State Of Jammu And Kashmir vs M/S.Trikuta Roller Flour Mills.P.Ltd

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.9844 OF 2011

STATE OF JAMMU AND KASHMIR .........APPELLANT(S) VERSUS M/s. TRIKUTA ROLLER FLOUR MILLS PVT. LTD. AND ANOTHER .....RESPONDENT(S)

WITH

CIVIL APPEAL NO.9845 OF 2011

STATE OF JAMMU AND KASHMIR AND ANOTHER .........APPELLANT(S) VERSUS SANSAR OIL MILLS AND ANOTHER .....RESPONDENT(S)

CIVIL APPEAL NO.9846 OF 2011

STATE OF JAMMU AND KASHMIR AND ANOTHER .........APPELLANT(S) VERSUS R.C. FLOUR MILLS AND ANOTHER .....RESPONDENT(S)

CIVIL APPEAL NO.9847 OF 2011

Signature Not Verified STATE OF JAMMU AND KASHMIR Digitally signed by NEETU KHAJURIA AND ANOTHER .........APPELLANT(S) VERSUS Date: 2017.08.18 14:50:20 IST Reason:

SUDERSHAN STEEL (P) LTD. .....RESPONDENT(S)

1 CIVIL APPEAL NO.9848 OF 2011

STATE OF JAMMU AND KASHMIR AND ANOTHER .........APPELLANT(S) VERSUS JAMMU STEEL INDUSTRIES AND ANOTHER .....RESPONDENT(S)

CIVIL APPEAL NO.9849 OF 2011

STATE OF JAMMU AND KASHMIR AND ANOTHER .........APPELLANT(S) VERSUS M/s. TRIKUTA ROLLER FLOUR MILLS PVT. LTD. AND ANOTHER .....RESPONDENT(S)

CIVIL APPEAL NO. 10616 OF 2017 (Arising out of SLP(C) NO.5803 of 2006)

STATE OF JAMMU AND KASHMIR AND ANOTHER ........PETITIONER(S) VERSUS BARI BRAHMA INDUSTRIAL ASSOCIATION AND OTHERS .....RESPONDENT(S)

CIVIL APPEAL NO. 10615 OF 2017 (Arising out of SLP(C) NO.5835 of 2006)

STATE OF JAMMU AND KASHMIR AND OTHERS ........PETITIONER(S) VERSUS K.B. ROLLER FLOUR MILLS .....RESPONDENT(S)

2 JUDGMENT

NAVIN SINHA, J.

Leave granted in Special Leave Petition (Civil) Nos.5803

and 5835 of 2006.

2. The State government issued a notification bearing G.O.

No. 318-GR of 1990, dated 30.11.1990, granting hundred per

cent refund of central sales tax (CST), paid by small scale

industrial units (SSI units) in the State, on raw materials

purchased from outside the State, for a period of five years. It

was superseded by G.O. No. 253-Ind/DIC of 1993 dated

01.10.1993, restricting the refund to the maximum annual

purchase turnover of Rs.50 lacs to a unit holder.

In monetary terms, Rs.2 lacs per annum per unit (taking the

maximum rebate of CST at 4%).

3. As part of an executive policy to encourage entrepreneur

investment in the State by SSI units, the appellant by G.O. No.

391-Ind of 1972 dated 21.06.1972, provided for refund of CST

3 paid on purchase of raw materials from outside the State, for a

period of 3 years from the date of the order, and 5 years from

the date of production. It was superseded by G.O. No. 54-IND

of 1983 dated 26.02.1983, providing for refund of CST for a

period of 5 years from the date of production.

4. A fresh G.O. No. 318-GR of 1990, dated 30.11.1990, was

issued in supersession, providing for such refund in full up to

31.03.1995, after which it was to be provided on a sliding

scale of (a) 50 per cent of the tax paid up to end of 31.03.1998

and (b) 25 per cent of the tax paid up to end of 31.03.2000.

Option was also given to those entitled to avail the earlier

package of incentives, to continue availing the benefit for the

remaining period of their entitlement. It was again superseded

by G.O. No. 253-Ind/DIC of 1993, dated 01.10.1993, leading

to institution of writ petitions assailing it.

5. The challenge to the notification dated 01.10.1993, by

the respondents was on principles of promissory estoppel,

4 contending that having held forth a promise for grant of

exemption from CST on raw materials purchased from outside

the State for five years from the date of production, the

appellant could not have withdrawn or modified the benefit

before that time period.

6. The Division Bench of the High Court rejected the plea of

promissory estoppel. But, regarding the plea of the State

change in policy on account of refunds availed fraudulently, it

was held that administrative apathy, could not be a

justification for putting a ceiling on the quantum of refund.

The restriction sought to be introduced, had no nexus with the

object sought to be achieved. If the government bonafide

deemed it against public interest, it could have withdrawn the

policy. The appellant was required to provide refund for a

period of 5 years from the date of production.

7. Shri R. Venkataramani, learned Senior Counsel

appearing on behalf of the appellant, submitted that the

5 respondents had no legal or indefeasible right to claim refund

of CST paid, except in terms of the benefit as may have been

granted under the executive policy decision, and as modified

from time to time. The benefit being in the nature of a

concession, could be withdrawn at any time, for just and valid

reasons in the larger public interest. The detection of false

claims for refund of CST, leading to institution of FIRs,

enquiries and vigilance cases, affecting the State exchequer,

led to a conscious policy decision to put a cap on the earlier

policy. Judicial review of the policy decision dated

01.10.1993, will have to be circumscribed within limits of

relevancy of materials considered only. If the policy decision

was found to be completely arbitrary, based on no materials,

or took into consideration irrelevant materials, then only the

Court could have interfered. A reasonable conclusion based

on satisfaction culled out from relevant materials regarding

misuse of the concession, and protection of the State

exchequer were sufficient justification for change in policy.

The decision to put a cap on reimbursement was, therefore,

not arbitrary.

6

8. Learned Counsel for the respondents, supporting the

impugned order of the High Court, submitted that no material

had been brought on record, in support of the contention

regarding raising of false claims by SSI units in the State. If

CST had not been paid by the dealers in the other State from

whom the raw materials had been purchased, the respondents

could not be visited with the consequences by denial of refund.

The Division Bench had aptly observed that administrative

apathy in detecting false claims could not be a justification for

an across the board decision to curtail the benefit. Moreover,

if false and bogus claims were an issue, and the intention was

to curb it, capping the limit for exemption had no nexus with

the object sought to be achieved.

9. The respective submissions have received our thoughtful

consideration. The grant of refund on CST paid, to boost

entrepreneur investment was primarily an executive economic

policy decision. The scope for judicial scrutiny and

interference with the same, has to be restricted to

7 arbitrariness and unreasonableness as observed in Ugar

Sugar Works Ltd. vs. Delhi Admn., (2001) 3 SCC 635, as

follows:-

“18…..It is well settled that the courts, in exercise of their power of judicial review, do not ordinarily interfere with the policy decisions of the executive unless the policy can be faulted on grounds of mala fide, unreasonableness, arbitrariness or unfairness etc. Indeed, arbitrariness, irrationality, perversity and mala fide will render the policy unconstitutional. However, if the policy cannot be faulted on any of these grounds, the mere fact that it would hurt business interests of a party, does not justify invalidating the policy. In tax and economic regulation cases, there are good reasons for judicial restraint, if not judicial deference, to judgment of the executive. The courts are not expected to express their opinion as to whether at a particular point of time or in a particular situation any such policy should have been adopted or not. It is best left to the discretion of the State.”

10. The respondents had no legal or indefeasible right to

claim refund of CST paid by them. The policy rested on an

executive decision to encourage entrepreneur investment. It

naturally includes the power of the State to review the policy

from time to time, including on considerations for the manner

8 in which the policy was proving beneficial or detrimental to the

larger public interest, and the State exchequer. The policy

could therefore well be withdrawn or modified at any time for

just, valid and cogent reasons. Judicial review of a policy

decision, especially an economic policy decision, shall have to

be restricted to the presence of just and valid reasons

eschewing arbitrariness, so as not to fall foul of Article 14 of

the Constitution. But, in the garb of judicial review, the Court

will not examine the sufficiency or adequacy of the reasons or

materials, in the manner of an appellate authority, to

substitute its own wisdom for that of the government. That

would tantamount to taking over of the executive decision

making process.

11. The appellant had specifically contended before the High

Court that based on verification of complaints regarding

refunds having been obtained without any payment of CST,

causing revenue loss to the State, the decision had been taken

in larger public interest. The High Court unfortunately dealt

9 with it very cursorily, as a simple issue of administrative

apathy without further discussion. The reasonableness in

action on part of the State, in not having withdrawn the

benefit completely, balancing competing interests, was

considered negatively holding that it could have been

completely withdrawn but not curtailed. Misuse of exemption,

fraudulent claims for refund, affecting the financial health and

coffers of the State can certainly be valid and germane reasons

in the larger public interest, to restrict or revoke the benefit as

observed in Commissioner of Commercial Taxes (Asstt.) vs.

Dharmendra Trading Co., (1988) 3 SCC 570, as follows:-

“4……It is well settled that if the government wants to resile from a promise or an assurance given by it on the ground that undue advantage was being taken or misuse was being made of the concessions granted the court may permit the government to do so but before allowing the government to resile from the promise or go back on the assurance the court would have to be satisfied that allegations by the government about misuse being made or undue advantage being taken of the concessions given by it were reasonably well established……”

12. It is the contention of the appellants that in or about

1992, genuine doubts were entertained about the veracity of

10 the refund claims of CST made by SSI units. A specific

reference has been made by illustration to the case of the

respondent in Civil Appeal No. 9844 of 2011. Enquiries were

also made from the Excise and Taxation Officer II, Amritsar, as

dealers at Amritsar were suspected of being in connivance

with the dealers in the appellants State. It was observed on

the basis of information furnished by the authorities at

Amritsar that the original payee receipts produced by the SSI

units in the appellant State, did not tally with that given by

the sales tax authorities of Punjab, and who had also

confirmed that the suppliers did not deposit any CST.

Enquiries from the authorities at Punjab further revealed that

M/s. Sewak Traders, one of the dealers of Punjab, from whom

purchase was said to have been made, was found to be a

non-existent trader in Amritsar district, never registered with

the authorities at Punjab, and had never filed any return or

deposited any taxes. Consequently, FIRs had been lodged, as

also vigilance inquiries setup, as it was causing great amount

of revenue loss to the State Exchequer. It was the further case

of the appellants, that even otherwise, serious reservations

11 were expressed time and again regarding the incentives,

observing that they were regular eroding the non-plan

resources of the State and that curtailment was becoming

unavoidable. These were all relevant considerations, the State

being the guardian of State finances.

13. There has been much passage of time since the issue

originated and the litigation that followed. The mere fact that

ample documentary evidence may not be available with the

State today, for valid reasons as mentioned in the additional

affidavit, it cannot be held that what was valid when done,

must be pronounced as illegal today, merely because the

evidence may have been lost with passage of time for

unavoidable reasons. Undoubtedly, fraudulent refund claims

obtained, would be contrary to the financial interests of the

State, thereby affecting the larger public interest. The policy

wisdom of the State that the grant of refund was eroding

non-plan resources is a matter exclusively in the executive

domain.

12

14. The order of the High Court is, therefore, held to be

unsustainable and is set aside. It is however clarified that

only such claims which have already been granted and the

financial benefit availed, shall not be reopened or withdrawn,

and no refund shall be required to be made by any such unit

to the State.

15. The appeals are allowed with directions.

………………………………….J. (Ranjan Gogoi)

………………………………….J. (Prafulla C. Pant)

.……….………………………..J. (Navin Sinha)

New Delhi, August 18, 2017

13 ITEM NO.1501 COURT NO.4 SECTION XVI -A (For Judgment) S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No(s).9844/2011

STATE OF JAMMU AND KASHMIR Appellant(s)

VERSUS

M/S.TRIKUTA ROLLER FLOUR MILLS.P.LTD & ANR. Respondent(s)

WITH

C.A. No. 9848/2011 C.A. No. 9849/2011 C.A. No. 9845/2011 SLP(C) No. 5803/2006 SLP(C) No. 5835/2006 C.A. No. 9846/2011 C.A. No. 9847/2011

Date : 18-08-2017 These matters were called on for pronouncement of judgment today.

For Appellant(s) Mr. R. Venkataramani, Sr. Adv.

Mr. M. Shoeb Alam, AOR Ms. Fauzia Shakil, Adv.

Mr. Ujjwal Singh, Adv.

Mr. Mojahid Karim Khan, Adv.

For Respondent(s) Mr. Abhinav Mukerji, AOR

Mr. V. Lakshmi Kumaran, Adv Mr. L. Badri Narayanan, Adv.

Ms. L. Charanya, Adv.

Mr. Aditya Bhattacharya, Adv.

Mr. Victor Das, Adv.

Ms. Apeksha Mehta, Adv.

14 Mr. M. P. Devanath, AOR

Mr. D. Mahesh Babu, AOR

Hon'ble Mr. Justice Navin Sinha pronounced the judgment of the Bench comprising Hon'ble Mr. Justice Ranjan Gogoi, Hon'ble Mr. Justice Prafulla C. Pant and His Lordship.

Leave granted in Special Leave Petition (Civil) Nos.5803 and 5835 of 2006.

The appeals are allowed in terms of the signed judgment.

Pending application(s), if any, shall stand disposed of.

(NEETU KHAJURIA) (ASHA SONI) COURT MASTER BRANCH OFFICER

(Signed reportable judgment is placed on the file)

15