BHARAT GENERAL & TEXTILE INDUSTRIES LTD. & ORS.versusSTATE OF MAHARASHTRA & ORS.

            BHARAT GENERAL & TEXTILE INDUSTRIES
A                       LTD. & ORS.
                                        v.
                  STATE OF MAHARASHTRA & ORS.

                            SEPTEMBER 19, 1988
B
                  [A.P. SEN AND S. NATARAJAN, JJ.]

           Constitution of India, 1950: Articles 14. 19(1) (g) and 300A-
    Sections 41 and 41A of Bombay Sales Tax Act-Validity of-Whether
    there is conferment of arbitrary power on State Government to exempt
    units from sales tax.
c
          Bombay Sales Tax Act: Sections 41 and 41A and Package
    Scheme of incentfres 1979-Whether confers arbitrary power of exemp-
    tion on State Go<"ernment to exempt units from payment of Purchase
    Tax, Sales Tax and Central Sales Tax.
D
          By virtue of the notifications issued by the Government of
    Maharashtra in exercise of its powers under section 41 of the Bombay
    Sales Tax Act, the new industries set up in backward areas for the
    production of edible as well as non-edible oils came to enjoy the benefit
    of exemption from paying purchase tax/sales tax. Subsequently, the
E   Government of Maharashtra amended the Act and introduced section
    41A by virtue of which the tax exemption facility originally granted
    under the Package Scheme of Incentives, 1979 to edible oil units stood
    withdrawn earlier than stipulated in the exemption notifications. The
    withdrawal of the tax exemption however did not apply to units engaged
    in producing non-edible oils.
F
          The petitioner in one petition has challenged the constitutional
    validity of section 41, while the petitioners in the other two writ peti-
    tions challenged the validity of section 41A.

           The petitioner in the first petition, who was engaged in the pro-
G   duction of washed cottonseed oil, in an old unit, contends that (i) the
    power of exemption can be granted on any specified class of sales or
    purchases from payment of tax, and the Government was not entitled to
    grant exemption only in favour of new units set up in backward areas,
    (ii) section 41 confers arbitrary powers of exemption on the State
    Government so as to exempt new units from the payment of purchase
H   tax, sales tax and central sales tax, thus placing old units in a very
                                       72
                BHARAT GENERAL & TEXTILE INDS. v. STATE                       73

    disadvantageons position, and (iii) washed cottonseed oil is also edible
    oil although it requires some processing for making it fit for human            A
    consnmption, and therefore the new washed cottonseed oil units should
    also he classified as units producing edible oils and subjected to purch-
    ase tax and sales tax,

          The petitioners in the other two petitions contend that the               B
    Government was precluded by Promisory Estoppel from going back on
    the incentive Scheme, before the expiry of the full term of tax exemption
    benefit period.

          Dismissing the writ petitions, it was,

           HELD: (I) Section 41 has been provided in order to enable the            c
    State Government to grant exemption from payment of purchase tax/
    sales tax on any specified class of sales or purchases in public interest. It
    is not as if the power has been given to the government to act in an
    arbitrary manner or for conferring largess on any section of manu-
    facturers or traders. Section 41 has withstood the test of time and has         D
    enabled the government to promote public interest, by granting tax
    exemption benefit, whenever needed. l8IA-D]

          (2) The words "exempt any specified class of sales or purchases"
    could well be construed as applying to the grant of exemption to the
    new units because the sales and purchases effected by new entrants              E
    would constitute a specified class by themselves in contra distinction
    with the class of sales and purchases effected by the older and seasoned
    units. l82C-D]

          (3) Even though edible and non-edible oils may fall nnder the
•   general heading of 'oils' they undoubtedly constitute two separate              F
    groups which are capable of distinct classification on intelligible
    basis. l83A-BJ

          (4) The Package Incentives Scheme was only evolved to provide
    incentive to enterpreneurs to start new units in backward areas. It
    could never have been the intention or the object of the Government             G
    that the entt!rpreneurs should unjustly enrich themselves at the cost
    of the public exchequer or to be given competing ability with the
    older units to such an extent as to virtually drive the latter out of the
    business.

          (5) Since the very foundation of the Scheme for giving tax.               ff
    74         SUPREME COURT REPORTS                [1988] Supp. 3 S.C.R.

A exemption benefits is public interest, the government was not only
  entitled but it was under an obligation to withdraw the tax exemption
  benefit when the continuance of the Scheme was going against public
  interest.

         (6) As long as the washed cottonseed oil that.is produced is sold
B   without further processing, it will not constitute edible oil. 182F]

          (7) The government had neither acted arbitrarily nor practised
    any discrimination against edible oil units started newly or had inter-
    fered with the rights of the owners of the new units in running their
    business and trade in any manner when it enacted Section 41A.
c         (8) Section 41A is fully in accordance with law and not violative of
    Articles 14, 19(i)(g) and 300A of the Constitution. l83E]

          Tapti Oil Industries v. The State of Maharashtra, AIR 1984 Born.
    161
D
         Olympic Oil Industries Ltd. \', .P. No. 3275 of 1985 in Bombay
    High Court and S.L.P. (Civil) No. 10144 and 10550 of 1986 in the
    Supreme Court, referred to.

          ORIGINAL JURI?DICTION: Writ Petition No. 1521of1987
E
          (Under Article 32 of the Constitution of India)

         Anil Dev Singh, G.L. Sanghi, Serva Mitter, Miss Vrinda Grover
    and T.V.S.N. Chari for the Petitioners.

f        V .S. Desai, A.S. Bhasme and A.M. Khanwilkar for the Res-               •
    pondents.

          The Judgment of the Court was delivered by

          NATARAJAN, J. Writ Petition No. 1521of1987 has been filed
G   under Article 32 of the Constitution of India to challenge the constitu-
    tional validity of Section 41 of the Bombay Sales Tax Act.(hereinafter
    referred to as the Act) on the ground it confers arbitrary powers of
    exemption on the State Government so as to exempt all types of new
    units from the payment of purchase tax, sales tax and central sales tax
    under the Package Scheme of Incentives, 1979.
   BHARAT GENERAL & TEXTILE INDS. v. STATE [NATARAJAN, J.] 75

      On notice being issued in the writ petitions, the respondent State
of Maharashtra has filed affidavit in reply and the petitioner has filed a   A
rejoinder.

      In order to exempt in public interest any specified class of sales
or purchases from payment of the ·whole or any part of the tax payable
under the·'Act, the State Government gave to itself powers of exemp- B
lion under Section 41 of the Act. In exercise of its powers under
Section 41 the Government had been issuing notifications so as to
grant exemption in appropriate cases from payment of sales tax or
purchase tax or both, as the case may be. One of such notifications
issued by the Government under Entry 136 was for granting full tax
exemption for the purchases of the inputs and t.he sales of finished
gc;ids of new units set up in the backward areas of the State. The C
Government also issued notificatiop under Section 85 of the Central
Sales Tax Act to the sales of finished goods of such units from payment
of Central Sales Tax. These tax exemption benefits were accorded
to the new industries by way of (1) incentives for development of
industries in backward areas, (2) promotion of the dispersion of D
industries all over the State, (3) the industrialisation of backward areas
and (4) for creating employment opportunities in the backward areas.

      By virtue of the exemption notifications issued by the Govern-
ment in exercise of its powers under Section 41, the industries engaged
in the production of edible as well as non-edible oils set up in back-       E
ward areas came to enjoy the benefit of exemption from paying purch-
ase tax/sales tax.

      Subsequently, the Government came to realise that the sales tax
exemption given under the Package Scheme of Incentives, 1979 for a
period ranging from 5 to 9 years without any limit had conferred far F
more benefits on some of the industries concerned than what the
Government had in mind when the notifications granting tax exemp-
tions were made and that the exemption facility was not only adversely
affecting the Government's finances but was also placing the existing
small scale units on a comparative disadvantage. The Government,
therefore, passed a Resolution on July 5, 1982 (r.io. IDL-7082/(3559)/ C
IRD-8) to modify the Package Incentivies Scheme and the benefits
folowing therefrom in order to limit the benefit to 100% of the fixed
capital investment of the small scale units. Since the Packge Scheme of
Incentives, 1979 provided for giving notice of six months for any
change or modification in the scheme, the modified scheme dated 5th
July, 1982 wa\ proposed to be brought into force in respect of small H
    76         SUPREME COURT REPORTS                  [1988] Supp. 3 S.C.R.

A scale units, with effect from 10th January, 1983. The Government,
  'however, noticed that during the intervening. period of noiice, a
   number of small scale units, particularly the oil units, tried to take
   advantage of the unlimited incentives to the disadvantage of the exist-
  ing units and also caused loss to the public exchequer in respect of the
   revenue from sales tax. The small scale units also sought to take
B advantage of the decision of the Bombay High Court in Tapti Oil
  Industries and Anr. v. State of Maharashtra & Ors., [1984] 56 STC 193
  by claiming benefit of tax exemption without any limit, thereby caus-
  ing a continuing loss to the revenue.

         The Government, therefore, considered it would not be expe-
   dient in the public interest to continue the concession and, that suit-
c able prm~ision must immediately be made in the Act so as to limit the
   benefit of the exemption from payment of sales tax under the Package
   Incentive Schemes to the extent of 100% of the gross fixed capital
   investments of the eligible units as approved at the time of the grant of
   eligibility certificate or to such other lower ceiling of percentage that
I) may have been provided for under the eligibility certificate issued to
   the small scale unit. Since both the Houses of the State Legislature
   were not in Session, the Government passed Ordinance No. 5 of 1985
   and inter alia introduced Section 4 lA which read as under:

               "41A. ( 1) Notwithstanding any things contained in this Act or in
               any judgment, decree or order of any Court or Tribunal to
               the contrary, on and after the date of commencement of
               the Bombay Sales Tax (Amendment) Ordinance, 1985
               (hereinafter in this section referred to as "the commence-
               ment date") the cumulative quantum of benefit drawn or
               availed of by any registered dealer of an Eligible Unit in
F              respect of payment of any tax by virtue of the exemption
               granted under the provisions of section 41 shall not exceed
               one hundred per cent of the gross fixed capital investment
               of the Eligible Unit as approved at the time of grant of
               Eligibility Certificate, or such other lower ceilings of
               percentage, if any, as may be provided under the Eligibility
q              Certificate issued in accordance with the provisions of any
               Package Scheme of Incentives.

                     (2) Where, in the case of any registered dealer of an
               Eligible Unit the cumulative quantum of benefit availed of
               by nim, has exceeded the limit laid down in sub-section (1)
H              on the commencement date, or exceeds such limit on any
   BHARAT GENERAL & TEXTILE INDS. v. STATE {NATARAJAN, J.I 77

           day after the commencement date, then the Eligibility              A
           Certificate shall cease to have any effect in relation to the
           exemption from payment of tax under this Act or under the
           Central Sales Tax Act, 1956, and the Certificate of Entitle-
           ment shall stand automatically cancelled on the commence-
           ment date or any such day, as the case may be, and such
           reigiste.red 'dealer shall not be entitled to claim any further    B
           benefit of exemption fi;pm payment of such tax under the
           Eligibility Certificate "{ft th@ C..ertificate of Entitlement on
           or after the commencement date or any such day, as the
           case may be, and the dealer shall surrender the Certificate
           of Entitlement together with all the unused Form BC which
           have been attested by the Sales Tax authorities to the             C
           Commissioner forthwith and in any case within 15 days
           from the commencement date or any such day.

                 (3) Notwithstanding anything contained in sub-
           sections (1) and (2), no registered dealer of an Eligible
           Unit shall be entitled to claim any benefit of exemption           D
           from payment of any tax beyond the period covered by the
           Eligibility Certificate and the provisions of sub-section (2)
           regarding surrender of the Certificate of Entitlement
           together with the unused Forro BC shall mutatis mutandis
           apply to such registered dealer."
                                                                              E
       The Ordinance came to be replaced by the Amendment Act,
1985 under the Amending Act the Government made certain modi-
fications and directed that the withdrawal of the tax exemption benefit
will stand confined to the edible oil units only. Section 41A, as intro-
duced in the main Act by;the Amending Act No. XV of 1985 reads as
follows:                                                                      F

           "41A. Notwithstanding anything contained in this Act or
           in any judgment, decree or order of·any Court or Tribunal
           to the contrary, on and after the date of commencement of
           the Bombay Sales Tax (Amendment) Act, 1985 (herein-
           after in this section referred to as "the commencement             q
           date"), the Eligibility Certificate granted to any Registered
           dealer of an Edible Oil unit in accordance with the provi-
           sions of any Package Scheme of Incentives shall cease· to
           have any effect in relation to the exemption from payment
           of tax under this Act or under the Central Sales Tax Act,
           1956, and the Certificate of Entitlement issued in favour of       H
    78       SUPREME COURT REPORTS               [1988] Supp. 3 S.C.R.

             such Registered dealer by the Commissioner under entry
A
             136 of the Schedule to the notification issued under section
             4 l shall stand automatically cancelled on the commence-
             ment date and such Registered dealer shall not be entitled
             to claim any further benefit of exemption from payment of
             such tax under the Eligibility Certificate or the Certificate
B            of Entitlement on and after the commencement date, and
             he shall surrender the Certificate of Entitlement with all
             the unused Form BC which have been attested by the Sales
             Tax authorities to the Commissioner forthwith and in any
             case on or before the 3 lst day of August, 1985, unless he
             has already surrendered the same earlier."

C Section 8 of the Amendment Act which repealed Ordinance V of 1985
  further provided as follows:

             "8.(2) It is hereby declared that.notwithstanding anything
             contained in section 7 of the Bombay General Clauses Act,
             1904, on such repeal, the following consequences shall
             ensue:

                   (a) The Eligibility Certificate and the Certificate of
             Entitlement issued to any Registered dealer of the Eligible
             Unit other than the Registered dealer of Edible Oil Unit
E            shall not be deemed to have been cancelled; and

                   (b) Where the Certificate of Entitlement and the
             unused Form BC are surrendered by any Registered dealer
             of the Eligible Unit other than Registered dealer of Edible
             Oil Unit, the same shall be restored to the Registered
F            dealer, who has surrendered the same;

                  (c) The Registered dealer of the Eligible Unit other
             than the Registered dealer of Edible Oil Unit shall be
             deemed to have been entitled to claim the same benefits of
             exemption of sales tax to which he was entitled before .the
G            commencement of the said Ordinance;

                   (d) Any Sales Tax on sale of finished goods recove-
             red by any Registered dealer of the Eligible Unit other
             than the Registered dealer of Edible Oil Units during the
             period from the commencement of the said Ordinance till
             the publication of this Act in the Official Gazette, shall be
  BHARAT GENERAL & TEXTILE INDS. v. STATE [NATARAJAN, J.] 79

           paid into Government Treasury alongwith the return and            A
           the tax so paid shall stand forfeited to the State Govern-
           ment and thereupon the provisions of sub-section (6) of
           Section 38 shall mutatis rriutandis apply to the tax so
           forfeited."

      Thus it may be seen that by reason of Act XV of 1985, the sales        B
tax exemption facility originally granted under the Package Scheme of
Incentives 1979 to all small scale units newly started stood withdrawn
only in so far as edible oil units are concerned, and· not to small scale
units engaged in producing non-edible oils.

      By a trade circular No. DED 1485/259/ADM-3 dated 15.10.1986
it was clarified that an edible oil unit under the Act XV of 1985 would
                                                                             c
mean a unit engaged in

       (i) delinting, decorticating or processing of groundnuts or
      other oilseeds'
                                                                             D
       (ii) crushing of groundnuts or other oilseeds and manufacture
      of edible oil;

      (iii) refining of edible oil; or

      (iv) hydrogenation of edible oil.                                      E

       It was also clarified that the Act would not be applicable to
"units producing and selling non edible oils and that units manufactur-
ing and selling "washed cottonseed oil",: Soyabean raw oil (Grade I)"
and "un-refined sunflower cake oil" would not fall under the category
of units manufacturing edible oil and as such those units will be en-        F
titled to avail of the tax benefits even after 1.8.1985, provided that the
eligibility certificate specifically made mention of the particular oil as
the finished product produced and sold by the concerned eligible unit.
The trade circular stated that the clarification was being given "after
obtaining the opinion of the concerned department of the Government
of India about what constitute edible oil and non edible oils".              G

       Notwithstanding the Amended Sections and the trade circular
the petitioners who are engaged in producing washed cottonseed
oil tried to contend before the authorities that washed cottonseed oil
would also fall in the category of edible oil and that several technical
authorities have given their opinion to that effect and as such the          H
    80          SUPREME COURT REPORTS                 [1988] Supp. 3 S.C.R.

    extension of sales tax exemption facility to units engaged in the pro-
A
    duction of non edible oils was against law and was not only depriving
    the government of its legitimate revenue but was also detrimentally
    affecting the interests of the old units which were engaged in produc-
    ing washed cottonseed oil etc. These contentions were not accepted by
    the State Government with the result that the withdrawal of the tax
B   exemption provision remained confined only to the units engaged in
    producing edible oils and not to units engaged in producing non edible
    oils.

          Aggrieved by this position the petitioners have come forward
    with this petition under Article 32 of the Constitution. Two conten-
    tions were advanced by the learned counsel for the petitioner to assail
c   Section 41 of the Act. It is apposite to mention here that in his petition
    the petitioner has not impugned the validity of Section 4 lA which
    disentitles only the units producing edible oil from having the con-
    tinued benefit of tax exemption. This factor by itself weakens in "the
    attack of the petitioner on the constitutional validity of Section 41.
D   Leaving aside this aspect of the matter. we will now consider the
    specific grounds on which Section 41 is assailed.

          In the first place it is stated that while the government realised,
    at the time of passing the Ordinance that the tax exemption scheme
    granted in favour of all the newly started eligible units had conferred
E   tax benefits transcending by far the limits of assistance contemplated
    by the government and that the tax exemption benefits were adversely
    affecting the public exchequer as well as the old units and had, there-
    fore, made Section 4 IA introduced by the Ordinance applicable to all
    eligible units which had been given the benefit of tax exemption, the
    revised Section 4 IA introduced by Act XV of 1985 had restricted the
F   withdrawal provision only to the units engaged in producing edible oil
    and has allowed the other eligible units to continue to have the unfair
    advantage of tax exemption benefit. The second argument was that
    washed cottonseed oil is also an item of edible oil although it required
    some processing for making it fit for human consumption and, there-
    fore, the new units which were engaged in producing washed cotton-
G   seed oil should also be classified as units producing edible oils so that
    those new units, should also pay purchase tax and sales tax in the same
    manner the petitioner was paying. By way of extension to the second
    contention it was pointed out that while the old units had to pay
    purchase tax, sales tax, turn over tax etc. totalling Rs.1,650 per metric
    ton, the new units producing the same washed cottonseed oil got away
H   scot-free without paying any tax and they stood placed in a very
    advantageous position.
          BHARAT GENERAL & TEXTILE INDS. v. STATE [NATARAJAN, J.] 81

             On an examination of the contentions we find that neither of
                                                                                   A
       them has any merit. Section 41 has been in the statute book eversince
       the Act was enacted. It has been provided· in order to enable the State
       Government to grant exemption from payment of purchase tax and
,     sales tax of any specified class of sales or purchases if such grant of
      exemption was felt ju:;tified. It is open to the Government to give the
      benefit of tax exemption either to the full extent or to a partial extent B
      The Section itself states that the power of exemption is being confer-
      red on the government in orrler to enable it to act in public interest It is
    , not, therefore, as if powei has been given to the government to act in
      an arbitrary manner or for conferring largess on any section of
      manufacturer> or traders. In exercise of its powers under Section 41
      the government has been granting exemption by means of several
      notifications in favour of various trades and industries as and when the C
      circumstances warranted the grantin.g of exemption in public interest.
      It can, therefore, be safely taken that Section 41 has with stood the test
      of time and has enabled the government to promote public interest, by
      granting tax exemption benefit, whenever needed.
                                                                                   D
             One of the contentions advanced by the petitioner's counsel was
      that while the power of exemption can be granted on any specified
      class of sales or purchases from payment of tax, the government was
      not entitled to grant exemption only in favour of new units set up in
      backward areas from the payment of purchase tax, sales tax and cent-
      ral sales tax. In other words the argument was that if the Government E
      wanted to grant exemption in favour of such units, then the govern-
      ment should have granted the benefit of tax exemption to all the units
      in backward areas which were engaged in the production of the same
      type of goods as the new units were engaged in. We are unable to
      accept this contention because the exemption granted in favour of the
      new units has a sound economic and public policy underlying it. The F
      policy has been set out by the government in the counter affidavit filed
      by it in W.P. No. 1527 of 1987 in the following manner:

                  "I submit that these benefits are in accordance with the
                  policy of the Government to give Sales Tax incentives to
                  the new Units in backward areas in order to achieve dis-         G
                  persion of industries, industrialisation of backward areas as
                  also for the purposes of creating employment opportunities
                  in the backward areas and as such exemption is granted in
                  the larger public interest in order to enable the new units to
                  successfully compete with the older Units in the initial
                  years of production in order to occasion sufficient foothold     H
    82         SUPREME COURT REPORTS                 [1988] Supp. 3 S.C.R.

                in an established industry. I further submit that this classifi-
A               cation is reasonable in all respects and is not at all arbitrary
                as established Units have several advantages over new
                Units in as much as the overhead assets are less and hence ·
                no fundamental right is infringed in any manner of the old
                                                                                   ,-
                Units."
B
    It cannot, therefore, be contended that the old units should also have
    been granted the same benefit as new units since both the units are
    engaged in the manufacture of the same type of products. Infact such a
    policy, if followed by the government, would not only fail to provide
    incentive to the new industries but would also place the new units at a
    comparative disadvantage in being made to face stiff competition with
c   older units which have been established at lesser cost and which have
    stabilised themselves in the field by successfully running the units for a
    number of years. The words in Section 41 "exempt any specified class
    of sales or purchases" could well be construed as applying to the grant
    of exemption to the new units because the sales and purchases effected
D   by new entrants would constitute a specified class by themselves in
    contra distinction with the class of sales and purchases effected by the
    older and seasoned units.

          In so far as the second contention is concerned, viz. that washed
    cottonseed oil would also fall in the category of edible oils inspite of
E   the fact that it has to be processed still further for being made fit for
    human consumption, we find that the contention is not a tenable one.
    The petitioner had contended before the government that washed
    cottonseed oil is also one type of edible oil but the government have
    rejected this contention stating that since washed cottonseed oil
    cannot be made use of without further processing for direct human
F   consumption, it would not fall in the category of edible oil. This posi-
    tion is not controverted by the petitioners and, therefore, as long as
    the washed cottonseed oil that is produced is sold 'without further
    processing it will not constitute edible oil. The government therefore,
    are well within their powers in refusing to accept the petitioner's
    contention that washed cottonseed oil is also edible oil and, therefore
G   all the new units which are engaged in the manufacture of washed
    cottonseed oil should also be rendered ineligible from enjoying the
    benefit of tax exemption as has been done in the case of units produc-
    ing edible oil.

         Yet another contention of the petitioner's counsel was that the
H   term 'oil' would include edible as well as non edible oil and therefore,
   BHARAT GENERAL & TEXTILE INDS. v. STATE [NATARAJAN, J.J 83

there was no reason or justification for the government to have              A
removed the benefit of tax exemption to units manufacturing edible oil
alone and allow the continuance of the benefit of tax exemption to new
units producing non edible oil. Even this contention is devoid of sub-
stance because even though edible and non edible oils may fall under
the general heading of 'Oils' they undoubtedly constitute two seperate
groups which are capable of distinct classification on intelligible basis.   B

        Lastly, coming to the argument that new units engaged in
producing non edible oil derive a huge benefit by way of tax exemption
while the older units stand penalised and getting crushed out of exis-
tence, the government have examined the matter fully and found that
the new units engaged in the production of edible oil alone have             c
derived undue advantage by reason of the tax exemption, and that the
other eligible units engaged in the manufacture of other products
including non edible oils have not derived benefit to such an extent as
to justify revocation of the tax exemption benefit. This assessment
exercise falls purely within the domain of the Executive and it is not
for the Court to see whether other edible units also derive huge             D
benefits and as such government ought to have revoked the tax exemp-
tion benefit in their cases as well. As already stated the classification
between units engaged in producing edible oils and non edible oils is
on .:;in intelligible and sustainable basis and as such the Court cannot
hold that the government should treat both kinds of units alike and
direct the withdrawal of the tax exemption benefit in the case of non        E
edible oil producing units also.

      For all these reasons we hold that Section 41 of the Bombay Sales
Tax Act is not violative of Articles 14, 19 and 21 of the Constitution as
allleged by the petitioner in W.P. No. 1521of1987.
                                 \                                           F
      In the result W.P. No. 1521 of 1987 will stand dismissed. There
will be no order as to costs.

R.S.S.                                                Petition dismissed.