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Supreme Court of India
THE HONOURABLE MR. JUSTICE S.B. SINHA & THE HONOURABLE DR. JUSTICE MUKUNDAKAM SHARMA
Pepsico India Holdings P. Ltd.
Versus
State of Kerala & Others
Civil Appeal No.3456 of 2009 (Arising out of SLP (C) No. 30256 of 2008)
Decided On : 11-05-2009
(1999) 4 SCC 357 – Relied upon
(b) Administrative law – Statutory authorities sticking to their stand despite direction of court – Not proper. (Para 39)
(1987) 4 SCC 431; (2007) 2 SCC 181 – Relied upon
(c) Interpretation of statute – Eligibility clause in exemption notification – Must be construed strictly. (Para 40)
(2005) 4 SCC 272 – Relied upon
(d) Promissory estoppel – Well settled that promissory estoppel applies to State also. (Para 41)
2008 (9) SCALE 448; 2009 (1) SCALE 137 – Relied upon
(e) Kerala General Sales Tax Act, 1963 – Section 10 – Exemption notification – For construing an exemption notification, the Industrial policy has to be taken into consideration – It should also be kept in mind that notification granting exemption and notification withdrawing the benefit granted do not stand on the same footing – Instantly, appellant changing its status and spending huge amount on confirmation of benefits under the policy – On account of the exemption not realizing any taxes from its purchasers – State will be stopped from withdrawing the benefits already granted or denying the same to appellant. (Para 42, 43)
(2007) 2 SCC 725; (2008) 2 SCC 777 – Relied upon
Facts of the case:
A policy decision taken by the State of Kerala to grant exemption from payment of sales tax with a view to attract more investment in the State was issued by way of a Notification under Section 10 of the Kerala General Sales Tax Act, 1963 providing for exemption to New Industrial Units set up in the State of Kerala.
KSIDC confirmed to the appellant that the new industrial unit would be exempted from payment of sales tax for the first seven years subject to a ceiling of 100% of capital investment.
The industrial unit of the appellant commenced commercial production on and from 6.3.2001. Appellant, however, was not granted the eligibility certificate.
Revenue recovery proceedings in connection with the provisional sales tax assessment for the month of April 2000 were also started wherefor a notice of demand for a sum of Rs.47,83,769/- was issued to the appellant on 17.5.2001. Appellant, in reply, stated that it was exempt from payment of any sales tax having fulfilled all the requirements in terms of the aforementioned exemption notification. It also applied for grant of sales tax exemption on 20.6.2001.
A writ petition was filed by it questioning the aforementioned order of assessment which was disposed of.
Accordingly, the matter was placed before the Special Secretary (Taxes) who clarified that the appellant was eligible for grant of sales tax exemption.
The Principal Secretary (Industries) also reconfirmed that the appellant was eligible for sales tax exemption.
The Sales Tax Officer, Palakkad issued Provisional Assessment Notice for the period April 2002 to December 2002 on or about 7.2.2003. Questioning the legality and/or validity of the said notice and the order of assessment, the appellant filed writ petition.
During pendency of the said writ petition, the Director of Industries & Commerce rejected the prayer for grant of eligibility certificate made by the appellant.
After decision in the abovesaid writ petition appeal against which was dismissed up to Supreme Court, the Director of Industries & Commerce thereafter granted an Eligibility Certificate to the appellant stating that it was also eligible for grant of sales tax exemption. Despite the same, however, the Deputy Commissioner (General) Commercial Taxes denied the grant of benefit of sales tax exemption.
Another writ petition filed by the appellant was dismissed. The intra court appeal preferred thereagainst has also been dismissed.
Finding of the Court:
Impugned judgment is not sustainable.
Result:
Appeal allowed.
Certainly. Based on the provided legal document, the key points are as follows:
The doctrine of promissory estoppel applies to the State, meaning the State is bound by its promises or representations when the party has acted upon them to its detriment (!) (!) .
Benefits granted under an exemption notification, which the appellant relied upon to change its status and make substantial investments, cannot be denied or withdrawn by the State once the appellant has acted in reliance on those benefits (!) (!) .
The interpretation of exemption notifications must be strict, but once the conditions are satisfied, a liberal approach should be adopted in granting benefits (!) .
The appellant had made significant investments, including expenditure on land, machinery, and setting up the industrial unit, based on the representations and promises made by the State regarding tax benefits (!) (!) (!) .
The appellant commenced commercial production before the specified cut-off date, fulfilling the criteria for exemption under the relevant notifications (!) .
The authorities and courts recognized that the appellant had taken effective steps towards setting up the industrial unit, including placing orders for machinery and making advance payments prior to the deadline (!) (!) (!) .
The State and its authorities initially confirmed the appellant's eligibility for the exemption benefits, but later attempted to deny those benefits, despite the appellant's reliance and substantial investments (!) (!) (!) .
The courts emphasized that the conditions for exemption should be interpreted reasonably and in a manner that advances the purpose of the industrial policy, especially when the appellant has acted in good faith and has fulfilled the requisite conditions (!) (!) .
The case underscores the importance of maintaining the credibility of government commitments and the principle that the State should not go back on promises once the parties have acted upon them to their detriment (!) .
The decision highlights that the procedural and documentary evidence, such as orders, payments, and approvals, support the conclusion that the appellant had satisfied the conditions for exemption, and that the authorities failed to re-evaluate these in accordance with the principles of fair and reasonable interpretation (!) (!) (!) .
These points collectively reflect the legal principles, factual findings, and the importance of fair interpretation and reliance in the context of tax exemptions and government representations.
Judgment :-
S.B. Sinha, J.
Leave granted.
1. Interpretation of an exemption notification dated 3.11.1992 issued by the State of Kerala dated 3.11.1993 as modified by notifications dated 31.12.1999 and 31.3.2000 is in question herein.
2. The said question arises in the following factual matrix.
Appellant is a private limited company. It intended to set up a medium scale industrial unit at Kanjikode, Palakkad in the State of Kerala for manufacturing soft drinks under the brand name `Pepsi. Such a decision was taken purported to be relying on or on the basis of a policy decision taken by the State of Kerala to grant exemption from payment of sales tax with a view to attract more investment in the State. The said policy decision was issued by way of a Notification bearing SRO No.1729/1993 issued under Section 10 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to for the sake of brevity as, "the said Act") providing for exemption to New Industrial Units set up in the State of Kerala, the relevant clauses whereof read as under:
"4. In the case of new Industrial Units under Medium and Large Scale Industries, there shall be an exemption for a period of seven years from the date of commencement of commercial production-
(a) in respect of the tax payable by such units under the Kerala General Sales Tax Act, 1963-
(i) On the turnover of sale of goods manufactured and sold by them within the state; and
(ii) On the turnover of goods, taxable at the point of last purchase in the State, which are used by such units for manufacturing other goods for sale within the State or inter-state; and
(b) in respect of the Surcharge payable under Section 3 of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957) in relation to the goods referred to in sub-clause (a) above."
3. The said notification provided for issuance of eligibility certificate in respect of medium and large scale industries assisted by the Kerala State Industrial Development Corporation ("KSIDC" for short) or the Kerala Financial Corporation inter alia by the Director of Industries and Commerce on application made by such units, and orders of exemption issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram. It is stated that in stead and place of Secretary, Board of Revenue (Taxes), Thiruvananthapuram, the said jurisdiction of the Board was being exercised by Deputy Commissioner (General) Commercial Taxes.
4. Appellant is said to have written a letter to the Principal Secretary, Department of Industries, Government of Kerala on or about 11.5.1999 seeking confirmation of the benefits, such as incentive of sales tax exemption on the goods produced etc., available to the proposed new unit, stating:
"Proposal for Investments in Kerala State PepsiCo in India PepsiCo Inc. has set up a fully integrated operation in India -manufacturing, research and development marketing, distribution, exports and franchise -covering fruit/vegetable processing, snack foods and beverages. Presently, our activities provide direct/indirect employment to over 60,000 persons. We are also one of the large exporters in the country.
PepsiCo activities in Kerala
PepsiCo India Holdings Ltd. revived the closed and sick manufacturing unit of Contract Bottling Company Ltd. at Angamaly, by entering into an arrangement for the manufacture of soft drinks.
We now propose to make substantial investments of over Rs.50 crores in the first two phases spread over three years in setting up a new unit in Kerala for the manufacture of soft drinks with the full range of Pepsi brands. We expect the project will generate substantial direct/indirect employment opportunities and also stimulate other related economic activities. The Greenfield unit will either be set up directly or, by assisting a local entrepreneur.
CONFIRMATION REQUESTED
1. Availability of Sales Tax exemption benefit As per the State Governments Industrial policy, new industrial Units under the medium and large scale sector are elig
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