By TIOL News Service

NEW DELHI, MAY 16, 2015: THE issue before the Bench is - Whether when assessee is given incentive for investment in a particular project, State Govt is bound by principles of Promissory Estoppel. YES is the answer.

Facts of the case

The Government of Gujarat announced policy named "New Package Scheme of Incentives for Tourism Projects, 1995-2000" on 20.12.1995 with a view to make available all fiscal and non fiscal incentives, reliefs and concessions enjoyed by industries to ‘Tourism’ which was accorded the status of an industry, in order to give a boost to tourism sector by attracting higher investment in the areas with tourism potential and to generate employment opportunities. Under Clause 2, the Scheme came into operation on 1.8.1995 and was to remain in force for a period of five years upto 31.07.2000. Under Clause 3, to be eligible, a new tourism unit ought to be registered after 1.8.1995. Clause 4.7 dealt with effective steps which such unit was expected to undertake. Under Clause 5, after taking initial effective steps a tourism unit could apply to the Director of Tourism for registration. All projects had to conform to the specifications and requirements spelt out in Appendix B which Appendix dealt with various categories of tourism units and Item 22 thereof pertained to Entertainment Complexes including multi cinema theater complexes or multiplexes. Clause 7 categorised tourism units in four categories, namely, Prestigious Tourism Units, Large Scale Tourism Units, Small Scale Tourism Units and Tiny Tourism Units with minimum fixed capital investment of Rs. 10 Crore, 90 lakhs, 10 lakhs and less than 10 lakhs respectively. Clause 8 dealt with incentives and stated that a tax holiday of 5-10 years would be available in respect of exemptions from (i) Sales Tax (ii) Turnover Tax (iii) Electricity Duty (iv) Luxury Tax and (v) Entertainment Tax, upto 100% of capital investment. In clause 8.1 it was stated that the quantum of incentives would not exceed 100% of eligible capital investment and it further stated the period of eligibility in respect of Prestigious Tourism Unites, Large Scale Tourism Units, Small Scale Tourism Units and Tiny Tourism Units to be 10 years, 8 years, 6 years and 5 years respectively. Clause 9 dealt with composition of sanctioning authority whereunder State Level Committee was competent to issue eligibility certificate in respect of Prestigious and Large Units while District Level Committee was to issue eligibility certificate for all Small Scale and Tiny Tourism Units. The procedure for registration tourism units for incentives was detailed in Clause 10. The State Government, in exercise of powers conferred upon it u/s 29 of the Gujarat Entertainment Tax Act, 1977, issued Notification dated 14.02.1997 as per which the exemption under said Notification would be subject to all terms and conditions referred to in Government Resolution dated 20.12.1995 in the Scheme and further conditions stipulated in the Notification.

Assessee concern was desirous of setting up a multiplex and to avail the incentives under the Scheme took effective steps as stated in the Scheme and the Notification dated 14.02.1997 and applied for Temporary Registration Certification (TRC) . Said application was examined by the concerned authorities and TRC was granted on 17.09.1999 and the same was sent to assessee under covering letter dated 04.11.1999. In pursuance thereof, assessee started constructing the multiplex in accordance with the Scheme. On 28.06.2000 Government Resolution was issued by the State Government seeking to clarify incidental/ancillary aspects as regards treatment of certain cases covered under the Scheme. Clause A of the Resolution stated that an application for TRCs under the existing policy would be accepted till 31.07.2000 and TRCs would be issued provided initial effective steps were taken on or before 31.07.2000. The Scheme was extended upto 30.09.2000 and later upto 30.11.2000 vide Resolutions dated 31.07.2000 and 30.09.2000 respectively issued by the State Government.

On 26.01.2001 a massive earthquake took place in the State resulting in collapse of number of buildings and structures. This caused suspension of the process of issuing development permissions, for the purposes of maintaining structural safety standards in Development Control Regulations under the provisions of the Gujarat Town Planning and Urban Development Act, 1976. On 27.03.2001 it was directed by the State Government that all development permissions must adhere to structural safety norms as stated in annexure to said order dated 27.03.2001 and that even with respect to the existing development permissions, necessary certification regarding structural stability and strengthening ought to be issued by Structural Engineers having requisite qualifications. The assessee submitted building plans along with the requisite structural stability certificate. The approval was accorded by the Municipal Corporation in October 2001 and the assessee resumed construction work. Since more than a year was lost because of subsequent changes in building norms, assessee had applied on 11.12.2001 for grant of extension for completing the project pointing out the aforesaid difficulties. It was stated that as on the date, the assessee had incurred expenditure to the tune of Rs.91.25 lakhs for which a certificate of the CA was enclosed.

Due to communal riots in the state, assessee had been granted an extension in the TRC for a period of six months. Assessee further contended that even after due extension the effective period of extension it got was only 17 days. Assessee informed that the civil work was complete and the electrification and air-conditioning work was in progress. It was further stated that as on that date Rs.1.11 crores were spent on various items of capital work, as supported by certificate from CA and prayed for further extension of four months. By a subsequent letter assessee further requested for extension of six months instead of four months. The State Level Committee found that the delay in commencing the operation due to earthquake and in completing the operation due to riots was justifiable and that the physical progress of the project was satisfactory. However, it took the view that extending the validity period would result in extension beyond 31.07.2002 and as such the matter was required to be deferred till the Government took a decision on modification of GR dated 28.06.2000. On 20.06.2003 the Commissioner of Tourism informed that a proposal for amendment of GR dated 28.06.2000 was sent and the matter was being considered at the governmental level. It was stated that the eligibility as per TRC issued to the assessees was in force and that their project was still eligible. The assessee commenced commercial operations on 11.07.2003 and applied for grant of appropriate eligibility certificate on 04.11.2003.

Later on, Multiplex Association of Gujarat filed Special Civil Application on behalf of its members in HC seeking appropriate directions for grant of eligibility certificate to its members, which the HC had rejected on the basis that assessee had not qualified for the benefit of the Scheme, sufficient time extension had already been given for starting commercial activities of the project, further extension of time limit would lead to undue burden on the State’s Exchequer and Multiplicity of multiplexes beyond the requirement in the State. HC observed that the operative period of the Scheme came to an end on 30.11.2000 by which time the assessee had not commenced commercial operation and that the assessee were not entitled to any benefits or incentives under the Scheme. It had observed that in the facts and circumstances of the case there could be no application of the principles of Promisory Estoppel. The present appeal by Special Leave seeks to challenge the view so taken by the High Court. During the pendency of the matter HC had directed the appellants and similarly situated multiplex theatre owners to keep paying the current taxes and to deposit the outstanding dues as on 31.07.2009 in six equal quarterly installments with interest @ 9 per cent on reducing balance.

Having heard the matter, the Apex court held that,

++ reading of the Scheme shows that to be eligible for the incentives under the Scheme, a new project ought to have obtained registration after 1.8.1995 and taken initial effective steps under Clause 4.7(a) which inter alia included effective possession of land free from all encumbrances and submission of Project Report. It is only thereafter that an intending unit could apply and be given provisional registration under Clause 10(a). Said clause indicates that such provisional registration "in the first instance" would be up to two years. If the unit was not in a position to start commercial operation during this initial validity period of two years, it would be entitled to apply with progress report to the State Level Committee for extension, which could be granted up to six months at a time or a total period of two years after examining the difficulties experienced in implementing the project. This first level of extensions for a total period of two years could be granted by the State Level Committee and even if a unit was unable to go into operation after availing such extensions, it could still apply to the Government for further extension. Clauses 8 and 8.1 dealt with incentives and period of eligibility which would go up to ten years after a unit was found to be fully eligible. These clauses clearly show that such stages or eventualities would survive even after the expiry of period of the operation of the Scheme. The reading of the Scheme further shows that no fresh application and TRCs could be granted after the period of operation but those who had crossed the threshold and were given TRC, could have the full benefit of the stages contemplated in Section 10. In our considered view, it would be incorrect to say that all the clauses including Clause 10 would cease to operate after the period of operation had come to an end. It being the clear intent that such stages and eventualities ought to survive even after the expiry of the Scheme, we reject the submission advanced on behalf of the State;

++ clause 7 of the Scheme classifies projects in different categories and for a Large Scale Tourism Unit, with which we are presently concerned, fixed capital investment was required to be more than Rs.90 lakhs. The Scheme definitely promised an initial period for completion of the project under Clause 10 (a) as two years after the initial effective steps were under taken by the concerned unit. Clause 10 (b) further promised an extension for two years subject to State Level Committee being satisfied that an individual unit had experienced difficulties in implementing the project. A unit was therefore promised the availability of an opportunity, depending upon the individual fact situation, to pray for extension up to two years. Clause 10(C) further entitled such unit to approach the State Govt. even after the aforesaid aggregate period of four years for further extension. In our view, Clause 10 was one of the core features of the Scheme based on which eligible units were invited to make capital investment of more than Rs. 90 Lakhs with a promise of incentives under Clause 8. Having given such promise, based on which the appellants incurred capital expenditure, the question now arises as regards applicability of doctrine of Promissory Estoppel. The law on the subject of Promissory Estoppel was recapitulated and succinctly dealt with by this Court in State of Punjab Vs. Nestle India Ltd. 2004-TIOL-55-SC-CT. It found the foundation of the doctrine laid in the decision in Collector of Bombay Vs. Municipal Corporation of the City of Bombay 1952 SCR 43, the principle built upon in Union of India Vs. Anglo Afghan Agencies 1968(2) SCR 366 and the superstructure of the doctrine, with its pre-conditions, strengths and limitations outlined in the decision in Motilal Padampat Sugar Mills Co. Ltd. Vs. State of UP 2002-TIOL-1041-SC-CT. This Court then dealt with the discordant note in Jit Ram Vs. State of Haryana 1981 (1) SCC 11 and how that was firmly disapproved in Union of India Vs. Godfrey Philips India Ltd. 2002-TIOL-384-SC-CX-LB by a bench of three judges;

++ we find that the Scheme definitely promised incentives in the form of Tax holiday of 5-10 years in respect of exemptions from Sales Tax, Turnover Tax, Electricity Duty, Luxury Tax and Entertainment Tax upto 100 per cent of capital investment if a new unit was registered after 1.8.1995 and appropriate investment in fixed capital assets was made. It also promised an initial period of two years for going operational in the first instance, extendable by further period of two years subject to satisfactory progress to be found by the State Level Committee. Even thereafter, the Unit could still approach the State Government for further extension. This was part of the core of the Scheme, which invited investment in tourism units promising tax holiday as stated above. Based on such representation, various units including that of the appellants having come forward and altered their position, the State Government would certainly be bound by the principles of Promissory Estoppel. The State Government was thus estopped from going back on the promise so made in the Scheme and could not have curtailed the period and the opportunity specifically made available within which the project could be completed so as to avail the benefits under the Scheme. We find nothing in the present case on the basis of which there could possibly be room to say that it would be inequitable to hold the State Government to its promise. Out of 108 TRCs issued under the Scheme, the burden that the Government was well aware and thought that it could comfortably bear, only 19 or 20 units have been established and are functional. In any case, the impact of incentives so offered under the Scheme and the consequential burden must have been weighed carefully when such promise was made and the Scheme was formed. We may respectfully refer to the following observations of SC in S.V.A. Steel Re- Rolling Mills Ltd. and others v. State of Kerala and others (2014) 4 SCC 186 to which one of us (Anil R. Dave, J.) was a party, in which it was observed that "Before laying down any policy which would give benefits to its subjects, the State must think about pros and cons of the policy and its capacity to give the benefits. Without proper appreciation of all the relevant factors, the State should not give any assurance, not only because that would be in violation of the principles of promissory estoppel but it would be unfair and immoral on the part of the State not to act as per its promise." Furthermore, the Scheme as framed on 20.12.1995 formed the basis of a statutory notification under Section 29 of Act 16 of 1977 and as such the core components of the Scheme had acquired a statutory status. By virtue of said Section 29, the notification dated 14.2.1997 was required to be laid for not less than 30 days before the State Legislature. If the State Government was desirous of amending, varying or rescinding said notification dated 14.2.1997, the subsequent G.R. dated 28.06.2000 ought to have been translated in a statutory notification under Section 29 of the Act 16 of 1977. In the absence of such steps having been undertaken, G.R. dated 28.06.2000 could not in any way detract from or dilute the effect of the Scheme which had acquired statutory status;

++ we therefore hold that the appellants were entitled to have full benefit and advantage of Clause 10 of the Scheme and the curtailment of the period and opportunity available under said Clause 10 of the Scheme by subsequent G.R. dated 28.06.2000 was bad and ineffective. The record indicates that the progress of the project of the appellants was greatly hampered as a result of major earth quake in the State on 26.01.2001 and large scale communal riots in the State in February 2002. The State Level Committee was satisfied that the commencement and continuation of the project was so affected as a result of these major difficulties and had granted initial extension of six months but the appellants had benefit of only few days out of such extension. The subsequent request for further extension which was backed with relevant certificate from the Chartered Accountant certainly persuaded the State Level Committee to find that the facts justified grant of further extension but it felt it had lost the power to grant such extension because of G. R. dated 28.06.2000. In the light of the view that we have taken, the State Level Committee was still competent to consider the request for grant of extension. In the circumstances, we allow the appeal and set aside the decision of the HC in so far as it held that the operative period of the Scheme came to an end on 30.11.2000 and that there could be no further extension of time limit. Since the appellants have already commenced commercial operations, it now needs to be assessed by the State Level Committee whether in the facts of the case the appellants could justifiably have claimed extension under Clause 10 of the Scheme. We direct the State Level Committee to make such assessment in accordance with Clause 10, in three months of the receipt of this decision. Needless to say, if such assessment is found in favour of the appellants, they shall be entitled to the incentives and benefits under the Scheme. All the connected matters raise identical issues and challenge rejection of their applications for extension of time. In each case the Order passed by the concerned authority is similarly worded and passed on 20.07.2005, i.e. the same date. These connected appeals are also allowed with similar direction. The appeals stand allowed in terms as stated above.

(See 2015-TIOL-122-SC-MISC)