Holding

The Supreme Court held that the negative‑list does not apply to prestigious units and that Jai Beverages satisfied all conditions to be deemed a prestigious unit, thereby qualifying for the tax exemptions.

Summary

Jai Beverages Pvt. Ltd. set up a soft‑drink bottling plant in Jammu with a capital outlay of over Rs 27 crore and sought exemption from General Sales Tax and Central Sales Tax under the Jammu & Kashmir New Industrial Policy (1998‑2003) which offered special incentives to "prestigious units" having an investment of Rs 25 crore or more. The State Government initially approved the incentives through a Memorandum of Understanding and issued certificates declaring the company a prestigious unit, but later refused to grant the tax exemption, leading the company to file writ petitions that were dismissed by the High Court. The Supreme Court examined whether the unit satisfied the criteria for a prestigious unit and whether the negative‑list provisions in SRO 249 applied to such units. It held that the negative list was limited to medium and large scale units and did not affect prestigious units, and that the company had met the investment requirement within the stipulated period. Consequently, the Court concluded that Jai Beverages was entitled to the full package of incentives promised to prestigious units. The appeal was allowed, setting aside the High Court’s order and confirming the company’s entitlement to tax exemptions.

Issues considered

Whether the industrial unit established by Jai Beverages qualifies as a "prestigious unit" under SRO 247, considering the investment amount and timing.
Whether the negative‑list appended to SRO 249 applies to "prestigious units" for the purpose of tax exemption.

Legislation cited

Central Sales Tax Act, 1956s. 8(5)

Subjects

Industrial PolicyPrestigious unitGeneral Sales TaxCentral Sales TaxNegative listTax exemptionInvestment requirementJammu & Kashmir

Judgment

M/S. JAi BEVERAGES PVT. LTD. A
V.

STATE OF J & KAND ORS.

MAY 12, 2006

[B.P. SINGH, TARUN CHATTERJEE AND ALTAMAS KABIR, JJ.] B

Jammu & Kashmir General Sales Tax Act, 1962: Section 5.

New Industrial Policy (1998~2003)-Payment of sales tax-Exemption
from-Incentives- "Prestigious units "-The said Industrial Policy offered a c
package of incentives to industrial units and in particular to "prestigious
units" having a capital investment of Rs. 25 crores or more-A soft drink
manufacturing unit was set up by a company-A Notification was issued by
the State Government exempting "prestigious units" from payment of
General Sales Tax and Central Sales Tax for a period of 5 years from the
date of production or until such amount of exemption reached the level of
D
150% of capital investment in the project, whichever occurred earlier-On
the same date another Notification was ·issued regarding exemption of
General Sales Tax on sale offinished goods manufactured by medium and
large scale industries- "Soft drinks" has been shown as item No. VJ/I in the
Schedule to the Notification-The company, whose unit was registered as a E
medium scale industry, applied to the Government making a proposal for
investment of Rs. 25 crores or more and the State Government agreed to
grant permission to it-The State Government's nodal agency entered into
a Memorandum of Understanding (MOU) with the company-A certificate
was issued to the effect that the company was entitled to avail of incentives
F
as a prestigious industry from the date of its commercial production
However, by a communication it was conveyed that the competent authority
had not agreed to grant exemption from payment of Stiles Tax/Toll Tax to
the company-Writ petition filed by the company was dismissed by the High
Court-Held: The negative list concept does not apply to "prestigious"
industrial units-The industrial unit set up by the company fulfilled all the G
conditions laid down in the Government's New Industrial Policy and,
therefore it is a "prestigious unit"-Hence, the company is entitled to
all the incentives and subsidies applicable to "prestigious .units" under
the New Industrial Policy of the State Government-High Court's judgment
set aside. H
497
498 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A The appellant-company claiming to be a "prestigious unit" having
a capital investment of over Rs. 25 crores claimed exemption from
payment of General Sales Tax and Central Sales Tax under a Notification
issued by the State Government pursuant to its Industrial Policy of
1998-2003. Under the said Industrial Policy, a package of incentives was
offered to industrial units and in particular to "prestigious units" having
B a capital investment of Rs. 25 crores or more.

The appellant-company set up a soft drink manufacturing unit in
the State. A Notification was issued by the State Government exempting
"prestigious units"' from payment of General Sales Tax and Central
c Sales Tax for a period of 5 years from the date of production or until
such amount of exemption reached the level of 150% of capital investment
in the project, whichever occurred earlier. On the same date another
Notification was issued regarding exemption of General Sales Tax on
sale of finished goods manufactured by medium and large scale industries.
"Soft drinks" has been shown as item No. VIII in the Schedule to the
D Notification.

The appellant, whose unit was registered as a medium scale
industry, applied to the Government making a proposal for investment
of Rs. 25 crores or more and the State Government agreed to grant
E permission to it. The State Government's nodal agency entered into a
Memorandum of Understanding (MOU) with the appellant-company. A
certificate was issued to the effect that the appellant was entitled to avail
of incentives as a prestigious industry from the date of its commercial
production. However, by a communication it was conveyed that the
F competent authority had not agreed to grant exemption from payment
of Sales Taxffoll Tax to the appellant. Being aggrieved the appellant
filed a writ petition before the High Court, which was dismissed. Hence
the appeal.

The following questions arose before the Court:
G
(a) Whether the industrial unit set up by the appellant fulfilled
all the necessary conditions for being declared a "prestigious
unit"?

H (b) Whether the negative list appended to the Notification applied
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. 499

to "prestigious units" as well? A
Allowing the appeal, the Court

HELD: 1. The exemption which was granted to "prestigious units"
by the State Government under Section 5 of the Jammu & Kashmir
General Sales Tax, 1962 read with Section 8(5) of the Central Sales Tax B
Act, 1956 does not refer to any negative list. [514-A, BJ

2. While the Government's Industrial Policy deals with tiny, small,
medium and large scale industrial units, the negative list is made
applicable by the Notification only to medium and large scale industrial C
units. Obviously tiny and small scale industrial units have been excluded
so far as the Notification is concerned. The negative list in the Notification
is made applicable to small scale industrial units in so far as sale of
finished goods and purchase of raw materials is concerned but does not
make it applicable to tiny units. Wherever the negative list is mad~ D
applicable it is so expressly provided. There is nothing in any of the
Notifications which suggests that the negative list applies to "prestigious
units" as well. On the contrary the language employed in the Notification
which begins with the non-obstante clause, supports the conclusion to
the contrary. It is, therefore, held that the negative list concept does not
apply to "prestigious units". This is how the Government also understood E
its Industrial Policy and the Notifications issued thereafter. The matter
was considered at different levels by a high powered committee presided
over by the Chief Minister of the State himself and it was understood
that the proposal of the appellant did not involve departure from the
new Industrial Policy. The matter was thereafter considered by the F
Finance Department and lastly by the Cabinet which approved the
proposal and permitted the State Industrial Development Corporation
to sign a Memorandum of Understanding with the appellant. It was
known to the Government that the industrial unit being set up by the
appellant was a soft beverages manufacture and bottling plant with a
capacity of approximately 800 bottles per minute. It was also known to G
the Government that approximate capital investment for the project
was around Rs.27.50 crores: Being fully informed of these facts, the
Government agreed to grant incentives and subsidies to the appellant
which were applicable to the "prestigious units" as per new Industrial
Policy (1998-2003) from the date of commercial production i.e. from the H
500 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A end of March, 2000. Thus the Government also, after considering the
proposal at various levels, came to the conclusion that the plant for the
manufacture and bottling of soft beverages being set up by the appellant
with an investment of about Rs. 27.50 crores was entitled to the package
of incentives promised to the "prestigious units" in the new industrial

B
Policy. After the Memorandum of Understanding was signed and the
industrial unit set up at a cost of over Rs. 27 crores, the Government
appears to have changed its mind unreasonably. (515-G, H, 516-A-GI
-
3. Having considered its new Industrial Policy, and having
considered the proposal made by the appellant, the Government took
C a conscious decision to grant the package of incentives to the industrial
unit being set up by the appellant provided it went into commercial
production by the end of March, 2000 and made the necessary investment
of Rs. 25 crores or more on or before September 30, 2000. The
documents and materials on record disclose that the Government took
this decision after full discussion on all aspects of the matter, and in
D particular by reference to the date by which the appellant was required
to invest Rs. 25 crores in the industrial unit being set up by it: The State
cannot be permitted to ignore its own conscious decision to permit the
appellant to invest a sum of Rs. 25 crores or more by September 30,
2000. The appellant acted on the basis of the decision taken by the State
E Government and incorporated in the Memorandum of Understanding.
The fact that Rs. 25 crores was invested by September 30, 2000 was not
disputed in the several counter affidavits filed before the High Court.
In view of the voluminous evidence on record the State cannot dispute
the fact that over Rs. 27 crores was invested by the prescribed date i.e.
F by September 30, 2000. In this background, the State cannot be allowed
to say that the incentives cannot be extended to the industrial unit set
up by the appellant because the amount of Rs. 25 crores or more was
not invested by the date the unit went into commercial production,
though the amount of Rs. 27 crores was invested within the period
prescribed by the Government as incorporated in the Memorandum of
G Understanding. (518-A-El

4. The negative list concept does not apply to prestigious industrial
units and that the industrial unit set up by the appellant fulfilled all the
conditions laid down in the Government's New Industrial Policy and the
H notifications issued in connection therewith and, therefore, it must be
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.] 501

held that the appellant is entitled to the package of benefits promised A
by the New Industrial Policy of the State Government read with various
notifications issued pursuant thereto. [519-A, BJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7147 of
2004.
B
From the Order dated 4.10.2004 of the High Court of Jammu and
Kashmir at Jammu in LPA (W) NO. 73/2004.

K.K. Venugopal, Sr. Adv., Ravi Aggrawal, M.G. Ramachandran, K.V.
Mohan and K.V. Balakrishnan, Advs., with him for the Appellant. C

Mukul Rohtagi, Sr. Adv., Anis Suhrawardy, Adv., with him for the
Respondents.

The Judgment of the Court was delivered by
D
B.P. SINGH, J. : The appellant herein claiming to be a "prestigious
unit" having a capital investment of over Rs.25 crores claimed exemption
from payment of General Sales Tax and Central Sales Tax under Notification
No. SOR·247 of August 20, 1998 issued by the Government ofJammu &
Kashmir pursuant to its Industrial Policy of 1998-2003. Under the said
Industrial Policy, a package of incentives was offered to industrial units, and E
in particular to "''prestigious units" having a capital investment of Rs.25
crores or more. The appellant Company set up a soft drink manufacturing
unit in Jammu. The claim of the appellant was negatived by the State
Government, which led to the filing of two writ petitions before the.High
Court of Jammu and Kashmir. A learned single Judge of the High <i:ourt F
dismissed the writ petitions holding that the petitioner was not entitled to the
incentives claimed under the aforesaid Industrial Policy, as it did not validly
acquire the status of a "prestigious unit". Aggrieved thereby the appellant
preferred a Letters Patent Appeal which was dismissed in limine by the
judgment and order of the High Court dated October 4, 2004.
G
To appreciate the issues involved. it would be necessary to notice the
background facts giving rise to this controversy. The facts are as under :

Pursuant to the Cabinet decision of May 15, 1998, sanction was
accorded to the new Industrial Policy 1998-2003 as per Annexures 'A' and H
502 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A 'B' to the package of incentives appended to GO No.202 IND of 1998 dated
May 27, 1998. A package of incentives was offered for the development
of large/medium/small and tiny industries in the State of Jammu and
Kashmir. Paragraph 6 of GO No.202 of 1998 provided that the Industries
and Commerce Department shall notify negative lists referred to in the new
B package of incentives, in consultation with Finance Department.

The relevant part of the package of incentives contained in Annexure
'B' relates to exemption from payment of General Sales Tax etc. and is as
follows :-

c "8. General Sales Tax ....
i. There will be no GST on sales of finished goods by the
existing local SS! units till 31.3.2003 and for a period of
5 years from the date of production in case of new SS!
D units except on items brought on negative list.

ii There will be no GST on the raw material procured by
the local SS!, Medium and Large units except on items
brought on the negative list.

E iii There will be. no GST on the sale of finished
goods manufactured by the new Medium and Large
industrial units upto a ceiling on such amount of GST
which would have been otherwise payable equivalent to
150% of the total capital investment made in the unit or
F for a period of 5 years from the date of production
whichever occurs earlier, except on items brought on the
negative list.

iv There will be no GST on purchase of machinery and
G equipment for construction of the factory for a period of
5 years from the date of provisional registration by the
SSJ units.

v The above concessions shall also be available to SJCOP
while acting on behalf of local registered SSI units.
H
JAIBEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.] 503

9. Central Sales Tax A
The local existing SSI units shall be exempt from
charging and payment of CST on sale of their finished

- goods outside the State upto 31.3.2003 and the new SSI
units for a period of 5 years from the date of production.

JO. Special provision for "prestigious unit"s
B

(I) Not withstanding anything contained in paras 7, 8 and 9
above, prestigious units i.e. those having capital
investment ofRs.25 crores or above shall have the option
to avail of full exemption from payment of GST, CST C
and special/additional toll tax for a period of 5 years from
the date of production or until such amount of exemption
reaches the level of 150% of capital investment in the
project whichever occurs earlier.

(2) Not withstanding anything contained in para 7, 8 and 9
D
above those prestigious units which come into commercial
production in the year 1998, shall have the option to avail
a power tariff freeze at the rate of Rs.1.50 per unit for
a period of five years from the date of commercial
production. E
For purposes of paras 7, 8, 9 & I 0 above, all the new
units shall also have the option to count the period of 5
years from the date of production or from the succeeding
financial year".
F
On August 20, 1998 a Notification was issued by the Government of
Jammu and Kashmir exempting "prestigious units" from payment of General
Sales Tax and Central Sales Tax for a period of 5 years from the date of
production or until such amount of exemption reaches the level of 150% of
· capital investment in the project, whichever occurs earlier. The Notification G
is re-produced below for the sake of convenience.

"SR0-247. In exercise of the power conferred by Section 5 of the
Jammu and Kashmir General Sales Tax Act, 1962 (XX of 1962)
and read with sub-section (5) of Section 8 of the Central Sales Tax
Act, 1956 (Act No. 74 of 1956), the Government of Jammu & H
504 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.
.
A Kashmir hereby direct that the prestigious units, i.e., those having
capital investment of 25 crores or above shall have the option to
avail of full exemption from payment of general sales tax and
Central Sales Tax for the period of 5 years from the date of
production or until such amount of exemption reaches the level of
150% of capital investment in the project, whichever occurs
B earlier."

On the same date, Notification No. SRO 249 was issued regarding
exemption of General Sales Tax on sale of finished goods manufactured by
medium and large scale industries. It is worth noticing that this Notification
C refers to the exemption from the payment of General Sales Tax granted to
medium and large scale industrial units. It makes no reference to small and
tiny units as also to "prestigious units". Moreover, a separate Notification
was issued on the same day relating to grant of such exemption to
"prestigious units". It is the case of the appellant that this Notification related
only to medium and large scale industries and did not in any manner curtail
D
exempti1Jns granted to "prestigious units" by Notification SRO 247 issued
on the same date. The proviso to Clause 6 of the Notification provided that
the incentives granted shall not apply to goods specified in the Schedule.
There is no dispute that "soft drinks" has been shown as item No.VIII in the
Schedule to Notification SRO 249 dated August 20, 1998.
E
In the mean time having regard to the Industrial Policy announced by
the Government of Jammu and Kashmir, the appellant, whose unit was
registered as a medium scale industry, applied to the Government making
a proposal for investment of Rs.25 crores or more pursuant to the Industrial
F Policy of the Government so that it could acquire the status of a "prestigious
unit" and be entitled to all the incentives provided in the Industrial Policy
for such a unit. The proposal was discussed in a meeting attended by the
Chief Minister, Finance Minister, the Minister for Industries and Commerce,
Chief Secretary, Principal Secretary, Managing Director SIDCO, and the
Chainnan of the appellant Company. The revised proposal was considered
G and it was observed that no departure from the new industrial policy was
involved if the investment materilised concurrently with the availment of
incentives. However, it was felt that a liberal view needed to be taken of
the policy to the extent that if the investment of Rs.25 crores or more
materializes within the maximum period of six months from the date of
H commercial production. the company should be given the benefit of incentives.
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.) 505

A Memorandum of Understanding (for short 'MOU') for this purpose had A
to be executed by and between J&K SIDCO and the appellant Company. The
proposal had the concurrence of the Finance Minister whereafter a
Memorandum was submitted to the Cabinet which was approved vide
Cabinet decision No.7/2 dated January 19, 2000. Accordingly, SIDCO
respondent No.7, signed a MOU with the appellant Company on the above
lines.
B

The MOU signed on February l, 2000 recites the fact that the appellant
Company had applied to the State Government to give permission to set up
a Soft Beverages bottling plant and that the State Government had agreed
to grant permission to it and authorize its nodal agency respondent No.7 C
SIDCO to enter into a Memorandum of Understanding. It is also noticed
that the unit proposed to be set up by the appellant involved capital
investment of around Rs.27 .50 crores. The other relevant parts of the MOU
read as under:-

"AND WHEREAS the State Government has agreed to grant
D
incentives and subsidies to JBPL which are applicable to the
prestigious units as per new Industrial Policy (1998-2003) right
from the date of commercial production which is expected to start
from the end of March 2000 so as to make huge capital investment
viable. SIDCO and JBPL are desirous of recording the terms and E
conditions agreed between and by the parties, which are appearing
hereinafter in this Memorandum of Understanding.

F
JBPL shall start manufacture of soft beverages in the existing built
up accommodation at Bari Brahmana Jammu premises of erstwhile
Hindustan Lever Ltd. by end of March, 2000 and complete the
minimum capital investment of Rs.25 crores or more latest by
30.9.2000.
G

M/s JBPL shall become eligible to avail and be entitled to all
incentives and subsidies currently applicable to prestigious units in
pursuance of the Industrial Policy in vogue as published vide Govt. H
506 SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.

A order No.202-IND of 1998 dt. 27th May, 1998 right from the date
of commercial production against to the condition that JBPL makes
an investment of not less than Rs.25 crores as capital investment
which is a pre-requisite for qualifying as a prestigious unit.

B
JBPL undertakes to start commercial production by end of March
2000 in the existing available infrastructure and complete the
minimum investment of Rs.25 crores with a period of six months
i.e. by end of St:pt. 2000. In the event of failure of JBPL to make
c investment of at least Rs.25 crores (prestigious unit) JBPL undertakes
to refund the incentives, if any, availed as prestigious unit alongwith
interest at Bank rates, besides entailing other consequences as laid
down in the relevant laws".

D A reading of the Memorandum of Understanding leaves no manner of
doubt that the industrial unit to be set up involved a minimum capital
investment of Rs.27 .50 and was an industrial unit for the manufacture and
bottling of Soft Beveragt:s. It was also cleurly understood that the commercial
production was to start by end of March, 2000 and the minimum investment
of Rs.25 crores must be made within a period of six months i.e. by end of
E September, 2000. In the event of the failure of the appellant to make
invesnnent as agreed, the appellant undertook to refund the incentive, if any
availed of, as a "prestigious unit" together with interest. It was also clearly
understood that the appellant shall become eligible to avail and be entitled
to all incentives and subsidies currently applicable to "prestigious units" in
F pursuance of the Industrial Policy as published on May 27, I 998 from the
date of the commercial production.

Pursuant to the MOU, on February 17, 2000 the SIDCO executed a
Deed of Lease in favour of the appellant Company granting to it lease hold
G rights in respect of land measuring 133.6 kanals for a period of 90 years.

On April 25, 2000 SIDCO issued a certificate to the effect that the
appellant was entitled to avail of incentives as a prestigious industry from
the date of its commercial production in accordance with the Industrial
H Policy 1998-2003. The certificate reads as under:-
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.) 507

"TO WHOMSOEVER IT MAY CONCERN A
This is to certify that a Memorandum of Understanding has been
signed by J&K State Industrial Development Corporation (SIDCO)
with Mis Jai Beverages Pvt. Ltd. (JBPL) to set up a bottling plant
having an installed capacity of 800 BPM with a capital investment
of more than 25 crores. This is pursuant to the cabinet decision B
No.7.2 dated 10-1-2000. As per Memorandum of Understanding,
executed with J&K SIDCO on 1st February, 2000 JBPL will avail
incentives as prestigious industry right from the date of commercial
production in accordance with the new Industrial Policy 1998-2003
(in vogue), subject to the condition that the company completes the c
investment before 30th Sept. 2000 failing which they will refund
the incentives availed with interest. The SRO 247 dated 20-8-98
issued vide No.FD-ST/163.98 governing release incentives to
prestigious units reads as under:-

"The Govt. of J&K hereby direct that the prestigious u~it D
i.e. having capital investment ofRs.25.00 crores or above
shall have the option to avail exemption from payment
of GST/CST for a period of 5 years from the date of
production or until such amount of exemption reaches
the level of 150% of capital investment of the project E
which ever occur earlier".

In the light of the above JBPL is entitled to avail incentives as a
prestigious unit from the date of commercial production.
(Raman Soni) F
General Manager"

On April 25, 2000, the Officer on Special Duty in the Department of
Industries and Commerce, Government of Jammu and Kashmir wrote to the
Principal Secretary and Secretary to Finance Department that in view of the
MOU signed with the appellant - Company pursuant to the Cabinet decision G
of January· 1, 2000, a SRO be issued permitting the appellant to avail of
incentives as "prestigious unit" from the date of commercial production.

On June 14, 2000 the Directorate of Industries and Commerce also
granted a certificate substantially to the same effect as the one granted by H
508 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A SIDCO which reads as follows:-

"TO WHOMSOEVER IT AL4Y CONCERN

As certified by General Manager, J & K State Industrial Development
Corporation Limited, Regional Office, Vir Marg, Jammu vide
B NO.:IDG/ROJ/99/803 dated 25-04-2000, it is further certify that a
Mel!'lorandum of Understanding has been signed by J & K State
Industrial Development Corporation (SIDCO) with Mis. Jai
Beverages Pvt. Ltd. (JBPL) to set up a bottling plant having an
installed capacity of 800 BPM with a capital investment of more
c than 25 crores. This is pursuant to the cabinet decision No. 7/2 dated
10-01-2000. JBPL will avail incentives as prestigious industry right
from the date of commercial production in accordance with the new
Industrial Policy 1998-2003 (In vogue), subject to the conditions
that the company completes the investment before 30th September,
D 2000 failing which they will refund the incentives availed with
interest. The SRO 24 7 dated 20-08-1998, issued vide No.FD/ST/
163/98 governing release incentives to prestigious units reads as
under:-

"The Govt. of J & K hereby direct that the prestigious unit
E
i.e. having capital investment of Rs.25 crores or above shall
have the option to avail exemption from payment ofGST/CST
for a period of 5 years from the date of production or until such
amount of exemption reaches the level of 150% capital
investment of the project whichever occur earlier."
F
In the light of the above JBPL is entitled to avail incentives as a
prestigious unit from the date of commercial production.

(DEVINDER K. N.) !AS
G Director of Industrial & Commerce,
J & K Govt., Srinagar".

By order of December 12, 2000, the Director of Industries and
Commerce, Government of Jammu and Kashmir declared the appellant Unit
a "prestigious unit". The relevant part of the order is as follows:-
H
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. (B.P.SINGH, J.] 509

"Whereas Mis. Jai Beverages Pvt. Ltd. have submitted a A
certificate from the Chartered Accountants Mis. O.P. Bagla &
Co., Kalkaji Extn. New Delhi regarding capital investment
ending 30-09-2000, certifying that an investment of Rs.2711.59
Lacs has been made by the company.

Whereas the details incorporated in the Chartered Accountants
B
certificate have been authenticated by the General Manager,
District Industries Center, Jammu, vide his Jetter No.DJCJI
MDl12875 dated 24-11-2000.

Whereas the J&K State Industrial Development Corporation c
have inspected the Unit and verified the investment made to
the tune of Rs.27.12 crores and conveyed vide their letter
No.IDCICOIPROJl803-II/1136 dated 9-12-2000.

Now, therefore, on the basis of documents submitted by
Mis Jai Beverages (P) Ltd. and as certified by the General Manager,
D
District Industries Centre, Jammu and J&K State Industrial
Development Corporation Ltd., Mis. Jai Beverages (P) Ltd., located
at Industrial Complex, Bari Brahamana, Jammu is declared as a
prestigious Unit defined in terms of new Industrial Policy dated
27-5-1998 thereby qualifying for incentives enshrined in the policy E
and the SRO N0.247 of 20-8-1998 issued by the Finance
Department".

This order clearly states that on verification it has been found that the
appellant has made investment to the tune of Rs.27.12 crores by September F
30, 2000.

It would thus appear from the Notifications, Orders and Certificates
noticed above that the appellant signed a MOU with SIDCO pursuant to a
Cabinet decision to set up an industry with a capital investment of more than
Rs. 25 crores for the manufacture and bottling of soft beverages. As between G
the parties, it was clearly understood that the unit to be set up by the appellant
shall be entitled to avail of the package of incentives offered by the Industrial
Policy to the "prestigious units''. The commercial production was to
commence by March 30, 2000 and the investment of Rs.25 crores or more
was to be made on or before September 30, 2000. The certificates issued H
510 SUPREME COURT REPORTS (2006) SUPP. 2 S.C.R.

A by the authorities establish that commercial production had commenced as
agreed and that investment of over Rs.27 crores by way of capital investment
had been made by September 30, 2000.

By a communication dated July 4, 2002 addressed by the Under
Secretary to the Government in the Department of Industries and Commerce
B to the Director, Industries and Commerce, it was conveyed that the competent
authority had not agreed to grant exemption from payment of Sales Tax/Toll
Tax to the appellant. Aggrieved thereby, the appellant filed the first Writ
Petition before the High Court being OWP No.613 of 2002 praying for
quashing of the letter dated July 4, 2002 and for issuance of a Writ of
C Mandamus commanding the respondents to allow exemption from payment
of Sales Tax and Toll Tax to the appellant in respect of its prestigious
industrial unit in accordance with the Government Order dated May 27,
1998, SRO 247 dated August 20, 2000 and MOU dated February I, 2000.
The appellant also prayed for other ancillary reliefs .

D On October 25, 2002 a communication was issued by the Department
of Industries and Commerce to the effect that the orders issued by the
Directorate of Industries and Commerce according prestigious status to the
units named therein had been kept in abeyance till the cases were considered
by the competent authority i.e. State Level Committee-I. One of the units
E mentioned therein is that of the appellant.

This decision of the Government was also challenged before the High
Court in OWP No.1166 of 2002.

F Both the writ petitions were heard together and disposed of by a
common judgment and order dated July 30, 2004 dismissing the writ
petitions.

Before the learned Judge, who disposed of the two writ petitions, it was
urged on behalf of the respondents that in terms of SRO 247, an industrial
G unit accorded the status of a "prestigious unit" was one in which a capital
investment of Rs. 25 crores or more was made. This investment was to be
made as the initial investment, i.e. the investment of Rs.25 crores was to be
made at the time when the unit went into commercial production, and not
at a later stage of its development. It was, therefore, urged that since the
H unit of the appellant commenced its production on April 24, 2000 and by
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.] 511

this date an investment of Rs. 25 crores or more had not been made, it was A
not entitled to the incentives offered to a "prestigious unit" under the
provisions of Notification No. SRO 24 7 issued pursuant to the Industrial
Policy. Secondly it was urged that the negative list applied to large and
medium scale industrial units and, therefore, the appellant which was
registered as a medium scale industrial unit could not avail of incentives if
it was involved in the manufacture of goods specified in the schedule to
B
Notification SRO 249. "Soft drinks" being one of the goods specified in
the schedule, the appellant was not entitled to any incentive in terms of SRO
249. Thirdly it was argued that any decision of the Industries Department
declaring the unit of the appellant as a "prestigious unit" could not supercede
Notification SRO 249, and in any case the same was not binding on the Sales c
Tax Department. The Finance Department could grant the exemption only
if it found the unit eligible for such incentives in terms of SROs 24 7 and
249. Fourthly it was argued that since the Cabinet had reconsidered its
decision and refused the exemption claimed, the Finance Department and the
Sales Tax Department were justified in denying such incentives to the
D
appellant, and in insisting upon payment of tax in accordance with the
provisions of the Jammu & Kashmir General Sales Tax Act, 1962.

On the other hand the appellant contended that there was no separate
registration of a "prestigious unit". A medium or large scale unit was
different from a "prestigious unit" in the sense that if the capital investment E
made in a particular industrial unit was Rs. 25 crores or more, it was granted
the status of a "prestigious unit" and was eligible for the incentives available
to a "prestigious unit". The appellant had invested a sum of over Rs. 27
crores within the period prescribed in the Memorandum of Understanding
and, therefore, it was entitled to be regarded as a "prestigiqus unit". So far F
as the negative list was concerned, it was the case of the appellant herein
that th$negative list was only applicable to medium and large scale industrial
units and not to "prestigious units" having a capital investment of Rs.25
crores or more. It was also submitted that the decision to enter into a
Memorandum of Understanding was taken at the highest level, namely at the
Cabinet level, and the period for making the investment of Rs.25 crores or G
more was prescribed in the said Memorandum of Understanding, Factually
it could not be disputed that by September 30, 2000 the investment made
by the appellant was more than Rs.27 crores. The appellant had, therefore,
fulfilled all the conditions laid down by the Government for acquiring the
status of a "prestigious unit". Necessary certificates had been issued by the H
512 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A concerned departments of the Government and it was also certified, after
verification, that the appellant had invested a sum of Rs.27 .I 2 crores by way
of capital investment by September 30, 2000. It is the case of the appellant
that if the terms and conditions laid down in the Notifications issued by the
State of Jammu and Kashmir pursuant to its Industrial Policy decision are
fulfilled the appellant is entitled to be treated as a "prestigious unit". It was
B not of much significance that such a declaration had not been issued by the
Department of Finance but was issued by the Department of Industries and
Commerce and J&K SIDCO.

The learned Judge held that in terms of SRO 24 7 an investment of Rs.
c 25 crores was required to be made by way of initial investment in the case
of a "prestigious unit". Any investment made at a subsequent stage was
immaterial and, therefore, since on the date of commencement of commercial
production i.e. 24th April, 2000 a sum of Rs. 25 crores had not been invested,
the appellant could not be declared to be a "prestigious unit" entitled to the
D incentives provided under SRO 24 7 dated August 20, 1998. The High Court
further held that the Government had not issued any SRO declaring the
appellant unit as a "prestigious unit". The appellant unit was registered as
a medium scale unit and, therefore, it was for the Government to take a
decision as to whether the industrial unit fulfilled the eligibility conditions
E specified and indicated in SROs 247 and249. Negative list appended to SRO
249 had to be kept in mind while declaring a unit as •·prestigious unit" under
SRO 247. Though not so clearly spelt out, the learned Judge, came to the
conclusion that SROs 247 and 249 had to be read together and any medium
scale or large scale industrial unit producing goods specified in the schedule
were not entitled to the incentives under those Notifications.
F
It was further held that the Director Industries and Commerce was not
competent to declare the unit as a "prestigious unit", as it was only the
Government which could take a decision in this regard by issuing a SRO
on being satisfied that the industrial unit was eligible to claim the incentives.
G
On such findings the learned Judge by his judgment and order of July
30, 2004 dismissed both the writ petitions.

The Letters Patent Appeal preferred by the appellant was dismissed in
H limine by order dated October 4, 2004.
.
;-
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.] 513

Having regard to the facts and circumstances of the case and the A
findings recorded by the High Court, principally two questions fall for our
consideration. Firstly, whether the industrial unit set up by the appellant
fulfilled all the necessary conditions for being declared a "prestigious unit".
'in this connection it has to be considered whether the appellant had made
the necessary investment of Rs. 25 crores or more within the period
prescribed. Secondly, whether the negative list appended to SRO 249 applies
B
to "prestigious units" as well. If it is held that the industrial unit set up by
the appellant fulfilled all the conditions of eligibility for being considered
to be a "prestigious unit", and if the negative list appended to SRO 249 is
not applicable to the "prestigious units'', it must follow that the appellant is
entitled to the package of incentives promised to the "prestigious units" c
under the Notifications issued by the State pursuant to its industrial policy.
It is not of much consequence as to whether the declaration, that the industrial
unit set up by the appellant is a "prestigidus unit", was issued by SIDCO
or by the Department of Industries and Commerce, or that it should have
been issued by the Department of Finance or the Government of Jammu and D
Kashmir.

Mr. K.K. Venugopal, learned senior counsel appearing on behalf of the
appellant, submitted that the package of incentives announced by the State
included certain benefits relating to payment of General Sales Tax and
Central Sales Tax. Annexure 'B' appended to GO No. 202 of May 27, 1998 E
provided for certain concessions to small scale industrial units as well as
medium and large scale units except on items brought on the negative list.
The package is contained in paragraphs 8 and 9 of Annexure 'B' which we
have quoted earlier in this judgment. Paragraph I0 of Annexure 'B' relates
to special provisions for."prestigious units" and it begins with the words "Not F
withstanding anything contained in paragraphs 7, 8 and 9 above". Thus the
·provision in regard to "prestigious units" is a special provision confined to
"prestigious units" i.e. those having capital investment of Rs. 25 crores or
above. The benefit envisaged under paragraph I 0 is full exemption from
payment of General Sales Tax and Central Sales Tax and Special/Additional
Toll Tax for a period of 5 years from the date of production or until such G
amount of exemption reaches the level of 150 % of capital investment in the
project, whichever occurs earlier.

SROs 247 and 249 were both issued on the same date, namely on
August 20, 1998. SRO 24 7 provides that the "prestigious units" shall have H
514 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A the option to avail of full exemption from payment of General Sales Tax and
Central Sales Tax for a period of 5 years from the date of production or until
such amount of exemption reaches the level of 150% of the capital
investment in the project, whichever occurs earlier. This exemption which
was granted by the State Government in exercise of powers conferred by
Section 5 of the Jammu & Kashmir General Sales Tax Act, 1962 read with
B sub-section (5) of Section 8 of the Central Sales Tax Act, 1956, does not
refer to any negative list.

On the other hand SRO 249 issued on the same date provides that
finished goods manufactured by newly established medium and large scale
c industrial units registered with the Department of Industries and Commerce
shall be exempted from payment of General Sales Tax, which would have
been otherwise payable, equivalent to 150% of the total capital investment
made by the unit or for a period of 5 years from the date of production
whichever occurs earlier subject to the conditions specified therein. It is not
necessary for us to notice the conditions specified therein, but the proviso
D
to paragraph 6 of the Notification is to the effect that the exemptions granted
under SRO 249 shall not apply to goods specified in the Schedule. Thus
no exemption was permissible to medium and large scale industrial units for
the manufacture of goods mentioned in the Schedule, which includes "Soft
Drinks''. It was, therefore, submitted by Mr. Venugopal that the negative
E list contained in SRO 249 is applicable only to "medium and large scale
industrial units" and not to "prestigious units" contemplated by SRO 247.
Both the SROs, namely 247 and 249 were issued on the same date i.e. August
20, 1998. Whereas SRO 249 contains the negative list and confines its
application to medium and large scale industrial units, there is no such
F limitation in SRO 247. Moreover, Annexure 'B' to Government Order No.
202 of 1988, particularly paragraphs 8 and 9 thereof refer to certain benefits
conferred on small scale, medium scale and large scale units. Sub-
paragraphs (i), (ii) and (iii) of paragraph 8 in terms provide that the benefits
contained therein shall not be available to units which manufacture items
brought on the negative list. Paragraph I 0 begins with non obstante clause
G and in terms provides that notwithstanding anything contained in paragraphs
7, 8 and 9, "prestigious units" shall have the option to avail of full exemption
from payment of General Sales Tax, Central Sales Tax etc.

Mr. Rohtagi, learned senior counsel appearing on behalf of the State,
H submitted that there is no reason why the negative list must not apply to all
JAi BEVERAGES PVT. LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.] 515

industrial units, whether small scale or medium scale or large scale or even A
"prestigious units". According to him the concept of negative list is the same
and there is no reason why "prestigious units" should be treated on a different
footing from other units in the matter of application of negative list.

Having perused Annexure 'B' to G.O. No. 202 of 1988 of May 27,
1998; SRO 247 and SRO 249 issued on August 20, 1998, we are of the view
B
that the negative list concept is not applicable to "prestigious units".
Paragraph 10 of Annexure 'B' to G.O. No. 202 of May 27, 1998 in terms
provides a special package of incentives for "prestigious units" and begins
with the words "notwithstanding anything contained in paragraphs 7, 8 and
9" above. In paragraphs 8 (i), (ii) and (iii) certain benefits are conferred on C
small scale units, medium scale units and large scale units in the matter of
payment of General Sales Tax, except on items brought in the negative list.
There is no mention of the negative list in paragraph 10 of the G. 0. which
clearly brings out the intention of the Government to treat "prestigious units"
on a different footing altogether. Similarly, SRO 247 which grants exemption
D
to "prestigious units" from payment of General Sales Tax and Central Sales
Tax does not refer to the negative list. Even SRO 249 to which the negative
list is appended as a Schedule, only refers to finished goods manufactured
by newly established, "medium and large scale" industrial units but does not
refer to "prestigious units" which are treated as a separate class altogether.
E
It was sought to be argued before us that a "prestigious unit" also must
fall in the category of medium or large scale industrial unit. Therefore, it
was not reasonable to exclude the "prestigious units" while applying the
negative list to medium and large scale industrial units. The submission is
not tenable. This is a matter of policy, and if the Government decides as F
a matter of policy to treat the "prestigious units" on a different footing than
medium and large scale industrial units, the Courts will not interfere unless
it is shown that there is something arbitrary or unreasonable in such
classification. Large industrial undertaking provides greater employment
opportunities and makes a large contribution to the State exchequer by way
of revenue, and this may very well be a reason for according a special status G
to "prestigious units''. It is worth noticing that while the Government's
Industrial Policy deals with tiny, small, medium and large scale industrial
units, the negative list is made applicable by SRO 249 only to medium and
large scale industrial units. Obviously tiny and small scale industrial units
have been excluded so far as SRO 249 is concerned. Under paragraphs 8(i) H
516 SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.

A and 8(ii) of GO. No. 202of1998, the negative list is made applicable to small
scale industrial units in so far as sale of finished goods and purchase of raw-
materials is concerned, but does not make it applicable to tiny units. It thus
appears that wherever the negative list is made applicable it is so expressly
provided. There is nothing in any of the Notifications which may lead us
to hold that the negative list applies to "prestigious units" as well. On the
B contrary the language employed in paragraph 10 of G.O. No. 202 of 1998,
which begins with the non obstante clause, support the conclusion to the
contrary. We, therefore, hold that the negative list concept does not apply
to "prestigious units". This is how the Government also understood its
Industrial Policy and the Notifications issued thereafter. As we have noticed
c earlier the matter was considered at different levels by high powered
committee presided over by the Chief Minister of the State himself and it
was understood that the proposal of the appellant did not involve departure
from the new Industrial Policy. The matter was thereafter considered by the
Finance Department and lastly by the Cabinet which approved the proposal
and permitted SlDCO to sign a Memorandum of Understanding with the
D
appellant. It was known to the Government that the industrial unit being
set up by the appellant was a soft beverages manufacture and bottling plant
with a capacity of approximately 800 bottles per minute. It was also known
to the Government that approximate capital investment for the project was
around Rs.27.50 crores. Being fully informed of these facts, the Government
E agreed to grant incentives and subsidies to the appellant which were
applicable to the "prestigious units" as per new Industrial Policy ( 1998-2003)
from the date of commercial production i.e. from the end of March, 2000.
Thus the Government also, after considering the proposal at various levels,
came to the conclusion that the plant for manufacture and bottling of soft
F beverages being set up by the appellant with an investment of about Rs.27.50
crores was entitled to the package of incentives promised to the "prestigious
units" in the new Industrial Po !icy. After the Memorandum of Understanding
was signed and the industrial unit set up at a cost of over Rs. 27 crores, the
Government appears to have changed its mind and, in our view unreasonably.

G This takes us to the next question as to whether the industrial unit set
up by the appellant qualifies as a "prestigious unit" in terms of SRO No.247
dated August 20, 1998 We have earlier reproduced the aforesaid Notification.
The Notification contemplates a "prestigious unit" as being one which has
a capital investment of Rs.25 crores or more. Neither the aforesaid
H Notification nor the Industrial Policy itself prescribes the date by which the
JAi BEVERAGES PVT.LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.] 517
_,
'
investment of Rs.25 crores must be made. It is not the case of the State that A
if the commercial production commenced by 30th September, 2000, by
which date Rs. 27 crores and odd had been invested, the unit set up by the
appellant would not have been entitled to be reckoned as a "prestigious unit".

- The oejection taken is that on the date of the unit coming into production,
the investment was below Rs. 25 .crores, though the investment was to the
tune of over Rs.27 crores by 30th September, 2000.
B

It will be seen from the Memorandum of Understanding that the
appellant was to start manufacture of soft beverages in the existing built up
accommodation by the end of March, 2000 and complete the minimum
capital investment of Rs. 25 crores or more latest by 30th September, 2000. c
Mr. Rohtagi, learned senior counsel appearing on behalf of the State, also
could not dispute the fact that the appellant had invested a sum of Rs.27.11
crores as on September 30, 2000. This fact is admitted in the order of the
Director, Industries and Commerce dated December 12, 2000 which declared
the appellant as a "prestigious unit". It also appears from the same order D
that the matter had been examined by the General Manager, District
Industries Center, Jammu and J&K State Industrial Development Corporation
Ltd. This was also supported by a certificate issued by the Chartered
Accountants of the appellant which had been authenticated by the General
Manager, District Industries Center, Jammu. This is also apparent from the E
two certificates issued by the General Manager, District Industries Center,
Jammu and J&K State Industrial Development Corporation Ltd. as also from
the communication dated April 25, 2000 of the Industries and Commerce
Department recommending that SRO be issued permitting the appellant to
avail of incentives as a "prestigious unit" from the date of commercial
production. Thus it would appear that the Government took a conscious F
decision to permit the appellant to complete the minimum capital investment
of Rs. 25 crores latest by September 30, 2000. It also appears from the letter
of the Industries and Commerce Department dated April 25, 2000 that while
discussing the proposal of the appellant it was felt that a liberal view needs
to be taken of the policy to the extent that if the investment of Rs. 25 cores G
or more materializes within the maximum period of 6 months from the date
of commercial production, the appellant should be given the benefits of the
incentives. This proposal had the approval of the Finance department as also
the approval of the Cabinet, which did not consider it as a departure from
the policy announced. - H
518 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A All these facts, therefore, lead to the only conclusion that having
considered its new Industrial Policy, and having considered the proposal
made by the appellant, the Government took a conscious decision to grant
the package of incentives to the industrial unit being set up by the appellant
provided it went into commercial production by the end of March 2000 and
made the necessary investment of Rs. 25 crores or more on or before
B September 30, 2000. The documents and material on record disclose that
the Government took this decision after full discussion on all aspects of the
matter, and in particular by reference to the date by which the appellant was
required to invest Rs.25 crores in the industrial unit being set up by it. The
State cannot be permitted to ignore its own conscious decision to permit the
c appellant to invest a sum of Rs. 25 crores or more by September 30, 2000.
The appellant acted on the basis of the decision taken by the State
Government and incorporated in the Memorandum of Understanding. The
fact that Rs.25 crores was invested by September 30, 2000 was not disputed
in the several counter-affidavits filed before the High Court. In view of the
voluminous evidence on record the State cannot dispute the fact that over
D
Rs.27 crores was invested by the prescribed date i.e. by September 30, 2000.
In this background, the State cannot be allowed to say that the incentives
cannot be extended to the industrial unit set up by the appellant because the
amount of Rs.25 crores or more was not invested by the date the unit went
into commercial production, though the amount ofRs.27 crores was invested
E within the period prescribed by the Government as incorporated in the
Memorandum of Understanding.

We, therefore, find no substance in the objection of learned senior
counsel appearing on behalf of the State of Jammu and Kashmir that the
F appellant had not fulfilled the requirement of making the investment ofRs.25
crores or more by the date it went into commercial production. As we have
noticed the Government itself was of the view that within the framework of
the policy formulated by it, it was permissible to prescribe a time schedule
within which the investment of Rs.25 crores or more was to be made.
Accordingly it required the appellant to invest a sum of Rs.25 crores or more
G before September 30, 2000 which the appellant did. We have also not been
shown anything in the Policy or in the Notifications issued pursuant thereto,
prescribing any date for the capital investment of Rs.25 crores or that within
the framework of the policy. the State Government was not entitled to
prescribe a date by which the investmem of Rs.25 crores or more should be
H made.
JAi BEVERAGES PVT.LTD. v. STATE OF J & KAND ORS. [B.P.SINGH, J.] 519

In view of our findings that the negative list concept does not apply A
to prestigious industrial units and that the industrial unit set up by the
appellant fulfilled all the conditions laid down in the Government's new
Industrial Policy and the notifications issued in connection therewith, it must
be held that the appellant is entitled to the package of benefits promised by
the new Industrial Policy of the State of Jammu & Kashmir read with various
notifications issued pursuant thereto.
B

The question as to whether the certificates issued by the SIDCO or by
the Department of Industries and Commerce are valid, or whether the
declaration made by the Industries and Commerce·Directorate by its order
dated December 12, 2000 declaring the appellant a "prestigious unit" is c
binding on the State Government, has no significance. The appellant having
fulfilled all the conditions which it was required to fulfil is entitled to the
benefits promised to "prestigious units" under the State's new Industrial
Policy (1998-2003).

We, therefore, set aside the judgment and order of the High Court of
D
Jammu & Kashmir in L.P.A. No. 73 of2004 and allow the writ petition filed
by the appellant. It is declared that the appellant is entitled to all the
incentives and subsidies applicable to "prestigious units" under the New
Industrial Policy published vide Government Order No. 202-IND of 1998
dated May 27, I 998 and the notifications issued pursuant thereto from the E
date the aforesaid unit went into commercial production. This appeal is
accordingly allowed without any order as to costs.

v.s.s Appeal allowed.