The interpretation and applicability of government orders and notifications, and their impact on tax exemption for industrial units.

JUDGMENT

S.H. KAPADIA, J. -

Civil Appeals Nos. 8031 - 33 of 2004

1. Being aggrieved by the common judgment dated 22 - 8 - 2003 delivered by the Division Bench of the Kerala High Court in WAs Nos. 991 and 1316 of 2003, the State has come to this Court by way of the present civil appeals.

2. Facts giving rise to these civil appeals are as follows:

Peekay Re - Rolling Mills (P) Ltd., the respondent herein, was registered as an industrial unit on 6 - 9 - 1991. They claim to have set up an industrial unit in the State on account of tax exemption given to industrial units from payment of sales tax for the fixed period commencing from the date of commercial production. Tax exemption was in fact granted under Section 10 of the Kerala General Sales Tax Act, 1963 ("the 1963 Act") vide notification dated 4 - 11 - 1993. Under that notification, tax exemption was admissible to C medium - scale units for seven years from the commencement of commercial production. In the present case, the respondent commenced the said production on 31 - 3 - 1995. In between, on account of acute power shortage in the State, the Government issued an order inter alia stating that certain industries included in the negative list would not be eligible for State investment subsidy and certain other assistance. One of the items in the d negative list, being Item 7, was "power - intensive units", whose total power requirement exceeded 2500 kVA and where the cost of power exceeded 25%

of the cost of production. By clauses 2 and 4 of the said G.O., all units in the negative list provisionally registered on or after 31 - 12 - 1993 were denied State investment subsidy. By clause 3 of the said G.O., expansion/ modernisation/diversification of existing units in the negative list was also disqualified from tax exemption from the Government except in cases where an application was made by the unit on or before 31 - 12 - 1993.

3. Subsequent to the commencement of commercial production on 31 - 3 - 1995 and prior to March 1996, additional investment was made by the respondent for the construction of building, installation of plant and machinery, electrification, etc. This expansion was undertaken for the purpose of downline integration to enable the respondent to manufacture steel ingots, an input in the manufacture of iron rods and bars. After starting commercial production, the respondent made an application for tax exemption on 20 - 6 - 1997. The Director of Industries issued eligibility certificate and based on the said certificate, the Commissioner of Taxes g granted exemption on 19 - 12 - 1997 on the initial investment to the respondent to the tune of Rs 2.66 crores (approx.) for seven years from 31 - 3 - 1995 to 30 - 3 - 2002. During the pendency of the exemption application before the Director of Industries, additional capital investment of Rs 5 crores (approx.) was made. This led to the increase in the contract load and, therefore, an application was made on 24 - 9 - 1997 by the respondent claiming tax h exemption on the basis of additional capital investment. This application dated 24 - 9 - 1997 was rejected by the competent authority on the ground that the respondent was a power - intensive unit having a load factor of more than 2500 kVA. Reliance was placed on G.O. dated 26 - 11 - 1993/27 - 11 - 1993 in that regard. This order led to litigation. Without going into unnecessary details, suffice it to state that both, the Government and the Director of Industries, proceeded to reject the claim for tax exemption by placing reliance on the above G.O. dated 26 - 11 - 1993/27 - 11 - 1993. This led to the filing of OPs Nos. 32947 and 32807 of 2000 by the respondent herein in the High Court. To complete the chronology of events, on 19 - 4 - 1994 the Government issued a clarification to the G.O. dated 26 - 11 - 1993/27 - 11 - 1993. By the said G.O., it was clarified that tax exemption would continue to be available to all industries which were provisionally registered before