated 16.01.2002. Therefore, the subsequent

notifications/amended Entries cannot be said to be in any way in conflict

with the first/parent notification/Entry No.255(2).

17. As observed hereinabove, even under the first/ original Entry

No.255(2) dated 05.03.1992 and even as per the declaration furnished

in Form No.26, the eligible unit – respondent – ESL was required to

actually use the goods by him/within the State of Gujarat as raw

materials, for manufacture of goods by him. But by actually not using

the raw materials so purchased by which it got the benefit of exemption

from payment of purchase tax, sold the said raw materials, which in fact

were required to be used by him, to another unit/entity, which another

unit used it for manufacture of its goods – generating the electricity and

which in turn the EPL sold to the ESL. Thus, the ESL– eligible unit did

not comply with and/or fulfilled the eligibility criteria/conditions even as

per the original Entry No.255(2) and therefore, was/is not entitled to the

exemption from payment of the purchase tax as per the exemption 45 notification dated 05.03.1992 vide original Entry No.255(2). Therefore,

even assuming that the subsequent amended Entries vide second and

third notifications are not to be made applicable in that case also the

respondent -Essar Steel Ltd. being eligible unit was required to comply

with and/or fulfill all the eligibility criteria/conditions mentioned in the

original Entry No.255(2), which as observed hereinabove, by not actually

using the raw materials by himself and transferring/selling the same to

the non-eligible unit, the respondent was not entitled to avail the benefit

of exemption even under the original Entry No.255(2).

18. Even as per Form No. 26 (Entry No.255), as per the declaration

filed by the respondent, being ‘eligible’ unit while purchasing goods for

use in manufacturing goods, it was declared that the raw materials so

purchased will be used by it in the manufacture of goods for sale. Thus,

by not using the raw materials so purchased by it, the respondent –

eligible unit – ESL has violated the declaration given in Form No.26.

Therefore, the respondent was not entitled to the exemption even under

the first/parent notification.

19. Even the reasoning given by the Tribunal and the High Court that

the demand of purchase tax is hit by the principle of promissory estoppel

also cannot be accepted. In the present case, first of all, the principle of

promissory estoppel to the exemption sought ought not to have been

46 applied at all. Each assessment year/period is independent. Even

otherwise, in the facts and circumstances of the case, the principle of

promissory estoppel shall not be applicable. In the present case, as

observed hereinabove, the respondent – eligible unit as such was not

entitled to the exemption even under the first notification as it violated

the declaration given in Form No.26 as well as did not comply with

and/or fulfilled the eligibility criteria/conditions required to be fulfilled

while availing benefit of exemption. As observed hereinabove, the

respondent did not actually use the raw materials purchased by him/it

and availed the exemption and after availing the exemption sold the said

raw materials to ‘ineligible’ unit - EPL and the EPL used the same for

manufacture of its goods – generating the electricity, which subsequently

again sold to the ESL – eligible unit on payment of sale consideration.

20. At the cost of repetition, it is observed that as per the incentive

policy declared by the State Government, the power generating

company was put in the list of ‘ineligible industries’ and thus,

independently was not entitled to the exemption under the original Entry

No.255(2). Thus, by such a transfer/sale from the eligible unit to another

unit the benefit of exemption is availed by the ‘ineligible’ industry, which

is wholly impermissible and that cannot be said to be the intention of the

Government while providing the incentive in the form of exemption from

payment of purchase tax. Such a benefit of exemption was available

47 only to eligible units/industries and the steel industry of which Essar

Steel Ltd. belonged being one of the eligible industries. Therefore, there

was no question of applicability of principle of promissory estoppel.

20.1 Even otherwise in the facts and circumstances of the case

narrated hereinabove, the principle of promissory estoppel shall not be

applicable. ESL had furnished wrong and false declarations. In the

original notification/entry, it was not provided that even if the raw

materials so purchased is not used by itself after availing the exemption,

the same can be sold to another entity, which is ‘ineligible’ industry. It

did not provide that in such a situation also and despite the fact that raw

material is not actually used by the eligible unit, which was required to be

used even as per the declaration in Form No.26, such eligible unit shall

be entitled to the exemption. No such promise was given. The wordings

and the language used in the exemption notifications are very clear,

simple and unambiguous. Therefore, when there was no such promise

and/or representation, the demand cannot be said to be hit by the

principle of promissory estoppel as observed and held by the Tribunal as

well as the High Court in the impugned judgment and order.

20.2 The doctrine of promissory estoppel is an equitable remedy and

has to be moulded depending on the facts of each case and not

straitjacketed into pigeonholes. In other words, there cannot be any

hard and fast rule for applying the doctrine of promissory estoppel but 48 the doctrine has to evolve and expand itself so as to do justice between

the parties and ensure equity between the parties. In the present case,

the principle of promissory estoppel shall not be applicable.

20.3 In taxing matters, the doctrine of promissory estoppel as such is

not applicable and the Revenue can take a position different from its

earlier stand in a case with established distinguishing features. [See

Commissioner of Central Excise, Bangalore – 1 Vs. Bal Pharma

Limited, Bangalore and Ors., (2011) 2 SSC 620].

20.4 The rules of promissory estoppel and estoppel by conduct may not

be applied to alter or amend the specific terms and against statutory

provisions. All the terms and conditions contained in the exemption

notification shall prevail and the person claiming the exemption has to

fulfil and satisfy all the eligibility criteria/conditions mentioned in the

exemption notification.

21. Now, so far as the submission on behalf of the respondent that

prior to 14.11.2000, there was no demand of the purchase tax and/or the

exemption from payment of purchase tax was made available in the

earlier assessment years and, therefore, in the subsequent assessment

years also, the respondent – assessee shall be entitled to the exemption

49 is concerned, the aforesaid has no substance. In the taxation matters,

every assessment year/period is a different year/period.

21.1 The Scheme of the Statute does not in any manner indicate that

the incentive provided has to continue for the consecutive years

irrespective of the fulfilling of the eligibility conditions. Applicability of

the incentive is directly related to the eligibility and not dehors the same.

If it is found that the industrial undertaking does not fulfil the eligibility

criteria, it cannot claim the incentive/exemption.

22. Therefore, the submission on behalf of the respondent – assessee

that as in the earlier assessment years benefit of exemption was granted

to the respondent and, therefore, in the subsequent assessment years

also, despite the fact that it is found that the respondent was/is not

eligible for the benefit of exemption under the original Notification/Entry

No.255(2) cannot be accepted. If such a submission is accepted in that

case it will be perpetuating the illegality and granting the benefit of

exemption to ‘ineligible industry’, who did not fulfill and/or comply with

the eligibility criteria/conditions mentioned in the exemption notification.

The principle of promissory estoppel shall not be applicable contrary to

the Statute. Merely because erroneously and/or on misinterpretation,

some benefits in the earlier assessment years were wrongly given,

50 cannot be a ground to continue the wrong and to grant the benefit of

exemption though not eligible under the exemption notification.

23. Now, so far as the levy of penalty is concerned, it is to be noted

that the penalty is leviable under Section 45 and such a penalty is

leviable under sub-sections (5) and (6) of Section 45 of the Act, 1969

and the penalty is leviable on purchase tax assessed. It provides that if

the difference of tax paid and tax leviable/assessed is more than twenty-

five percent, in that case, the dealer shall be deemed to have failed to

pay the tax to the extent of the difference between the amount so

assessed/re-assessed and the amount paid and, in that case, there shall

be levied on such dealer a penalty not extending one and one-half times

the difference as per sub-section (5). Therefore, there being difference

of more than twenty five percent, penalty to the aforesaid extent shall be

leviable. This is a clear case of false and wrong claim of exemption, as

the exempted goods were transferred to a third person and used in an

‘ineligible’ industry. This is a case of deliberate violation and evil doing.

23.1 In the present case, as the difference between total tax paid and

the purchase tax is more than twenty-five percent, the respondent is

deemed to have failed to pay the tax as per sub-section (5) of Section 45

and, therefore, liable to pay the penalty not exceeding one and one-half

times. The words used in sub-section (6) of Section 45 is “there shall be

levied on such dealer a penalty not exceeding one and one-half times 51 the difference”. As noted above, in the present case, the modus

operandi which was adopted by the respondent – Essar Steel warrants a

penalty. Though, the raw material was required to be used by itself for

the manufacture of their goods, after availing the exemption as eligible

unit and instead of using the same for itself/himself, the ESL sold the raw

materials to an ‘ineligible’ entity – EPL, who used it for manufacture of its

own goods – generating the electricity, which again came to be sold to

ESL under the power purchase agreement.

23.2 As observed hereinabove, as such the EPL, under the incentive

scheme, was not eligible at all for exemption from payment of purchase

tax as in fact power generating companies were put in the list of

‘ineligible industries’. Therefore, by such a modus operandi, the benefit,

which was not available to the EPL was made available by such transfer

of raw materials by the Essar Steel Ltd. to Essar Power Limited. As

observed hereinabove, there is a breach of declaration in Form No.26

also. Therefore, in the facts and circumstances of the case, the levy of

penalty is justified and warranted. The Joint Commissioner, the Tribunal

as well as the High Court have committed a grave error in quashing and

setting aside the penalty imposed by the Assessing Officer.

24. In view of the above and for the reasons stated above, the

impugned common judgment and order passed by the High Court as

52 well as that of the Tribunal quashing and setting aside the demand of

purchase tax from the respondent are hereby quashed and set aside. It

is held that the respondent -Essar Steel Ltd. – the eligible unit was not

entitled to the exemption from payment of purchase tax under the

original Entry No.255(2) dated 05.03.1992, firstly, on the ground that it

did not fulfill the eligibility criteria/conditions mentioned in the original

Entry No.255(2) dated 05.03.1992 and secondly that there was a breach

of declaration in Form No.26 furnished by the respondent – eligible unit –

Essar Steel Ltd. The orders setting aside the penalty imposed by the

Assessing Officer are also hereby quashed and set aside. The order

passed by the Assessing Officer levying the demand of purchase tax and

imposing the penalty is hereby restored.

25. Present appeals are accordingly allowed. In the facts and

circumstances of the case, there shall be no order as to costs.

………………………………….J. [M.R. SHAH]

NEW DELHI; ………………………………….J. JANUARY 21, 2022. [SANJIV KHANNA]

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