Exemption scheme benefit not available as assessee fails to start production at its refinery during the qualifying period
State of Gujarat & Ors Vs Essar Oil Ltd. & Anr (Supreme Court) - This appeal is directed against the judgment of the High Court of Gujarat dated 22.04.2008 in Special Civil Application No.24233/2007, whereby the Respondent No. 1 herein, Essar Oil Limited (hereinafter ‘Essar’) was given the benefit of Sales Tax incentive under the Government of Gujarat ‘Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000′ (hereinafter ‘the said Scheme’).
SUPREME COURT OF INDIA
Date: Date: 17th January 2012
CIVIL APPEAL No. 599 OF 2012
(Arising out of SLP (C) No.17130/2008)
STATE OF GUJARAT & ORS
ESSAR OIL LTD. & ANR
J U D G M E N T
1. Leave granted.
2. This appeal is directed against the judgment of the High Court of Gujarat dated 22.04.2008 in Special Civil Application No.24233/2007, whereby the Respondent No. 1 herein, Essar Oil Limited (hereinafter “Essar”) was given the benefit of Sales Tax incentive under the Government of Gujarat “Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000″ (hereinafter “the said Scheme”)
3. The State Government in the Industries and Mines Department vide Resolution dated 11.09.1995 introduced the said scheme to accelerate development of the backward area of the State and to create large-scale employment opportunities.
4. The operative period of the said scheme was from 16.08.1995 upto 15.08.2000, during which new units have to go into commercial production.
5. The Scheme envisaged grant of Sales Tax incentives by way of Sales Tax Exemption or Sales Tax Deferment or Composite Schemes, for Premier/Prestigious Units according to the location, investment and status of the project. Essar fell in the category of premier unit i.e. new industrial unit having a project cost of more than Rs. 1,000/- crores and employing 100 workers on a regular basis and following the employment policy of the State Government. Clause (v) of the Scheme defined premier unit in the following terms:-
“(v) PREMIER UNIT
A new industrial unit or industrial complex fulfilling the following criteria will be considered for granting status of a “Premier Unit”.
(a) The industrial unit shall have a project cost of Rs.500 crores or more. Such units having project cost of Rs.1,000 crores and above shall be entitled for extended period to avail incentive as provided under para 6 B.
(b) Only one unit per taluka will be eligible for the Premier Unit status. In banned area no unit is permitted.
(c) The unit shall employ at least 100 workers on a regular basis and shall follow the employment policy of the State Government.”
6. Part II of the said Scheme provided that the rate of incentive would depend on the location, investment and status of the project. The incentives offered were sales-tax exemption or sales-tax deferment or composite scheme. There is no dispute about the fact that Essar opted for sales-tax deferment scheme. As per clause 6(i)(B), the rate of incentive applicable to Essar was the rate available for the most backward area. The extent of exemption was 125% of eligible fixed capital investment.
7. Part II Clause (iii) (b) provided that Under the Sales Tax Deferment incentive scheme, the recovery of sales tax connected by the unit on sale of goods manufactured by it including intermediate products, by products and scrap/waste generated as incidental to manufacturing activities and turnover tax, leviable to Government will be deferred and amount so deferred will be recovered in six equal annual installments by Sales Tax Department beginning from the financial year subsequent to the year in which the unit exhausts limit of incentive granted to it under the scheme or after the expiry of relevant period or time limit during which deferment is available or whichever is earlier.
8. Since Essar’s investment was going to be more than Rs.1,000 crores, the duration of incentive of sales-tax deferment was to be for a period of 17 years from the date of commercial production.
9. Clause 6(v) of the said Scheme provided for effective steps for extending date of commercial production in the following terms :
“6(v) Effective steps for extending date of commercial production:
The unit which cannot go into commercial production before expiry of the scheme will be allowed to go into commercial production beyond the last date of the scheme provided it has taken the following effective steps:
(1) The industrial unit should have obtained provisional registration as a Prestigious/Premier unit before 15th August 2000.
(2) 25% of project cost should have been incurred before 15th August 2000. The unit which has taken above effective steps will be allowed to go into commercial production as shown below:
(a) The unit with project cost above Rs.100 crores but below Rs.300 crores should go into commercial production on or before 15th August 2002.
(b) The unit with project cost more than Rs.300 crores should go into commercial production on or before 15th February 2003. Such units shall have to apply to industries Commissioner for extending date of commercial production by 31st August 2000.”
10. A High Power State Level Committee (hereinafter “HPSLC”) was the Sanctioning Authority for granting permanent registration of all the Prestigious/Premier Units.
11. Part III provides the procedure for Registration for Premier/Prestigious Status, the relevant clause of the said Part in respect of instant case is set out below:
“An Industrial unit eligible for Prestigious/Premier status under the scheme will apply to Industries Commissioner in prescribed form before expiry of the scheme along with details of following effective steps.
i) Possession of plot or shed in GIDC Estate. For units located outside GIDC Estate, the unit must be in legal possession of land with valid non-agricultural use permission of industrial use or as per Revenue Act as modified from time to time.
ii) The Letter of intent/Letter of Approval or Registration/ obtained receipt against filling of IEM to the appropriate authority.
iii) NOC of GPCB (Gujarat Pollution Control Board)
iv) Detailed Project Report.
The following procedure will be adopted for granting the temporary and permanent Prestigious/Premier registration.
(a) The Industries Commissioner shall give provisional registration to the eligible prestigious/premier unit after approval of committee where applicable.
(b) The eligible unit after completion of project will apply to Industries Commissioner for permanent prestigious/premier registration, Industries Commissioner will carryout the assets verification and submit a verification report to the High Power State Level Committee, for granting permanent registration.”
12. Some relevant facts which arose prior to the floating of the Scheme and which are necessary for appreciating the said Scheme, as contended by Essar and which the records also shows, are as under.
13. Essar was encouraged by the State Government to set up a major venture at Vadinar in Jamnagar District of Gujarat as a 100% export oriented unit for refining of petroleum products with a capacity of 9 Million Tons per annum at an estimated project cost of Rs. 1900 crores in collaboration with M/s Bechtel Inc., USA.
14. By letter dated 11th April, 1990, the then Chief Minister of the State of Gujarat wrote to the Ministry of Planning, Government of India, stating that the project was expected to enerate foreign exchange earnings of over Rs.3000 crores within a period of 5 years and that it was expected to be set up in 36 months. It was anticipated by the State Government that the project would “completely change the face of the Vadinar area, which is traditionally a backward area of Gujarat offering direct and indirect employment and will encourage growth of various other ancillary industries in that region”. The letter further said that the project had the full support of the Government of Gujarat and it was being accorded highest priority and that Essar’s proposal for setting up the oil refinery should be cleared by the Government of India urgently. The clearance for setting up the oil refinery was then granted by the Government of India.
15. In January, 1993, Essar applied to the Gujarat Pollution Control Board (GPCB) for grant of a ‘No Objection Certificate’ to establish the refinery for manufacturing several kinds of petroleum products. By letter dated 15th February, 1993, the GPCB stated that it had no objection from the Environmental Pollution potential point of view in the setting up of the refinery project subject to certain environmental pollution control measures to be taken by the appellant. Essar’s proposal regarding the environmental pollution control system was approved by the GPCB on 17th April, 1993 and a Site Clearance Certificate was issued on that date.
16. On 10.11.1994, Essar filed an application for right of way over 15.49 hectares of forest land for laying Submarine Crude Oil Pipeline, Cooling Water/Return Water Pipeline and Product Jetty for establishment of its Refinery Project at Vadinar, District Jamnagar, to the Conservator of Forests, Marine National Park, Jamnagar. Undisputedly, 15.49 hectares of forest land applied for includes 8.79 hectares of Jamnagar Marine National Park and Sanctuary. Therefore, permission under Section 2 of the Forest Conservation Act (“FCA”) was required for the entire 15.49 hectares. At the same time, permission of State Government was required under the Wildlife Protection Act (“WPA”) for 8.79 hectares.
17. On 13.02.1995, the State Government requested the Chief Conservator of Forests, Regional Office, Western Region, Bhopal, to move the Government of India to issue suitable orders to allow Essar to make geophysical survey in Marine National Park/Sanctuary area. The proposal was forwarded by the Chief Conservator of Forests, Bhopal to the Government of India on 15.05.1995.
18. The Conservator of Forests recommended and forwarded the proposal of Essar for Right of Way to the Chief Conservator of Forests (WL) by letter dated 2nd June, 1995 along with an application in the prescribed form seeking prior approval from the Central Government under Section 2 of FCA. The application with its enclosures together with the recommendation of the State Government that 15.49 hectares of forest land be made available to the appellant, was forwarded to the Central Government by the Central Chief Conservator of Forests on 3rd February, 1997. Upon receipt of the proposal of the State Government, the Central Government constituted a team for joint inspection of the area. The report of the joint inspection team was that the proposed activity of the appellant would not have much ramification from the forestry point of view and the damage would only be temporary in nature in a localized area during the construction phase.
19. On 08.09.1995, the State Government in its Forests and Environment Department informed the Government of India in the Ministry of Environment and Forests, inter alia, that the approval “in principle” was granted to Essar to install Single Buoy Mooring /Crude Oil Terminal / Jetty and connecting pipeline in the National Marine Park and Sanctuary area in Vadinar, District Jamnagar on the terms and conditions to be decided in due course by the State Government.
20. On 11.09.1995 the said Scheme was announced and thereafter on 01.02.1996 Essar applied in the new format to the Industries Commissioner, Gandhinagar for registering the Industrial Undertaking as a “Premier/Prestigious Unit” under the said Scheme.
21. On 29.05.1996 the Forest and Environment Department, State of Gujarat made a proposal to Government of India seeking approval under Section 2 of FCA for diversion of 15.49 hectares of forest land for construction and operation of certain offshore and onshore facilities for a grass root refinery project of Essar.
22. On the basis of the letter-dated 30.09.1997 of the Principal Chief Conservator of Forests, the State Government conveyed on 16.10.1997 its permission under section 29 of WPA to Essar’s proposal of right to way through the National Park and Sanctuary subject to Essar’s compliance with certain terms and conditions including obtaining permission of the Central Government under the FCA, 1980 (which was granted on 08.12.1999, mentioned later) and also getting clearance under the Coastal Regulation Zone (CRZ) Regulations, which was granted on 03.11.2000.
23. This permission was conveyed to Essar by the Conservator of Forests under cover of his letter-dated 18.10.1997. The permission was, however, restricted to the Kandla Port Trust area. Kandla Port Trust granted permission to Essar to install “marine facilities” on 10.10.1997.
24. On 27.11.1997 the Ministry of Environment & Forest, Government of India granted “in-principle” approval to Essar under FCA, 1980 for diverting 15.49 hectares of forest land for non-forest purpose.
25. On 25.06.1999 Essar was issued the provisional Premier Registration Certificate by the Industries Commissioner. The provisional certificate was valid upto 15.08.2000 i.e. the last date of Scheme, within this time period Essar was obliged to start commercial production, failing which Essar would have to apply for extension of date of commercial production.
26. In the meantime in view of the permissions granted to install “marine facilities”, Essar started construction work of laying of water in-take jetty and product jetty in the forest area of Marine National Park and Marine Sanctuary. Essar’s grievances are that despite the aforesaid permissions being given to them for construction, the State Forest Department forced Essar to stop work and further lodged on 19.3.1999 a criminal complaint against Essar and its contractor, for offence committed under sections 17(A), 29, 35(6), 51(1) and 58 of the WPA and section 26 of the Indian Forests Act.
27. In April 1999, a writ petition being Special Civil Application No.2840/1999 in the nature of Public Interest Litigation was filed before the High Court of Gujarat by one Halar Utkarsh Samiti (hereinafter “Samiti”) alleging serious violations of several environmental legislations on the part of Essar, who was impleaded as Respondent No.4 in the petition.
28. By interim order-dated 20.04.1999 passed in that PIL High Court directed Essar not to carry on any construction activity in the Marine National Sanctuary and Marine National Park in violation of the statutory provisions including the provisions contained in Wild life (Protection) Act, 1972.
29. By order-dated 20.08.1999 the High Court disposed of the said PIL in which Essar undertook to file an Undertaking to the effect that they would not carry out any construction activities at the site in question, without obtaining the approval from the authorities. Pursuant to the said order, on 28.09.1999 Essar filed an undertaking to the following effect:
“…no construction activities or marine facilities will be undertaken without obtaining the approval from the authorities including those which are under process before the authorities. This undertaking is given without prejudice to the rights and contentions of the Respondent No.4. This undertaking will come to an end as and when the permission is granted by the authorities.”
30. In the meantime on 09.09.1999, a charge sheet was filed against the officers of Essar and its contractor in respect of earlier mentioned offences allegedly committed by them under the WPA and FCA.
31. On 08.12.1999 the Ministry of Environment and Forest, Government of India granted approval under section 2 of the FCA for the total land of 15.49 hectares of forest land.
32. In April 2000, said Samiti filed another PIL being Special Civil Application No.1778, and subsequently two other PILs were also filed by one Jan Sangarsh Manch and one Shri Alpesh Y. Kogje, being Civil Application Nos.5476 and 5928 of 2000, (hereinafter “second PILs”) in the High Court of Gujarat challenging, inter alia, the permission granted by the State Government to one Bharat Oman Refineries Ltd. (`BORL’) to lay pipeline in the Marine National Park and Sanctuary Area. It is pertinent to note here that Essar was not a party to these petitions.
33. On 29.04.2000 the Government of Gujarat discontinued the said Scheme with effect from 01.01.2000. However, vide the same Government Resolution dated 29.04.2000, it was specifically mentioned that industry units in pipelines cases which have been registered should start production within two years from January 1, 2000 failing which such units shall be rendered ineligible for sales tax incentive. Therefore, the time to start commercial production was thus extended to 01.01.2002. It is common ground that Essar, being a registered unit, was entitled to the benefit of the said extension.
34. Before the High Court, when proceedings in respect of the second PILs were going on, the counsel of Government of Gujarat placed a copy of the letter-dated 25.07.2000. Relying on the letter, the High Court noted that there were two more pending proposals for laying pipeline in the Marine Park/Sanctuary Area with the State Government one from Essar and the other from one Gujarat Poshitra Port Ltd.
35. Before the High Court, the State Government submitted that the proposal from Essar for laying down pipelines in Marine National Park and Marine Sanctuary, Vadinar in Jamnagar District has been only approved `in principle’ vide letter-dated 08.09.1995. However, formal sanction under section 29 of the WPA, 1972 is yet to be given by the State Government.
36. By judgment and order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000 and 03.08.2000 the High Court, in the second PILs, restrained the Government of Gujarat from granting any more authorization and permission for laying down any pipeline in any part of the sanctuary or the national park. As a result of this order, Essar was not given permission to lay down pipelines by the State Government.
37. Being aggrieved, inter alia, on the ground that it was not a party to the second PILs, Essar filed a review/recall application before the High Court being MCA No.250 of 2011 in SCA No.1778 of 2000, inter alia, seeking review and recall of the judgment and order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000 and 03.08.2000 passed in the second PILs by the High Court and a further declaration to the effect that Essar’s project at Vadinar was not affected in any manner by the said judgment.
38. By judgment and order dated 23.02.2001 the High Court rejected the said application for review on the ground that there was a factual controversy between Essar and the State Government and that therefore the grievance of Essar was beyond the scope of review.
39. Meanwhile, on 12.04.2001 the Government of Gujarat extended the time for going into commercial production upto 15.08.2003 for various pipeline units including Essar, vide Government Resolution dated 12.04.2001. By that time Essar had obtained Provisional Premier Unit Registration before 15.08.2000 and had also incurred 25% of the Project Cost before 15.08.2000 and therefore, it was entitled to the benefit of this extension.
40. Essar challenged the aforesaid judgment and order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000, 03.08.2000 and 23.02.2001 of the High Court delivered in the second PILs and the rejection of its review petition in that second PILs respectively by way of filing Special Level Petition being (SLP) CC No.3654 of 2001 [later SLP No.9454-9455 of 2001] before this Hon’ble Court.
41.By interim order-dated 11.05.2001 this Court granted stay of the judgment of the High Court in so far as Essar was concerned in SLP No.9454-9455 of 2001 i.e. SLP filed by Essar. The text of the order of this Court is set out:
“Permission to file Special Leave Petition is granted.