Tax Exemption Notification Must Be Construed Strictly; Promissory Estoppel Not Applicable In Taxing Matters: Supreme Court

On Friday, the Supreme Court reinstated the order of the Revenue levying demand of purchase tax and imposing penalty on Arcelor Mittal Nippon Steel India Limited (erstwhile Essar Steel Ltd.) for availing tax benefits without fulfilling all the eligibility criteria/condition of the Scheme For Special Incentives to Prestigious Units floated by the Gujarat Government in 1991.The Court held that tax exemption notifications must be construed strictly( State of Gujarat v. Arcelor Mittal Nippon Steel India Limited)."An exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications"."The exemption notification should be strictly construed and given meaning according to legislative intendment. The Statutory provisions providing for exemption have to be interpreted in the light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions".It was also held that the doctrine of promissory estoppel is not available against taxing statutes. "In taxing matters, the doctrine of promissory estoppel as such is not applicable and the Revenue can take a position different from its earlier stand in a case with established distinguishing features" A Bench comprising Justices M.R. Shah and Sanjiv Khanna observed that after availing the exemption under the scheme, Essar Steel Ltd. transferred the raw materials to another entity, Essar Power Ltd., even when the said scheme categorically excluded power generating industries from its ambit. Factual Background Arcelor Mittal Nippon Steel India Limited [erstwhile Essar Steel Ltd. (ESL)], engaged in manufacture and sale of Hot Briquetted Iron and Hot Rolled Coil at its two units in Surat, Gujarat held registration certification under both the Gujarat Sales Tax Act, 1969 and Central Sales Tax Act, 1956. Upon making requisite investment in Unit No. 1 as per the resolution dated 07.05.1986 issued by the Industries, Minus and Energy Department of the Government of Gujarat, ESL was eligible to avail incentives during 01.08.1990 to 31.07.2004 to the limit of Rs. 237.59 crore. Later, in 1991, the Gujarat Government announced a scheme, "The Scheme for Special Incentives to Prestigious Units 1990-95 (modified)", under which a prestigious unit in core sector industries was eligible for incentives up to 90% of the fixed capital investment. Subsequently, ESL invested Rs. 5000 crores for the manufacture of Hot Rolled Coil. Accordingly, it was granted Sales Tax exemption for its Unit No. 2 for the period from 22.02.1993 to 21.02.2007 to an upper limit of Rs. 2050 crores. But, the exemption was subject to fulfilling certain conditions as notified in 1992 (parent notification), one of them being that the goods purchased by the eligible units were to be used by itself and within the State of Gujarat, as raw material. Unit No. 2 was exempted from payment to purchase tax on raw material for Naphtha and Natural Gas (goods purchased). The exemption was made available to steel manufacturing units and the units engaged in generating electricity were categorically left out of the purview of exemption as "Not Eligible". In 2000, the above-mentioned condition for granting exemption was amended and it was specifically mentioned that the goods were to be used by the eligible units as raw materials, processing materials or consumable stores in its industrial units for which the eligibility certificate was obtained. The same was again amended in the year 2002, whereby the eligible units were to use the goods as raw materials, processing materials or consumable stores in its industrial unit for which it has obtained the eligibility certificate, in the manufacture of goods for dispatch to its another unit or division situated within the State for use in the manufacture of another goods for sale by such another unit or division or to its another unit or division situated outside the State for use in the manufacture of other goods. The eligible unit was also required to furnish to the selling dealer a declaration certificate in Form No. 26. The Natural Gas and Naphtha purchased by ESL was sold to Essar Power Limited ("EPL") for generating electricity, which was ultimately sold back to ESL. The Sales Tax Department raised a dispute against the ESL for breaching the declaration given in Form 26, as the goods purchased were transferred to EPL for generation of electricity and eventually used in Unit No. 2 of ESL. A show cause notice was issued on 30.06.2002 for breach of conditions of exemption. The Assessing officer was convinced that no tax was due and payable by ESL. Again, on 30.05.2005 a notice was issued by a Deputy Commissioner of Sales Tax for availing the exemption in contravention of law. The said notice was issued to initiate levy of purchase tax of Rs. ...

Tax Exemption Notification Must Be Construed Strictly; Promissory Estoppel Not Applicable In Taxing Matters: Supreme Court

Sohini Chowdhury

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