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Judgment
K. Sampath, J.—The prayer is for a mandamus to the respondents to sanction all the benefits conferred on new industries in backward
areas brought into effect by the Government of Pondicherry, vide letter No. 16(23)/82-SSI(II)/SSI(P), dated 9.12.1985 to the petitioner''s new
unit with an installed capacity of 1,40,000 tonnes per annum on the following allegations:
The petitioner, a company incorporated under the Companies Act, 1956, has been carrying on the business of producing steel in its premises
PIPDIC Industrial Estate at Mettupalayam in Pondicherry from September, 1987, its first unit having a capacity of 10,000 tonnes per annum and
its second unit a capacity of 1,40,000 tonnes per annum of steel ingots and billets. There was a scheme brought into effect by the Government of
Pondicherry following letter No. 16(23)/82/SSI(II)/SSI(P), dated 9.12.1985 of the Government of India, Ministry of Industry, Department of
Industrial Development, as per the terms of which industries set up in backward areas were eligible for various benefits such as power subsidy,
sales tax exemption and cash subsidy to the tune of 15% of capital investment. The power subsidy to industries, both HT and LT was for a period
of five years from the date of commencement of production on a tapering basis, i.e., 33-1/3% for the first three years, 20% for the fourth year and
10% for the fifth year. The petitioner with a view to avail the benefits of the said scheme, set up a new industrial unit at the Industrial Estate,
Pondicherry. It was sanctioned 5 MVA power in September, 1985, commenced commercial production from September, 1987 and it enjoyed
the benefits under the subsidy scheme. On 30th June, 1987 the petitioner with a view to instal fresh capacity on a large scale, obtained feasibility
from the Electricity Department, Pondicherry Government (ED) for supply of additional power of 20.05 MVA. The Electricity Department stated
that supply would be made available only in or about 1988 and in any event, only after 18 to 24 months from the date of submission of a firm
application. The Government of India issued an Industrial Licence recognising the setting up of its plant by the petitioner to produce 10,000 tonnes
per annum of steel ingots. On 17.1.1990 the Government of India gave approval to the petitioner installing fresh capacity of 1,40,000 tonnes per
annum raising the total capacity of the petitioner''s unit to 1,50,000 tonnes per annum, which was in pursuance of the scheme of minimum economic
scale of operation contained in Press Note No. 18(10/46/88-LP), dated 13.7.1989 issued by the Government of India. The petitioner obtained
the necessary Panchayat Permit for increase of power load to 25 MVA placed firm orders for a substantial part of the plant and machinery for the
new unit and also constructed a new factory building of 50,000 sq.ft. in the additional area of 3 acres acquired for the new and larger unit. The
petitioner purchased a new 2 x 12 metric tonne furnace, continuous casting machine, heavy cranes, etc. and installed them. A new 110 KVA Sub
Station has been commissioned. The product manufactured in the new unit is a new product called billet, which is different from ingots produced in
the old unit. Billet has a separate classification under Excise Classifications. On 11.2.1991 the Government of Pondicherry, Development
Department (Industries) reviewed the existing power subsidy scheme dated 9.12.1985 and issued a fresh Notification G.O.Ms.No. 9/91-IND,
dated 11.2.1991 whereby all industries were excluded from the power subsidy scheme except Small Scale Industries consuming low tension
power. However, large and medium industries having power feasibility certificate issued prior to 1st March, 1991 and having taken effective steps
as stipulated in the said notification would continue to be governed by the power subsidy scheme dated 9.12.1985 as hitherto.
The effective steps"" stipulated are as follows:
(a) 60% or more of the issued capital of the industrial unit has been paid up.
(b) Firm orders placed for plant and machinery required for the industrial unit.
(c) Substantial portion of the factory building has been constructed.
It was further clarified that in the event of any dispute on the interpretation of the paragraph relating to the continuation of the power subsidy
scheme for industries fulfilling the conditions in the paragraph, the decision of the Government would be final. The petitioner satisfied all the three
requirements to be eligible for the power subsidy as per the Notification dated 11.2.1991. The petitioner filed the firm application for power with
the Electricity Department on 20.5.1989. The work of laying the transmission lines was entrusted by the Electricity Department, Pondicherry, to
the Tamil Nadu Electricity Board in March, 1991. It was only on 14.8.1994 the Electricity Department, Pondicherry, was able to supply the
additional power for the new unit. The delay, according to the Electricity Department, was due to the intransigence on the part of the some
powerful land owners on whose lands the transmission towers have to be set up. On account of this delay, the new unit, which was ready, could
not go into production and consequently, it was burdened with additional interest costs. The petitioner submitted its petition on 29.9.1992 for the
sanction of power subsidy and sales tax exemption as it was eligible as per the government Notification dated 11.2.1991. There was a joint
inspection by the Electricity Department and the Industries Department directed by the Government and the same was conducted in November,
1992 and a conclusion was reached that nearly 80% of the setting up of the plant had been completed and the petitioner had fulfilled the conditions
stipulated in the Notification dated 11.2.1991 and therefore eligible for the power subsidy and sales tax exemption and the same was
recommended to the Government. Though by 1997, 4 1/2 years had passed, there has been no written response though the petitioner had been
told orally that the matter was under consideration. The petitioner was also given to understand that as far back as in 1993 the grant of incentive
had been approved at the highest level in the respondents'' administration and that orders would be issued. However, no orders were issued and
they were kept in abeyance. For reasons not known the decision was sought to be reversed though there was no communication to that effect. The
petitioner apprehends that there had been mala fides for withholding of sanction, which had been recommended by the highest authority.
The units set up by the petitioner provided employment to over 500 local people directly apart from indirect employment to several others and had
contributed to the general economy of Pondicherry. Had the Government not intended to grant the electricity subsidy, the petitioner would not
have found it attractive financially for the setting up of its medium scale plant in Pondicherry and would have looked elsewhere in India.
There are judgments of the Supreme Court, which are directly for the issue of eligibility of new units set up by the companies which already have a
production unit for claiming incentives and concessions. They are:
(1) Textile Machinery Corporation Limited, Calcutta Vs. The Commissioner of Income Tax, West Bengal, ; (2) Commissioner of Income Tax v.
Indian Aluminium Co. Ltd. (1977)108 ITR 367 (S.C.); (3) Municipal Commissioner, Chinchwad New Township Municipal Council Vs. M/s.
Century Enka Ltd., .
The case of the petitioner fully meets the requirements of eligibility to the concessions extended to new industries. It has acted to its detriment on a
reasonable expectation. If for any valid reason the new unit is regarded as an expansion of the petitioner''s existing Small Scale Industry, the
expanded and the old unit together should be eligible for the benefits given to new industries for at least the unexpired period of the total period of
five years expiring on 29.9.1992 and in calculating such unexpired period, the delay in providing power to the new unit would have to be excluded.
The work of extending the 110 KV power supply to the petitioner''s new unit, although entrusted to Tamil Nadu Electricity Board in March, 1991
could not be completed in time and consequently, additional power supply to the petitioner''s new unit was effected only on 14.8.1994. Because of
the delay, the petitioner had suffered considerable financial strain. It has been forced to incur heavy losses. It had forced the erosion of the
petitioner''s net worth resulting in the necessity to file under BIFR as a sick company. The petitioner is entitled to be granted the benefits.
A counter has been filed by respondents 1 and 2 and the contents are as under:
The petitioner had already availed power subsidy for a period of full five years from October, 1987 to September, 1992 amounting to Rs.
1,58,26, 313. The safety clause included in paragraph 6 in G.O.Ms.No. 9/91-IND., dated 11.2.1991 had been so included to safeguard the
industrial units which were on pipeline (those new units which had taken effective steps and not commenced production prior to 1.3.1991) but not
to the existing units which had already availed power subsidy for a period of five years. The petitioner herein having already availed power subsidy
for a full period of five years, would not be entitled to get the benefits. The petitioner made the present claim twisting the fact to make wrongful gain
once over under the pretext of the plea that it had fulfilled the condition stipulated in the aforesaid Government order dated 11.2.1991. The
expansion programme is not a new unit for the following reasons:
(a) The management had taken advantage of the Government of India''s Scheme of ""Minimum Economic Scale of Operation"", whereby the ceiling
capacity of existing mini steel plants was raised to 1,50,000 tonnes per annum. The petitioner''s application and the SIA order clearly reflect the
expansion. As such, it is only an expansion and not a separate new unit.
(b) The Unit also did not obtain any of the requisite statutory clearances from various Government and other Agencies, like Directorate of
Industries, Inspectorate of Factories, Commune Panchayat, etc. as required for starting a new unit. Whatever approvals it had obtained, were all
clearly for an expansion of an existing unit and not for a new unit.
(c) The power feasibility Certificate obtained after 1.3.1991 by the unit from the Electricity Department was not for a separate unit, but was merely
an enhancement of power load already obtained for its existing unit. It had not obtained power feasibility Certificate prior to 1.3.1991 for the
additional load.
(d) The loan the petitioner had raised from the ICICI was only for expansion of the existing unit and not for starting a separate new unit.
(e) The products of the original unit and the extended unit, viz., ingots and billets etc. are almost same in nature. The ingots came from an earlier
technology while the billets came from modern technology. The basic raw materials for both are iron scrap and powder. Both are used for re-
rolling purposes. The products are therefore not substantially different.
There are no two units functioning physically in the Industrial Estate, Mettupalayam, Pondicherry. There is only one unit functioning in the site. The
order dated 11.2.1991 is not applicable to the expanded industry. The Electricity Department had been reminding the unit since January, 1993 to
draw the additional power load, but the unit had not come forward to utilise the enhanced power till March, 1996. There is no equity in favour of
the petitioner to justify its claim for power subsidy.
A reply affidavit has been filed by the Managing Director of the petitioner company and it is as follows:
The allegations made against the respondents by the petitioner are based on facts and law. The Pondicherry Government conveyed approval for
the grant of power subsidy as per the Government order dated 9.12.1985 for a period of five years and the petitioner company had availed of
power subsidy for five years from October, 1987 to September, 1992 amounting to Rs. 1,58,26,313. The said power subsidy approval was for
the small scale unit set up by the petitioner company and it had nothing to do with the medium scale new unit commissioned later for which effective
action as mentioned in the Government order dated 11.2.1991 was taken before the stipulated date. The petitioner company had taken effective
steps to set up the medium scale unit of 1,40,000 tonnes per annum as opposed to the earlier small scale of 10,000 tonnes per annum well before
the date stipulated in the Government order dated 11.2.1991 and therefore the petitioner''s claim was with reference to the said new unit. The
respondents had tried to misinterpret the issue by quoting the safety clause relating to the old small scale unit instead of the medium scale new unit
in respect of which the writ petition has been filed. There was no twisting of facts as alleged by the respondents. While there was a small scale unit
with a capacity of 10,000 tonnes per annum deriving benefit of power subsidy, a new unit in the medium scale with a capacity of 1,40,000 tonnes
per annum had been set up for which a project report was prepared, resources mobilised from financial institutions, orders placed and effective
steps calculated at 80% of the project cost taken well before the date stipulated in the Government order dated 11.2.1991. The respondents were
harping on the word ""expansion"" mentioned in the SIA order of Government of India, according to which the petitioner company, which had a
capacity of 10,000 tonnes per annum was approved for expansion by additional 1,40,000 tonnes per annum. Merely because the word
expansion"" had been used, it did not mean that one could ignore the fact that expansion by 10 times cannot, but mean the setting up of a new unit.
In this context, the decision of the Supreme Court of India in the case of Comissioner of Income Tax v. Indian Aluminium Co. Ltd. (1977)108 ITR
367 (S.C.) applies a fortiori. In that case, the Supreme Court held that in view of the substantial nature of the investments, it could not be said that
the units were not new industrial units by themselves, that those units had been set up side by side with the old ones and had doubled the total
output of aluminium ingots. Hence, the capacity to produce 1,40,000 tonnes per annum in the petitioner unit amply proved the unit as a new unit.
Since the SIA approval of Government of India mentioned expansion when making application for clearance by the various authorities, the
petitioner had to necessarily mention expansion. But that by itself was no evidence to say that the unit set up was not new. The respondents had no
basis for such a contention. It is not correct to state that the petitioner company had not obtained power facility certificate prior to 1.3.1991. The
said certificate was obtained on 30.6.1987 as mentioned in the certificate issued by the Electricity Department of the Government of Pondicherry,
vide their letter No. 1143/RE/EE-EHV/F-21/87-88, dated 30.6.1987. This certificate clearly states that, ""it is feasible to extend power supply of
an additional- load of 20.05 MVA over and above the sanctioned demand of 4.95 MVA to your (the petitioner''s) proposed industry at
Mettupalayam Village in Pondicherry"" and that the power supply would be available after 1988. In the said letter, the Electricity Department also
said that the gestation period of extending 110 KV power supply would be around 18 to 24 months from the date of submission of firm
application. It is relevant to note that not only was the feasibility certificate obtained well in time, but also the additional load was four times (20.05
MVA) that of the earlier sanctioned load of 4.95 MVA for the small scale unit. The department''s reference to ""your proposed industry"" also made
it abundantly clear that the Electricity Department was aware that a new unit was being set up. In conformity with the conditions of the feasibility
certificate a firm application was made by the petitioner on 20.5.1989 to the Electricity Department, but the department initiated the work of laying
transmission lines with the Tamil Nadu Electricity Board only in 1991 and the work was completed after about three years. The respondents in
their counter had referred to the word ""expansion"" said to have been used in the application made by the petitioner to ICICI for a loan for setting
up the new unit. The application to ICICI was based on the SIA approval of Government of India dated 17.1.1990 which clearly stated that the
grant of the revised minimum economic capacity for steel making was subject to the condition that the petitioner would not be allowed to use
existing furnaces, if any, which were of a capacity below 15 tonnes and that for achieving the minimum economic capacity the new furnaces should
be of a capacity not less than 25 tonnes and the understanding was the furnace of 10/12 tonnes in the small scale unit would not be used. The
Union of India had differentiated the two products ingot and billet - and classified them under two separate headings under the Central Excise Act
would establish that the two products were different. The Pondicherry Government while examining the petitioner''s claim for grant of power
subsidy asked the Sales Tax Department of the Government of Pondicherry for their opinion and it had clearly stated that the two products - ingot
and billet - were two different products. It was therefore inexplicable as to how the respondents could seek to take a contrary stand as was
purported to be done by them only for the purpose of defeating the lawful claim of the petitioner. The respondents had stated that the revised
Government Order dated 11.2.1991 was not applicable to expansion. There was no such provision in the said Government order. After a delay of
over two years, the Electricity Department, Pondicherry, informed the petitioner that power would be available by 14.8.1994 and not in January,
1993 as stated by the respondents in their counter. In view of what is stated above, the counter filed by the respondents was ex facie erroneous
both on aspect of fact as also law. The true and correct position was set out in the affidavit in support of the writ petition and the instant affidavit.
The respondents had also failed to distinguish in any manner the decisions of the Supreme Court, which apply a fortiori to the case of the petitioner.
An additional counter-affidavit has been filed by the respondents and it is stated in that affidavit as follows:
The Government of Pondicherry took a policy decision in the month of May, 1997 withdrawing the power subsidy scheme by issuing G.O.Rt.No.
30/97, Industries, dated 28.5.1997. It was published in the Official Gazette dated 17.6.1997. It was also given effect to from 1.4.1997. There is
no power subsidy scheme now subsisting in the Government of Pondicherry for the industry. Again, the legality and correctness of the decision of
the Government of Pondicherry withdrawing the power subsidy scheme was questioned in W.P.No. 8010 of 1999 by one M/s. Izaz Thermo
Alloys Ltd. It was dismissed on 24.9.1999. Appeal therefrom in W.A.No. 2081 of 1999 was also dismissed on 14.1.2000. Thus, the withdrawal
having been approved by this Court, the claim of the petitioner in the present writ petition does not survive for consideration.
Mr. P.S. Raman, learned Counsel for the petitioner, made the following submissions:
(a) The petitioner having taken effective steps before 1,3.1991 by having more than 60% of the capital issued for the proposed industrial unit and
having more than a substantial portion of the factory building constructed with the plant and machinery also installed, would be governed by the
then existing subsidy scheme in operation in the Union Territory of Pondicherry as per para. 6 of the Government Order dated 11.2.1991.
(b) There was no prohibition under the subsidy scheme which was in operation in the Union Territory of Pondicherry for an industrial undertaking
which had already once before availed of the power tariff concession and sales tax exemption not to apply for or obtain the same advantage of the
said scheme for any other unit which was set up by it thereafter.
(c) The petitioner''s factory being physically, mechanically and electrically separated from the pre-existing unit, had to be construed as a new unit
for the purpose of the subsidy scheme.
(d) When the new unit established by the petitioner produced a product that was different from the one that had been manufactured by the
preexisting unit, the former could not be termed as an expansion of the latter, since the very word ""expansion"" was a misnomer when applied in
such a case.
(e) The intention and purpose of the subsidy scheme for tariff concession and sales tax exemption were for encouraging the entrepreneurs to make
investment in industrially backward areas by setting up units in the Union Territory of Pondicherry and for that purpose, even a large expansion of
an existing small unit would necessarily attract the advantages of the subsidy scheme in the absence of any specific prohibition.
(f) Without prejudice to the aforesaid contentions, an expansion of an existing unit by way of substantial investment without using or restructuring
any of the facilities of the existing unit was not incompatible for the factory to be classified as a ""new unit"" in the context of grant of subsidies for
encouraging industrial investments in backward areas.
(g) The withdrawal of the tariff concession in 1997 by the respondents had no relevance to the claim of the petitioner, which was in respect of a
period when the subsidy was in full force and effect.
Elaborating on this, the learned Counsel submitted that the petitioner obtained power feasibility on 30.6.1987 itself and obtained industrial
licence on 17.1.1990. By 11.2.1991,50,000 sq.ft. of a new factory building in additional land of 3 acres acquired from PIPDIC had already been
established. Substantial part of the plant and machinery for the new unit had also been purchased and installed and the required share capital also
raised. In the joint inspection of the petitioner''s unit by the Electricity Department and Industries Department in November, 1992 it was found that
all the conditions of Notification dated 11.2.1991 had been satisfied. In the said report, it was also conceded that for reasons beyond their control,
the respondents were unable to immediately energise the unit thereby delaying the commencement of commercial production. The petitioner could
not, therefore, be blamed. Again, so long as the new unit satisfied the requirements of para.6 of the Notification dated 11.2.1991, there was no
prohibition for an existing industrial undertaking to avail of the tariff concession for any new unit established by it. There was no limitation to the
number of times a person could apply for tariff concession so long as each application was in respect of a new unit. The respondents had granted
tariff concession to Hindustan Lever Ltd., Ponds India Ltd., Gothi Plastics Ltd. etc. even though they had all enjoyed tariff concession for their
other existing units. Again, the new unit was physically separated from the existing unit with a separate ingress and egress. Mere proximity of the
new unit to the old unit would not detract from the same being a new unit. The entire plant and machinery for the new unit had been purchased
separately. No part of the existing factory had been used in the new unit. The very process of manufacture of steel billets was completely different
from that of the manufacture of steel ingots. The new unit was also mechanically separate and distinct from the old unit. The respondents had
provided a separate extra HT 110 KV Sub Station set up exclusively for the new unit. It had separate cable connection, meters and other electric
arrangements completely distinct from that of the old unit, which was enjoying a 22 KV power supply from the general HT power line of the
Industrial Estate. The two products were commercially and physically distinct and it had also been admitted in the counter that they were almost
same in nature. The two items had been separately mentioned as two different entries in the Central Excise tariff. Ingots were products in primary
form and billets were semi-finished products. It was not proper to apply the test that both the products used the same raw material and both had
similar uses. The new unit could not be classified as an expansion of the old unit. Expansion implied increased scale of production of the very same
item which was being originally produced. The petitioner''s unit was therefore not an expansion. The intention and purpose of the subsidy scheme
for tariff concession and sales tax exemption were for encouraging the entrepreneurs to make investment in industrially backward areas and even a
large expansion of an existing small unit would necessarily attract the advantages of a subsidy scheme in the absence of separate prohibition. The
petitioner applied for licence for expansion to 1,50,000 tonnes of ingots under the minimum economic scale of production announced by the
Government of India. By 1990-91 when the petitioner bought the machinery and set up the plant, it was only for the manufacture of billets and not
ingots. The contention of the respondents that separate industrial licence had not been taken for manufacturing billets, but only the existing licence
for expansion of unit had been used by the petitioner and therefore, it would be disentitled to the benefits of the scheme could not be sustained for
the simple reason that there was no licence required for manufacture of billets or any other steel product since the same was delicensed by the
Government of India.
On 13th July, 1994 the Government of Pondicherry, Department of Science, Technology and Environment, had addressed the Superintending
Engineer, Electricity Department, Pondicherry-1, on the subject of issuance of NOC to the petitioner stating that the petitioner functioning at
Mettupalayam, Pondicherry, had installed Air Pollution Control equipments availing the financial assistance from IDBI and that it had also been
decided in the Pondicherry Pollution Control Committee Meeting held on 28.6.1994 to issue NOC for energising the Air Pollution Control System
of the unit as a temporary measure in order to check the efficiency of the pollution control equipments. The letter requested that power supply
might be given to the Air Pollution Control System for 45 days only, during which period that department would conduct the stack monitoring and
assess the efficiency of the Air Pollution Control Systems. The letter further stated that the issue of giving NOC for enhancement of power supply
on a permanent basis would be decided on the basis of the result of the stack monitoring and thereafter the industry would have to dismantle the
existing furnace before the power supply was given on permanent basis.
The consent order given by the Government of Pondicherry on 19.4.1995 after commencing of commercial production in August, 1994 u/s 21 of
the Air (Prevention and Control of Pollution) Act, 1981 clearly states that the same is for manufacturing steel billets. The petitioner had invested
Rs. 5 crores in the new unit while the old unit was established as a small scale unit. The Supreme Court in Textile Machinery Corporation Limited,
Calcutta Vs. The Commissioner of Income Tax, West Bengal, , has held that, ""if any undertaking is not formed by reconstruction of the old
business, that undertaking will not be denied the benefits of Section 15-C of the Income Tax Act as a new unit simply because it goes to expand
the general business of the assessee.
Similar view has been expressed in Comissioner of Income Tax v. Indian Aluminium Company Ltd. (1997)108 ITR 367 and in Municipal
Commissioner, Chinchwad v. Century Enca. Ltd (1996)100 S.T.C 138.
A Division Bench of this Court in Ramaraju Surgical Cotton Mills Ltd, Rajapalayam v. Commissioner of Wealth Tax, Madras AIR 1963 Mad. 19
has referred as a new and separate unit by way of substantial expansion of its original undertaking implying that even an expansion can result in a
new unit.
The order of withdrawal passed by the respondents in 1997 cannot also be put against the petitioner, since the present case is based on entitlement
under a scheme which was in full force and effect at that time. The withdrawal of the scheme was prospective and not retrospective. The
unsuccessful challenge to the withdrawal cannot also be put against the petitioner. The case was clearly distinguishable. The person who questioned
the withdrawal before this Court wanted the subsidy for a unit that was yet to get the benefit. If the petitioner had been granted concession for the
period from August, 1994 to 1999, the withdrawal in 1997 would not have affected it. Till date there had been no formal communication from the
respondents denying the concession. The respondents merely relied on a file notation made by Her Excellency the then Lt.Governor of the Union
Territory allegedly denying the benefit.
Mr. R. Natarajan, learned Additional Government Pleader for Pondicherry, submitted as follows: The claim of the petitioner was a wrongful
one. The petitioner had availed power tariff concession for the full five years period commencing from 1.8.1987 to 30.9.1992 and had benefitted
to the tune of Rs. 1,58,26,313. The G.O.Ms.No. 9/91, Ind., dated 11.2.1991 was not intended for the benefit of the industries, which were
availing the benefits of the tariff concession on that date. It was meant for industries which had not availed tariff concession benefit and completed
their establishing new industries by fulfiling conditions stipulated in paragraph 6 of the Government order. The claim of the petitioner had throughout
been that it was expanding its present level of production of steel product and claimed additional load of power supply. Financial assistance from
the ICCI was also claimed only on that basis. It was never claimed by the petitioner that it was going to start a new industry. The feasibility
certificate for additional load of power supply had validity for only one year from the date of issue. It was only for additional loan for expansion of
industry and not for a new unit. The licence issued by the Ministry of Industry, Government of India, in its proceedings dated 23.9.1988 was for
manufacturing steel ingots from the level of 10,000 tonnes per annum. Several conditions had been incorporated by the Government of India in the
said licence. Clause 7 of the licence granted in the proceedings would go to show that the industrial undertaking should obtain prior permission
from the Government of India before effecting substantial expansion of its capacity and before establishing capacity for the manufacture of new
articles other than those already covered by licence. These conditions were mandatory. The petitioner approached the Government of India by
letter dated 20.12.1989 for raising present capacity. The Government of India allowed the petitioner to raise the capacity to the level of 1,50,000
tonnes per annum subject to fulfilling the conditions stipulated in para.2 of the provisional order and para.3 of the order passed in proceedings
dated 17.1.1990. The Government of India required the petitioner to obtain a formal endorsement after fulfilling the required conditions specified in
para.2 of the order in proceedings dated 17.1.1990. The provisional order would get life only if the conditions were fulfilled. That paragraph
required the petitioner to get clearance from Pollution Control Authority and also from various statutory authorities of the Government. The
petitioner did not obtain formal endorsement from the Government of India and did not fulfil the conditions stipulated in para.2 of the order passed
by the Government of India in its proceedings dated 17.1.1990 even on the date of issuance of G.O.Ms.No. 9/91, dated 11.2.1991. The
Government of India addressed a communication to the petitioner by its proceedings dated 12.2.1991 calling upon the petitioner to produce the
document required for endorsement for the increased capacity. The requirement was not complied with by the petitioner. By proceedings dated
16.4.1991 the Central Pollution Control Board, Ministry of Environment and Forest, Government of India, addressed a communication by which
the petitioner was directed not to take any work unless and until the project was cleared. The petitioner was also accordingly informed by the
Government of Pondicherry. On 5.2.1992 the Central Pollution Control Board, Ministry of Environment and Forest, Government of India,
rejected the claim of the petitioner for expansion of the project by observing that the existing unit itself required a closure. On 16.3.1992 the
Central Pollution Control Board addressed a communication to the petitioner calling upon it to close the unit forthwith and the Pollution Control
Board observed that the petitioner was engaged in expansion of the existing unit without consent and no objection certificate from the Pollution
Control Board. Though the petitioner received this communication, it did not choose to question the same before any forum. Ministry of Industries,
Government of India, by proceedings dated 28.5.1991 granted permission to the petitioner to increase the capacity to the level of 29,000 tonnes.
The Department of Electricity by its proceedings dated 2.1.1993, 20.1.1993 and 2.3.1993 called upon the petitioner to deposit Rs. 10.99 lakhs.
This was not done by the petitioner. The Department of Electricity incurred the expense of Rs. 74 lakhs in taking lines to the petitioner industry
even though it did not deposit the security amount of Rs. 10.99 lakhs. Again, the petitioner had entered into an agreement with the Department of
Electricity, vide Document dated 25.1.1996 whereby it had submitted itself to the terms and conditions of the Department of Electricity. The
supply of energy was extended to the level of 18500 KVA and the petitioner undertook to restrict its drawal of power to the level of 13500 KVA.
In the undertaking given by the petitioner, there was no claim by the petitioner that it was taking the supply of energy, subject to its claim for tariff
concession of power subsidy.
Again, the Government took a policy decision to withdraw the subsides and the same had been upheld by this Court in a writ appeal filed. The
Administrator of the Union Territory of Pondicherry who was the real authority to represent the government, considered the claim of the petitioner
regarding power tariff concession and rejected it on 4.9.1995. The petitioner had not pleaded about the actual date of commencement of
production of steel billet in the affidavit filed by it. The decisions relied on by the petitioner in support of its contentions did not advance its case.
The claim was hypothetical. The petitioner claimed power subsidy benefit after the expiry of power subsidy scheme period after enjoying in full the
benefits. The petitioner did not possess the basic licence for the expansion of fresh capacity. The order dated 17.1.1990 did not confer any right
on the petitioner. Only after formal endorsement, which had not been done in this case, it would have any effect. The products were not different.
They were manufactured from a common raw material and the purposes were end-use and re-rolling.
The learned Counsel relied on the following decisions:
(1) Kasinka Trading and another, etc. etc. Vs. Union of India and another, ; (2) A.P. State Electricity Board and Others Vs. Sarada Ferro Alloys
Ltd., ; (3) M/s. Andhra Steel Corporation Ltd. Vs. The Andhra Pradesh State Electricity Board and others, .
The learned Counsel submitted that the principle of promissory estoppel could not be put against the State if the decision was taken in public
interest even during the currency of the subsidy scheme and in support of this contention, the learned Counsel relied on the decision in State of
Rajasthan and Another Vs. M/s Mahaveer Oil Industries and Others, .
The learned Counsel further submitted that giving of power subsidy was an economic policy of Government and it was open to the Government to
take decision from time to time either for modifying or for rescinding and the policy of the State could not be supplanted by a judicial order and in
support of this contention the learned Counsel relied on the decision in Principal, Madhav Institute of Technology and Science Vs. Rajendra Singh
Yadav and Others, . If the claim of the petitioner was accepted, it would amount to wrongful loss to the State. There was no equity in favour of the
petitioner, particularly when it was given power subsidy for full five years commencing from 1.7.1987 to 30.9.1992 and this was one time benefit.
The main contentions raised by the learned Counsel for the petitioner are as follows:
(1) The products were different and therefore the petitioner would be entitled to subsidy.
(2) Even conceding that it was only a case of expansion, then the expansion could be considered to be a separate unit. In support of this, he relied
on a number of decisions.
(3) Expansion of unit could be physically mechanically and electrically separated and in the instant case, all the three criteria were satisfied and the
expanded unit must be treated as an independent unit.
As against these contentions, Mr. Natarajan, learned Additional Government Pleader, Pondicherry, submitted that the petitioner had availed the
benefit between 1.7.1987 and 30.9.1992, that the unit in respect of which the petitioner claimed benefit could not be termed to be a new and
independent unit, but only an expansion and that in respect of the same the petitioner had not obtained licence from the proper authority, viz.,
Government of India as required under the Rules. Even the permission granted was to raise the capacity of the industrial undertaking and certain
conditions had to be satisfied and only after fulfilment of those conditions, a formal endorsement would be made on the industrial licence already
issued to the petitioner. One of the conditions was related to installation of appropriate equipment and implementation of the prescribed measures
for the prevention and control of pollution. The petitioner had not obtained the permission from the Pollution Control Board. Even otherwise, the
petitioner had not stated as to when it commenced production and on 16.4.1991 the Pollution Control Board had specifically stated that the
petitioner should not go for expansion. The further submission of the learned Additional Government Pleader, Pondicherry, was that the Lt.
Governor on 4.9.1995 passed an order negativing the claim of the petitioner.
The first question to be considered is whether it is an expansion or a new unit. In this connection, the petitioner wants to rely on the
communications from the department while the department wants to rely on the petitioner''s communication for showing that it is only an expansion
of the existing unit.
From the correspondence made available in the proceedings it is seen as follows:
On 18.11.1986 the petitioner wrote to the Superintending Engineer (Electrical), Government of Pondicherry, stating that it had plans for expansion
of its unit by doubling its capacity etc., although this had been envisaged as a second stage, that it would be taken up within a few months of
commissioning of the first stage and further that its requirement of power for second stage would be 25 MVA. On 11.4.1987 the petitioner wrote
to the Executive Engineer again furnishing the details as required by the Electricity Department regarding lay out of the site showing the location of
the proposed mini steel, plant, proposed 110/22 KV sub station, requiring allotment of additional land of 1.50 acres adjoining its present site as
shown in the sketch annexed and stating further that the additional steel plant could be commissioned in about 18 to 24 months from the date of
receipt of the feasibility certificate.
No doubt, in some of the letters from the departments there is reference to the ""proposed industry"" which according to Mr. P.S. Raman, learned
Counsel for the petitioner, would clearly show that the proposed expansion was an independent unit. He laid particular stress on the
communication from the Government of Pondicherry, Electricity Department, dated 30.6.1987, whether in it is mentioned that,
It is feasible to extend power supply for an additional load of 20.05 MVA over and above the sanctioned demand of 4.95 MVA to your
proposed industry at Mettupalayam Village in Pondicherry.
In my considered view, the petitioner had sought permission for expansion only and not for a new unit. Merely because the authorities have used
the expression ""proposed industry"" it would not mean that the petitioner wanted power supply to be given, for a new unit. From the files produced,
it is very clear that the petitioner had not opted for starting a new unit at all. Parties had proceeded on the basis that the petitioner wanted to
expand its unit. The attempt by the petitioner to show that what was intended was a new industry cannot at all be sustained.
However, the learned Counsel for the petitioner submitted that under certain circumstances the expanded unit can be construed as a new unit
and he relied on the judgment of the Supreme Court in Textile Machinery Corporation Limited, Calcutta Vs. The Commissioner of Income Tax,
West Bengal, . In that case, the question arose as to whether a manufacturing division started by an existing industry for making articles to be used
in existing business would amount to reconstruction of business already in existence and whether exemption u/s 15-C(2)(i) of the Income Tax Act,
1922 would be available to the newly started unit. The Supreme Court held that,
the two units were not formed by reconstruction of the business already existing within the meaning of Section 15-C(2)(i) and the appellant before
it was entitled to exemption claimed.
In coming to that conclusion, the Supreme Court reasoned as follows:
For the reconstruction of an existing business there must be transfer of the assets of the existing business to the new industrial undertaking. The new
activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the
old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may
be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an
integrated unit by itself wherein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty
persons without the aid of power have been employed. Such a new industrially recognisable unit of an assessee cannot be said to be reconstruction
of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction
of the old business. For the purpose of Section 15-C the industrial units set up must be new in the sense that new plants and machinery erected for
producing either the same commodities or some distinct commodities. In order to deny the benefit of Section 15-C, the new undertaking must be
formed by reconstruction of the old business.
If an undertaking is not formed by the reconstruction of the old business that undertaking will not be denied the benefit of Section 15-C merely
because it goes to expand the general business of the assessee in some directions.
Use by the assessee of the articles produced in its existing business or the concept of expansion are not decisive tests in construing Section 15-C.
The Supreme Court further reasoned:
Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes
expansion of the existing business of the assessee, but whether it is all the same a new and identifiable undertaking separate and distinct from the
existing business.
Having stated so the Supreme Court chose to observe further as follows:
No particular decision in one case can lay down an inexorable test to determine whether a given case comes u/s 15-C or not. In order that the new
undertaking can be said to be not formed out of the existing business there must be a new emergence of a physically separate industrial unit which
may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved.
This decision has been followed in later decisions of the Supreme Court.
(1) Commissioner of Income Tax, West Bengal v. Indian Aluminium Co. Ltd. (1977)108 I.T.R.367 (S.C.); (2) Commissioner of Income Tax,
West Bengal Vs. Orient Paper Mills Ltd., and (3) Municipal Commissioner, Chinchwad New Township Municipal Council v. Century Enka Ltd.
100 S.T.C. 138.
It has already been noticed that the Supreme Court in Textile Machinery Corporation case, has observed that, ""no particular decision in one
case can lay down an inexorable test"" and each case has to depend on its facts. There is absolutely no indication in the available correspondence in
the present case that the petitioner ever intended to start a new unit. In my considered view, what the petitioner had wanted was only an expansion
and for that expansion, it wanted the benefits of subsidy. The contention raised on behalf of the petitioner that the end product with regard to the
industry first started was ingot while for the expanded thing the end product was billet and therefore they are different entities cannot be accepted.
It is not disputed that both ingots and billets are used for re-rolling purposes.
In Ramaraju Surgical Cotton Mills Ltd., Rajapalayam v. Commissioner of Wealth Tax, Madras AIR 1963 Mad. 19 dealing with a case under
the Wealth Tax Act, a Division Bench of this Court observed as follows:
The proper meaning to be assigned to expression ""set up"" in Section 5(1)(xxi) of the Wealth Tax Act would be ""ready to commence business"".
The expression cannot be strained in the light of second proviso to the section and cannot mean the commencement of operation within the
meaning of second proviso. Consequently, where a Company put in a separate unit in a ready stage to go into production only after the
commencement of the Act it would be deemed to have been ""set up"" after the Act within the meaning of the said expression in Section 5(1)(xxi),
even though the operation of the establishment of the unit had commenced before 1.4.1957. In view of the language of the second proviso,
therefore the benefit of exemption will be available to the company only for the first five successive, assessment years commencing from 1st April,
1957.
It Has been held in that case that,
a subsequent unit, though by way of substantial expansion of the original undertaking, can be treated as a new and separate unit.
The question therefore now is whether the expansion of the petitioner unit can be construed as a new unit for purposes of the benefits of
subsidy. In this regard, the correspondence between the parties, the notings in the files, the minutes of the meeting of the bureaucrats and the State
Ministers would clearly show that the expansion can be treated as a separate unit for purpose of subsidy. The Development Department, Industry
of the Government of Pondicherry, has noted as follows:
As the unit started production on 1.10.1987, the unit is eligible for power subsidy and Sales Tax exemption for a period of five years, i.e., from
10/87 to 9/92. Had they implemented the expansion programme also within the probable time limit i.e., not later than 1.5.1990, they would have
availed the Sales Tax exemption and the power subsidy for the increased production also upto 30.9.1992.
This position is reiterated time and again. We have therefore to find out as to why the petitioner did not implement the expansion programme.
In this connection, we have to refer to the communication from the Electricity Department of the Government of Pondicherry addressed to the
Director of the petitioner company on 30th September, 1985. The communication refers to the petitioner''s letter dated 30.9.1985 and it is stated
as follows:
With reference to the above, I am to inform you that it is feasible to extend power supply at 22 KV for a load of 4950 KVA for your proposed
steel melting industry at Mettupalayam PIPDIC Industrial Estate only after the commissioning of 110/22 KV Kurumbapet Sub-station.
The extension of power supply will be made only after your fulfilling the other terms and conditions of power supply of this Department.
The power feasibility issued is valid for one year from the date of issue.
You are, however, advised to take adequate measures to ensure that the power factor during any time does not fall below 0.85.
The next letter from the Electricity Department addressed to the petitioner company is dated 30.6.1987 and it is stated as follows:
With reference to the above, I would like to inform you that it is feasible to extend power supply for an additional load of 20.05 MVA over and
above the sanctioned demand of 4.95 MVA to your proposed industry at Mettupalayam Village in Pondicherry region for the manufacture of steel
ingots subject to the following conditions:
(1) Power supply will be extended by the Department at 110 KV your load of 20.05 MVA in addition to the sanctioned demand of 4.95 MVA.
(2) Adequate space must be left inside your premises for the erection of terminal tower, structure and metering PTs and CTs.
(3) Power supply will be made available after 1988.
(4) The extension of power supply will be made only after your fulfilling the other terms and conditions of power supply of this department. It may
be noted that the normal gestation period for extending 110 KV power supply will be around 18 to 24 months from the date of submission of firm
application in complete shape;
The power feasibility Certificate issued is valid for one year from the date of issue. You are also advised to maintain the power factor well above
0.85 lag.
Thereafter, on 19.5.1989 the Commissioner of Oulgaret Commune Panchayat, Pondicherry addresses a letter to the petitioner and it is stated
as follows:
With reference to your letter 1st cited, I am to state that the authorised capacity of power for the proposed industry, namely M/s. Sumangala Steel
(P) Ltd., at PIPDIC Industrial Estate, Mettupalayam, Pondicherry, as shown at Sl.No. (e) of the permission second cited is amended as 28500
HP instead of 5600 HP as authorised previously.
On 20.5.1989 the petitioner addresses a letter to the Executive Engineer of the Electricity Department, informing him that it has since obtained
licence for the extra load from the Oulgaret Commune Panchayat and that it is resubmitting the HT application along with a copy of the above
licence. It is not disputed that there was delay by the Electricity Department for energising the expanded project. The Director of Industries
requested the Government of Pondicherry to consider grant of extension of power subsidy and Sales Tax exemption for a period of 2 years and 4
months to the petitioner from the date of starting production under expansion programme subject to confirmation by the Secretary (Energy) and
subject to further condition that the unit should not avail the said concessions for the products manufacturing using the old furnace during the said
period. The Secretary to Government on 18.1.1992 makes a note to the following effect:
Secretary (Electricity) may kindly peruse the above note. It is requested that the reasons for delayed energisation may kindly be indicated to enable
the Industry Department to examine the request for extending the period of power subsidy and other concessions to M/s. Sumangala Steels Ltd.
The Superintending Engineer makes the following remarks:
M/s. Sumangala Steels was issued with a Power Feasibility Certificate for an additional load of 20.05 MVA over and above the existing load
of 4.95 MVA on 30.6.1987 stipulating the conditions that the power supply will be made available within a period of 18 to 24 months from the
date of submission of HT application in complete shape with Commune Panchayat Licence, etc. The Consumer has submitted the application on
20th May, 1989.
The work of extending the 110 KV power supply was entrusted to Tamil Nadu Electricity Board during March, 1991 as a deposit
contribution work and when the work was taken up for execution by the Tamil Nadu Electricity Board, they have experienced some difficulties like
objection for construction of tower in their land by the land owners in the enroute of 110 KV line for Sumangala Steels. The route has been
realigned thrice due to the objections raised by the land owners and finally now the work is in full swing.
The delay in execution as indicated in para 14 is beyond the control of the Electricity Department, Pondicherry, and Tamil Nadu Electricity
Board.
It is further noted by the Secretary (Industries) that,
the unit, if energised, could have availed the benefit for a period of two years - but, in the present circumstances, the unit is not eligible for this
concession. The concession is only admissible for a period of five years for the new industries and also for sick units if restarted. It is crystal clear
from para: 6 of the note of Director of Industries that the unit is not eligible for the concession. Further, any such concession given to one unit will
open flood gates and all the units on one pretext or the other would try to extract concession for as long a period as possible and in the bargain, the
State would be a loser. Apart from the above, the Electricity Department has not yet been able to energise the second furnace installed by the unit
and it is not known when the second unit would be actually energised. Thus, the proposal is also premature at that stage.
This note is dated 3.12.1992.
Now we go to the remarks by the Commercial Taxes Department, which is found in paragraph 29 of the note sheets. It runs as follows:
It is noted that M/s. Sumangala Steels (P) Ltd. have started a unit for production of billets. They have installed separate machineries and
equipments for this production as different from the machineries and equipments provided for the production of ingots by the small scale unit. As
the new unit is physically separate and is provided with different machineries and equipments for the new product this unit may be treated as a new
unit for the production of billets. As such, unit producing different products is treated as different unit for the purpose of sales tax exemption and
concession. Therefore, this new unit for production of billets may be eligible for 5 years exemption as per G.O.Ms.No. 15/74/Fin.(C.T.), dated
25.6.1974 as applicable to industries other than small scale industries. However, it will not be eligible for any concession after the initial period of 5
years as it is not a small scale industry.
The further relevant paragraphs in the note files are paragraphs 44, 45, 46, 47, 48, 49, 50, 54, and 57. There had been discussion among the
bureaucrats on the one side and the ministry on the other as to whether the petitioner would be entitled to the benefits. While the bureaucrats,
except for the Sales Tax Department, were against such extension of facility to the petitioner''s expanded unit, the ministry had supported the stand
of the petitioner and recommended grant of subsidy. The matter ultimately went to the Lt.Governor, who held that the petitioner was not entitled to
the benefit. It is the case of the petitioner that this order of the Lt.Governor was never communicated to it and that in any event, the order of the
Lt.Governor cannot be sustained. No doubt, it was argued that the unit should be treated as a new unit and the subsidy extended. I have already
held that it is not a new unit, but it is only an expansion. Even according to the stand of the respondents, the petitioner was not at fault for not
starting the expanded unit early to claim the benefits. It was the fault of the Electricity Department for not providing with additional energy for over
two years. In these circumstances, I am clearly of the view that the petitioner would be entitled to the benefits of subsidy for the period ending with
30.9.1992, by which date the petitioner, would complete five years from the commencement of the industry.
Many of the points raised on behalf of the respondents during arguments and in the written arguments have not been set out in the counter or in
the additional counter. However, having regard to the nature of the relief sought for and the stakes involved, I have perused the files and I hold that
the petitioner is entitled to the benefits of the subsidy as set out above.
The learned Counsel for the petitioner was at pains to point out that the expanded unit is a separate unit with separate ingress and egress, that
the old furnace used for manufacturing ingots was abandoned and separate independent furnace had been put up (for the new unit). It is not
necessary to go into the question as to whether it should be treated as a new unit at all, as it has been found that even if it is an expansion, the
petitioner would be entitled to the benefits of subsidy and the period for which it would be entitled to has already been indicated.
The case of the petitioner is that Hindustan Lever Ltd. and Ponds India Ltd. were given benefits of subsidy and they were treated as separate
units. It is seen from the records that Hindustan Lever Ltd. and Ponds India Ltd. started entirely independent separate units for manufacture of
different commodities and the case of the petitioner cannot at all be compared with the case of those two companies.
However, in view of the finding that even an expansion would be entitled to subsidy, which is also practically conceded by the respondents
having regard to the contents of the notes in the files, it has to be held that the petitioner would be entitled to the benefits of subsidy for the period
during which for no fault of the petitioner the unit could not function.
The learned Counsel for the respondents also submitted that the scheme had been withdrawn and therefore, the petitioner would not be
entitled to claim the benefits. This contention cannot at all be accepted. The scheme was withdrawn by G.O.Ms.No. 9/91, IND. dated 11.2.1991.
In paragraph 6 of the withdrawal notification, it is stated as follows;
All industries including large and medium, which have been issued with Power Feasibility Certificate by the Superintending Engineer (Electricity)
before 1.3.1991 and have taken effective steps, viz., 60% or more of the capital issued of the industrial unit, has been paid up and a substantial
portion of the factory building has been constructed and a firm order has been placed for substantial part of the plant and machinery required for
the industrial unit will be governed by the existing Power Subsidy Scheme in operation during VII Plan period.
That the petitioner satisfied these criteria is not in dispute. The Electricity Department took its own time for energising and the blame cannot be put
on the petitioner. It is also pertinent to note that when there were various things such as discussion by the Industrial Department, the bureaucrats,
Sales Tax Department and also Electricity Department going on, the Electricity Department had gone ahead with providing additional power to the
petitioner.
Mr. Natarajan, learned Additional Government Pleader, Pondicherry, cited a number of decisions relating to promissory estoppel. The
petitioner is not relying on the theory of promissory estoppel and therefore it is not necessary to refer to those decisions.
There is a particular noting in the files that the petitioner did not deposit Rs. 10 lakhs as required by the department. However, it was
represented on behalf of the petitioner that the amount had indeed been paid on 20.4.1994. This was not disputed by the counsel for the
respondents.
My conclusion on the various points raised is as follows:
The petitioner has not started a new unit, but has only opted for expansion. Even though it is a case of expansion, the petitioner is entitled to the
benefit of subsidy treating the expansion as a separate unit. However, the subsidy will be restricted to the unexpired period of the subsidy
programme and in working this out, the time taken by the Electricity Department, Government of Pondicherry, for energising will be excluded. The
writ petition is allowed to the extent indicated above. There will, however, be no order as to costs.