Non Grant of Incentive for lack of prior permission for taking the same

PJ/Case Laws/2011-12/1176

Case: MANGALORE CHEMICALS & FERTILIZERS LTD. versus DEPUTY COMMISSIONER

Citation: 1991 (55) ELT 437 (S.C.)

Issue:- Non grant of Incentive from Sales tax under exemption Notification – due to non taking prior permission for the extraneous reasons rather than eligibility – only procedural condition – incentive cannot be denied

Brief Facts:- The State Government of Karnatak vide Notification dated 30.06.1969 had provided certain incentives to entrepreneurs starting new industries in the State, pursuant to State’s policy for “rapid industrialisation”. The notification contained a package of reliefs and incentives including one concerning relief from payment of sales tax. It was provided that cash refund will be allowed on all sales tax paid by a new industry on raw materials purchased by it for first 5 years from commencement of production. Certain other conditions were prescribed and the industry seeking benefit of said incentive was required to take prior permission from the Department.

Appellant fulfilled all the necessary eligibility under the original Exemption Notification. For the assessment year 1976-77, the appellant made such an application to the Deputy Commissioner of Sales Tax (Administration) on 10th November, 1976 for adjustment of the refunds against sales tax due. This permission was granted with retrospective effect from 1st May, 1976, validating the adjustments which the appellant had made during the interregnum.

However, for the three subsequent years viz., 1977-78, 1978-79 and 1979-80, similar applications for permission were made but the permission was not granted due to pending clarification sought from another department.

In the meanwhile, in anticipation of the permission appellant adjusted the refund against tax payable for these years and filed its monthly returns setting out adjustments so effected.

The issue arose that whether the appellant, not having actually secured the “prior permission” would be entitled to adjustment having regard to the words of the notification of 11th August, 1975, that “until permission of renewal is granted by the Deputy Commissioner of Commercial Taxes, the new industry should not be allowed to adjust the refunds”.

The Sales Tax Department issued show cause notice demanding sales tax for the adjustments made which were done without prior permission of the Department.

The High Court held that the conditions stipulated in the Notification granting exemption/incentive were required to be strictly construed and the condition of obtaining prior permission was a condition precedent for grant of incentive. As the permission was not granted, the petitioner was not entitled to the exemption availed.

Hence, the appellant is before the Supreme Court.

Reasoning of Judgment:- The Supreme Court held that in Kedarnath’s case itself this Court pointed out that the stringency of the provisions and the mandatory character imparted to them were matters of important policy. Since in this case such is not the scope or intendment of the provisions concerned therefore, the said case was applicable.

On facts, it was held that the main exemption is under the 1969 notification. The subsequent notification which contains condition of prior-permission clearly envisages a procedure to give effect to the exemption. A distinction between the provisions of statute which are of substantive character and were built-in with certain specific objectives of policy on the one hand and those which are merely procedural and technical in their nature on the other must be kept clearly distinguished. It was held that the condition of obtaining prior permission was a pure technicality. And the Clause 3 of the notification did not give discretion to the Deputy Commissioner to refuse the permission if the conditions are satisfied.

It was held that appellant had satisfied these conditions but the permission was withheld not for any valid and substantial reason but owing to certain extraneous things concerning some inter-departmental issues. Appellant had nothing to do with those issues.

Appellant was denied permission when the period was over. The Supreme Court relied upon the words of Lord Denning in Wells v. Minister of Housing and Local Government [1967 (1) WLR 1000 at 1007] that “Now I know that a public authority cannot be estopped from doing its public duty, but I do think it can be estopped from relying on a technicality and this is a technicality”.

It was held by the Supreme Court that the view of the High Court is not sustainable as it did not acknowledge the essential distinction between what was a matter of form and what was one of substance. There was no other disentitling circumstance which would justify the refusal of the permission. Appellant did not have prior permission because it was withheld by the Revenue without any justification. The High Court took the view that after the period to which the adjustment related had expired no permission could at all be granted. A permission of this nature was a technical requirement and could be issued making it operative from the time it was applied for.

The Supreme Court, therefore, set aside the judgment of the High Court and directed the Deputy Commissioner of Sales Tax (Admn.) to grant the permission for the said three years operative from the dates of the application. The permission shall entitle the appellant to the adjustment of the refunds against the taxes due for the respective years. Demand notices were quashed.

Decision:- Appeal allowed by way of remand.

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PJ/Case Laws/2011-12/1176

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