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Judgment
R. Jayasimha Babu,J.
State of Tamil Nadu by a Government Order dated 14.05.90 published a scheme of incentive for industries, the incentive being the grant of
interest free sales tax deferral scheme which was liberalized by that order. Paragraph 4 of that order sets out the incentive offered which were
offered ""with a view to encourage more industries in Tamil Nadu"". Paragraph 8 of that scheme provided that, that scheme will be applicable to
small, medium and major industries as the case may be and that the deferral/waiver will commence from the date of commencement of commercial
production after the completion of the envisaged project. Paragraph 7 of the scheme required those starting medium or major industries to file the
applications before the State Industries Promotion Corporation of TamilNadu, hereinafter referred to as SIPCOT. Paragraph 9 provided that the
General Manager of the District Industries Centre in case of small industries, and SIPCOT in case of medium or major industries will be the
competent authorities to issue eligibility certificates.
The incentive given to the new units established in the 75 backward taluks other than the 30 most backward taluks from among the 105
backward taluks was by way of deferral of the total amount of the sales tax for a period of nine years to the full extent of the total investment made
in fixed assets.
The eligibility certificate in terms of that scheme was granted by SIPCOT to K.C.P. Spinning Mills Pvt. Ltd. for locating a spinning mill on
Manavasi village in Kullithalai Taluk in Trichy District for manufacture of cotton and man made fabric. That certificate was issued on 22.04.1991.
That unit had commenced commercial production on 1.11.1990. On the 12th April, 1991 an agreement was executed between K.C.P. Spinning
Mills Pvt. Ltd. and the State represented by the Assistant Commissioner of Commercial Taxes which interalia required the benefit of the deferred
amount of sales tax to be repaid in nine installments, the first year''s dues in the tenth year and so on. Clause 7 of that agreement provided that the
company would obtain permission of the party of the first part namely the Government before the sale of the fixed assets.
The unit so established in the backward taluk which had obtained the benefit of the deferral scheme was contracted to be sold to the petitioner
herein Fenner India Ltd., by K.C.P. Spinning Mills Pvt. Ltd. which had established the unit, and that fact was intimated to the Commercial Tax
authority as also to SIPCOT. On 3.10.91, K.C.P. Spinning Mills Pvt. Ltd. had requested SIPCOT to approve the proposed sale and to transfer
the benefit of the deferral scheme to the buyer, viz. M/s. Fenner India Ltd. On 22.11.91, SIPCOT informed the Assistant Commissioner of
Commercial Taxes, Karur about the request made by K.C.P. Spinning Mills Pvt. Ltd. and informed him that SIPCOT had, ""...... no objection in
permitting the new management (M/s. Fenner (India) Ltd.) to avail the sales tax deferral benefit for the remaining period provided the new
management executes an agreement"". Fenner informed the Assistant Commissioner at Karur that it would pay the sales tax loan availed by K.C.P.
Spinning Mills Pvt. Ltd. in terms of the scheme on the due dates.
Thereafter on 17.12.91, the Assistant Commissioner at Karur wrote a letter to the Assistant Commissioner at Madurai, in which he noted the
fact that the SIPCOT had no objection to the availment of the deferment benefits being continued, even after the change of ownership, and that
letter ended with this request,
You are requested to enter into a fresh agreement with Fenner India Ltd. as per the rules; as soon as the agreement is ready, you may send your
approval to me.
Such a letter came to be sent to the Assistant Commissioner at Madurai, as Fenner India Ltd. was being assessed within his jurisdiction and he
was also empowered in terms of the delegation of power granted by a notification dated 1.6.90 issued by the Government in exercise of its power
u/s 17-A(1A) of the Tamil Nadu General Sales Tax Act, hereinafter referred to as the TNGST Act, which authorises him to exercise the powers
specified in sub section 1 of Section 17-A, he being one of the territorial assistant commissioner of commercial taxes. Section 17A of the TNGST
Act empowers the Government in such circumstances and subject to such conditions as may be prescribed by the notification issued whether
perspective or retrospective to defer the payment by any new industrial unit or sick unit or sick textile mill of the whole or any part of the tax
payable in respect of any period subject to the restriction that no retrospective effect shall be given to any such deferral, earlier than 9th May 1981.
The Assistant Commissioner at Madurai therefore was fully competent to grant the deferral.
The agreement however was not executed immediately and the petitioner had, therefore, after having waited for quite some time, addressed a
letter to the Special Commissioner on 7.7.94 requesting him to issue instructions so that the agreement could be signed at the earliest possible time.
That letter did not elicit any reply from the Special Commissioner immediately. However, on 31.08.94, the territorial Assistant Commissioner at
Madurai executed the agreement with Fenner India Ltd. regarding the deferral of sales tax for this unit from 1.11.90 to 31.10.1999. By virtue of
that agreement the petitioner became liable to repay the benefit which its vendor, K.C.P. Spinning Mills Pvt. Ltd. had received and the petitioner
also bound itself to repay the benefits that it would be receiving upto 1999, in accordance with the terms of the agreement which required such
repayment from the tenth year. On the part of the Government the petitioner''s right to receive the deferment benefit was recognised and accepted
by the execution of that agreement.
Four years thereafter on 31.10.1998 the Secretary to the Government purported to reply to the letter that had been sent on 7.7.94 by the
petitioner herein, Fenner India Ltd. In that letter he alleged contravention of the agreement which K.C.P. Spinning Mills (P) Ltd. had entered into
with the Government, and demanded the payment of the sum of Rs.7,28,153/- being the amount of sales tax which had been deferred for the years
1991 and 1991-92 when K.C.P. Spinning Mills Pvt. Ltd. was running the unit. In this letter the Secretary completely ignored the agreement which
had been executed more than four years earlier, on 31.08.94 by the territorial Assistant Commissioner being the Assistant Commissioner of
Commercial Taxes at Madurai, with Fenner India Ltd. and the fact that Fenner India Ltd. had been allowed to enjoy the benefit of deferral of tax
for a period prior to the date of the execution of agreement as also subsequent thereto. That agreement had not been cancelled by anyone
competent to do so and the agreement continues to remain in force even as of now.
The petitioner in a reply sent to the Government after the issue of that letter had pointed out the various factors which had been omitted from
consideration by the Government while sending that letter of 16.9.98. The Government merely informed the petitioner that its letter was under
consideration, but did not take any action thereon thereby compelling the petitioner to approach the Special Taxation Tribunal which was done by
the petitioner by filing an original petition challenging the Government''s order of 16.09.98.
Surprisingly, though the State Government represented by the Secretary to the Commercial Taxes Department was impleaded as fourth
respondent, the State did not file any counter affidavit and did not offer any explanation. The Commercial Tax Officer, Karur, the Commercial Tax
Officer, Madurai and the SIPCOT which were also made parties also did not file any counter affidavits. The Tribunal having dismissed the petition
filed by the writ petitioner, that order of the Tribunal is in challenge before us.
In this writ petition a counter affidavit has been filed by the Commercial Tax Officer, Madurai, who asserted that, that affidavit is being filed on
behalf of all the respondents which includes the Taxation Special Tribunal as respondent No: 5. He certainly cannot file an affidavit on behalf of the
Tribunal which obviously has not authorised him to do so. The authorisation if any given by the Secretary to the Government is nowhere set out or
referred to in specific terms in the counter. The Commercial Tax Officer who has filed the counter affidavit is lower in rank to the territorial
Assistant Commissioner who was a party to the agreement. In that counter, the execution of the agreement by the territorial Assistant
Commissioner as also his authority to execute the same has not been denied. However, the officer has chosen to state in that counter that, that
agreement was executed under, what he terms as, suspicious circumstances, without stating as to what those suspicious circumstances are. The
fact that, that agreement so executed continues to be in force is not denied in the counter. No reason is given for the order made on 16.09.98
which ignored the fact of execution of the agreement. The Commercial Tax Officer obviously is not competent to speak for the Secretary to the
Government who issued the order that was challenged before the Tribunal. We must strongly deprecate this way of dealing with the matters
brought before the adjudicating forums by the officers of the State. When the order of the Secretary is challenged, either he or someone specifically
authorised by him should file affidavit and such affidavit must set out the explanation required to be given with reference to the order impugned
before the judicial forum.
The learned counsel for the Government sought to support the action taken on the ground that there had been breach of a condition laid down
in the eligibility certificate, as also in the agreement executed by K.C.P. Spinning Mills Pvt. Ltd. which provided that prior permission of the
Government be obtained before the fixed assets of the unit was sold. That condition, it was submitted, had been breached as the sale had been
effected before obtaining the permission.
The condition requiring that the asset should not be alienated is not a condition mentioned in the Government Order No.500 in terms of which
the benefit of deferral is granted as an incentive to the new unit located in the industrially backward areas. The object of giving the incentive is to
encourage the establishment of more industries in the State and more particularly in the backward districts. The eligibility certificate which the
applicants were required to obtain from the District Industrial Centre or SIPCOT, depending on whether the newly established industries would be
in the small scale sector or in the medium or large scale industrial sector, was meant to ensure that the applicants had established a project to the
satisfaction of those authorities in the industrially backward areas and had commenced commercial production.
The proof of verification of the establishment and commencement of production was left to be done by the District Industrial Centre and the
SIPCOT. The G.O.500 does not, in turn empower either the District Industrial Centre or SIPCOT to impose any condition while granting the
eligibility certificate. The agreement which is required to be executed with the Government, however, can provide for the conditions, and the
condition that the fixed assets should not be alienated without the prior permission of the Government, is a condition which is meant to protect the
Government against any possible default in payment by the sale of the unit which would result in loss of revenue to the State. That condition was
meant to protect the State and was a condition which was capable of being waived so long as such waiver was done by one, who was competent
to do so.
While administering schemes like this incentive scheme, the purpose for which the scheme was introduced must be kept in the forefront. It is
not every infraction of every condition that is to result in the deprivation of the benefit to an industry which, on the strength of the scheme, had been
established in a backward District, and which industry continues to function thereby providing employment and various other benefits to the area in
which the industry is located. If a competent authority was satisfied that the infraction of the condition regarding the transfer of assets being
permissible only with the prior permission of the Government, would not hurt the interest of the revenue, and that, regard being had to the fact that
the purchaser would continue to run the unit and would be in a position to repay the monies to the State in accordance with the terms of the
agreement, chooses to enter into the agreement with the buyer, and that buyer has also, after having intimated the proposed sale to which, the
authorities competent to grant a certificate had no objection, the Government cannot later turn round and say that the infraction of the condition by
K.C.P. Spinning Mills Pvt. Ltd. disentitles the purchaser Fenner India Ltd. from continuing to enjoy the benefits of the deferral scheme. Having
executed the agreement, the Government is bound by the same.
The mere fact that the authority who wrote the letter impugned, four years after the execution of the agreement, is a Secretary to the
Government does not make any difference. He cannot ignore the existence of the agreement already executed by the territorial Assistant
Commissioner, who had been empowered to execute that agreement, and make a demand contrary to the terms thereof. That agreement binds the
Government and that includes the Secretary to the Government. By merely closing the eye to the reality the fact that such reality exists cannot be
wished away. The agreement had been executed, it subsisted as on the date of the order of the Secretary, and it continues to subsist even now.
The execution of the agreement has not hurt the interest of the Government in any way. It has, in fact, sub served the purpose for which the
incentive scheme was commenced on 14.5.90. The new unit has been established in the backward taluk, it continues to function. It''s continued
function is in fact made possible in part, by the deferral of the sales tax liabilities for the stated period. The benefit of deferral enjoyed by K.C.P.
Spinning Mills Pvt. Ltd. is a benefit which the purchaser Fenner India Ltd. has undertaken to discharge by making the repayment of the amount of
the sales tax that would have been payable by K.C.P. Spinning Mills Pvt. Ltd. but had been deferred.
The Government which formulates such schemes to attract more industries into the State is required to administer the scheme in order to
subserve the purpose for which the scheme was formulated, and while doing so, the perspective must be cleared to those who are required to
administer it. They should not miss the larger purpose while being bogged down by consideration of minor infractions. The Secretary to the
Government who wrote the impugned communication appears to have lost sight of the purpose of the scheme and the fact that the empowered
territorial Assistant Commissioner had already executed an agreement by which the State was bound as also the fact that the State had not suffered
in any way by reason of the execution of that agreement which recognises the transfer. The confidence of the entrepreneurs in the schemes
announced and worked by the State will not be enhanced if they are penalised for things which had been waived by execution of the agreement
subsequently by those empowered to do so.
The Tribunal was also carried away by the technical breach, ignoring the surrounding circumstances, and the subsequent events, as also the
purpose for which the scheme had been announced, which purpose has not in any way been adversely served by reason of the execution of the
agreement on 31.8.94 between the territorial Assistant Commissioner representing the State and the petitioner herein.
The impugned order of the Tribunal cannot be sustained and is set aside. The petitioner is entitled to costs of this writ petition which is
quantified at Rs.2,500/-. These writ petitions are allowed.