Madras High Court
The Government Of Tamil Nadu vs Tvl.Ponni Sugars (Erode) Limited on 26 August, 2025
Author: Anita Sumanth
Bench: Anita Sumanth
2025:MHC:2092
W.P.No.2932 of 1998
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 29.04.2025
Pronounced on : 26.08.2025
CORAM :
THE HONOURABLE DR.JUSTICEANITA SUMANTH
and
THE HONOURABLE MR.JUSTICE C.KUMARAPPAN
W.P.No.2932 of 1998
1.The Government of Tamil Nadu
rep. by its Commissioner and
Secretary, Industries Department,
Fort St. George, Chennai-9.
2.The Deputy Commissioner of Commercial Taxes,
Fort Main Road, Shevapet, Salem-2.
3.The Assistant Commissioner of Commercial Taxes,
Commercial Tax Office, Gandhi Nagar, Namakkal.
4.The Deputy Commercial Tax Officer,
Tiruchengode (Rural)
Ponnusamy Buildings, Sankari Road,
Tiruchengode. .. Petitioners
Vs.
1.Tvl.Ponni Sugars (Erode) Limited,
Rep. by its Managing Director, Esvin House,
No.13, Old Mahabalipuram Road,
Seevaram Village, Perungudi,
Chennai-600 096.
(R1 cause title amended vide order dated 19.12.2023
Made in WMP.32851/2023 in WP.2932/1992)
2.The Tamil Nadu Taxation Special Tribunal,
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W.P.No.2932 of 1998
Rajaji Salai,
Chennai-600 001. .. Respondents
Prayer: Petition filed under Article 226 of the Constitution of India praying to
issue a writ of certiorari to call for the records on the file of the 2nd respondent,
Tamil Nadu Taxation Special Tribunal, Chennai in TP.No.568/97
(WP.1099/89) dated 26.11.1997 and quash the same.
For Petitioners : Mr.Haja Nazirudeen
Additional Advocate General
Assisted by
Mr.C.Harsha Raj,
Additional Government Pleader
For Respondents : Mr.N.Prasad (for R1)
R2 - Tribunal
ORDER
(Order of the Court was made by Dr. ANITA SUMANTH.,J)
This Writ Petition has been filed by the State represented by its
Commissioner and Secretary, Industries Department (P1) and Officers of the
Commercial Tax Department (P2 to P4) challenging an order passed by the
Tamil Nadu Taxation Special Tribunal (Tribunal/R2), dated 26.11.1997.
2.The assessee is arrayed as R1 and is referred to herein as either
assessee or R1. This writ petition had originally been allowed by a Division
Bench, vide decision dated 17.04.2002, in Government of Tamil Nadu and
Others Vs. Ponni Sugars and Chemicals Ltd. and others (and another
case)(129 STC 30). As against this order, the assessee filed an appeal before
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W.P.No.2932 of 1998
the Hon’ble Supreme Court which, vide judgment dated 22.11.2004 in Bannari
Amman Sugars Ltd. Vs. Commercial Tax Officer and others(139 STC 86),
remanded the matter to this Court for re-consideration.
3. Three submissions were raised by the assessee before the Hon’ble
Supreme Court. The first submission was on promissory estoppel and on this
point, the appeal has been dismissed. At paragraph 21 of the STC report, the
Supreme Court holds that the doctrine of promissory estoppel has no
application to the facts of the case, since at the time when the manufacturing
units had been set up and commercial production started, the State has not
extended any assurance or promise to which they could be held.
4. They also found no substance in the plea that the beneficiary was to be
heard by grant of opportunity prior to the amendment of a policy decision or
alteration of a promise indicated in a particular Notification. This was
extended even to a circumstance where the benefit originally granted was
sought to be withdrawn. Hence those grounds relating to promissory estoppel
have attained finality, adverse to the assessee.
5. The second submission is legitimate expectation of an assessee. The
Court holds that the question of legitimate expectation would have to be
considered afresh in light of the facts and circumstances that arise in this
matter. We will dilate more on this when this issue is taken up for decision.
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W.P.No.2932 of 1998
6. The third submission relates to a challenge to a retrospective
withdrawal of benefit by way of an executive order. This issue had not been
considered by the High Court in the original decision and hence, has been
remanded to this Court. The Apex Court has made it clear that no opinion has
been expressed in regard to the aforesaid two issues. We have now taken the
matter up post remand.
7. The assessee is a sugar mill. It had been granted an annual subsidy
equivalent to the quantum of purchase tax on sugarcane for a period of two
years commencing from the date of going into production. This benefit was
vide G.O.Ms.No.1414, Industries Department dated 30.11.1984. The
Government Order (G.O.) had been issued by the Industries Department. The
period under the aforesaid G.O. was extended from 2 to 5 years vide
G.O.Ms.No.1497, Industries (MID.I) Department dated 26.12.1984.
8. On the heels of the aforesaid G.O.s, the State undertook the exercise of
reviewing the Scheme for grant of subsidy to sugar mills, undertaking a
comparison with existing sugar mills and sugar mills that had been set up and
for which licence had been issued subsequently, both in the cooperative and
private sector. Having regard to the functional modifications involved, the
Scheme for grant of subsidy was modified to one of Interest Free Sales Tax
Deferral (IFST) with a monetary ceiling limit.
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W.P.No.2932 of 1998
9. G.O.Ms.No.989 dated 01.09.1988 thus converted the existing relief of
grant of subsidy into a deferral of purchase tax. A ceiling of Rs.300 lakhs
(Rs.70 lakhs) per year for a period of 5 years was fixed for a mill with capacity
of 1250/1500 TCD. The shift from subsidy to deferral was given effect under
G.O.Ms.No.989 dated 01.09.1988. The G.O. made it clear that in the event the
mill has already disbursed subsidy in excess of the 5 years ceiling that had been
fixed, no further disbursement will be made. However, it was also made clear
that there would be no recovery of the excess disbursement that had been made
prior to 01.09.1988.
10. On 28.12.1988, an amendment was issued to G.O.Ms.No.989 dated
01.09.1988, and paragraph 4 was inserted reading ‘This orders issued in
paragraph 2 and 3 above shall come into force with retrospective effect from
01.04.1988’. A representation made by the assessee for re-consideration of
G.O.Ms.No.989 dated 01.09.1988 had been rejected.
11. The said rejection was challenged in W.P.No.1099 of 1989, with a
consequential direction sought for refund of a sum of Rs.92,85,227/- which had
been paid by the assessee under protest, towards purchase tax, along with
interest thereupon at 18% per annum from date of payment till date of refund or
adjustment of the aforesaid amount towards future purchase tax liability.
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W.P.No.2932 of 1998
12. The Writ Petition was transferred to the Tamil Nadu Taxation Special
Tribunal and ultimately came to be allowed on 26.11.1997, as against which,
the present Writ Petition has been filed by the State.
13. Mr.Haja Nazirudeen, learned Additional Advocate General assisted
by Mr.C.Harsha Raj, learned Special Government Pleader would assail the
order of the Tribunal pointing out that the Tribunal has not gone into the issues
in proper perspective. The Tribunal has decided the matter, holding both the
principles of legitimate expectation as well as promissory estoppel in favour of
the assessee. The argument qua promissory estoppel has no merit in light of the
judgment of the Supreme Court.
14. As far as legitimate expectation is concerned, he would submit that
the levy of tax, grant of benefit and reversal or modification of the same, are
matters that would come within the exclusive domain of the State. Hence, there
is no merit whatsoever in the assessee urging the principle of legitimate
expectation in the present case as these are policy matters in which no
intervention may be brooked.
15. He would submit that the assessee had already been the beneficiary
of significant revenue as subsidy. Government Orders passed at various times
have taken stock of economic developments and there was a compulsion cast
upon the State to balance the interests of entities in different sectors. Hence,
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W.P.No.2932 of 1998
being matters of policy, the assessee cannot intervene in such matters. He
relies on the following decisions:
1.Madras City Wine Merchants’Association and Another Vs.State of T.N. and
another.1
2.Dharampal Satyapal Limited Vs. Deputy Commissioner of Central Excise,
Gauhati and others.2
3.Small Scale Industrial Manufactures Association (Registered) Vs. Union of
India and others.3
4.Union of India Vs.K.P.Joseph and others.4
16. In response, Mr.Prasad, learned counsel for the respondent/assessee
would submit that, as the subsidy had been extended by the Industries
Department and not the authorities under the sales tax enactments, the latter
would have no jurisdiction to withdraw or amend the same in any way.
17. He would emphasize the legitimate expectation of the assessee, that
the relief granted under G.O.Ms.No.1414 dated 30.11.1984 read with
G.O.Ms.No.1497 dated 26.12.1984, should play out in full, and that there
should be no interference or abrupt curtailment of the same.
18. The business activities of the assessee had been curated and managed
in line with the expectation that it would be given the full component of relief
as originally promised. Hence, the abrupt curtailment of the relief in
September, 1988 vide G.O.Ms.No.989 dated 01.09.1988 is illegal and contrary
1
(1994) 5 SCC 509
2
(2015) 8 SCC 519
3
(2021)8 SCC 511
4
(1973) 1 SCC 194
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W.P.No.2932 of 1998
to the principles of legitimate expectation, apart from being unfair and
unwarranted. Fuel was added to the fire by way of letter No.515342/MIS.1/88-
1 dated 28.12.1988, where G.O.Ms.No.989 dated 01.09.1988 was brought into
force with retrospective effect from 01.04.1988. Even assuming without
conceding, that, as a policy, the State is entitled to revoke the relief granted
earlier, such withdrawal or reversal can only be prospective and not
retrospective.
19. He relies on the following decisions:
1.State of Bihar and another Vs. Usha Martin Industries Ltd.5
2.Usha Martin Industries Ltd. V. The Additional Superintendent of Commercial
Taxes, Jamshedpur Circle, Jamshedpur and others.6
3.Pournami Oil Mills V. State of Kerala and another.7
4.Union of India and others Vs.Hindustan Development Corporation and
others.8
5.Bejgam Veeranna Venkata Narasimloo and others Vs. State of A.P. and
Others.9
7.State of Tamil Nadu V.Kannapiran Steel Re-rolling Mills.11
8.Eicher Motors Ltd.and another Vs.Union of India and others.12
9.Punjab Communications Ltd. V.Union of India and others.13
10.Kusumam Hotels Private Limited Vs. Kerala State Electricity Board and
others. 145
65 STC 430
6
55 STC 380
7
(1987) 65 STC 1
8
(1993)3 SCC 499
9
(1998) 1 SCC 563
10
(1999) 113 STC 26
11
(1999) 112 STC 161
12
(1999) 2 SCC 361
13
(1999) 4 SCC 727
14
(2008) 13 SCC 2138
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W.P.No.2932 of 1998
11.State of Jharkhand and Others Vs.Brahmputra Metallics Limited, Ranchi
and Another.15
12.Sivanandan C.T. and Another Vs.High Court of Kerala and Others.16
13.State of Jharkhand and others Vs. Tata Cummins Ltd.and another.17
20. We have heard both learned counsel and have perused the material
records as well as the case law cited.
21. The facts are not in dispute. The Government Order under which the
assessee sought benefit is G.O.Ms.No.1414 Industries Department dated
30.11.1984, wherein it was granted subsidy equivalent to purchase tax on
sugarcane for a period of two years.G.O.Ms.No.1414 reads as follows:
GOVERNMENT OF TAMILNADU
ABSTRACT
INDUSTRIES – Sugar – M/s.Ponni Sugars and Chemicals Limited,
Pallipalayam, Salem District – Sanction of subsidy equivalent to the
Purchase Tax payable by the Mills for 2 years – Orders – Issued.
—
INDUSTRIES DEPARTMENT
G.O.Ms.No.1414 Dated the 30.11.1984
Rakthakshi, Karthikai.- 15
Tiruvalluvarandu - 2015.
Read:
G.O. Ms.No.1294, Industries, dt. 24.10.75.
Read also:
From M/s.Ponni Sugars and Chemicals Limited Pallipalayam,
Salem District, Letter dt. 6.8.84
ORDER:
15
(2023) 10 SCC 634
16
(2024) 3 SCC 799
17
(2006)4 SCC 579
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W.P.No.2932 of 1998
1. The Government of India had constituted a committee to go
into the question of viability of sugar factories of 1250 TCD.
That Committee had observed that sugar factories of 1250
TCD established at high cost, would lose heavily unless
adequate relief as recommended by them, is granted by the
Central and State Governments. Among other
recommendations for consideration, the committee has
recommended relief from payment of purchase tax on
sugarcane by the State Government.
2. In the G.O. read above, the Government ordered that new
sugar mills set up in the cooperative and public sector be
granted relief from payment of purchase tax. This relief would
be in the form of an annual subsidy equivalent to the Sales
Tax on cane due from these sugar factories for a period of five
years from the date of their going into production.
3. M/s Ponni Sugars and Chemicals Limited, Pallipalayam,
Salem District have set up a 1250 TCD Sugar Mill in private
sector at Odapalli Village, Pallipalayam, Tiruchengode Talk
in Salem District. The Sugar Mill has commenced crushing
operation in January 1984. The above sugar mill has
requested the Government to extend to it, the concession
granted in G.O.Ms. No.1294, Industries, dated 24.10.75 in
view of the following reasons:
a. Sugar factory is set up at a high cost of about Rs.1,000 lakhs;
b. Due to high cost of investment, the depreciation charge and
the interest on Term Loan along works out to Rs.150 lakhs per
annum;
c. Financial Institutions do not allow any moratorium for
repayment of term loan by new sugar factories; loan
repayment is to commence in the very first year of the
operation of the Mill;
d. If the concession is not extended the viability of the project
may be affected;
e. The sugar mill will contribute, substantial revenue to state
Exchequer. A sum of about Rs.15 lakhs will be paid as sales
tax every year;
f. A term loan of Rs.598 lakhs has been obtained from the
financial institutions. According to the conditions of10
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W.P.No.2932 of 1998agreement entered into with Financial Institutions, the sugar
mill has to obtain an assurance from the Government of Tamil
Nadu, that the Sugar Mill be granted exemption from payment
of purchase tax on cane;
g. For the first time in the sugar industry in the country, a coal
fired boiler has been installed in place of conventional
baggage-fired boiler at an estimated cost of Rs.75 lakhs so
that additional baggage generated in Ponni Sugar can be
supplied in entirety as primary raw material to seshasayee
paper and Boards Ltd;
h. Efforts have been taken by the Seshasayee Paper and Boards
Limited and Ponni Sugars Company to treat their effluent
suitably
Under ISI standards for irrigation purpose.
i. As a result of the above effort more than 200 acres have been
brought under cane cultivation due to the gravity flow of
effluent discharge
j. Steps have been taken to instal lift irrigation system by
erecting suitable pumpsets to bring under cultivation an
additional extent of 500 acres of fallow lands which are
situated at higher levels. than the level at which the effluent is
discharged; within the next year or two, more than 1000 acres
of fallow lands will be brought under cultivation;
k. Taking into consideration, the welfare of Rural people, the
Company has installed drinking water taps; and
l. While granting concession, it does not appear correct to allow
the concession to new sugar mills in co-operative and public
sector and to deny the same to sugar mills in private sector.
4. The Government have carefully examined the request of
M/S.Ponni Sugars and Chemicals Limited, Pallipalayam, Salem
District, After due consideration they have decided that M/s Ponni
Sugars and Chemicals Limited be granted relief in the form of an
annual subsidy equivalent to the quantum of purchase tax on
sugarcane due from it, for a period of two years from the date of its
going into production.
5. This order issues with the concurrence of the Finance Department
– Vide its U.O.No.4224/FS/1/84 dated 23.11.1984.
(BY ORDER OF THE GOVERNOR)
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W.P.No.2932 of 1998
V.SELVARAJ
COMMISSIONER AND SECRETARY TO GOVT.
22. Vide G.O.Ms.No.1497, Industries (Mid.I) Department, dated
26.12.1984, the benefit granted earlier was enhanced, in that, the grant of
subsidy was extended to 5 years from the date of the company going into
production as against two years, as originally granted. The assessee had, as
would have any prudent commercial entity, invested substantial sums of money
and effort in setting up the units having regard to the benefit that was set out in
the aforesaid Government Orders.
23. G.O.Ms.No.1497, Industries (Mid.I) Department, dated 26.12.1984
reads as follows:
GOVERNMENT OF TAMILNADU
ABSTRACT
INDUSTRIES – Sugars – Messers. Ponni Sugars and Chemicals
Limited Pallipalayam, Salem District – Sanction of subsidy
equivalent to purchase tax payable by the mills for five years –
Orders – Issued.
—-
INDUSTRIES (MID.I) DEPARTMENT
G.O.Ms.No.1497. Dated the 26th December 1984.
Rakthakshi, Margazhi-11
Thiruvallurvarandu-2015.
Read:
G.O.Ms.No.1414, Industries, dated 30.11.1984.
Read also:
From M/s.Ponni Sugars and Chemicals Limited,
Lr. No.ACS/T2, dt.5.12.84.
—-
ORDER
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W.P.No.2932 of 1998
1. In the Government Order read above, the Government
Ordered that M/s.Ponni Sugars and Chemicals Limited be
granted relief in the form of an annual subsidy equivalent to
the quantum of purchase tax on sugarcane due from it for the
period of two years from the date of its going into production.
However, M/s.Ponni sugars and Chemicals Limited In the
letter read above have represented to the Government that the
subsidy be given for a period of five years.
2. The Government have carefully examined the request of M/S.
Ponni Sugars and Chemicals Limited and decided to accept it.
3. Accordingly, in partial modification of the orders issued in
G.O.MS.No.1414, Industries (MID.I) Department dated
30.11.1984, the Government direct that M/s. Ponni Sugars
and Chemicals Limited be granted relief in the form of an
annual subsidy equivalent to the quantum of purchase tax on
sugarcane due from it for a period of five years from the date
of its going into production.
4. The expenditure shall be debited to “320_ Industries –
B.Large and Medium Industries – AE. Consumer Industries –
Schemes in the Sixth Five Year Plan – II. State Plan –
JB/Assistance to Sugar Mills towards payment of Purchase
Tax/ (DP Code 320B ABJB_0008) – 09. Subsidies (DP Code
320B ABJB 0909) by Contra Credit to the head of Account
040.Sales Tax-AB. Receipts under the Sales Tax Act – 01.Tax
Collections” (DP Code 040A ABAA 0104).
5. The Expenditure is on “New Service” and the approval of the
Legislature will be obtained in due course. Pending approval
of the Legislature, the expenditure will be met initially by an
advance from Contingency Fund. Orders in this regard will
issue separately from the Finance (BG.I) Department.
6. This order issues with the concurrence of the Finance
Department – Vide its U.O.No.147174-A/BG.II/84-1 dated
26.12.1984.
(BY ORDER OF THE GOVERNOR)
V.SELVARAJ
COMMISSIONER AND SECRETARY TO GOVT.
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W.P.No.2932 of 1998
24. While so, and having reviewed the scheme for grant of purchase tax
subsidy,the State had had a change of heart, and hence, G.O.Ms.No.989,
Industries (Mid.I) Department, dated 01.09.1988 came to be issued. That G.O.
took note of the position that in the interests of general industrial development,
the Government had sanctioned a scheme of Interest Free Sales Tax Loan for an
initial period with a certain ceiling and that scheme was being modified to one
of tax deferral. Hence, they preferred that the special benefit of purchase tax
subsidy also be modified to one of deferral of purchase tax in order to bring
about uniformity in the type of assistance extended to industrial units.
25. G.O.Ms.No.989 dated 01.09.1988 reads as follows:
GOVERNMENT OF TAMILNADU
ABSTRACT
Industries – Sugar – New Sugar Factories – Relief from
Purchase TaxSubsidy – Orders modified.
—-
INDUSTRIES (MID.I) DEPARTMENT
G.O.Ms.989, Date : 1-9-1988
(Avani-16th Vibhavan-
2018, Thiruvallurvarandu)
Read the following:
1. G.O.Ms.No.1294, Industries dated 24.10.75
2. G.O.Ms.No.1497, Industries dated 26.12.84
3. G.O.Ms.No. 268, Industries dated 16.4.87.
ORDER
1. In the G.O.first read above the Government sanctioned the
grant of reliefs to the new sugar factories in co-operative and
public sector in the form of annual subsidy equivalent to the14
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W.P.No.2932 of 1998quantum of purchase tax on cane due from the sugar factories for
a period of five years from the date of their going into
production. The above scheme had also been extended to the new
sugar mills in private sectors in the G.O.’s and 2nd and 3rd read
above. The Government have reviewed the existing scheme of
grant of purchase tax subsidy to new sugar mills in the context of
new sugar mills which have been licensed in the current plan
period and which will be coming up both in the Co-operative and
in the private sectors in the next two years. For general
Industrial Development, the Government have sanctioned a
Scheme of Interest Free Sales Tax Loan for an initial period with
certain ceilings of loans – both annual and for the entire period
of assistance. Such a scheme is being modified to one of tax
deferral as announced by the Governor in the recent package of
measures to give a boost to industrial development. In the case of
sugar mills so far subsidies have been given instead of Interest
Free Sales Tax Loan, The Government have carefully re-
examined the above scheme and have decided that to bring about
unity in the type of assistance given to Industrial Units, the
Purchase tax subsidy scheme be modified to one of deferral of
Purchase Tax.
2. In a partial modification of the orders issued in the G.O.’s read
above the Government direct that the purchase tax payable by
newly established sugar mills be deferred for a period of 4 years,
subject to modifications as announced from time to time, from the
date of commencement of production, subject to the following
ceiling.
Ceilings:
==================================
Capacity of the Mills / Ceiling for a Year / Ceiling for 4 Years.
===================================
(Rs.in lakhs)
1250/1500 TCD 70.00 240.00
2500 TCD 125.00 440.00
===================================
The above ceilings will however be restricted to the
purchase tax leviable for the cane actually drawn from the
reserved areas, The purchase tax deferred for 1st, 2nd, 3rd and
4th year will be collected without interest in the 5th, 6th 7th and15
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W.P.No.2932 of 19988th year respectively. The above assistance of purchase tax
deferral is also subject to the condition that it will not be
applicable in a year if a mill declares dividend during the year
and the deferment will be restricted within the period of 4 years
from the date of commencement of production to only those years
in which dividend is not declared. No subsidy will be granted
hereafter to any new sugar mill.
3. In the case of mills already established and which have been
granted purchase tax subsidy under G.O.’s read above, while the
scheme of subsidy will continue and the condition relating to
dividend will not apply, the ceilings be as follows:”
===================================
Capacity of the Mills/ Ceiling for a Year/ Ceiling for
5Years
===================================
(Rs.in lakhs)
1250/1500 TCD 70.00 300.00
2500 TCD 125.00 550.00
===================================The above ceilings will be further restricted to the purchase tax
leviable for the cane actually drawn from the reserved areas. If
subsidy has been disbursed for one or more years, the subsidy for
the subsequent years upto the limit of 5 years will be disbursed
annually with reference to the ceiling for a year as fixed above
but such that the 5 years’ ceiling is not exceeded. In case the
mills have already been disbursed subsidy in excess of the 5
years ceiling indicated above, no further disbursement will be
made. However there will not be any recovery of such excess.
4. This order Issues with the concurrence of Finance Department
Vide its U.O.No.1267/ABS(N)/83 dated 29.8.88.
(BY ORDER OF THE GOVERNOR)
P.SHANKAR
COMMISSIONER AND SECRETARY TO GOVT.
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W.P.No.2932 of 1998
26. The above G.O. indicates a marked shift in the thinking of the State
in the grant of sales tax benefit, from a subsidy to a deferral. On the heels of the
above change in stance, came Letter No.51532/MIS.1/88-1 dated 28.12.1988
that reads as follows:
GOVERNMENT OF TAMILNADU
INDUSTRIES DEPARTMENT
Fort St. George,
Madras – 9.
Letter No.51532/MIS.1/88-1. Dated : 28.12.88.
From
Thiru. P.SHANKAR, I.A.S.,
Commissioner and Secretary to Government.
To
The Director of Sugar,
474, Anna Salai, Madras – 35.
Sir,
Sub : Industries – Sugar – New Sugar Factories – Relief
from Purchase Tax subsidy orders – Modified –
Amendment issued.
Ref: 1. G.O.Ms.No.989, Industries dated 1.9.88.
2. Your Lr.No.D2/10516/88 dated 30.9.88
—
I am directed to state that the following amendment is
issued to the Government Order first cited.
AMENDMENT
In the G.O.Ms.No.989/Industries, dated 1.9.88 after paragraph 3,
the following may be inserted as paragraph 4 and the existing
paragraph 4 be renumbered as para 5.
“4. This orders issued in paragraph 2 and 3 above shall
come intoforce with retrospective effect from 1.4.1988”.
Yours faithfully
K. ChidambaraVadivelu
2/1/89.
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W.P.No.2932 of 1998For Commissioner and Secretary
to
Government.
The Chairman and Managing Director,
Tamil Nadu Sugar Corporation Limited;
474, Anna Salal, Madras – 35.
The Commercial Taxes and Religious Endowment Dept.
Madras -9.
The Finance Department, Madras-9.
27. This letter was like a missive, in that, the tax deferral scheme that had
been introduced on 01.09.1988 was stated to have come into force with
retrospective effect, from 01.04.1988 itself, which consequently put into
jeopardy the subsidy that the assessee had been enjoying for the period till
30.09.1988. Challenging the aforesaid, the assessee has approached the
Tribunal and succeeded, as against which the State is before us.
28. The Tribunal in its order dated 26.11.1997 considered the
background in which the scheme of subsidy had been initiated. The petition
was allowed by the Tribunal applying the theory of promissory estoppel
holding that G.O.Ms.No.989 dated 01.08.1988 will have no application to the
case of the petitioner/assessee. That argument is no longer available to them in
light of the judgment of the Supreme Court.
29. One of the arguments taken by the assessee is that the impugned
notifications have been issued by the Industries Department and not by the
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Commissioner, Commercial Taxes Department. While they state that the
Notifications have not been notified/gazetted, the State objects, pointing out
that the Government Orders have been gazetted. However, and admittedly,
communication dated 28.12.1988 making the levy retrospective, is a letter
simplicitor.
30. The State had relied upon the case of KP Joseph (supra), that arose
from the Mysore High Court and related to re-fixation of the pay of a
combatant clerk in the Indian Army whose pay had been re-fixed with
retrospective effect by way of an administrative order. The Court holds that
while, generally speaking an administrative order would confer no justiciable
right, the rule is subject to exceptions.
31. Thus, they argue that though normally the Government cannot
supersede statutory rules by administrative instructions, they can proceed to fill
gaps in those rules and supplement the rules by way of instructions, so long as
those instructions are not inconsistent with the rules framed. Thus, according to
the State, the impugned communication supplants the policy already in place
and does not militate with the same in any way.
32. We do not agree. There is no merit in the objection of the assessee
that the G.O.s have been issued only by the Industries and not the Commercial
Taxes Department, as the benefit of that subsidy has been availed by it. The
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Supreme Court in the case of Pournami Oil Mills(supra), considered a case
where that appellant had been the beneficiary of two Exemption Notifications.
The State contested the grant of exemption contending that the Notifications
had not been issued in exercise of the powers under Section 10 of the Kerala
General Sales Tax Act,1963 which vested power in the Government to grant
exemption and reduction in rate of tax.
33. The Court concludes that though in the second order there was no
reference to Section 10, it could be inferred that both the Exemption
Notifications had been issued under the same provision. They state, ‘it is a well
settled principle of law that where the authority making an order has power
conferred upon it by statute to make an order made by it and an order is made
without indicating the provision under which it is made, the order would be
deemed to have been made under the provision enabling the making of it’.
Thus, the G.O.s are not vitiated by reason of their issuance by the Industries
Department.
34. However, we are of the categoric view that the impugned
communication making the withdrawal of the subsidy retrospectively has no
sanction in law. The grant of the subsidy is a substantive benefit that has its
base in a Government Order issued by the Industries Department. Even if the
Government Orders have not been gazetted, this assessee, and several more,
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have had the benefit of the subsidy. While the withdrawal of the subsidy is
itself challenged, we are in no doubt that the method by which it has been
retrospectively withdrawn, that too by way of a letter, cannot be accepted.
35. We now come to the argument on legitimate expectation. Learned
AAG has argued that the assessee could not have had any legitimate
expectation as regards the grant of subsidy or the continued grant thereof. The
grant of a tax benefit of the withdrawal thereof, including the mode of
withdrawal, is within the domain of the Legislature. In Madras City Wine
Merchants’Association (supra), paragraph 48 has been cited to say that there
are some situations where the principle of legitimate expectation would not
stand attracted.
36. In that case, the Court was concerned with the argument of legitimate
expectation in the context of a change in policy relating to sale of liquor.
Several cases have been taken note of such as Supreme Court Advocates –on-
record Assn. V. Union of India Supreme Court Advocates –on-record Assn. V.
Union of India18, Kumari Shrilekha Vidyarthi V. State of U.P.19, Council of
Civil Service Unions V. Minister for the Civil Service 20(All ER pp.943-44),
Halsbury’s Laws of England21, Union of India V. Hindustan Development
18
(1993) 4 SCC 441
19
(1991) 1 SCC 212
20
(1984) 3 All ER 935
21
Vol 1(1), 4th Edn. Para 81 at pages 151-52
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Corpn (SCC pp.540-41 para 29)22, among others, where the Court had taken the
view that the consideration of legitimate expectation in the decision making
process is a requirement of the rule of non-arbitrariness.
37. Quoting extensively from the judgment in Hindustan Development
Corporation (supra), the Court states that, ‘If a denial of legitimate expectation
in a given case amounts to denial of right guaranteed or is arbitrary,
discriminatory, unfair or biased, gross abuse of power or violation of
principles of natural justice, the same can be questioned on the well-known
grounds attracting Article 14 but a claim based on mere legitimate expectation
without anything more cannot ipso facto give a right to invoke these
principles.23’
38. Next referring to Dharampal Satyapal Limited (supra), the learned
Additional Advocate General has reiterated the test of prejudice caused to the
aggrieved party. In this case, what came under the scanner was the new
industrial policy for the North Eastern region that had been unveiled to
stimulate the development of industrial infrastructure in that region. As a result,
the region was made a tax free zone for a period of 10 years, extending
incentives to those who wanted to establish industries there.
22
(1993) 3 SCC 499
23
(1993) 3 SCC 499
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39. The Notifications granting the benefit had been issued under the
provisions of the Central Excise Act, 1944, the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 and other enactments, but was
withdrawn in respect of some products, being tobacco and tobacco substitutes,
including cigarettes, chewing tobacco etc.
40. The withdrawal of the benefit of exemption Notification was
challenged on several grounds, including the violation of principles of natural
justice. The Court noted that the withdrawal of the benefit was to designated
products, such as tobacco, cigarettes, etc., and had been done in pursuance of
the judgment of the Supreme Court in the case of T.C.Tobacco (P) Ltd. V.
Union of India24.
41. The Court thus held that since the withdrawal had its basis in the
pronouncement of the Supreme Court that becomes law of the land in terms of
Article 141 of the Constitution of India, even if there had been an infraction in
the principles of natural justice, the grant of an opportunity would not have
changed the matters in any material sense. Hence the exercise of grant of
opportunity would be an exercise in futility.
42. The same view was taken in Escorts Farms Ltd. V. Commr.25, which
reiterated the position that rules of natural justice are necessarily to be followed
24
(2005) 7 SCC 725
25
2004 4 SCC 281
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W.P.No.2932 of 1998
for doing substantial justice. However, if it were to amount to a mere ritual of
hearing without any possibility of change in the decision on merits, then such
an opportunity was of no use.
43. Learned AAG has argued that there is limited scope of judicial
review in matters relating to economic and fiscal regulatory issues, relying
upon the judgement in Small Scale Industrial Manufactures Association
(Registered) (supra). Three Hon’ble Judges of the Supreme Court cautioned
that Judges are not experts in such areas and must exercise restraint in
impugning the judgment of experts and their policy decisions, arrived at after
pain-staking examination of all parameters involved.
44. Hence, unless the Court has satisfied that there is a rank illegality in
the decision itself or if the policy could be faulted on the ground of malafides,
arbitrariness etc., ‘wisdom and feasibility of economic policy are not amenable
to judicial review’.
45. The judgments cited have been carefully studied as have the
propositions laid down therein. However, what remains to be seen is as to
whether those propositions are applicable to the case on hand. In the present
case, the subsidy granted has been withdrawn at the very end of the five year
period in preference to the issuance of a deferral scheme, and that too
retrospectively.
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46. Undoubtedly, the State can adopt different measures for incentivising
the tax-paying public and in this case, the State has extended a scheme of
subsidy. The assessee has also designed its business to suit the incentive
offered. Those measures however must not militate against the tax payers who
would legitimately expect that there would be no change in the circumstances
governing their business or the attendant conditions for the duration as
originally assured by the State.
47. The subsidy had originally been granted for two years on 30.1.1984,
extended to five years on 26.12.1984, had been cut short even at the end of the
fourth year on 01.09.1988 and then, short-circuited by four months, vide
communication dated 28.12.1988.
48. The question to be answered is as to whether the incentive granted
may be abruptly terminated without any semblance of justification for such
stoppage. If that were to be acceded to, there would be no certainty in the
conduct of business as one could never be sure about the continuance of
incentives granted.
49. In Brahmputra Metallics Limited (supra), the issue that arose was
whether that assessee was entitled to claim deduction of 50% of the amount
assessed towards electricity duty in certain financial years. Such entitlement
was claimed based on the 2012 Industrial Policy as well as the statutory
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Notification issued under the Bihar Electricity Duty Act, 1948. Under the
Industrial Policy 2012, Clause 32.10 provided as under:-
Clause 32.10 provided an exemption from the payment of 50 per
cent of the electricity duty for a period of five years, for captive
power plants established for self-consumption or captive use:
“32.10 Incentive for captive power plant New or existing
industrial units setting up captive power plant shall be
exempted from the payment of 50% of electricity duty for
a period of five years for self – consumption or captive
use (i.e. in respect of power being used by the plant)
from the date of its commissioning”.
50. The relief was eventually granted under Notification dated
08.01.2015 only after a writ petition had been filed by another assessee.
However, the relief was made effective only from the date on which it was
issued i.e., prospectively. Hence, and seeing as under the Industrial Policy
2012, an assessee was granted exemption for a period of five years, the
argument before the Supreme Court was that the Exemption Notification ought
not to have been prospective as it curtailed the benefit by three years and ought
to have been retrospective, so that assessees could have availed the benefit of
all five years.
51. The High Court has accepted the assessee’s case, specifically noting
that the Exemption Notification had been issued only in 2015 when the policy
had been announced in 2012. They concluded that it is nothing but the lethargic
approach of the State that was responsible for the delay.
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52. Defending the order of the High Court before the Supreme Court on
the principle of legitimate expectation, the judgment in National Buildings
Construction Corporation vs S. Raghunathan26 rendered by a three Judge
Bench of the Supreme Court was cited. The court noted the historical context
for the doctrine of legitimate expectation as being grounded in the field of
administrative law. Paragraph 18 is relevant and is extracted below:-
“18. The doctrine of “legitimate expectation” has its
genesis in the field of administrative law. The Government and
its departments, in administering the affairs of the country, are
expected to honour their statements of policy or intention and
treat the citizens with full personal consideration without any
iota of abuse of discretion. The policy statements cannot be
disregarded unfairly or applied selectively. Unfairness in the
form of unreasonableness is akin to violation of natural justice.
It was in this context that the doctrine of “legitimate
expectation” was evolved which has today become a source of
substantive as well as procedural rights. But claims based on
“legitimate expectation” have been held to require reliance on
representations and resulting detriment to the claimant in the
same way as claims based on promissory estoppel.”
53. The Bench in Brahmputra Metallics Limited (supra), noted that the
above observation was made while understanding the doctrine under English
law. A line of cases was thereafter discussed, making a distinction between the
doctrines of legitimate expectation on the one hand, and promissory estoppel on
the other, serving to emphasise the differences between the two doctrines and
to ensure that one does not conflate with the other.
26
(1998) 7 SCC 66
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W.P.No.2932 of 1998
54. Referring to the judgment in Monnet Ispat and Energy Ltd. vs Union
of India27, in particular to the opinion of H.L.Gokhale.,J they refer to the
following paragraphs:
“Promissory Estoppel and Legitimate Expectations
289. As we have seen earlier, for invoking the principle of
promissory estoppel there has to be a promise, and on that basis
the party concerned must have acted to its prejudice. In the
instant case it was only a proposal, and it was very much made
clear that it was to be approved by the Central Government, prior
whereto it could not be construed as containing a promise.
Besides, equity cannot be used against a statutory provision or
notification.
290…..In any case, in the absence of any promise, the
Appellants including Aadhunik cannot claim promissory estoppel
in the teeth of the notifications issued under the relevant statutory
powers. Alternatively, the Appellants are trying to make a case
under the doctrine of legitimate expectations. The basis of this
doctrine is in reasonableness and fairness. However, it can also
not be invoked where the decision of the public authority is
founded in a provision of law, and is in consonance with public
interest.”
55. The concept was refined even further in Union of India v
P.K.Choudhary28, where they say that the doctrine of legitimate expectation
cannot be claimed as a right in itself, but can only be used where there is a
denial of legitimate expectation leading to violation of Article 14 of the
Constitution. The juxtaposition of this relationship between the doctrine of
legitimate expectation and Article 14 was discussed in Food Corpn. Of India V.
27
(2012) 11 SCC 1
28
(2016) 4 SCC 236
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W.P.No.2932 of 1998
Kamdhenu Cattle Feed Industries29, and one of the fulcrums on which the
judgment rested was the ground of arbitrariness.
56. Hence the Bench said that a mere expectation, albeit a reasonable or a
legitimate one, would not be a distinct enforceable right, but failure to consider
and give due weight to such expectation, may render a decision of an authority
arbitrary. This is how, they say, the requirement of due consideration of
legitimate expectation forms part of the principle of non-arbitrariness which is
a necessary concomitant of the rule of law.
57. This has been carried forward in Noida Entrepreneurs Assn. V.
Noida30, where the Court says public authorities cannot play fast and loose with
the powers vested in them and go on to say the three tests that have been set
forth are those of reasonableness, consistency and non-arbitrariness. (See: State
of Bihar V. Shyama Nandan Mishra31 and SEBI v. Sunil Krishna Khaitan32).
58. Applying those tests to that case, the Court notes that the State of
Jharkhand had made no attempt whatsoever to disclose any reason or
justification for not giving effect to the Exemption Notification in time. In
strong words the Court says ‘Both the accountability of the State and the
solemn obligation which it undertook in terms of the policy document militate
against accepting such a notion of the state power. The State must discard the
29
(1993) 1 SCC 71
30
(2011) 6 SCC 508
31
(2022) 17 SCC 420
32
(2023)2 SCC 643
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W.P.No.2932 of 1998
colonial notion that it is a sovereign handing out doles at its will. Its policies
give rise to legitimate expectations that the State will act according to what it
puts forth in the public realm. …….. A deprivation of the entitlement of private
citizens and private business must be proportional to a requirement grounded
in public interest.’
59. While considering the ambit of State powers, they refer to the
observations of the Court in National Building Constructions Corpn. (supra) at
paragraph 18, extracted below,ultimately holding that the course of action by
the State of Jharkhand was arbitrary and violative of Article 14.
“18……..The Government and its departments, in
administering the affairs of the country are expected to
honour their statements of policy or intention and treat the
citizens with full personal consideration without any iota of
abuse of discretion. The policy statements cannot be
disregarded unfairly or applied selectively. Unfairness in the
form of unreasonableness is akin to violation of natural
justice.”
60. A Constitution Bench of the Supreme Court in the case of
Sivanandan C.T. and Another (supra), a recent judgment rendered in 2024 on
the aspect of legitimate expectation, reiterates the march of law on this aspect
and useful reference may be made to paragraphs 28 and 29 extracted below:-
’28.In R. V. North and East Devon Health Authority, ex p
Coughlan, the Court of Appeal laid down the test of abuse of
power to determine whether a public authority can resile from a
prima facie legitimate expectation. It was held that frustration of
a substantive legitimate expectation by public authorities would
be unfair and amount to abuse of power. Importantly, it was held30
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W.P.No.2932 of 1998that abuse of power constitutes a ground for the courts to
exercise judicial review of executive actions.
29.In R. (Nadarajah) v. Secy. of State for the Home Deptt.
the Court of Appeal added another facet to the doctrine of
substantive legitimate expectation by grounding it in the
principles of good administration. Importantly, the Court
identified that consistency and probity are tenets of a good
administration. Laws, L.J. explained the principles underlying
the doctrine of legitimate expectation in the following terms:
“68. The search for principle surely starts with
the theme that is current through the legitimate
expectation cases. It may be expressed thus. Where a
public authority has issued a promise or adopted a
practice which represents how it proposes to act in a
given area, the law will require the promise or practice
to be honoured unless there is good reason not to do so.
What is the principle behind this proposition? It is not
far to seek. It is said to be grounded in fairness, and no
doubt in general terms that is so. I would prefer to
express it rather more broadly as a requirement of
good administration, by which public bodies ought to
deal straightforwardly and consistently with the
public.” (emphasis
supplied)
Moreover, Laws, L.J. held that a public authority can resile from
its promise or future conduct if its decision: (i) is in pursuance of
a legal duty; or (ii) is a proportionate response having regard to
the legitimate aim pursued by the public body in the public
interest.’
61. The Court made it clear that the discussions and conclusions were not
unfettered but rested on a careful perusal of the mode, manner, purpose and
object of the actions on the State. They clarify as follows at paragraph 38:-
‘38.The doctrine of legitimate expectation does not impede
or hinder the power of the public authorities to lay down a policy31
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W.P.No.2932 of 1998or withdraw it. The public authority has the discretion to exercise
the full range of choices available within its executive power. The
public authority often has to take into consideration diverse
factors, concerns, and interests before arriving at a particular
policy decision. The courts are generally cautious in interfering
with a bona fide decision of public authorities which denies a
legitimate expectation provided such a decision is taken in the
larger public interest. Thus, public interest serves as a limitation
on the application of the doctrine of legitimate expectation. Courts
have to determine whether the public interest is compelling and
sufficient to outweigh the legitimate expectation of the claimant.
While performing a balancing exercise, courts have to often
grapple with the issues of burden and standard of proof required
to dislodge the claim of legitimate expectation.’
62. At paragraph 40 they say that for a public authority to frustrate a
claim of legitimate expectation, it must objectively demonstrate by placing
relevant material before the Court that its decision was in public interest.
Hence, it all boils down to whether this test would apply to this case.
63. The recommendation for purchase tax subsidy emanated from the
Sampath Committee Report dated 05.04.1974. That Committee had been
constituted to examine matters relating to economic viability of new sugar
factories. Under the caption ‘incentives’ at clause 21 of that Report, the
Committee considers the deficits liable to be suffered in the establishment and
operation of new sugar factories and hence recommended suitable incentives.
64. The incentives were in the nature of capital subsidy, allowing a larger
percentage of free sale sugar, high level sugar price in the case of new sugar
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W.P.No.2932 of 1998
factories, allowing a rebate on excise duty and remission of purchase tax
imposed by different State Governments. The last recommendation reads thus:
’No.F.27(6)/74.ST/
Government of India
Ministry of Agriculture
(Department of Food)
Directorate of Sugar and Vanaspati
‘Krishi Bhavan’
New Delhi, the 5th April 1974
To
Sub: Constitution of a Committee to examine the matters
relating to economic viability of new sugar factories
………….
28.0 Remission of Purchase Tax: Purchase Tax on
sugarcane is levied by different state Governments at different
rates. In the initial stages of operation a new sugar factories
established at a very high block cost, the factories would incur
cash losses as discussed above. In actual practice, some of the
State Governments, in the past allowed either complete
exemption from payment of purchase tax or concession in this
regard. The Committee, therefore, suggests, that the different
state Governments may be moved to exempt all new sugar
factories from payment of purchase tax on sugarcane upto the
same level of sugar production for which the excise duty rebate is
allowed by the Central Government.
The Committee further suggests that this issue shall be
taken up independently by the Industrial Finance Corporation
with the State Governments concerned recommending remission
of Purchase Tax in respect of new sugar factories.’
65. As a consequence, G.O.Ms.No.1294 came to be issued providing for
purchase tax subsidy in the following terms:
G.O.Ms.No.1294, Industries Department Dated 24.10.75.
ABSTRACT
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W.P.No.2932 of 1998Industries – Sugar – New Sugar Factories in Cooperative and Public
Sector – Relief from Purchase Tax – subsidy – Ordered.
ORDER:
1) Two new sugar Factories Viz., Vellore Cooperative Sugar Mills and
Tirupattur Cooperative Sugar Mills are being set up in the Cooperative
sector. Under the Tamil Nadu Sugar Corporation one new sugar factory
is being put up in the Public Sector at Thanjavur. It has been observed
that these projects are likely to cost over Rs.6 Crores each.
2) The Government of India had constituted a committee to go into the
question of viability of sugar factories of 1,250 TCD established at such
high cost. That committee had observed that sugar factories of 1,250
TCD. Established at such high cost would lose heavily unload adequate
relief as recommended by them, and granted by the Central and State
Governments. Among other recommendations for consideration, the
committee had recommended remission of purchase tax on cane by the
State Government.
3) Government have considered the recommendation of the above
committee in the light of the projected profitability of the new
sugar factories presently being set up in the cooperative and
public sectors. After due consideration, they have decided in
favour of grant of relief to these new sugar factories yet to be
commissioned in the cooperative and public sectors. It has been
decided that this relief will be in the form of an annual subsidy
equivalent to the quantum of purchase tax on cane due from those
sugar factories for a period of five years from the date of their
going into production.
4) This order issues with the concurrence of the Finance
Department – Vide its U.O.No.2302/FS/P/75-1 Dated 22.9.75.
(BY ORDER OF THE GOVERNOR)
A.PADMANABHAN
Secretary to Government
66. The Government Orders issued in 1984 specific to the assessee, and
extending purchase tax subsidy is the result of a detailed study on the subject
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after a Committee constituted for the subject. The subsidy was originally
granted for 2 years and then extended to 5 years. The impression created was
that the subsidy would play out the entire period for which it had been issued
and there was absolutely no inkling that it would be abruptly
terminated/withdrawn.
67. The test to determine the legality of such withdrawal as per the test
in the case of C.T.Sivanandan’s case is as to whether any justification or
explanation has been given for the withdrawal. Thus, even granting that the
State could withdraw an incentive, abruptly and without provocation, such
withdrawal must be justified and with a proper explanation. Let us test that
position now. In the additional supporting affidavit filed by the State, they
state at para 5 to 8 as follows:-
‘5.It is submitted that M/s.Ponni Sugars & Chemicals
Limited, made a representation dated 6.8.1984 seeking
purchase tax subsidy and the Government, even though initially
rejected their request subsequently conceded to their request
for a limited period of two years since as per the statements
furnished by the first respondent company, the company was
shown to be incurring loss in the first two years and from the
third year onwards, it was expected to make a profit of
Rs.198.20 lakhs per annum. Accordingly by G.O.Ms.No.1414
Industries Department dated 30.11.1984 annual subsidy
equivalent to the quantum of purchase tax on sugar cane was
granted for two years. Subsequently the Government by an
order in G.O.Ms.No.1497 Industries Department dated
26.12.1984 extended the subsidy for five years. The first
respondent company commenced commercial production on
1.12.1984.
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W.P.No.2932 of 1998
6.It is submitted that while considering the request of the
first respondent company for purchase tax subsidy, the
Government estimated the subsidy payable to a 1250 Tonnes
Crushed per day (TCD) capacity mill as follows:-
Year Proposed subsidy (approximate)
(Rupees in lakhs)
I year 22.23
II year 33.34
III year 44.45
IV year 50.00
V year 50.00
--------
Total 200.02
--------
However, the M/s.Bannari Amman Sugars Limited, (hereinafter
referred to as BS) which commenced its commercial production
on 22.1.1986 claimed a subsidy of Rs.22,09,554/- for the
assessment year 1985-86 (for 68 days) and Rs.1,28,10,680/- for
the assessment year 1986-87. As per the scheme, the Director of
Sugar to whom allocations were made by the Government for
disbursing subsidy, had to make payment to the commercial
Taxes Department towards the purchase tax payable by the
sugar mills who were granted the benefit of subsidy. In the year
1987, the Director of Sugar adjusted the purchase tax dues of
BS to an extent of Rs.1.5 crores out of the budgetary provisions
made for other mills and in his letter dated 8.6.1987 addressed
to the Commissioner and Secretary to Government, Industries
Department, sought for additional allotment so as to enable him
to disburse the subsidy due for other mills. The Government,
astonished by the enormous amount claimed by BS sought for
certain clarifications from the Director of Sugar. As per the
report of the Director of Sugar dated 23.7.1987 Bannari Amman
Sugars Limited purchased sugar cane worth Rs.1,66,75,878.07
upto 31.3.1986 i.e. for 68 days for which the purchase tax
worked out to Rs.22,09,554/-. During the year 1986-87 i.e. upto
31.3.1987 BS purchased sugar cane for about Rs.9,48,93,922.79
for which the purchase tax liability worked out to
Rs.1,28,10,680/-. It was also pointed out that Bannari Amman
Sugars Limited started its production on 22.1.1986 and they
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W.P.No.2932 of 1998
crushed 68,000 tonnes of sugar cane upto 31.3.86 and during
1986-87 a quantity of 442389.185 MTs of sugar cane was
crushed by it. The Director of Sugar further pointed out that if
1250 TCD capacity mill crushes sugar cane for 172 days
(optimum capacity) in a year it may crush about 2,15,000 MTs
of cane and if the mill pays a price of Rs.240/- per MT as in the
case of Bannari Amman Sugars Limited the total payment will
come to Rs.516 lakhs and the purchase tax at 13.5% will come
to Rs.69.66 lakhs, but the first respondent company had
surpassed all levels. The said report was submitted in reply to
the contention of the Industries Department that the subsidy to
be given in the first year 1250 TCD mill was Rs.22.23 lakhs
only. It was further pointed out that according to the existing
Government order there was no limit upto which the subsidy
could be claimed. Under these circumstances, the Government
thought it fit to fix ceilings on purchase tax subsidies in public
interest.
7.It is submitted that the Government re-examined the
claim of purchase tax subsidy and felt that there was no need to
extend the subsidy to sugar mills in future when they were in a
position to make substantial profit even after payment of
purchase tax. After a thorough discussion on the nature of
subsidy granted and as to how the benefits were utilised by the
mills the Government came to the conclusion that there was no
justification for extending unlimited benefit to the sugar mills
since they were making profits. While concluding that the
continuation of unlimited subsidy on profit making sugar mills
would an “undue benefit” the Government also took into
consideration that the benefit of subsidy was extended to
Bannari Amman Sugars Limited on the ground that if sufficient
incentives were not given by the Government, the Bannari
Amman Sugars Limited would not be able to pay the loan to the
financial institutions and develop Bannari Amman
SugarsLimited on sound lines. It was suggested after discussion
with the Advisor to the Governor, that instead of withdrawing
the concession already announced it would be enough if the
ceiling already decided upon in respect of the subsidy were
enforced. It was proposed that in the case of 1250/1500 TCD
mills the annual ceiling would be Rs.70 lakhs and the 5 years
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W.P.No.2932 of 1998
ceiling would be Rs.3 crores and in the case of 2500 TCD mills,
annual ceiling would be Rs.1.25 crores and the five year ceiling
would be Rs.6 crores. In the case of new sugar mills, instead of
purchase tax subsidy interest free purchase tax deferral for a
period of four years subject to ceiling was proposed. Thus
keeping in mind the revenue loss and public interest as well as
the interest of the sugar mills which were availing purchase tax
subsidy, the Government restricted the purchase tax subsidy to
Rs.70 lakhs per year and in the aggregate Rs.300 lakhs through
the impugned Government Order.
8.It is submitted that the allegation in para 26 and 27 of
the additional counter affidavit filed on behalf of the first
respondent-company in respect of the supporting affidavit of the
first petitioner that the first respondent irretrievably altered its
position based on the promise of the first petitioner is not
correct. The further allegation in para 30 and 34 of the counter
affidavit that higher crushing was undertaken by the company
with a view to reduce the scarcity of sugar resulting in
additional expenditure to the sugar mill by way of transport
charges, service charges, additional labour cost acting on the
promise in G.O.Ms.No.1414 Industries Department dated
30.11.1984 thereby irretrievably altering its position is not
correct. The further allegation in para 35 that drawing of large
part of cane from such long distance with attendant high cost
was rendered commercially feasible only because of the
availability of incentive benefits is not correct. It is submitted
that the first respondent company procured large quantity of
cane from various places other than the reserved area with a
view to keep their operation and to earn more profit. The
extensive procurement of cane only resulted in the first
respondent company earning handsome profits. The first
respondent-company’s annual report revealed that for the sugar
year that ended on 30.9.1985, the company earned a net profit
of Rs.2,88,41,593/- and even declared dividend for its
shareholders. In the year that ended on 30.9.1986, the company
earned a profit of Rs.3,59,18,809/-. In the year that ended on
30.9.1987, the company earned a profit of Rs.1,75,09,915/-. In
the financial year that ended on 31.3.1989 the first respondent
company’s net profit was Rs.2,27,77,932/-. Thus the extensive
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W.P.No.2932 of 1998
procurement and crushing of sugar cane resulted in enormous
profits and for all the years and declared dividends to its
shareholders. While the first respondent company was in a
position to earn handsome profits there was no justification for
extending unlimited subsidy for full five years at the expenses of
the public exchequer.’
68. We find absolutely no justification in the withdrawal , as the State
has not put forth any legitimate explanation for the same, save stating that there
would be ‘revenue loss’. The withdrawal has been peremptory and there has
been no warning that the subsidy granted would be terminated. There are no
factors that would justify such an abrupt and unprovoked move on the part of
the State. Unpredictability in financial regime is a red flag on the conduct of
business, both domestically and internationally, and hence, such an approach of
the State cannot be countenanced or accepted. While the State is fully entitled
to frame policy for its initiatives, and as a consequence, terminate, modify,
rescind or reverse such policy, there be placed in public domain proper
justification for such amendment, rescinding, reversal or termination in the
absence of which, abrupt termination of the same is not proper.
69. The assessee has filed a statement setting out the details of purchase
tax subsidy, which is as follows:
STATEMENT OF PURCHASE TAX SUBSIDY DUE
Details 1983- 84-85 85-86 86-87 87-88 1.4.88 1.9.88 Total
84 to to
31.8.88 26.1.89
Sugarcane 30481 115099 323292 357893 345780 139649 178910 149110439
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W.P.No.2932 of 1998Purchased
(T)
Purchase 7.27 32.13 94.36 118.55 113.12 43.68 68.75 477.86
Tax
Originally
paid/adjus
ted
Addl.Purc – – 2.86 – 2.52 0.20 2.09 7.67
hase Tax
Payment
on
subsidies
Addl. – – – – 16.68 6.98 8.99 32.65
Purchase
Tax
Payment
on
Transport
Charges
Total 7.27 32.13 97.22 118.55 132.32 50.86 79.83 518.18
Subsidy
due
Subsidy 7.27 32.13 97.22 118.5 113.12 – – 368.29
received
/adjusted
Balance – – – – 19.20 50.86 89.83 149.89
subsidy
due
70. In light of the discussion above, we conclude that the assessee
is entitled to the full benefit of subsidy as set out in the Government
Orders issued in 1984. Incidentally, post 1990, the State has revived
the subsidy scheme partially in preference to continuing solely the
deferral scheme. Two such schemes are G.O.Ms.No.500 Dated:
14.5.1990 issued by the INDUSTRIES (MIG-II) DEPARTMENT which
states that the Government directed that 30 taluks, from among
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W.P.No.2932 of 1998the 105 industrially backward taluks,be declared as industrially most
backward taluks, holding them eligible, apart from other existing concessions,
for full waiver of sales tax dues for a period of five years upto a ceiling of the
total investment made in fixed assets.
71. Additionally, G.O.Ms.No.43 dated 13.12.1992 also introduces an
Incentive Scheme for large industries by way of State capital subsidy and
S.T.waiver/deferral and several revised concessions have been issued by the
Industries (MIG-II) Department on 13.12.1992.
72.This writ petition is dismissed with no order as to costs.
[A.S.M., J] [C.K., J]
26.08.2025
Index:Yes
Speaking Order
Neutral Citation:Yes
Sli/sl
To
The Tamil Nadu Taxation Special Tribunal,
Rajaji Salai,
Chennai-600 001.
41
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W.P.No.2932 of 1998
DR. ANITA SUMANTH.,J.
and
C.KUMARAPPAN.,J.
Sli/sl
W.P.No.2932 of 1998
26.08.2025
42
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