Companies Act Case Law State Of H.P. And Ors Gujarat Ambuja Cement Ltd. And Anr

CASE NO.:
Appeal (civil) 2641 of 2000

PETITIONER:
STATE OF H.P. and ORS.

RESPONDENT:
GUJARAT AMBUJA CEMENT LTD. and ANR.

DATE OF JUDGMENT: 18/07/2005

BENCH:
RUMA PAL & ARIJIT PASAYAT & C.K. THAKKER

JUDGMENT:
JUDGMENT

ARIJIT PASAYAT, J.

These appeals are inter-linked and, therefore, are taken up together for
disposal. Civil Appeal Nos. 2641 and 2642 of 2000 relate to respondent-
Gujarat Ambuja Cement Ltd. (in short `Gujarat Ambuja’) while Civil Appeal
Nos.3744-46 of 2000 relate to respondent-Associated Cement Ltd. (in short
`ACC’). The common question so far as the appeals are concerned linking the
respondents in the appeals relates to one issue i.e. liability to pay
purchase tax on the royalty paid by the respondents. As other issues are
involved in Gujarat Ambuja’s cases, the factual scenario in Civil Appeal
Nos.2641-2642 of 2000 needs to be noted in some detail.

Challenge in these appeals is to the judgments rendered by a Division Bench
of the Himachal Pradesh High Court. Writ Petitions were filed by the
present respondents questioning the action taken by the Sales Tax
Authorities and the revisional orders passed setting aside the orders of
assessment framed for the assessment years 1995-96 and 1996-97 under the
Central Sales Tax Act, 1956 (in short the `Central Act’) and the Himachal
Pradesh General Sales Tax Act, 1968 (in short the `Act’).

So far as the Gujarat Ambuja is concerned, the factual and legal background
was highlighted in the writ petitions before the High Court as follows:

It is a public limited Company incorporated under the Companies Act, 1956
inter alia carrying on the business of manufacture and sale of cement under
the name and style of “Ambuja Cement” in the State of Himachal Pradesh and
that it ranks amongst one of the best managed cement Companies in India. It
had been conferred various prestigious awards for its performance,
pollution control and management including the award in the year 1991 by
the Prime Minister of India, namely, `National Award for Public Recognition
of Outstanding Activity for prevention of control of pollution’. It
submitted an application in the year 1989 for setting up a cement plant in
Himachal Pradesh and it was approved by the State Level Industrial Projects
and Review Authority (hereinafter referred to as `IPARA’) in their letter
dated 19.2.1990. It invested more than Rs.500 crores in setting up the
cement plant at Darlaghat, Solan District of Himachal Pradesh and it is the
largest investment made by any private entrepreneur so far as the State is
concerned. The said cement project also had the approval of the World
Bank/International Finance Corporation, Washington, which also financed the
project by way of term loan in addition to the project being monitored by
the Industrial Development Bank of India too. All these brought substantial
economic development in the State.

On 27.3.1991, the Industrial Development Department of Himachal Pradesh
Government issued an incentive scheme by their notification notifying the
grant of certain incentives for new as well as already established units in
the State in respect of deferment of payment of Sales Tax, Electricity Duty
etc. Writ-petitioner obtained provisional Sales Tax registration from the
Himachal Pradesh General Sales Tax Department on 14.2.1992, which was
extended from time to time upto 30.6.1995 before ultimately being granted
with permanent registration w.e.f. 11.8.1995, the date on which the
petitioner started its trial production. On 31st July, 1992 the Industries
Department issued another notification introducing the concept of
“Prestigious and Pioneer Industries” by amending suitably the earlier
notification dated 27.3.1991, according to which “Prestigious unit” meant
any new industrial unit, which goes into commercial production in the State
on or after 1.5.1992 and is registered with the Empowered Committee
appointed under Rule 24 between 1.5.1992 and 31.3.1993, which has a fixed
capital investment of at least Rs.50 crores and employed at least 200
persons on regular basis. The Empowered Committee considered the issue of
grant of registration certificate as Prestigious unit in its meeting held
on 25.11.1992 and decided to grant the same to Gujarat Ambuja treating it
as a `Prestigious Unit’. Consequently, the Director of Industries, Himachal
Pradesh issued on 13.1.1993 the required registration certificate
registering the petitioner Unit as a `Prestigious Unit’. As the production
of the unit could not be commenced by January 1995, which was one of the
stipulated conditions, taking into account the substantial progress made by
the Company, the Industries Department by its letter dated 28.1.1995
approved the grant of further extension initially till 30.6.1995 and
thereafter upto 30.9.1995 by their letters dated 28.1.1995 and 30.6.1995.
On 1.12.1994, the Industries Department made further amendments to the
notification dated 27.3.1991 and 31.7.1992, and brought into existence the
concept of `Prestigious Cement Unit’, according to which the unit must go
into commercial production after 1.5.1992 and registered with the Empowered
Committee under Rule 24 between 1.5.1992 and 31.3.1995. By the said
amendment, it was also notified that such unit should have a fixed capital
of Rs.50 crores and employ at least 200 persons on regular basis. It is to
be noted that by Notifications dated 27.3.1991 and 31.7.1992 Rules were
notified. They were called Revised Rules regarding grant of Incentives to
Industrial Units in Himachal Pradesh, 1991 (in short `1991 Rules’) and
Revised (Amendment) Rules regarding grant of Incentives to Industrial Units
in Himachal Pradesh, 1992 (in short `1992 Rules’). The Revised Rules were
further amended by notifications dated 1.12.1994 and 6.7.1995 and these
amended Rules were called Revised (Amendment II) Rules regarding grant of
Incentives to Industrial Units in Himachal Pradesh, 1994 (in short `1994
Rules’) and Revised (Amendment-III) Rules regarding grant of Incentives to
Industrial Units in Himachal Pradesh, 1995 (in short `1995 Rules’). The
1991 Rules, as the notification of 27.3.1991 shows, were made after
supersession of Rules-I dated 4.10.1976, Rules 9-4/73-SI-IV dated
14.5.1980, No.10-27/71-SI dated 28.8.1984 and No.9-4/73-V dated 5.1.1985.

In the light of all these, the Excise and Taxation Department issued a
notification dated 31.12.1994 to grant exemption from payment of Sales Tax
to pioneer industries, bifurcated in different categories with effect from
the date of their commercial production against the periods as enumerated
in the notification, which was further amended on 27.3.1995 introducing
para 1(a) and 1(b). On 6.7.1995, the Department of Industries again amended
Rule 27(1) regarding the grant of incentive to Prestigious Cement Units
notifying that sales tax exemption/deferment under both Central Tax and
Himachal Pradesh General Sales Tax shall be available for a period of 12, 9
and 7 years in respect of category A, B and C blocks, respectively, to new
Prestigious Cement Units excluding from its purview the only existing
cement unit, as per which the eligible cement units were those, which had
come into commercial production within the State of Himachal Pradesh on or
after 1.5.1992.

On 11.8.1995, Gujarat Ambuja started trial production and on 26.9.1995
regular commercial production was started. This entitled the Company to
exemption from Sales Tax in terms of the notifications referred to supra. A
formal certificate was also issued by the Department of Industries on
24.1.1996 specifying the commencement of the commercial production on
26.9.1995 confirming at the same time about the investment of about Rupees
391 crores and employment of 353 persons on regular basis. Sales tax due
was paid to the Department for the intervening period from 11.8.1995 to
25.9.1995. The Excise and Taxation Department issued an amendment on
30.1.1996 to the earlier notification dated 31.12.1994 and introduced para
1(C) which was published in the Official Gazette on 6.2.1996, whereunder
the State Government had specifically given exemption to Gujarat Ambuja
from payment of sales tax subject to the fulfilment of certain conditions
enumerated in the notification being a company classified and placed in the
category of industrial Block `B’ in terms of which it was shown to be
eligible to avail of the concession of exemption for 108 months (9 years).

Since the unit was already registered as a `Prestigious unit’ on 13.1.1993
in accordance with the notification issued by the State Government on
31.7.1992 by the Empowered Committee in its meeting held on 25.11.1992 and
inasmuch as the requirements of the `Prestigious Unit’ and the `Prestigious
Cement Unit’ were absolutely one and the same, unit was mentioned and
referred to in the notification dated 30.1.1996 and a formal declaration
was also made by the Industries Department on 2.2.1996 declaring the
petitioner to be a `Prestigious Cement Industrial Unit’ keeping in view the
satisfaction of all the requisite eligibility criteria. The unit fulfilled
all the conditions as required under Rule 2(rrr), as mentioned in the
notification dated 6.7.1995 as well as 30.1.1996 issued by the Industries
Department as also the Excise and Taxation Department of the State
Government having regard to the fact that the unit has come into commercial
production after 1.3.1992, that it was registered with the Empowered
Committee as a `Prestigious Unit’ on 13.1.1993, that it has already made
investment of more than Rupees 50 crores and had also employed more than
200 persons on regular basis. The Director of Industries has issued a
certificate in form STH-III on 15.2.1996 certifying that the unit had been
registered as a `Prestigious Cement Industrial Unit’ with the Empowered
Committee, pursuant to which an application was made to the Excise and
Taxation Department for the grant of exemption certificate in STH-II before
the assessing authority and thereupon on 11.6.1996, the prescribed
authority after due enquiry issued a certificate of exemption in form STH-
II for the period from 30.1.1996 to 31.3.1996 and the same was extended
further from time to time upto 31.3.1998.

On 14.3.1997, the Assessing Authority passed an order of assessment for the
assessment year 1995-96 and granted exemption w.e.f. 30.1.1996. Aggrieved
by a portion of the order, Gujarat Ambuja filed an appeal before the
Additional Excise and Taxation Commissioner/Appellate Authority on the
ground that the exemption should have been allowed from the date of
commencement of the commercial production, namely, 26.9.1995 and not from
30.1.1996, the date of issuance of exemption notification. On 27.5.1997,
the Sales Tax Department passed an order of assessment for the year 1995-96
granting exemption from payment of the sales tax w.e.f. 6.2.1996, which is
the date on which the notification was actually published instead of from
30.1.1996 with reference to which it was granted earlier. Once again, in
respect of this order also, an appeal was filed before the Additional
Excise and Taxation Commissioner/Appellate Authority challenging the same
on the ground that the exemption should have been granted from the date of
commencement of the commercial production, namely, 26.9.1995 and not as is
sought to be given by the authorities concerned. For the assessment year
1996-97, the Assessing Authority passed an order dated 24.10.1997 after
considering all the relevant material on record granting exemption from the
payment of sales tax.

While matter stood thus, according to the respondents on 24.3.1998 when two
political parties formed a Coalition Government in the State of Himachal
Pradesh, the Excise and Taxation Minister, who belonged to a political
party and the leaders of that party started issuing number of statements
against the respondent-company by prejudging the issue and questioning its
entitlement for exemption under the Incentive Scheme announced. These
statements in the shape of press cuttings were annexed to the writ
petition. It was contended that on account of such extraneous reasons and
influence and with ulterior motive, action was initiated by the
Commissioner of Sales Tax without any justification in law and in an
arbitrary manner proposing to revise the orders passed by the Assessing
officer in exercise of the powers conferred under Section 31(1) of the Act
and for that purpose on 29.4.1998 issued a show cause notice calling upon
the respondents to show cause as to why the exemption granted cannot be
revoked on the ground that the declaration of the petitioner as a
“Prestigious Cement Unit” within the meaning of para 1(C) of the
notification was not correct for the reasons set out in the said notice. It
was also proposed to revoke STE-II. On 4.5.1998, the revisional authority
issued three other show cause notices being Revision Nos. 2, 3 and 4, both
under the Central Act for the year 1995-96 and Act for the year 1996-97 and
the Central Act for the year 1996-97 questioning the legality and propriety
of the earlier assessment orders granting exemption on the ground that the
petitioner was not a Prestigious Cement Unit within the meaning of para
1(C) of the notification dated 31.12.1994 and, therefore, was not entitled
to any exemption from Sales Tax either under the State Act or the Central
Act. It was also indicated in the show cause notices about the non-payment
of the tax payable under Section 5A of the Act. As a sequel of the said
notices issued by the revisional authority, the assessing authority also
issued show cause notice proposing to withdraw the exemption accorded
earlier in form STE-II for the assessment year 1997-98 on similar grounds
as were assigned by the revisional authority in its notices, calling upon
the respondent-company to appear before the said authority on 18.6.1998. So
far as the two appeals filed by the petitioners before the Additional
Commissioner (Appeals) against the assessment orders dated 14.3.1997 and
27.5.1995 for the assessment year 1995-96 are concerned, the appellate
authority by its order dated 3.10.1998 and 9.10.1998 respectively dismissed
the appeals upholding the assessment framed by the Assessing Officer and
endorsed the view that the assessee was entitled to exemption from payment
of sales tax with effect from 6.2.1996, the date of publication of the
notification only and not from the date of commencement of commercial
production, namely, 26.9.1995. In the light of the replies filed in
response to the notices issued by the revisional authority, the respondent
requested the Assessing Authority to adjourn the proceedings relating to
the assessment year 1997-98, but on 1.12.1998, the Sales Tax Officer passed
an order withdrawing the exemption earlier granted and directed the
assessee to pay the Sales Tax to the tune of Rs.18.50 crores under the Act
as well as the Central Act. It is stated that since para 1(C) of the
notification dated 30.1.1996 published on 6.2.1996 prohibited by virtue of
Clause 5 therein the assessee from charging tax on the sale of cement
manufactured in the new unit and any collection of the sales tax would have
exposed to penal consequences under Section 35 of the Act, the assessee had
not actually collected any sales tax at all and in spite of all these, it
was being made to pay huge amount, which is an illegal demand on account of
the arbitrary, illegal and mala fide nature of the action initiated by the
authorities. Against the order of the Sales Tax Officer dated 1.12.1998, an
appeal was filed before the Additional Excise and Taxation Commissioner,
Himachal Pradesh. The Assessing Authority in the meantime issued a notice
dated 4.1.1999 for the assessment year 1997-98 calling upon the assessee to
pay sales tax in a sum of Rs.18.50 crores under both the Act as well as
Central Act, stipulating coercive action under Section 14(8) of the Act, in
default thereof. In spite of the representations made before the Appellate
Authority, the assessee was directed to make an initial deposit of Rs.1.50
crores before the appeal filed could be heard on merit. Appeals were filed
before the Finance Commissioner against the orders passed by the Appellate
Authority dated 3.10.1998 and 6.10.1998, which are said to be pending. Even
in spite of all these, the Assessing Authority issued another show cause
notice dated 9.2.1999 calling upon the assessee to pay a sum of Rs.5.50
crores excluding interest and penalty towards the liability of sales tax
for the period from April 1998 to December 1998. In the meantime, the
revisional authority has issued four more notices being Revision Nos. 7, 8,
9, 10 under the Act as well as Central Act for the years 1992-93 to 1995-96
alleging that the orders passed by the Assessing Authority for those
periods are neither legal nor proper and calling upon the assessee to show
cause as to why penalty for the assessment year from 1992-93 to 1995-96
equivalent to one and half time of the tax that would have been payable on
purchase of materials should not be levied in view of the fact that the
provisional registration certificate under the Act expired on 30.6.1995 and
regular registration certificate was only obtained on 11.8.1995. On
8.2.1999, the revisional authority cancelled and annulled the exemption
certificate issued in form STE-II with retrospective effect and held that
the assessee-company was liable to pay tax under both the Central Act and
the Act in addition to its liability to pay the purchase tax under Section
5A of the State Act on the limestone extracted. The Revisional Authority
was of the view that the respondents were not entitled to any exemption as
they did not fulfil the requisite conditions. Additionally it was held that
there was no compliance with the statutory requirements which was a
condition precedent for grant of benefit. That was treated to be an
additional ground for holding that the respondent was not entitled to any
benefit. Reference was made to certain defective `C Forms’ to highlight as
to how the assessee had failed to comply with the requirements for
entitlement of the benefits. Accordingly, the Revisional Authority directed
fastening of additional tax liability. Apprehending that the Appellate
Authority, which is only subordinate to the revisional authority is likely
to follow the view expressed by the revisional authority and the remedy of
appeal would be merely an empty formality in view of the order of the
revisional authority, the writ petitions were filed. The High Court allowed
the writ petitions by the impugned judgment and quashed the orders of the
Sales Tax authorities; inter alia, holding as follows:

“So long as the petitioners satisfied the eligibility criteria prescribed
in the Revised Incentive Rules, as amended from time to time, he would be
entitled to the benefits and incentives extended under the Rules and the
statutory notification is not a must or an essential pre-requisite for the
petitioners to assert/enforce such rights. The statutory notifications
issued under the relevant taxing enactments only go to ratify and accord
statutory recognition also to what was originally, planned and proclaimed
as a policy decision and guidelines. Viewed thus, the petitioners would in
our view be entitled to the benefit of the incentives from the date of
commencement of commercial production on 26.9.1995. As held in State of
Bihar and Ors. v. Suprabhat Steel Ltd. and Ors., [1991] 1 SCC 31, it would
not be permissible for even the State Government to override or negate the
incentives and benefits which may industrial unit would be otherwise
entitled to under the Incentive policy, proclaimed by the Government
itself.”

Additionally, it was held that the levy of purchase tax on the royalty paid
is not legally sustainable.

The High Court held that the approach of the authorities was clearly
erroneous, on a mis-reading of the various Notifications and keeping out of
consideration certain relevant materials. Particular reference was made to
the Registration Certificate dated 13th January, 1993 issued by the
Empowered Committee. Taking note of the fact that the notifications were
issued by promulgating rules, the High Court was of the view that they are
to be considered in the background of Section 42 of the Act. The emphasis
on defects in `C’ forms was held to be clearly without any basis, and the
same was held to be totally insignificant for the purpose of denying
benefits in terms of the policy of the State to encourage setting up of
cement industries.

In ACC’s case the High Court followed the view expressed in Gujarat
Ambuja’s case relating to levy of purchase tax on royalty paid. High
Court’s judgments are assailed in these appeals on various grounds.

Firstly, it is submitted that the High Court should not have entertained
the writ petitions under Article 226 of the Constitution of India, 1950 (in
short the `Constitution’) when alternative remedy was available under the
Central Act and the State Sales Tax Act, if the respondents were aggrieved
by the revisional orders. Several factual controversies were involved and
the High Court was not justified in holding that no factual controversy was
involved. Whether the exemptions claimed were available in the factual
background needed factual adjudication and, therefore, the High Court
should not have entertained the writ petition.

Further submission of appellant-State is that benefits were not available
to respondent No.1-Company as the requisite conditions were not fulfilled.
Firstly, it was not a new industrial unit registered with the Empowered
Committee appointed in accordance with Rule 24 between Ist May 1992 and
31st March, 1995 and had not gone into the commercial production on or
after 1st May 1992. It was also submitted that various provisions of the
Act and the Central Act were not complied with, as would be evident from
the fact that the requisite declaration forms were not submitted and/or
forms submitted were defective. That being so, the High Court was not
justified in interfering with the revisional orders passed. There was no
evidence before the revisional authority that respondent No.1-Company was
registered with the Empowered Committee on 13th January, 1993. This did not
form a part of the revisional record and obviously was not considered by
the revisional authority. That being so, the High Court should not have
taken the same into account. It was also pointed out that merely because
certain defective forms were filed that cannot be taken as compliance with
the statutory requirement of filing the declaration forms within the
stipulated time. In any event, purchase tax on royalty had not been paid
and, therefore, that also amounted to violation of the conditions
stipulated.

It is submitted that the High Court confused between Prestigious Units and
Prestigious Cement Units. The question of declaring the respondent-assessee
as a Prestigious Cement Unit did not arise till it had started commercial
production. The Notifications clearly show that at different points of time
either no benefit was granted to cement industries or such industry was
entitled to only deferment of payment of sales tax and not exemption. The
respondent-assessee had failed to show as to under what provision the rules
referred to in the Notifications were framed. According to learned counsel
for the appellant the expression “Rules” has been loosely used in the
Notifications and in the real sense the Notifications contained policy
decisions which as the Notifications clearly indicated were not enforceable
in any Court of law having been granted at the discretion of the State
Government. It was submitted that the defective declaration forms (Form
`C’) clearly indicated that the respondent-assessee had not complied with
the various Statutes, Rules and Notifications. The sine qua non for grant
of benefits was not complied with. Therefore, the Revisional Authority was
justified in holding that respondent-assessee was not entitled to any
benefit.

In response, learned counsel for the respondents submitted that the
revisional authority had clearly acted without jurisdiction. There was
really no factual dispute involved and in essence the challenge related to
the question whether on a bare reading of the concerned
Notifications/Government Orders the exemptions claimed by the writ
petitioners were originally allowed. The competent authority had considered
the relevant aspects and the benefits had been granted. They should not
have been withdrawn by the revisional authority in the manner done. It was
clearly indicated in the writ petitions as to why the available statutory
remedies would have an exercise in futility. It was clearly mentioned and
substantiated by materials as to why the writ petitioners had become
victims of a political vendetta. The political parties and persons who had
let loose a smear campaign against the writ petitioners were in power and
the subordinate authorities would have been in no position to give justice
to the writ petitioners contrary to their dictates. The authorities
recorded conclusions which clearly show the bias and preconceived notions.
The conclusions were pre-determined. In that background, the writ petitions
were filed and were entertained. The High Court has elaborately dealt with
every relevant aspect and it has not been shown as to how the High Court’s
judgments suffer from any infirmity. Further, this Court should not
interfere since the High Court had entertained writ petitions indicating
reasons why the writ petitions were entertained when alternative remedy was
available.

Stand of the respondents on the other issues was to the effect that the
submissions of the appellants do not carry any weight and have been made
overlooking the factual and legal position. The submissions completely
overlook the essence of the notifications and are based on misreading them.

We shall first deal with the plea regarding alternative remedy as raised by
the appellant-State. Except for a period when Article 226 was amended by
the Constitution (42nd Amendment) Act, 1976, the power relating to
alternative remedy has been considered to be a rule of self imposed
limitation. It is essentially a rule of policy, convenience and discretion
and never a rule of law. Despite the existence of an alternative remedy it
is within the jurisdiction of discretion of the High Court to grant relief
under Article 226 of the Constitution. At the same time, it cannot be lost
sight of that though the matter relating to an alternative remedy has
nothing to do with the jurisdiction of the case, normally the High Court
should not interfere if there is an adequate efficacious alternative
remedy. If somebody approaches the High Court without availing the
alternative remedy provided the High Court should ensure that he has made
out a strong case or that there exist good grounds to invoke the
extraordinary jurisdiction.

Constitution Benches of this Court in K.S. Rashid and Sons v. Income Tax
Investigation Commission and Ors., AIR (1954) SC 207; Sangram Singh v.
Election Tribunal, Kotah and Ors., AIR (1955) SC 425; Union of India v.
T.R. Varma, AIR (1957) SC 882; State of U.P. and Ors. v. Mohammad Nooh, AIR
(1958) SC 86 and M/s K.S. Venkataraman and Co. (P) Ltd. v. State of Madras,
AIR (1966) SC 1089, held that Article 226 of the Constitution confers on
all the High Courts a very wide power in the matter of issuing writs.
However, the remedy of writ is an absolutely discretionary remedy and the
High Court has always the discretion to refuse to grant any writ if it is
satisfied that the aggrieved party can have an adequate or suitable relief
elsewhere. The Court, in extraordinary circumstances, may exercise the
power if it comes to the conclusion that there has been a breach of
principles of natural justice or procedure required for decision has not
been adopted.

Another Constitution Bench of this Court in State of Madhya Pradesh and
Anr. v. Bhailal Bhai etc.etc., AIR (1964) SC 1006, held that the remedy
provided in a writ jurisdiction is not intended to supersede completely the
modes of obtaining relief by an action in a civil court or to deny defence
legitimately open in such actions. The power to give relief under Article
226 of the Constitution is a discretionary power. Similar view has been re-
iterated in N.T. Veluswami Thevar v. G. Raja Nainar and Ors., AIR (1959) SC
422; Municipal Council, Khurai and Anr. v. Kamal Kumar and Anr., AIR (1965)
SC 1321; Siliguri Municipality and Ors. v. Amalendu Das and Ors., AIR
(1984) SC 653; S.T. Muthusami v. K. Natarajan and Ors., AIR (1988) SC 616;
R.S.R.T.C. and Anr. v. Krishna Kant and Ors., AIR (1995) SC 1715; Kerala
State Electricity Board and Anr. v. Kurien E. Kalathil and Ors., AIR (2000)
SC 2573; A. Venkatasubbiah Naidu v. S. Chellappan and Ors., [2000] 7 SCC
695; and L.L. Sudhakar Reddy and Ors. v. State of Andhra Pradesh and Ors.,
[2001] 6 SCC 634; Shri Sant Sadguru Janardan Swami (Moingiri Maharaj)
Sahakari Dugdha Utpadak Sanstha and Anr. v. State of Maharashtra and Ors.,
[2001] 8 SCC 509; Pratap Singh and Anr. v. State of Haryana, [2002] 7 SCC
484 and G.K.N. Driveshafts (India) Ltd. v. Income Tax Officer and Ors.,
[2003] 1 SCC 72.

In Harbans Lal Sahnia v. Indian Oil Corporation Ltd., [2003] 2 SCC 107,
this Court held that the rule of exclusion of writ jurisdiction by
availability of alternative remedy is a rule of discretion and not one of
compulsion and the Court must consider the pros and cons of the case and
then may interfere if it comes to the conclusion that the petitioner seeks
enforcement of any of the fundamental rights; where there is failure of
principles of natural justice or where the orders or proceedings are wholly
without jurisdiction or the vires of an Act is challenged.

In G. Veerappa Pillai v. Raman and Raman Ltd., AIR (1952) SC 192; Assistant
Collector of Central Excise v. Dunlop India Ltd., AIR (1985) SC 330;
Ramendra Kishore Biswas v. State of Tripura, AIR (1999) SC 294; Shivgonda
Anna Patil and Ors. v. State of Maharashtra and Ors., AIR (1999) SC 2281;
C.A. Abraham v. I.T.O. Kottayam and Ors., AIR (1961) SC 609; Titaghur Paper
Mills Co. Ltd. v. State of Orissa and Anr., AIR (1983) SC 603; H.B. Gandhi
v. M/s Gopinath and Sons, [1992] Suppl. 2 SCC 312; Whirlpool Corporation v.
Registrar of Trade Marks and Ors., AIR (1999) SC 22; Tin Plate Co. of India
Ltd. v. State of Bihar and Ors., AIR (1999) SC 74; Sheela Devi v. Jaspal
Singh, [1999] 1 SCC 209 and Punjab National Bank v. O.C. Krishnan and Ors.
[2001] 6 SCC 569, this Court held that where hierarchy of appeals is
provided by the statute, party must exhaust the statutory remedies before
resorting to writ jurisdiction.

If, as was noted in Ram and Shyam Co. v. State of Haryana and Ors. AIR
(1985) SC 1147 the appeal is from “Caeser to Caeser’s wife” the existence
of alternative remedy would be a mirage and an exercise in futility. In the
instant case the writ petitioners had indicated the reasons as to why they
thought that the alternative remedy would not be efficacious. Though the
High Court did not go into that plea relating to bias in detail, yet it
felt that alternative remedy would not be a bar to entertain the writ
petition. Since the High Court has elaborately dealt with the question as
to why the statutory remedy available was not efficacious, it would not be
proper for this Court to consider the question again. When the High Court
had entertained a writ petition notwithstanding existence of an alternative
remedy this Court while dealing with the matter in an appeal should not
permit the question to be raised unless the High Court’s reasoning for
entertaining the writ petition is found to be palpably unsound and
irrational. Similar view was expressed by this Court in First Income-Tax
Officer, Salem v. M/s. Short Brothers (P) Ltd., [1966] 3 SCR 84 and State
of U.P. and Ors. v. M/s. Indian Hume Pipe Co. Ltd., [1977] 2 SCC 724. That
being the position, we do not consider the High Court’s judgment to be
vulnerable on the ground that alternative remedy was not availed. There are
two well recognized exceptions to the doctrine of exhaustion of statutory
remedies. First is when the proceedings are taken before the forum under a
provision of law which is ultra vires, it is open to a party aggrieved
thereby to move the High Court for quashing the proceedings on the ground
that they are incompetent without a party being obliged to wait until those
proceedings run their full course. Secondly, the doctrine has no
application when the impugned order has been made in violation of the
principles of natural justice. We may add that where the proceedings itself
are an abuse of process of law the High Court in an appropriate case can
entertain a writ petition.

Where under a statute there is an allegation of infringement of fundamental
rights or when on the undisputed facts the taxing authorities are shown to
have assumed jurisdiction which they do not possess can be the grounds on
which the writ petitions can be entertained. But normally, the High Court
should not entertain writ petitions unless it is shown that there is
something more in a case, something going to the root of the jurisdiction
of the officer, something which would show that it would be a case of
palpable injustice to the writ petitioner to force him to adopt the
remedies provided by the statute. It was noted by this Court in L. Hirday
Narain v. Income Tax Officer, Bareilly, AIR (1971) SC 33 that if the High
Court had entertained a petition despite availability of alternative remedy
and heard the parties on merits it would be ordinarily unjustifiable for
the High Court to dismiss the same on the ground of non exhaustion of
statutory remedies; unless the High Court finds that factual disputes are
involved and it would not be desirable to deal with them in a writ
petition.

At this juncture, it would be appropriate to take note of the few
expressions in Reg v. Hillington, London Borough Council, (1974) 1 QB 720
which seems to bring out well the position. Lord Widgery, C.J. stated in
this case:

“It has always been a principle that certiorari will go only where there is
no other equally effective and convenient remedy…”

The statutory system of appeals is more effective and more convenient than
application for certiorari and the principal reason why it may prove itself
more convenient and more effective is that an appeal to (say) the Secretary
of State can be disposed of at one hearing whether the issue between them
is a matter of law or fact or policy or opinion or a combination of some or
all of these ……..whereas of course an appeal for certiorari is limited
to cases where the issue is a matter of law and then only it is a matter of
law appearing on the face of the order.”

“An application for certiorari has however this advantage that it is
speedier and cheaper than the other methods and in a proper case therefore
it may well be right to allow it to be used…..I would, however, define a
proper case as being one where the decision in question is liable to be
upset as a matter of law because on its face it is clearly made without
jurisdiction or in consequence of an error of law.”

After all the above discussion, the following observations of Roskill L.J.
in Hanson v. Church Commissioner, (1978) QB 823 may not be welcomed but it
should not be forgotten also:

“There are a number of shoals and very little safe water in the unchartered
seas which divide the line between prerogative orders and statutory
appeals, and I do not propose to plunge into those seas….”

Therefore, the plea that the High Court should not have entertained the
writ petition is without any merit and deserves rejection.

Though learned counsel for appellant-State urged that certificate showing
that respondent No.1-Company was registered with the Empowered Committee on
13th January, 1993 should not have been considered on the ground that
Revisional authority had not dealt with the same while dealing with the
case of respondent-company, it is not disputed that the registration was
within the knowledge of the appellants. In fact the certificate was a part
of the record before the High Court. The registration with the Empowered
Committee on 13.1.1993 therefore establishes that the respondent No.1-
company was registered with the Empowered Committee within the period
prescribed in the incentive notification. The appellant-State issued a
Notification through the Department of Industries in the name of the
Governor on 27.3.1991. The Notification notified rules for grant of revised
incentives to industrial units and the rules were to be operative from 1st
April 1991 which was referred to as the appointed date. Under the said
Notification new industrial units were eligible for grant of incentives as
detailed in the Notification. According to this Notification new industrial
unit means “any industrial unit located in the State of Himachal Pradesh
which commences production on or after the appointed date”. The new
industrial units were to be granted various benefits including central
sales tax concession. But no concession under the State Act was available
to a cement unit as cement was in the negative list mentioned in the
Annexure III to the Notification. By Notification dated 31st July, 1992 the
earlier Notification dated 27.3.1991 was amended. In other words, the rules
contained in the Notification were amended. By the subsequent Notification,
certain categories of units were taken out of the negative list. Cement was
one of such units. Resultantly, in terms of the Notification dated 31st
July, 1992 the cement units became eligible for exemption as provided in
various incentives notifications. A significant change was also made by the
Notification to the effect that the concept of “Prestigious cement unit”
was introduced. Subject to fulfillment of certain conditions a prestigious
unit was eligible for both sales tax exemption and deferment. The
conditions are as follows:

(i) The unit must be registered with the Empowered Committee as a new
industrial unit between Ist May 1992 and 31st March, 1993.

(ii) The new industrial unit must go into commercial production on or after
1st May 1992.

(iii) The said unit must have a fixed capital investment of Rs.50 crores.

(iv) A new industrial unit must employ at least 200 persons on a regular
basis.

Rule 24 (of 31st July, 1992 Notification) spelt out the constitution and
function of the Empowered Committee. It also spelt out the procedure for
setting up of a prestigious unit. Under Rule 24.4 applications for setting
up of a prestigious unit were to be made to the Director of Industries who
was then to put those for consideration of the Committee. One of the
members of the Committee was the Excise and Taxation Commissioner. The
member-secretary of the Committee was the Secretary of Industries
Department. Finality was attached to the decision of the Empowered
Committee in terms of Rule 24. The Empowered Committee was to stipulate the
commencement date of the Unit. To put it differently, it was open to the
Empowered Committee to register a unit prior to its going into the
commercial production. This position is abundantly clear from the
stipulation in the Rule itself that the Empowered Committee in certain
cases could extend the outer limit of the period for going into commercial
production, where 80% of the project had been completed. As noted above, on
13.1.1993 the proposed unit of respondent No.1-Company for the manufacture
of Portland cement was registered with the Empowered Committee subject to
certain conditions. It was stipulated that the unit was to commence
production latest by January, 1995. Changes were introduced by the
Notification dated 1st December, 1994 vis-a-vis earlier Notification dated
27th March, 1991 and 31st July, 1992. By this notification, the concept of
“prestigious cement unit” was introduced. A unit to be eligible as a
`prestigious cement unit’ was to fulfil the following conditions:

(i) Must be a new industrial unit registered with the Empowered Committee
appointed in accordance with Rule 24 between 1st May 1992 and 31st March
1995.

(ii) The new industrial unit must go into commercial production on or after
1st May 1992.

(iii) The new unit must have a fixed capital investment of Rs.50 crores.

(iv) The new unit must employ at least 200 persons on a regular basis.

After coming into force of the new definition of “prestigious cement
industrial unit” the Director of Industries extended the date for
commencement of commercial production upto 30th June, 1995 and subsequently
upto 30th September, 1995.

Stand of the appellant-State is that even if there was a registration with
the Empowered Committee on 13.1.1993, the same was of no consequence after
the new definition of “prestigious cement industrial unit” was introduced.
We find no substance in this submission of learned counsel because of
several reasons. Firstly, there was nothing in the Notification dated 1st
December, 1994 which required that those units which had obtained
registration between 1st May, 1992 and 1st December, 1994 were required
once again to seek registration as a “prestigious cement unit”. Had it been
so there was no question of extending the validity of the registration
certificate dated 13.1.1993 after promulgation of Notification dated 1st
December, 1994. In fact the final extension granted was upto 30th
September, 1995 and there is no dispute that respondent No.1-company
commenced its production on 25th September, 1995. Para 27 of the
Notification dated 1st December, 1994 provided that prestigious cement unit
was entitled to deferment of sales tax as well as from exemption of payment
the electricity duty. On 31st December, 1994 the State Government issued a
Notification under Section 42 of the Act which granted sales tax exemption
for pioneer industries from the date of commercial production. On 6th July,
1995 the Governor of Himachal Pradesh issued another Notification amending
the revised rules of 27th March, 1991 regarding grant of incentives to
industrial units. By this Notification incentives of sales tax
deferment/exemption were restored to cement units. On 30th January, 1996
Exemption Notifications under Section 8(5) of the Central Act and Section
42(1) of the Act were issued by the Governor of Himachal Pradesh. In this
Notification, the respondent No.1-Company was expressly named as a
prestigious cement industrial unit that would be eligible for the benefit.
This Notification also indicated that the respondent No.1-Company was
eligible for sales tax exemption for a period of 9 years. It is to be noted
that the respondent No.1-company was registered as a dealer on 11th August,
1995 under the Act and a certificate in Form STE-III had been issued by the
Director of Industries. When respondent No.1 applied in Form STE-I,
exemption certificate in Form STE-II had been granted by the prescribed
authority. The denial of benefit contemplated under clause (3) of the
Notification related to a finding about evasion of tax either under the Act
or the Central Act.

On 28.1.1995 the Director of Industries extended the date of commencement
of Commercial production till 30th June, 1995 keeping in view the progress
of the plant. The same was further extended up to 30th September, 1995
keeping in view the progress of the plant by order dated 30th June, 1995.
By Notification dated 6.7.1995 incentives of sales tax deferment/exemption
were restored to cement units. There is no dispute that the respondent-
company’s commercial production started with effect from 26th September,
1995 and, in fact, the director of Industries by his Certificate dated
24.1.1996 confirmed this position. On 26.9.1995 respondent-company brought
to the notice of the concerned department these facts and claimed
incentives under the Exemption Notification indicating that commercial
production had started. The Empowered Committee confirmed grant of
Permanent Registration Certification (Declaration) to the respondent-
assessee. On 30th January, 1996 the Exemption Notification was issued. The
said Notification has also significance for the present dispute. In the
Notification it was clearly stated that the respondent-company was exempted
from payment of sales tax. It was expressly named as a “Prestigious Cement
Industrial Unit”. It was classified as a Category `B’ Industry entitled to
sales tax exemption for 9 years. The Notification was published on
6.2.1996. On 2.2.1996 declaration was issued by the Industry’s department
confirming respondent’s eligibility for several incentives and more
particularly sales tax concessions. By the certificate No. STE(III) the
Director of Industries certified that the respondent-company fulfilled all
conditions namely registration by Empowered Committee, employment of person
belonging to the State and capital investment. On 2.3.1996 respondent-
company applied for the necessary benefit in form STE (I) and on 7th June,
1996 Exemption Certificate was issued in form STE (II).

The respondent No.1-company was registered with the Empowered Committee and
was also declared as a unit which is eligible for incentive of sales tax
concession as available to a prestigious cement unit under the revised
Rules regarding grant of incentives to industrial units. The definition of
prestigious cement industrial unit as introduced on 1st December, 1994 was
not intended to provide that there has to be registration either as a
prestigious unit or as a prestigious cement industrial unit. It only
required registration as a new industrial unit with the Empowered
Committee. It is significant to note that the pre-conditions for grant of
prestigious unit status and prestigious cement unit status were materially
identical.

One fallacy in the argument of the State is clearly revealed from the fact
that the Notification dated Ist December, 1994 contemplates registration
from 1st May 1992. To put it differently, registration with the Empowered
Committee prior to 1st December, 1994 was permissible in terms of the
Notification and that is why 13.1.1993 registration cannot be said to have
lost its currency after the promulgation of 1st December, 1994
Notification. There is no dispute that respondent No.1-company was
registered as a new industrial unit within the stipulated dates. If the
contention of the State is accepted, it would mean that the extension given
by the Secretary of Industries who was the Member Secretary of the
Empowered Committee extending the date of commercial production after
considering the progress of the units was in derogation of the
prescriptions. That is not the case of the appellant-State. Further, it
overlooks the powers available under Rule 24.4 of the Notification dated
31st July, 1992.

Another significant aspect which needs to be noted at this juncture is that
in the Notification dated 13.1.1993 respondent No.1-company was clearly and
specifically named as one of the units to which the exemption from payment
of sales tax for a period of 9 years was available. That being so, there is
no question of the appellant-State subsequently raising a question that the
respondent No.1-company was not registered between the specified dates. A
plea was taken that if that was the position there was no necessity for the
respondent No.1-company to apply and obtain another certificate on 2nd
February, 1996, if according to it there was a valid registration dated
13.1.1993. The certificate dated 2nd February, 1996 is a declaration issued
by the Empowered Committee. It declared, confirmed and re-stated the status
of respondent No.1-company. It did not create any such status for the first
time.

In the 30th January, 1996 Notification two distinct expressions have been
used; (i) registration by the Empowered Committee between the two specified
dates and (ii) declaration as a prestigious cement company by the said date
as one of the alternate criteria in addition to the registration. The
position is clear from a reading of 30th January, 1996 Notification which
reads as follows:

Sale of goods manufactured by certain industries-Exemption-Amendment
(Himachal Pradesh)

Notification No.EXN-C(9) 2/90-IV Dated 30th January, 1996

In exercise of the powers conferred by sub-section (1) of Section
42 of the Himachal Pradesh General Sales Tax Act, 1968 (Act No.24
of 1968), the Governor of Himachal Pradesh is pleased to make the
following further amendments in this Department’s Notification
No.EXN-C(p)/90 dated 31.12.1994 published in the Rajpatra, Himachal
Pradesh (Extraordinary) on 31.12.1994, as amended from time to time
(hereinafter called the “said notification”) with immediate
effect:-

Amendment-1. After the existing para 1-B of the said Notification
the following new para “1-C” shall be inserted namely:-

“1-C.(1) The Governor of Himachal Pradesh in exercise of the powers
conferred by sub-section (1) of Section 42 of the Himachal Pradesh General
Sales Tax Act, 1968 (Act No. pleased to order exemption fro tax subject to
their being eligible as per the terms of this para to the following other
industries from the payment of tax leviable on the sale of cement
manufactured by such `other industries’ as specified in the Table given
below and subject to the conditions specified below in sub-para (2):-

Serial Name of the Category of Total time limit

Number industry industrial block within which

In which located concession of

Exemption will

be available

1. M/s Gujarat Ambuja `B’ One hundred eight

Cements Ltd., Village months (9 years)

P.O. Darlaghat, Tehsil Suli,

Arki, District Solan (H.P.)

 

2. M/s The Associated `B’ One hundred eight

Cement Companies Ltd. months (9 years)

P.O. Barmana, District

Bilaspur (H.P.)

(2) The concession of exemption from payment of tax under this Act, shall
be admissible to `other industries’ only if-

(i) it is a prestigious cement industrial unit;

(ii) it has been registered a dealer under the Himachal Pradesh
General Sales Tax Act, 1968, for manufacture of cement for sale in
the `new cement industrial unit’;

(iii) it has obtained a certificate in form STE-III from the
Director of Industries, Himachal Pradesh and has furnished the same
to the prescribed authority for the grant of exemption certificate
in form STE-III.

(iv) it has been granted an exemption certificate in form STE-II by
the prescribed authority;

(v) it (registered dealer) complies with the provisions of (a) the
Himachal Pradesh General Sales Tax Act, 1968 (b) the Central Sales
Tax Act, 1956 and (c) the rules, notifications and orders made and
issued under these Acts;

(vi) the exemption certificate continues to remain operative and it
has not been withdrawn or cancelled by the prescribed authority or
is not annulled or quashed in any appellate, revisional or other
proceedings;

Provided that the exemption contained in sub-para (1) to
M/s The Associated Cement Companies Limited, Barmana,
District Bilaspur (Himachal Pradesh) shall be granted by
the prescribed authority only if, in addition to the
preceding conditions-

(a) the payment of tax under the Himachal Pradesh General Sales Tax
Act, 1968 and the Central Sales Tax Act, 1956 in respect of the old
component of the M/s The Associated Cement Companies Limited,
Barmana, District Bilaspur (Himachal Pradesh) is actually made even
during each financial year of the period of exemption in respect of
the new component of this unit, established as a result of
expansions on the quantity respectively of 5,51,664 metric tonnes
and 3,71,028 metric tonnes sold during the year 1991-92; and

(b) the level of manufacture of 9,22,692 metric tonnes of cement in
the old component of M/s Associated Companies Limited, Barmana,
District Bilaspur (Himachal Pradesh) is also maintained unchanged
throughout each financial year during the period of exemption in
respect of the new component of this unit established as a result
of expansion.

(3) Notwithstanding anything contained in sub-paras (1) and
(2), no exemption shall be granted by the prescribed authority to
such other industry-

(i) if it is found that the evasion of tax under the Himachal
Pradesh General Sales Tax Act, 1968 or the Central Sales Tax Act,
1956 has been committed by the entrepreneur (registered dealer);

(ii) in respect of the sale of finished cement, which has been
procured or acquired by it for the sale in Himachal Pradesh; and

iii) in respect of the sale of cement which has not been included
and duly returned in the return filed under Section 12(3) of the
Himachal Pradesh General Sales Tax Act, 1968.

(4) The provisions contained in paras 5, 7, 8, 9, 11,12, 13 and
14 of the Himachal Pradesh General Sales Tax (Deferred Payment of
Tax) Scheme, 1992 notified vide Government Notification No.1-12/73-
E&T-III dated 25.9.1992 published in Rajpatra, Himachal Pradesh
(Extraordinary) on 1.10.1992 shall apply mutatis mutandis in
relation to (1) mode of availing of benefit of exemption and issue
of exemption certificate, (ii) renewal of exemption certificate,
(iii) cancellation of exemption certificate in form STE-II, (iv)
filing of returns, assessment, etc. (v) registers to be maintained,
(vi) condonation of delay, (vi) other powers of the prescribed
authority, and (viii) overriding effect of this notification.

(5) The exemption is subject to the further condition that the
entrepreneur (registered dealer) shall not charge sales tax on the
sale of cement manufactured in the new cement industrial unit
during the period of exemption.

Explanation-

For the purpose of para 1-C of this notification-

(a) `other industries’ means `prestigious cement industrial
units’;

(b) `prestigious cement industrial unit’ means a new cement
industrial unit which has fixed capital investment of not less than
rupees fifty crores, comes into production after the Ist day of
May, 1992 is registered by the Empowered Committee between the Ist
day of May, 1992 and the 31st day of March, 1995 and employs on
permanent basis not more than two hundred persons; and

(i) is based on local raw material; or

(ii) carries out value addition of fifty percentum or more, in its
manufactured products; or

(iii) undertakes an export commitment of 50% or more of its
production; or

(iv) is declared to be prestigious cement unit by the Empowered
Committee headed by the Secretary (Industries) to the Government of
Himachal Pradesh;

and also includes an existing industrial unit which fulfills the
above criteria for `prestigious cement unit’ exclusively by virtue
of the component of `expansion’ or `diversification’ or
`modernisation’, as the case may be;

(c) the expressions `diversification’, `expansion’,
`modernisation’, `Empowered Committee’ and `prescribed authority’
shall have the same meanings assigned to them in clauses (iii),
(iv), (v) and (xv) respectively of sub para (1) of para 2 of the
Himachal Pradesh General Sales Tax (Deferred Payment of (Tax)
Scheme, 1992;

(d) `Fixed Capital Investment’ means capital investment made of
land, building, machinery and plant as verified by the prescribed
authority; and

(e) forms `STE-I’, `STE-II’ and `STE-III’ mean the forms as
appended to this notification; and

(f) unless there is anything repugnant in the subject or context,
all words and expressions used herein shall have the meaning
assigned to them under the Himachal Pradesh General Sales Tax Act,
1968.

Judged from the above background, the appellant’s plea about non
entitlement of the respondent No.1-company of the sales tax benefits and
exemptions is clearly mis-conceived. The High Court’s judgment does not
suffer from any infirmity to warrant interference.

It may be noted here that there are two additional factors which also made
the revisional order indefensible. Firstly, assessments were made for the
assessment years 1995-96 and 1996-97 fixing the date of entitlement first
to be 31st January, 1996 and subsequently from 7th February, 1996. The
respondent No.1-company had questioned the correctness of the fixation of
the dates by filing appeals which came to be dismissed. In other words, the
assessment orders merged with the first appellate orders, so far as the
date of entitlement is concerned. It may be noted at this juncture that the
respondent No.1-company wanted the exemption from an anterior date. In any
event, the fixation of the date of entitlement w.e.f. 7.2.1996 became final
by the first appellate orders. The revisional authority did not take note
of the said appellate orders. In that view of the matter, the assessment
orders which had got merged with the first appellate orders could not have
been revised. Significantly, by the revisional orders the revisional
authority set aside only the assessment orders, though according to the
show cause notices the respondent No.1 was required to show cause as to why
the exemption notification shall not be recalled. In the operative part of
the order, only the assessment orders have been quashed. The final
certificate was issued to the respondent No.1-company on Ist June, 1996 but
was made effective from 11.8.1995. Undisputedly, the provisional
registration certificate under the Act was originally valid upto 14.2.1994
and was re-validated upto 30.6.1995. On 17.6.1995 an application was made
for its renewal upto 31.12.1995 and the requisite fee had been deposited
and the renewal was granted. Though much stress was laid on the absence of
a certificate of provisional registration upto the date of commercial
production, it has not been disputed that an application for extension of
the validity period was filed on 17.6.1995. A certificate of registration
as a dealer was issued on 1st January, 1996 same was made effective from
11.8.1995.

A plea was made about absence of the validity of provisional certificate of
registration for two months. That actually loses significance because the
application for extension of period of validation had not been turned down
at any subsequent point of time.

It was urged on behalf of the appellant-State that declaration forms under
the Central Act were not filed within the time and/or were defective. That
does not in reality amount to non-compliance of a statutory provision. The
respondent No.1-company was claiming exemption and, therefore, had not
filed the declaration forms. Some of the forms which were filed were
treated to be defective. Undisputedly, before the revisional authority a
prayer was made for grant of opportunity to rectify the defects, if any.
That was turned down. It is to be noted that under Rule 12(7) of the
Central Sales Tax (Registration and Turnover) Rules, 1957 (in short the
`Registration Rules’) the declaration form can be filed at a subsequent
point of time and not necessarily along with returns. On an application
being made before the Assessing Officer the exemption can be granted. The
object of the Rule is to ensure that the assessee is not denied a benefit
which is available to it under law on a technical plea. The Assessing
Officer is empowered to grant time. That means that the provisions
requiring filing of declaration forms along with the return is a directory
provision and not a mandatory provision. In a given case even the
declaration forms can be filed before the appellate authority as an appeal
is continuation of the assessment proceedings. In a given case, if the
appellate authority is satisfied that assessee was prevented by reasonable
and sufficient cause which dis-enabled him to file the forms in time, it
can be accepted. It can also be accepted as additional evidence in support
of the claim for deduction. In the instant case, respondent No.1-company
made a specific request before the revisional authority which was turned
down. Therefore, the question of any non-compliance with the relevant
statutes does not arise. It was noted by this Court in Sahney Steel and
Press Works Ltd. and Anr. v. Commercial Tax Officer and Ors., [1985] 4 SCC
173 that even in a given case, an assessee can be given an opportunity to
collect Declaration Forms and furnish them to the assessing authority if
the challenge of the assessee to taxability of a particular transaction is
turned down.

Respondent No.1-company’s stand was that it was granted exemption from
payment of sales tax and, therefore, there was no requirement of furnishing
any “C Form” for certain periods relating to which there was a doubt about
availability of the concession, the declaration Forms were filed.
Therefore, the assessing officer shall grant opportunity to the respondent
No.1-company to cure the defects, if any in the Declaration Forms.

It was urged by learned counsel for the appellant-State that revision
notices nos. 7 to 10 were erroneously quashed by the High Court. Learned
counsel for the respondents submitted that in the writ petition filed by it
there was no prayer for quashing revision notices nos. 7 to 10. It is
stated that the High Court had not clearly quashed the said revision
notices and the appellant-State and its functionaries have not pursued the
revision notices. Be that as it may, the respondent No.1-company is granted
two months’ time to respond to the said notices and indicate its stand. The
revisional authority shall consider desirability of continuing the revision
notices after considering the response of the respondents, if any, filed.
The basic issue involved in these notices is to the effect of absence of
provisional registration certificate after 11.8.1995 upto 25th September,
1995. As noted above, respondent No.1-company’s stand is that it had
applied for extension of the validity period upto 31.12.1995 and absence of
any order on the same has not been disputed. Let the concerned authority
deal with the application within a period of 6 weeks after giving notice to
the respondent No.1-company. The Revisional authority shall take note of
the order to be passed thereon.

The question relating to liability to pay purchase tax on royalty paid is
common to both Gujarat Ambuja and ACC. According to learned counsel for
appellant-State, the High Court erroneously held that royalty paid did not
attract levy of purchase tax. The foundation for the argument is a decision
of this Court in State of M.P. v. Orient Paper Mills Ltd., [1977] 2 SCC 77.
In that case it was held that royalty paid under the lease was the sale
price. There is a contrast between sale and purchase. The definition of
purchase is wider. It involves the acquisition and, therefore, nothing but
a transfer. Reference is also made to several provisions of Mines and
Minerals (Regulation and Development) Act, 1957 (in short `Minerals Act,
1957′) and it was submitted that position is different after amendment in
1972. In fact, according to the appellant what is being taxed is the
consideration as minerals are being removed.

According to learned counsel for the respondents, the plea is untenable in
view of the decision of this Court in State of Orissa v. Titaghur Paper
Mills Ltd., [1985] Supp. SCC 280.

In State of Orissa and Ors. v. Titaghur Paper Mills Co. Ltd. and Anr.
[1985] Supp SCC 280, it was, inter alia, observed by this Court as follows:

“102. Royalty is not a term used in legal parlance for the price of goods
sold. `Royalty’ is defined in Jowitt’s Dictionary of English Law, Fifth
Edition, Vol. 2, page 1595 as follows:

Royalty, a payment reserved by the grantor of a patent, lease of a mine or
similar right, and payable proportionately to the use made of the right by
the grantee. It is usually a payment of money, but may be a payment in
kind, that is, of part of the produce of the exercise of the right.

Royalty also means a payment which is made to an author or composer by a
publisher in respect of each copy of his work which is sold, or to an
inventor in respect of each article sold under the patent.

We are not concerned with the second meaning of the word `royalty’
given in Jowitt. Unlike the Timber contracts, the Bamboo Contract
is not an agreement to sell bamboos standing in the contract areas
with an accessory licence to enter upon such areas for the purpose
of felling and removing the bamboos nor is it, unlike the Timber
Contracts in respect of a particular felling season only. It is an
agreement for a long period extending to fourteen years, thirteen
years and eleven years with respect to different contract areas
with an option to the respondent company to renew the contract for
a further term of twelve years and it embraces not only bamboos
which are in existence at the date of the contract but also bamboos
which are to grow and come into existence thereafter. The payment
of royalty under the Bamboo Contract has no relation to the actual
quantity of bamboos cut and removed. Further, the respondent
Company is bound to pay a minimum royalty and the amount of royalty
to be paid by it is always to be in excess of the royalty due on
the bamboos cut in the contract area.

103. We may pause here to note what the Judicial Committee of the Privy
Council had to say in the case of Raja Bahadur Kamakshya Narain Singh of
Ramgarh v. C. I. T., Bihar and Orissa, (1943) 11 ITR 513 (PC) about the
payment of minimum royalty under a coal mining lease. The question in that
case was whether the annual amounts payable by way of minimum royalty to
the lessor were in his hands capital receipt or revenue receipt. The
Judicial Committee held that it was an income flowing from the covenant in
the lease. While discussing this question, the Judicial committee said (at
pages 522-3) :

These are periodical payments, to be made by the lessee under his
covenants in consideration of the benefits which he is granted by
the lessor. What these benefits may be is shown by the extract from
the lease quoted above, which illustrates how inadequate and
fallacious it is to envisage the royalties as merely the price of
the actual tons of coal. The tonnage royalty is indeed only payable
when the coal or coke is gotten and dispatched : but that is merely
the last stage. As preliminary and ancillary to that culminating
act, liberties are granted to enter on the land and search, to dig
and sink pits, to erect engines and machinery, coke ovens, furnaces
and form railways and roads. All these and the like liberties show
how fallacious it is to treat the lease as merely one for the
acquisition of a certain number of tons of coal, or the agreed item
of royalty as merely the price of each ton of coal.

Though the case before the Judicial Committee was of a lease of a
coal-mine and we have before us the case of a grant for the purpose
of felling, cutting and removing bamboos with various other rights
and licences ancillary thereto, the above observations of the
Judicial Committee are very pertinent and apposite to what we have
to decide.

xxx xxx xxx

120. It is true that the nomenclature and description given to a contract
is not determinative of the real nature of the document or of the
transaction thereunder. They, however, have to be determined from all the
terms and clauses of the document and all the rights and results flowing
therefrom and not by picking and choosing certain clauses and the ultimate
effect or result as the Court did in the Orient Paper Mills case.

xxx xxx xxx

127. Conclusions:

To summarize our conclusions :

xxx xxx xxx

(9) The dictionary meaning of a word cannot be looked at where that word
has been statutorily defined or judicially interpreted but where there is
no such definition or interpretation, the court may take the aid of
dictionaries to ascertain the meaning of a word in common parlance, bearing
in mind that a word is used in different senses according to its context
and a dictionary gives all the meanings of a word, and the court has,
therefore, to select the particular meaning which is relevant to the
context in which it has to interpret that word.

xxx xxx xxx

(16) Being a benefit to arise out of land, any attempt on the part of the
State Government to tax the amounts payable under the Bamboo Contract would
be not only ultra vires the Orissa Act but also unconstitutional as being
beyond the State’s taxing power under Entry 45 in List II in the Seventh
Schedule to the Constitution of India.

(17) The case of Firm Chhotabhai Jethabai Patel & Co. v. State of M. P.,
[1953] SCR 476 is not good law and has been overruled by decisions of
larger benches of this Court as pointed out by this Court is State of M. P.
v. Yakinuddin, AIR (1962) SC 1916.

(18) The case of State of M. P. v. Orient Paper Mill Ltd., [1977] 2 SCC 77
is also not good law as that decision was given per incuriam and laid down
principles of interpretation which are wrong in law.”

In Cooch-Behar Contractors’ Association and Ors. v. State of West Bengal
and Ors., [1996] 10 SCC 380, a two-Judge Bench of this Court followed
Orient Paper Mills Ltd., case (supra), and held that in view of the
decision of this Court in Orient Paper Mills Ltd., case (supra), payment of
royalty amounts to payment of price for the goods obtained from the
government departments and used in the works contract. Unfortunately, the
subsequent judgment of a larger Bench in Titagurh Paper Mills, case (supra)
does not appear to have been cited. That being so, this decision does not
lay down the correct position and is overruled.

`Royalty’ is not a term used in legal parlance for the price of the goods
sold. It is a payment reserved by the grantor of a patent, lease of a mine
or similar right, and payable proportionately to the use made of the right
by the grantee as held in Titaghur Paper Mills Co. Ltd. case (supra).

In its primary and natural sense `royalty’ in the legal world, is known as
the equivalent or translation of `jura regalia’ or `jura regin’. Royal
rights and prerogatives of a sovereign are covered thereunder. In its
secondary sense, the word `royalty’ would signify, as in mining leases,
that part of the reddendum, variable though, payable in cash or kind, for
rights and privileges obtained. (See Inderjeet Singh Sial and Anr. v. Karam
Chand Thapar and Ors., [1995] 6 SCC 166).

`Royalty’ is not a tax. Simply because the royalty is levied by reference
to the quantity of the minerals produced and the impugned cess too is
quantified by taking into consideration the same quantity of the mineral
produced, the latter does not become royalty. The former is the rent of the
land on which the mine is situated or the price of the privilege of winning
the minerals from the land parted by the government in favour of the mining
lessee. The cess is a levy on mineral rights with impact on the land and
quantified by reference to the quantum of mineral produced. The
distinction, though fine, yet exists and is perceptible. (See The State of
West Bengal and Anr. v. Kesoram Industries Ltd. and Ors., JT (2004) 1 SC
375).

Though Section 9 refers to “mineral removed” it does not mean that the
royalty is paid on removal. It is print of payability. Royalty in the
context of the agreement is an alternate to dead rent. Section 9 speaks of
rates of royalty. It is nothing but measure of levy. The charging of dead
rent and royalty is under different situations. It is shifting of the
measure. Both “dead rent” and “royalty” are returns to the lessor. The
stand of appellant that under Section 9 of the Minerals Act royalty is a
payment in respect of any mineral removed or consumed or that royalty is a
money consideration for transfer of property is clearly untenable in view
of the analysis made above.

A mining lease is an interest in immovable property. The extraction and
removal of minerals is essentially an extension of the enjoyment of
immovable property. As noted in Titagarh Paper Mill’s case (supra) the
right conferred by the lease deed to extract and remove the minerals is a
profit a prendre.

It will be useful to know the meaning of the expressions “dead rent” and
“royalty” and their connotation. Wharton’s Law Lexicon, 14th Edn., at p.
300, defines “dead rent” as :

Dead Rent – A rent payable on a mining lease in addition to a royalty, so
called because it is payable whether the mine is being worked or not.

The definition of “dead rent” given in Black’s Law Dictionary, 5th ed., at
p. 359, is as follows:

Dead Rent. – In English law, a rent payable on a mining lease in addition
to a royalty, so called because it is payable although the mine may not be
worked.

Jowitt’s Dictionary of English Law, 2nd Edn., at p. 555, defined “dead
rent” as :

Dead Rent, a term sometimes used in mining leases in
contradistinction to a royalty, to denote a fixed rent to be paid
whether the mine is productive or not. See Rent.

The same dictionary states under the heading “Rent”, at p. 1544 :

When a mine, quarry, brick-works, or similar property is leased,
the lessor usually reserves not only a fixed yearly rent but also a
royalty or galeage rent, consisting of royalties (q. v.) varying
with the quantity of minerals, bricks, etc., produced during each
year. In this case the fixed rent is called a dead rent.

“Royalty” is defined in Jowitt’s Dictionary of English Law, 2nd ed., at p.
1595, inter alia, as :

Royalty, a payment reserved by the grantor of a patent, lease of a
mine or similar right, and payable proportionately to the use made
of the right by the grantee. It is usually a payment of money, but
may be a payment in kind, that is, of part of the produce of the
exercise of the right. See Rent.

“Royalty” is defined in Wharton’s Law Lexicon, 14th Edn., at p. 893, as:

Royalty, payment to a patentee by agreement on every article made
according to his patent : or to an author by a publisher on every
copy of his book sold; or to the owner of minerals for the right of
working the same on every ton or other weight raised.

The definition of “royalty” given in Black’s Law Dictionary, 5th Edn., at
p. 1195, is as follows :

Royalty. Compensation for the use of property, usually copyrighted
material or natural resources, expressed as a percentage of
receipts from using the property or as an account per unit
produced. A payment which is made to an author or composer by an
assignee, licensee or copyright holder in respect of each copy of
his work which is sold, or to an inventor in respect of each
article sold under the patent. Royalty is share of product or
profit reserved by owner for permitting another to use the
property. In its broadest aspect, it is share of profit reserved by
owner for permitting another the use of property…..

In mining and oil operations, a share of the product or profit paid
to the owner of the property…….

In H. R. S. Murthy v. Collector of Chittoor and Anr., AIR (1965) SC 177,
this Court said that “royalty” normally connotes the payment made for the
materials or minerals won from the land.

In Halsbury’s Laws of England, 4th Edn. in the volume which deals with
“Mines, Minerals and Quarries”, namely, volume 31, it is stated in
paragraph 224 as follows:

224. Rents and royalties. An agreement for a lease usually contains
stipulations as to the dead rents and other rent and royalties to
be reserved by, and the covenants and provisions to be inserted in,
the lease…..

The topics same of dead rent and royalties are dealt with in Halsbury’s
Laws of England in the same volume under the sub-heading “Consideration”,
the main heading being “Property demised; Consideration”. Paragraph 235
deals with “dead rent” and paragraph 236 with “royalties”. The relevant
passages are as follows:

235. Dead rent. It is usual in mining lease to reserve both a fixed
annual rent (otherwise known as a “dead rent”, “minimum rent” or
“certain rent”) and royalties varying with the amount of minerals
worked. The object of the fixed rent is to ensure that the lessee
will work the mine; but it is sometimes ineffective for that
purpose. Another function of the fixed rent is to ensure a definite
minimum income to the lessor in respect of the demise.

If a fixed rent is reserved, it is payable until the expiration of
the term even though the mine is not worked, or is exhausted during
the currency of the term, or is not worth working, or is difficult
or unprofitable to work owing to faults or accidents, or even if
the demised seam proves to be non-existent.

236. Royalties. A royalty, in the sense in which the word is used
in connection with mining leases, is a payment to the lessor
proportionate to the amount of the demised mineral worked within a
specific period.

In paragraph 238 of the same volume of Halsbury’s Laws of England it is
stated :
238. Covenant to pay rent and royalties. Nearly every mining lease
contains a covenant by the lessee for payment of the specified rent
and royalties.

Rent is an integral part of the concept of a lease. It is the consideration
moving from the lessee to the lessor for demise of the property to him.
Section 105 of the Transfer of Property Act, 1882, contains the definitions
of the terms “lease”, “lessor”, “lessee”, “premium” and “rent” and is as
follows:

105. Lease defined – A lease of immovable property is a transfer of
a right to enjoy such property, made for a certain time, express or
implied, or in perpetuity, in consideration of a price paid or
promised, or of money, a share of crops, service or any other thing
of value, to be rendered periodically or on specified occasions to
the transferor by the transferee, who accepts the transfer on such
terms.

Lessor, lessee, premium and rent defined. The transferor is called
the lessor, the transferee is called the lessee, the price is
called the premium, and the money, share, service or other thing to
be so rendered is called the rent.”

The decision of this Court in D.K. Trivedi & Sons and Ors. v. State of
Gujarat and Ors., [1986] Supp SCC 20 is a complete answer to the plea
raised by learned counsel for the appellate-State. It was, inter alia, held
in that case as follows: (The relevant paras are quoted).

“39. In a mining lease the consideration usually moving from the lessee to
the lessor is the rent for the area leased (often called surface rent),
dead rent and royalty. Since the mining lease confers upon the lessee the
right not merely to enjoy the property as under an ordinary lease but also
to extract minerals from the land and to appropriate them for his own use
or benefit, in addition to the usual rent for the area demised, the lessee
is required to pay a certain amount in respect of the minerals extracted
proportionate to the quantity so extracted. Such payment is called
“royalty”. It may, however, be that the mine is not worked properly so as
not to yield enough return income, whether the mine is worked properly so
as not to yield enough return to the lessor in the shape of royalty. In
order to ensure for the lessor a regular income, whether the mine is worked
or not, a fixed amount is provided to be paid to him by the lessee. This is
called “dead rent”. “Dead rent” is calculated on the basis of the area
leased while royalty is calculated on the quantity of minerals extracted or
removed. Thus, while dead rent is a fixed return to the lessor, royalty is
a return which varies with the quantity of minerals extracted or removed.
Since dead rent and royalty are both a return to the lessor in respect of
the area leased, looked at from one point of view dead rent can be
described as the minimum guaranteed amount of royalty payable to the lessor
but calculated on the basis of the area leased and not on the quantity of
minerals extracted or removed. In fact, clause (ix) of Rule 3 of the
Rajasthan Minor Mineral Concession Rules, 1977, defines “dead rent” as
meaning “the minimum guaranteed amount of royalty per year payable as per
rules or agreement under a mining lease”. Stipulations providing for the
lessee’s liability to pay surface rent, dead rent and royalty to the lessor
are the usual covenants to be found in a mining lease.

54. As pointed out earlier, since dead rent is the minimum guaranteed
amount of royalty and partakes of the nature of royalty, what, therefore,
applies to royalty must necessarily apply or should be made applicable dead
rent also. The proviso to Section 9(3) prohibits the Central Government
from enhancing the rate of royalty in respect of any mineral other than a
minor mineral more than once during any period of four years. The proviso
to Section 9-A(2) also prohibits the Central Government from enhancing the
dead rent in respect of any area more than once during any period of four
years. Halsbury’s Laws of England, 4th Edn., volume 31, paragraph 236,
points out that “usually the royalties are made to merge in the fixed rent
by means of a provision that the lessee, without any additional payment,
may work, in each period for which a payment of fixed rent is made, so much
of the minerals as would, at the royalties reserved, produce a sum equal to
the fixed rent”. The same purpose is achieved by the proviso to Section 9-
A(1) and in the Mineral Concession Rules, 1960, by the proviso to clause
(c) of Rule 27 under which the lessee is liable to pay the dead rent or
royalty in respect of each mineral, whichever be higher in amount, but not
both. In all State rules which provide for payment of both dead rent and
royalty, there is a provision that only dead rent or royalty, whichever is
higher in amount, is to be paid, but not both. Rules made under the 1948
Act, as for example, Rule 41 of the Mineral Concession Rules, 1949, and
Rule 18 of the Bombay Mineral Extraction Rules, 1955, also contained a
similar provision. Thus, the practice followed throughout in exercising the
power to make rules regulating the grant of mining leases has been to
provide that either dead rent or royalty, whichever is higher in amount,
should be paid by the lessee, but not both.”

Following paras in Halsbury’s Laws of England (Fourth Edition) 2003 Re-
issues need to be noted:

Para 321: Nature of mining lease. A lease may be granted of land or any
part of land, and since minerals are a part of the land it follows that a
lease can be granted of the surface of the land and the minerals below, or
of the surface alone, or of the minerals alone. It has been said that a
contract for the working and getting of minerals, although for convenience
called a mining lease, is not in reality a lease at all in the sense in
which one speaks of an agricultural lease, and that such a contract,
property considered, is really a sale of a portion of the land at a price
payable by instalments, that is, by way of rent orroyalty, spread over a
number of years.

Para 322: Statutory definitions of `mining lease.’ In the Law of Property
Act, 1925, `mining lease’ means a lease for mining purpose, that is, the
searching for, winning, working, getting, making merchantable, carrying
away or disposing of mines and minerals, or connected purposes, and
includes a grant or licence for mining purposes; and `lease’ includes an
underlease or other tenancy.

In the Settled Land Act 1925 and the Landlord and Tenant Act 1927,
`mining lease’ means a lease for any mining purpose or connected
purposes, and `mining purposes’ includes the sinking and searching
for, winning, working, getting, making merchantable, smelting or
otherwise converting or working for the purposes of any
manufacture, carrying away and disposing of mines and minerals, in
or under land, and the erection of buildings and the execution of
engineering and other works suitable for those purposes.

`Mining lease’ is also defined for the purposes of the Opencast
Coal Act 1958, whilst `coal-mining lease’, `lease’ and `mine of
coal’ were all defined for the purposes of the Coal Act 1938.

Para 323:Rents and royalties. An agreement for a lease usually contains
stipulation as to the dead rents and other rents and royalties to be
reserved by, and the covenants and provisions to be inserted in the lease,
but the omission to provide for the payment of a dead rent does not render
the agreement so inequitable as to be unenforceable.

Rent and royalties are true rents in the sense that they are
incident to the reversion, but periodical payments under a lease of
mines for a specific period may amount to personal debts only.

A lessee who goes into possession and works minerals before
completion of the lease may be ordered on interim application to
pay into Court the amount of royalties due in respect of minerals
raised.

Para 324: Usual provisions in leases- The statutory formalities regarding
the disposition of an interest in land will apply to a contract for a
mining lease. In a contract for a lease for working a mine, time is of the
essence of the contract even if not expressly stated to be so. Mining
leases usually contain clauses providing for the reference of dispute to
arbitration or determination by an expert where the value of the minerals
gotten is in dispute.”

Relevant clauses in the Lease Deed dated 28.5.19923 also need to be quoted.
They read as follows:

“xxx xxx xxxx

Part V : RENT AND ROYALTIES RESERVED BY THE LEASE

1. To pay dead rent or lease whichever is higher.

The lessee shall pay, for every year except the first year of the
lease, deed rent as specified in clause 2 of this part:

Provided that, where the holder of such mining lease becomes liable
under Section 9 of the Act, to pay royalty for any mineral removed
or consumed by him or by his agent, manager, employee, contractor
or sub-lessee from the leased area, he shall be liable to pay
either such royalty or the deed rent in respect of that area,
whichever is higher.

2. Rate and mode of payment of dead rent:

Subject to the provisions of clause 1 of this Part, during the
subsistence of the lease, the lessee shall pay to the State
Government annual deed rent for the lands demised and described in
Part I of this Schedule at the rate for the time being specified in
the Third Schedule to the Act in such manner as may be specified in
this behalf by the State Government.

3. Rate and mode of payment of royalty:

Subject to the provision of clause 1 of this Part, the lessee
shall, during the substance of this issue, pay to the State
Government at such times and in such manner, as the State
Government may prescribe in respect of any minerals removed by him
from the leased area at the rate for the time being specified in
the Second Schedule to the Mines and Minerals (Regulation and
Development) Act, 1957.

4. Payment of surface rent and water rate

The lessee shall pay rent and water rate to the State Government in
respect of all parts of the surface of the said lands which shall
from time to time, be occupied or used by the lessee under the
authority of these presents at the rates as assessed by the Deputy
Commissioner per hectare of the area so occupied or used and so in
proportion for any area less than a hectare during the period from
the commencement of such occupation or use until the area shall
cease to be so occupied or used and shall as far as possible
restore the surface lands so used to its original condition.
Surface rent and water rate shall be paid as hereinbefore detailed
in clause 2: PROVIDED THAT NO such rent/water rate shall be
payable, in respect of the occupation and use of the area comprised
in any roads or ways to which the public have full right of
access”.

Civil Appeal Nos.3744-46 of 2000

These appeals are concerned so far as the issue regarding liability to pay
purchase tax on royalty has been dealt with in detail in the connected
Civil Appeal Nos. 2641-42 of 2000 (State of Himachal Pradesh and Ors. v.
M/s Gujarat Ambuja Cement Ltd. and Ors.,) Following the view expressed
therein, these appeals deserve dismissal which we direct.

The appeals are dismissed subject to the aforesaid observations with no
order as to costs.

 

 

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