Waves Electronics (P) Ltd. v. Government of Kerala Taxes, B-Department; Industries 'J' Department; and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE SMT. JUSTICE P.V.ASHA** **THURSDAY ,THE 25TH DAY OF OCTOBER 2018 / 3RD KARTHIKA, 1940** ## **WP(C).No. 16431 of 2013-D** ## **PETITIONER/S:** **1 WAVES ELECTRONICS (P) LTD. PLOT NO.17/SDF, 1ST FLOOR, PB NO.541, COCHIN SPECIAL ECONOMIC ZONE, KAKKANAD, KOCHI-682037, REPRESENTED BY ITS MANAGING DIRECTOR MR.P.I.CHACKO.** **2 P.I.CHACKO MANAGING DIRECTOR, WAVES ELECTRONICS (P) LTD., RESIDING AT 155-A, 'ALAPATT', 15TH LANE, TOC-H ROAD, VYTTILA, KOCHI-682019.** **BY ADVS. SRI.JOSEPH KODIANTHARA (SR.) SRI.ABRAHAM JOSEPH MARKOS SRI.BINU MATHEW SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS** ## **RESPONDENT/S:** - **1 GOVERNMENT OF KERALA TAXES, B-DEPARTMENT, THIRUVANANTHAPURAM-695001.** - **2 GOVERNMENT OF KERALA INDUSTRIES 'J' DEPARETMENT, REPRESENTED BY ITS SECRETARY, THIRUVANANTHAPURAM-695001.** - **3 THE ASSISTANT COMMISSIONER SPECIAL CIRCLE (1), COMMERCIAL TAXES, ERNAKULAM-682015.** - **4 THE DY. COMMISSIONER (APPEALS) COMMERCIAL TAXES, ERNAKULAM-682015.** ## **OTHER PRESENT:** ## **SRI.C.E.UNNIKRISHNAN,SPECIAL GOVT.PLEADER(TAXES)** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25.10.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** W.P.(C) No.16431/13 ## **JUDGMENT** **A Private Limited Company and its Managing Director have filed this writ petition seeking a declaration that they are not liable to pay sales tax under the Kerala Value Added Tax Act, 2003 (VAT Act' for short) and for consequential directions.** **2. The petitioners' unit which is engaged in manufacture and sale of electrical control systems, is situated in Cochin Special Economic Zone, Kakkanad. The Government of Kerala approved a Special Economic Zone policy on 17.06.2003, as per Ext.P2 order based on which Ext.P3 notification was issued on 13.02.2004 under section 10 of the KGST Act, exempting the industrial undertakings and other establishments, trading units and developers in the Special Economic Zones within Kerala, from payment of tax payable under the KGST Act,1963 with effect from 01.07.2003. While the petitioners' unit was thus enjoying the benefit of exemption from payment of sales tax,the Kerala Value added Taxt (VAT) Act came into force from 01.04.2005,** W.P.(C) No.16431/13 :3: **in the place of KGST Act, 1963.** **3. The petitioners submit that they were under the bonafide impression that there was no change in the policy of Government consequent to the new enactment and that they could continue to enjoy the exemption, till orders of assessment were issued to them levying sales tax. Whileso, on 06.10.2008 Government formulated and proclaimed Ext.P9 policy viz.Special Economic Zone Policy providing for various benefits to be given to the Industrial Entrepreneurs in the Special Economic Zones as enumerated in clause 1 to 12 therein. Clause 6, of it read as follows: “** _**the industrial enterprises in the SEZs alone are exempted from the tax being collected under the KGST Act (including VAT) for a period of 10 years from the date on which it starts functioning**_ **”.** **4. The petitioners submit that their industrial unit started functioning in 2002 and they were under the impression that they were eligible for exemption from payment of sales tax for the period upto 2011-12.** **5. However, no notification was issued thereafter** W.P.(C) No.16431/13 :4: **on the basis of Ext.P9 policy, even though the said policy provided that revised notification would be issued in modification of the notification in force. Petitioners received assessment orders levying sales tax, without granting them any exemption. This writ petition was filed in the above circumstances.** **6. It is pointed out that the proceedings of assessment of petitioners' unit as well as the appeals/revisions on it are kept in abeyance on the basis of the interim order passed in this writ petition.** **7. Relying on the judgments of the apex court in** _**State of Punjab vs. Nestle India Ltd. and another : AIR 2004 SC 4559 and Llyod Electric and Engineering Ltd. Vs. State of Himachal Pradesh and others : (2016) 1 SCC 560,**_ **the learned Senior Counsel appearing for the petitioners argued that respondents cannot go back from the promise held out to them by proclaiming the policy and that they are bound to grant them exemption accordingly.** W.P.(C) No.16431/13 **==> picture [12 x 8] intentionally omitted <==** **8. The petitioners have produced Ext.P12 letter dated 13.06.2014, between the Secretaries of the Department of Industries and Department of Taxes regarding the implementation of Ext.P9 policy, wherein the Secretary to the Industries Department requested the Secretary of Taxes Department to issue necessary notifications for giving exemptions to the units in SEZ in line with SEZ policy 2008, granting exemption from KVAT Act.** **9. The Government have not filed any counter affidavit. The 3[rd] respondent alone has filed a counter affidavit. But nothing is stated regarding Ext.P9 policy. It is stated that petitioners enjoyed exemption based on notifications issued under the repealed KGST Act, 2003. It is stated that on the enactment of KVAT Act with effect from 01.04.2005, all the notifications under the erstwhile KGST Act got repealed. It is stated that in the case of the petitioners the assessments have already been completed under the KVAT Act and that the exemption is available only for sale to SEZ and not for sale from SEZ.** W.P.(C) No.16431/13 :6: **10. Sri.C.E.Unnikrishnan, the learned Special Government Pleader argued that petitioners were enjoying exemption on the basis of the notifications issued under section 10 of the KGST Act and that those notifications ceased to exist by virtue of section 32 of the KVAT Act with effect from 01.04.2005. It was argued that the policy relied on by the petitioners cannot be implemented in the absence of a notification under the KVAT Act. It is pointed out that the policy and promises were never carried out by way of legislation and therefore the petitioners cannot claim implementation of the policy. Relying on the judgment of the apex court in** _**Amin Merchant vs. Chairman, Central Board of Excise and Revenue and Ors:(2016) 9 SCC 191**_ **and the judgment in (2014) 1 SCC 613, it was argued that by the mere declaration of policy, petitioners cannot be granted any exemption unless and until it is translated to orders or notifications by Government.** **11** _**.**_ **In** _**Nestle India's case (supra)**_ **the apex court was considering a case where the then Chief Minister of** W.P.(C) No.16431/13 :7: **Punjab made an announcement that purchase tax on milk and milk products was abolished in the State. The Finance Minister had also made a speech in tune with that. But the benefit was denied for want of a legislation. The apex court held that the Government cannot deny them the benefit on the ground that no legislation was enacted following the said announcement.** **12. In** _**Llyod Electric and Engineering Ltd.'s case (supra),**_ **relied on by the learned Senior Counsel for the petitioner, the apex court was considering a case regarding exemption under the Sales Tax Act/VAT Act where also Cabinet decided to extend its industrial policy of 2004 in the matter of CST concession up to** **31.3.2013. But notification was issued only on 18.06.2009. Therefore in between 2009 and 2013, the industrial units were denied the benefit they enjoyed till 31.03.2009. Even though in the notification it was stated that it was effectuated only with immediate effect, the apex court held that once the benefit is announced the Department cannot take a different stand** W.P.(C) No.16431/13 :8: **and that the Department has to implement the Government policy. It was held that once the Council of Ministers had taken a decision to extend the 2004 Industrial Policy to extend tax concession beyond 31.3.2009, merely because the Excise and Taxation Department took some time to issue the notification, it cannot be said that the eligible units are not entitled to the concession till the Department issued the notification. It was also noticed that it was not introduction of a new policy, but extension of the benefit of an existing policy. Though notification is not issued in this case as was in** _**Llyod's case,**_ **the intention of Government is clear from Ext.P9 as well as Ext.P12.** **13. In** _**Amin Merchant vs. Chairman, Central Board of Excise and Revenue and Ors.(2016) 9 SCC 191**_ **, relied on by the learned Government Pleader, the apex court was considering a case where the petitioner wanted implementation of reduced rates of customs duty for the goods imported by him, in tune with the budget proposal. Apex court found that there was no material to show that it was accepted by the parliament; on the** W.P.(C) No.16431/13 **==> picture [12 x 8] intentionally omitted <==** **other hand a particular tariff was provided in it for such goods, in the Finance Act passed thereafter. Referring to the statutory provisions under which power to grant any exemption are to be exercised and the manner in which notifications granting exemption are to be issued, the apex court held that budget proposals are not the enactments by Parliament and after the Finance Act is passed by Parliament and a rate of duty is prescribed in relation to a particular tariff head that alone would be the authoritative expression of the legislative will of Parliament. It was held that the Department cannot be compelled to implement the proposals announced by the Ministers, in the absence of a provision in the Statute.** **14. In the present case, the 3[rd] respondent alone has filed a counter affidavit. Government in either of the departments did not file any counter affidavit. Therefore it has to be presumed that the contentions advanced by petitioners are admitted. Ext.P9 policy was formulated and published in the year 2008, much after the Finance Act was enacted. As the policy is not so** W.P.(C) No.16431/13 :10: **far withdrawn, it can be concluded that the benefits ordered therein are liable to be granted.** **15. The proclamation of Ext.P9 policy decision in 2008, specifically intended for the Special Economic Zone, is not disputed; it is not modified or withdrawn so far, as evident from Ext.P12 letter as well as the counter affidavit. The reason for denying the benefit conferred/declared in clause 6 of Ext.P9 policy, is the absence of a corresponding notification incorporating the same, by Government. The judgment of the apex court in** _**Llyod Electric and Engineering Ltd. Vs. State of Himachal Pradesh and others : (2016) 1 SCC 560**_ **is in respect of an issue which is more or less similar to the issue arising in this case, where it was held that the Government cannot speak in two voices and that Government Departments are bound to implement Government policy. It is seen that Special Economic Zone itself was set up under the Special Economic Zone Act, 2005, which is enacted for the establishment, development and management of the SEZ for promotion of exports and for matters incidental to it. Government** W.P.(C) No.16431/13 :11: **had been granting certain concessions and exemptions in order to promote the entrepreneurs and they had been enjoying exemption from tax under the repealed Act. The respondents are fully aware of the policy declared in Ext.P9 and there cannot be any dispute over it, as evident from the correspondence between the Departments of Industries and that of Commercial Taxes in Exts.P12 and P13 letters produced along with I.A.No.6615 of 2018. The only reason to deny the benefit is that corresponding notification has not been issued. When the Government is encouraging the Special Economic Zone, it is only just and proper that the policy announced by the Government is allowed to be implemented.** **16. In the judgment in** _**Nestle India's case**_ **(supra), there was only an announcement by the Chief Minister while addressing the dairy farmers that purchase tax on milk and milk products would be abolished. It was followed by the Finance Minister in another speech. Thereafter the Finance Commissioner had only called for the report on the financial** W.P.(C) No.16431/13 :12: **implications on it along with the proposal on abolition of purchase tax and the farmers acted upon the announcement so made. The apex court held that the Government refused to exercise its discretion reasonably, by not issuing a notification abolishing purchase tax under provisions similar to those contained in the KGST Act as well as KVAT Act. The judgment in** _**Nestle's case**_ **was reiterated in the judgment in** _**Lloyd's case**_ **. Therefore though exemptions are to be granted by issuing notifications as prescribed under the Act and the earlier notifications ceased to exist by operation of Section 32(1) of the KVAT Act, 2003, and though Section 6 (7)(b) exempt the units in SEZ from payment of tax for sale to the units alone, the petitioners are entitled to the benefit of the declaration in Ext P9. It is also relevant to note that the judgment rendered in** _**Lloyd's case**_ **was by a bench of 3 judges, whereas in** _**Amin Merchant's**_ **case it was by a bench of 2 judges.** **17. Even though the learned Government Pleader argued that the remedy of the petitioners is not under** W.P.(C) No.16431/13 **==> picture [18 x 8] intentionally omitted <==** **Article 226 of the Constitution of India, when the orders of assessment are already issued the said contention cannot be accepted as none of the statutory authorities can consider the claim of the petitioners against the Government to implement the policy.** **In the above circumstances, it is declared that the petitioners would be entitled to the benefit of exemption declared in Ext.P9 policy, as provided in Clause 6 thereof. It is made clear that I have not considered any of the other aspects relating to the merits or otherwise of the individual assessment orders issued to the petitioners.** ## **Sd/-** **P.V.ASHA** **JUDGE** rkc W.P.(C) No.16431/13 :14: ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1** **EXHIBIT P1: COPY OF THE LETTER OF PERMIT NO.9/011/2002:IL.CSEZ/7541 DATED 25.11.2002 WITH EXTENSIONS THERETO DATED 19.2.2008 AND 6.12.2012 ISSUED IN FAVOUR OF THE 1ST PETITIONER.** **EXHIBIT P2 EXHIBIT P2: COPY OF THE KERALA SPECIAL ECONOMIC ZONE POLICY DATED 17.6.2003 ISSUED BY THE 2ND RESPONDENT.** **EXHIBIT P3** **EXHIBIT P3: COPY OF THE NOTIFICATION DATED 13.2.2004 ISSUED BY THE 1ST RESPONDENT.** **EXHIBIT P3A EXHIBIT P3(A): COPY OF THE ASSESSMENT ORDER DATED 24.5.2010 FOR THE ASSESSMENT YEAR 2004-05 ISSUED BY THE 3RD RESPONDENT.** **EXHIBIT P4 EXHIBIT P4: COPY OF THE FIRST ASSESSMENT ORDER DATED 25.2.2011 FOR THE YEAR 2008-09 ISSUED BY THE 3RD RESPONDENT.** **EXHIBIT P5 EXHIBIT P5: COPY OF THE APPELLATE ORDER DATED 10.10.2011 FOR THE YEARS 2008-09 AND 2010-11 ISSUED BY THE 4TH RESPONDENT.** **EXHIBIT P6 EXHIBIT P6: COPY OF THE ORDER DATED 19.11.2012 PASSED BY THE KVAT APPELLATE TRIBUNAL, ERNAKULAM IN TA(VAT) NOS.1562/2011 AND 1563/2011.** **EXHIBIT P7 EXHIBIT P7: COPY OF THE ASSESSMENT ORDER DATED 22.6.2012 FOR THE YEAR 2009-10 PASSED BY THE ASSISTANT COMMISSIONER-II, SPECIAL CIRCLE-1, COMMERCIAL TAXES, ERNAKULAM.** W.P.(C) No.16431/13 :15: **EXHIBIT P8** **EXHIBIT P8: COPY OF THE ASSESSMENT ORDER DATED 30.10.2012 FOR THE YEAR 2010-2011 PASSED BY THE 3RD RESPONDENT.** **EXHIBIT P8A** **EXHIBIT P9: COPY OF THE ASSESSMENT ORDER DATED 10.06.2013 FOR THE YEAR 2007-08 PASSED BY THE 3RD RESPONDENT.** **EXHIBIT P9** **EXHIBIT P9: COPY OF THE AMENDED POLICY DATED 06.10.2008 ISSUED BY THE 2ND RESPONDENT.** **EXHIBIT P10** - **TRUE COPY OF HEARING NOTICE DT.30.6.17 ISSUED BY THE 4TH RESPONDENT** - **EXHIBIT P11** - **TRUE COPY OF LETTER DT.3.2.18 ISSUED BY THE PETITIONER'S BANK** **EXHIBIT P12** - **TRUE COPY OF LETTER DT.13.6.14 ISSUED BY THE 2ND RESPONDENT TO THE 1ST RESPONDENT** **EXHIBIT P13 TRUE COPY OF LETTER DT.25.7.14 ISSUED BY THE 2ND RESPONDENT.**