Case Law Details
Case Name : State of Haryana & Others Vs. M/s. Mahabir Vegetable Oils Pvt. Ltd. (Supreme Court of India)
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Supreme Court of India
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Withdrawn tax exemption cannot be reclaimed– An industry which has been granted tax exemption to set up unit in a backward region cannot claim the benefit even after it was withdrawn by the state, the SC stated in the case, State of Haryana vs Mahabir Vegetable Oils Ltd. In this case, the firm set up a solvent extraction plant and enjoyed the sales tax benefit till 1996. That year, the firm was put in the negative list as it was found to be a polluting industry. The benefit was withdrawn since then. This was challenged by
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Appears to be a retrograde judgement with far reaching consequences. With due respects to the Hon’ble Supreme Court, the judgement does not appear to be on sound grounds. Tax exemption is one of the prime movers for industrial growth especially in backward areas. It is in fact a cost to the company in the form of additional management costs, transportation costs, infrastructure costs etc being met by the company in backward areas that the tax exemption seeks to mitigate in a limited fashion. It can in fact be treated as a promissory estoppel. The judgement is also biased. Government regulated banks revise their interest rates higher to safeguard their fund flows in consonance with market conditions. The costs and outgo of the company which has lost the exemption would go up and market competitiveness reduced if its exemptions are tinkered with to the detriment of an existing company. This costs cannot be recovered without affecting profitability. Thus whereas the banking sector has the independence to mange their input costs such freedom has been curtailed to companies in backward areas through this judgement.
The Court says- ‘The withdrawal of exemption “in public interest” is a matter of policy and the Courts should not bind the government in its policy decision. The Courts should not normally interfere with fiscal policy of the government more so when such decisions are taken in public interest and where no fraud nor 32 lack of bona fide is alleged much less established’.
However a lot of events happening in the public domain in the recent past belie Government’s interpretation of ‘public interest’. A more serious consequence would be what if unscrupulous elements start threatening industry in backward areas that their exemptions would be withdrawn or their entitlements reclassified if they do not pay facilitation fees to the powers that be. This would open a Pandora’s box neither benefiting the industry not bring about growth to backward areas. There needs to be some consistency to policy as otherwise it will lead to mayhem. Hope this judgement will not affect industry adversely and is read in the same spirit and factual matrix in which the judgement was delivered.