mindtree 115jb 115o sez exemption withdrawal · pdf file3.m/s opto eurocor healthcare limited,...

1

R

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 12TH

DAY OF JUNE, 2013

BEFORE

THE HON’BLE MR. JUSTICE H.N. NAGAMOHAN DAS

W.P.No. 16896/2012 C/W

W.P.Nos. 21939-942/2011 & 21943-946/2011 ,

W.P.No.23199/2011,

W.P.No.39358/2012 (T-IT)

W.P.No. 16896/2012

BETWEEN :

--------------

M/S MINDTREE LTD

GLOBAL VILLAGE, R.V.C.E. POST,

MYLASANDRA, MYSORE ROAD,

BANGALORE-560059.

(REPRESENTED BY ITS

CEO & MANAGING DIRECTOR

SRI. KRISHNAKUMAR NATARAJAN

AGED ABOUT 54 YEARS,

S/O SRI.K. NATARAJAN)

... PETITIONER

(By Sri. CHYTHANYA K. K., ADV.)

AND :

--------

1.UNION OF INDIA

REPRESENTED BY THE SECRETARY

TO THE MINISTRY OF FINANCE

GOVERNMENT OF INDIA

NEW DELHI.

http://www.itatonline.org

2

2.THE COMMISSIONER OF

INCOME-TAX-LTU

J S S TOWERS, 100 FT RING ROAD,

BANASHANKARI III STAGE,

BANGALORE-560085.

... RESPONDENTS

(By Sri. E. I. SANMATHI, SR.ADV., FOR R1)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND

227 OF THE CONSTITUTION OF INDIA WITH A PRAYER TO

DECLARE THE NEWLY INSERTED PROVISO TO SECTION 115JB

(6) BY FINANCE ACT, 2011 AS ULTRA VIRES SECTION 27 OF THE

SEZ ACT READ WITH THE SECOND SCHEDULE THERETO &

HENCE,UNENFORCEABLE.

W.P.Nos. 21939-942/2011 & 21943-946/2011

BETWEEN :

--------------

1.M/S OPTO INFRASTRUCTURE LIMITED

OPTO SEZ, NANJANGUD & HASSAN

PLOT NO. 83, 2ND

FLOOR, 1ST

PHASE

ELECTRONIC CITY, BANGALORE-560100

(REP BY DR. MANJE GOWDA, DIRECTOR)

2.M/S OPTO CARDIAC CARE LIMITED,

VSEZ UNIT, PLOT NO. 83 2ND FLOOR, 1ST PHASE


(REP BY DR MANJE GOWDA, DIRECTOR)

3.M/S OPTO EUROCOR HEALTHCARE LIMITED,

VSEZ UNIT, PLOT NO. 83, 2ND FLOOR, 1ST PHASE


(REP BY DR. MANJE GOWDA, DIRECTOR)


3

4.M/S OPTO CIRCUITS (INDIA) LIMITED

(UNIT-III-SEZ UNIT)

(VISAKHAPATNAM SPECIAL ECONOMIC ZONE)

PLOT NO. 83, ELECTRONIC CITY, HOSUR ROAD

BANGALORE-560100

(REP BY DR MANJE GOWDA, DIRECTOR)

5.M/S MANGALORE SEZ LIMITED

NO. 16, "PRANAVA PARK ", 3RD

FLOOR

INFANTRY ROAD, BANGALORE-560001

(REP BY RAJIV BANGA, MANAGING DIRECTOR)

6.M/S BIOCON LIMITED, SEZ DEVELOPER

BIOCON SPECIAL ECONOMIC ZONE

PLOT NO.2 TO 5, PHASE IV

BOMMASANDRA INDUSTRIAL AREA

BOMMASANDRA JIGANI LINK ROAD

BANGALORE-560099

(REP BY S R SUNDARESH VICE PRESIDENT

COMMERCIAL)

7.M/S RGA SOFTWARE SYSTEMS PVT LTD

SY.NO. 51 TO 64, OUTER RING ROAD

BELLANDUR VILLAGE, VARTHUR HOBLI

BANGALORE-560103

(REP BY RAMAKRISHNAN, CFO)

8.M/S PRIMAL PROJECTS PVT LTD

PRITECH PARK SEZ

SY.NO.51 TO 64, OUTER RING ROAD

BELLANDUR VILLAGE, VARTHUR HOBLI

BANGALORE-560103

(REP BY RAMAKRISHNAN, CFO).

... PETITIONERS

(By Sri. K.S. RAVISHANKAR, ADV.)


4

AND :

--------

1. THE UNION OF INDIA

MINISTRY OF FINANCE

NORTH BLOCK, NEW DELHI-110 001

REP BY ITS SECRETARY

2.THE UNION OF INDIA

MINISTRY OF COMMERCE

NORTH BLOCK, NEW DELHI-110 001

REP BY ITS SECRETARY

3.THE BOARD OF APPROVALS

MINISTRY OF COMMERCE &

INDUSTRIES (SEZ),

GOVERNMENT OF INDIA

UDYOG BHAVAN, ROOM NO.

2L63-C, 2ND FLOOR

NEW DELHI-110 017

REP BY ITS CHAIRMAN.

4.THE CHIEF COMMISSIONER OF

INCOME TAX, C R BUILDINGS,

QUEENS ROAD

BANGALORE-560001

... RESPONDENTS

(By Sri.N.R. BHASKAR, CGSC FOR R1 & R2

Sri M.V.SHESHACHALA, ADV., FOR R3 & R4

Sri K.V.ARAVIND, ADV., FOR R3 & R4 )

THESE WRIT PETITIONS FILED UNDER ARTICLES 226

AND 227 OF THE CONSTITUTION OF INDIA WITH A

PRAYER TO HOLD THAT THE IMPUGNED

AMENDMENTS/PROVISIONS OF THE FINANCE ACT, 2011 IN


5

ANNEX.E ARE ILLEGAL, ARBITRARY, UNREASONABLE,

UNFAIR AND VIOLATIVE OF VARIOUS ARTICLES OF

CONSTITUTION PARTICULARY ARTICLES 14, 77, 109 AND

110 AND ALSO VIOLATIVE OF THE DOCTRINE OF

PROMISSORY ESTOPPEL.

W.P.No.23199/2011

BETWEEN :

---------------

M/S. SUBEX LIMITED

ADARSH TECH PARK, OUTER RING ROAD,

DEVARABISANAHALLI,

BANGALORE-560037

REP BY ITS FOUNDER CHAIRMAN,

MANAGING DIRECTOR & CEO

Sri. SUBASH MENON

AGED ABOUT 44 YEARS

S/O JAYAPALA MENON. ... PETITIONER

(By Sri. CHYTHANYA K.K., ADV.)

AND :

-------

1.UNION OF INDIA

REP BY THE SECRETARY TO THE

MINISTRY OF FINANCE,

GOVERNMENT OF INDIA,

NEW DELHI.

2. COMMISSIONER OF

INCOME-TAX-3

BENGALURU,

KARNATAKA STATE.

3. DEPUTY COMMISSIONER OF

INCOME-TAX, CIRCLE -12 (3),

BENGALURU,

KARNATAKA STATE. ... RESPONDENTS


6

(By Sri.KALYAN BASAVARAJ, ASG FOR R1 &R2

Sri K.V.ARAVIND, ADV., FOR R3 & R4)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226


PRAYER TO DECLARE THE NEWLY INSERTED PROVISO TO

SECTION 115JB (6) BY FINANCE ACT 2011 AS ULTRA VIRES

SECTION 27 OF THE SEX ACT READ WITH THE SECOND

SCHEDULE THERETO & HENCE, UNENFORCEABLE VIDE

ANN-A.

W.P.No.39358/2012

BETWEEN :

----------------

M/S RAJESH EXPORTS LIMITED

REP BY ITS CHAIRMAN,

SRI.RAJESH METHA,

S/O. JASVANTRAI METHA,

AGED ABOUT 49 YEARS,

NO.4, BATAVIA CHAMBERS,

KUMARA KRUPA ROAD,

KUMARA PARK EAST,

BANGALORE-560 001. ... PETITIONER

(By Sri.A. SHANKAR, ADV.)

AND :

--------

1.UNION OF INDIA

THROUGH THE SECRETARY


DEPARTMENT OF REVENUE,


NORTH BLOCK,

NEW DELHI-110 001.


7

2.MINISTRY OF FINANCE

THROUGH THE SECRETARY

DEPARTMENT OF REVENUE,


NORTH BLOCK,

NEW DELHI-110 001.

3.MINISTRY OF COMMERCE & INDUSTRY

THROUGH THE SECRETARY,

DEPARTMENT OF COMMERCE,

UDYOG BHAVAN,

NEW DELHI-110 107.

4.CENTRAL BOARD OF DIRECT TAXES,

THROUGH THE SECRETARY,


NORTH BLOCK,

NEW DELHI-110 001.

5.THE COMMISSIONER OF INCOME-TAX,

BANGALORE-III,

C.R.BUILDING, QUEENS ROAD,

BANGALORE-560 001. ... RESPONDENTS

(R1, R2, R4 AND R5 ARE SERVED)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226


PRAYER TO HOLD THAT THE IMPUGNED AMENDMENTS/

PROVISIONS OF THE FINANCE ACT 2011 IN ANN-C ARE

ILLEGAL, ARBITRARY, UNREASONABLE, UNFAIR &

VIOLATIVE OF VARIOUS ARTICLES OF CONSTITUTION

PARTICULARLY ARTICLES 14, 19 (1)(g) 21, 77, 109 & 110 &


8

ALSO VIOLATIVE OF THE DOCTRINE OF PROMINSSORY

ESTOPPLES & DOCTRINE OF LEGITIMATE EXPECTATION.

THESE WRIT PETITIONS HAVING BEEN HEARD AND

RESERVED FOR ORDERS THIS DAY, NAGAMOHAN DAS, J

PASSED THE FOLLOWING;

O R D E R

In these writ petitions the petitioners have prayed to declare the

newly inserted proviso to Section 115JB(6) and 115-O(6) of the Income

Tax Act in the second schedule to the Special Economic Zones Act 2005

(for short ‘SEZ Act’) as ultra vires, arbitrary, unfair and violative of Article

14 of Constitution of India.

2. In the month of April 2000, the Government of India

announced Special Economic Zone scheme with a view to provide

international competitive environment for exports. The object of the

scheme include making available goods and services free of taxes and

duties supported by integrated infrastructure for export production,

expeditious and single window approval mechanism and package of

incentives to attract foreign and domestic investments for promoting export

lead growth. The scheme was implemented through various notifications


9

and circulars issued by the concerned ministries/departments from time to

time. This system of issuing notifications and circulars resulted in certain

practical problems and does not lend enough confidence among the

investors. In order to overcome the problems of the present scheme and to

give a long term and stable policy frame work the Central Act for Special

Economic Zones had been found necessary. Accordingly the Special

Economic Zone Bill was introduced in the parliament. The Bill was passed

in the Loksabha on 09.05.2005 and in Rajyasabha on 11.05.2005. The

President of India gave his assent to the Bill on 23.06.2005. Thus the

Special Economic Zones Act, 2005 (for short ‘SEZ Act’)came into force.

Section 7 of the SEZ Act specifies that any goods or services exported or

imported from the domestic tariff area by any unit in a special economic

zone shall be exempted from payment of taxes, duties or cess subject to

prescribed terms, conditions and limitations. Section 26 of the SEZ Act

specifies certain concessions under the Customs Act, Customs Tariff Act,

Central Excise Act, Central Excise Tariff Act, Domestic Tariff Area,

Service Tax Act under Chapter V of the Finance Act, 1994, Securities

Transaction Tax leviable under Finance Act, 2004 etc. Section 27 of the


10

SEZ Act specifies that provisions of Income Tax Act, 1961 to apply to SEZ

units and developers subject to modifications specified in Schedule-II.

Under the SEZ Act the following profit linked deductions and incentive

relating to Income Tax are allowed to SEZ units:

(i) Under the existing provisions of Section 10AA of the IT Act, a

deduction of hundred per cent is allowed in respect of profits and

gains derived by a unit located in Special Economic Zone (SEZ)

from the export of articles or things or from services for the first

five consecutive assessment years; of fifty per cent for further five

assessment years; and thereafter, of fifty per cent of the ploughed

back export profit for the next five years.

(ii) Further, under Section 80-IAB the IT Act, a deduction of

hundred per cent is allowed in respect of profits and gains derived

by an undertaking from the business of development of an SEZ

notified on or after 1st April, 2005 from the total income for any ten

consecutive assessment years out of fifteen years beginning from

the year in which the SEZ has been notified by the Central

Government.

In addition to the above, the following incentives were also available in

respect of SEZs before the Finance Act, 2011.


11

(i) The provisions of sub-section (6) of Section 115JB of the IT Act

allowed for an exemption from payment of minimum alternate tax

(for short “MAT”) on book profit in respect of the income accrued

or arising on or after 1st April 2005 from any business carried on,

or services rendered, by an entrepreneur or a Developer, in a Unit

or Special Economic Zone (SEZ), as the case may be.

(ii) Furthermore, the provisions of sub-section (6) of section 115-

O of the IT Act, allowed for an exemption from payment of tax on

distributed profits [Dividend Distribution Tax (DDT)] in respect of

the total income of an undertaking or enterprise engaged in

developing and operating or developing, operating and

maintaining a Special Economic Zone for any assessment year on

any amount declared, distributed or paid by such Developer or

enterprise, by way of dividends (whether interim or otherwise) on

or after 1st April, 2005 out of its current income. Such distributed

income was also exempt from tax under sub-section (34) of Section

10 of the IT Act.

3. Petitioners are SEZ developers/co-developers/units. The

petitioners by taking necessary permissions and approvals under the SEZ

Act and Rules are carrying on activities inside the SEZ. The petitioners


12

contend by acting on the promises made under the provisions of SEZ Act,

Rules and exemptions provided under various Acts including the Income

Tax Act made huge investments in establishing the SEZ units. It is

contended that petitioners borrowed massive loans from various financial

institutions and investment on land, buildings, infrastructure facilities etc.

Petitioners have commenced their projects on the basis that income accrued

or arising from business carried on by them as SEZ developer or unit are

exempted from applicability of Minimum Alternate Tax (MAT) as

provided under sub-section 6 of Section 115 JB and sub-section 6 of

Section 115-O of the Income Tax Act.

4. When the matter stood at that stage, the Union Finance

Minister moved the Union Budget for 2011-2012 on the floor of Parliament

and the Finance Bill, 2011 was introduced. In terms of this Finance Bill,

2011 a proviso was inserted below Section 115 JB (6) and 115-O (6) of

Income Tax Act in the Second Schedule to SEZ Act and they are as under:

Section 115-JB.Special provision for payment of tax by certain

companies-

1. .........................................................


13

2. …………………………………….

3. …………………………………….

4. …………………………………….

5. ……………………………………

6. The provisions of this section shall not apply to the income

accrued or arising on or after the 1st day of April, 2005 from any

business carried on, or services rendered, by an entrepreneur or

a Developer, in a Unit or Special Economic Zone, as the case

may be.

Provided that the provisions of this sub-section shall cease to

have effect in respect of any previous year relevant to the

assessment year commencing on or after the 1st day of April,

2012

Section 115-JB.Special provision for payment of tax by certain

companies-

1. .........................................................

2. …………………………………….

3. …………………………………….

4. …………………………………….


14

5. ……………………………………

6. Notwithstanding anything contained in this section, no tax on

distributed profits shall be chargeable in respect of the total

income of an undertaking or enterprise engaged in developing or

developing and operating or developing, operating and

maintaining a Special Economic Zone for any assessment year

on any amount declared, distributed or paid by such Developer

or enterprise, by way of dividends (whether interim or otherwise)

on or after the 1st day of April, 2005 out of its current income

either in the hands of the Developer or enterprise or the person

receiving such dividend:

Provided that the provisions of this sub-section shall cease to

have effect from the 1st day of June, 2011.

(underline is mine)

5. Petitioners being aggrieved by the insertion of the above

provisos to sub-section 6 of Section 115-JB and sub-section 6 of Section

115-O of the Income Tax in the second schedule to the SEZ Act are before

this court.

6. Sri A. Shankar and Sri K.K.Chaitanya, learned Advocates for

petitioners contend that the impugned amendments under the Finance

Act, 2011 are opposed to the Doctrine of Promissory Estoppel. It


15

is contended that the Government by introducing sub-section 6 of Section

115-JB made an express promise exempting the petitioners from the

applicability of payment of MAT and under sub-section 6 of Section 115-O

the Payment of tax on dividend distribution. On the basis of this promise

made by the Government the petitioners invested and established units by

the borrowing massive loans. The proposed amendments are therefore

opposed to Doctrine of Promissory Estoppel. It is contended that when the

petitioners made investments, they legitimately expected that the

exemptions provided under Section 115-JB and 115-O will be continued.

Now abruptly, arbitrarily, unfairly and to the detriment of the petitioners

the impugned amendments are brought in and as such the same is opposed

to the Doctrine of Legitimate Expectation. The impugned amendments are

opposed to the very object of SEZ Act. Therefore, the impugned

amendments to the SEZ Act are unconstitutional, beyond the power and

authority and administrative competence of Ministry of Finance. The

impugned amendment is contrary to Section 27 of the SEZ Act. Section 27

of SEZ Act empowers the parliament to modify the provisions of Income

Tax Act. But under the impugned amendments the Parliament amended


16

Schedule-II to the SEZ Act and as such the same is illegal and without

authority of law. Reliance is placed on number of decisions.

7. Per contra, Sri Indra Kumar, learned senior counsel for the

respondents contend that exemptions provided under Section 115-JB and

115-O of the Income Tax Act did not had sunset provisions and as such the

impugned amendments are in accordance with law. It is contended that the

legislative action of withdrawal of benefit under the fiscal policy of the

State is not hit by Doctrine of Promissory Estoppel. It is contended that the

exemption granted to the petitioners eroded the tax base and in the public

interest the impugned amendments are brought and as such they are legal

and valid. Reliance is placed on number of decisions.

8. Heard arguments on both the side and perused the entire writ

papers. Though number of decisions are relied on, only relevant decisions

are referred in this order. On the basis of pleadings and arguments, the

following points will arise for my consideration:

(i) Whether the impugned amendments brought by the

Ministry of Finance to a special statute “SEZ Act” which comes

under the exclusive domain of Ministry of Commerce is

unconstitutional and without authority?


17

(ii) Whether the impugned amendments are violative of

Article 14 of the Constitution of India ?

(iii) Whether the impugned amendments are opposed to

Doctrine of Promissory Estoppel?

(iv) Whether the impugned amendments are opposed to

principles of Legitimate Expectancy?

THE SCOPE OF JUDICIAL REVIEW

9. The Indian Constitution provides for three organs called –

Legislative, Executive and Judiciary making jointly responsibly for

securing social, economic and political justice to all citizens. The

legislative powers are distributed between the Central legislature and

State legislatures. A mechanism is provided through courts vesting

with the powers of judicial review to determine the validity of the

Acts passed by the legislatures. Judicial review is an integral part of

our constitutional system. If the laws enacted by the legislature are

found to be violative of any Article of the Constitution the Supreme

Court and the High Courts are empowered to strike down the said

laws. In exercising the powers of judicial review, the courts do not


18

and cannot go into the question of wisdom behind legislative

measure. It is for the legislature to decide as to what laws they

should enact. The task of the courts is to interpret the laws and to

adjudicate about their validity. It is in this back ground the Supreme

Court in State of A.P. vs. Mcdowell and Co. [AIR 1996 SC 1627]

held that “a law made by the Parliament or the Legislature can be

struck down by courts on two grounds and two grounds alone, viz.,

(1) lack of legislative competence and (2) violation of any of the

fundamental rights guaranteed in Part-III of the Constitution or of

any other constitutional provision. There is no third ground.”

Further the Supreme Court in Government of A.P. vs. Smt.

P.Lakshmidevi [AIR 2008 SC 1640] held that “the constitutional

courts do have the power to declare a law to be invalid.

Invalidating a statute is a grave step and must therefore be taken in

very rare and exceptional circumstances. The court must not

invalidate a statute lightly, for invalidation of a statute made by the

legislature elected by the people is a grave step. The legislature

must be given freedom to do experimentations in exercising its


19

powers, provided of course it does not clearly and flagrantly violate

its constitutional limits. All decisions in the economic and social

spheres are essentially ad hoc and experimental. Since the

economic matters are extremely complicated, this inevitably entails

special treatment for special situations. The State must, therefore,

be left with wide latitude in devising ways and means of fiscal or

regulatory measures, and the Court should not unless compelled by

the statute or by the Constitution, encroach into this field, or

invalidate such law. Greater latitude must be given to the

legislature while adjudging the constitutionality of the fiscal statute

because the court does not consist of economic or administrative

experts. It has no expertise in these matters and in this age of

specialization when policies have to be laid down with great care

after consulting specialists in the field, it will be wholly unwise for

the court to encroach into the domain of the executive or legislative

and try to enforce its own views and perceptions.”

10. Thus the scope of judicial review power of this court

under Article 226 of the Constitution is subject to certain conditions.


20

This power of judicial review is to be exercised very rarely and in

exceptional circumstances. The courts can invalidate the law made

by the legislature only when the legislature lacks the competency to

do and the law enacted is violative of any of the constitutional

provisions. It will be wholly unwise for the court to encroach into

the domain of the executive or legislative in economic and social

spheres since they are essentialy adhoc, experimental, extremely

complicated and they are made under special situations. Keeping

these principles in view, it is necessary to examine the fact situation

in the present case.

On point No.1

11. Learned counsel for the petitioners firstly contend that as

per the Government of India (Allocation of Business) Rules, all

matter relating to development, operation and maintenance of special

economic zones and units exclusively falls within the domain of

Ministry of Commerce, Government of India. The impugned

amendments in the Schedule-II to the SEZ Act is made by the


21

Ministry of Finance, Government of India through a money bill.

Therefore, it is contended that the impugned amendments to

Schedule-II to the SEZ Act by the Ministry of Finance lacks

legislative competency. I decline to accept this contention of learned

counsel for the petitioners. Firstly, the Government of India

(Allocation of Business) Rules relied on by the petitioners are not

applicable to the proceedings and the business of parliament. These

Rules are only applicable to the Government of India and not to the

Parliament. The proceedings and the business of the parliament is

governed by “Rules of Procedure and Conduct of Business in the

Lok Sabha” (for short “Rules of Loksabha”). Chapter-I , Rule 2(1)

of Rules of Loksabha defines “Finance Minister” includes any

Minister. Further “Member incharge of the Bill” means the Member

who has introduced the Bill and every Minister in the case of

Government Bill. “Minister” means a member of the Council of

Ministers and includes a member of the Cabinet, a Minister of State,

a Deputy Minister or a Parliamentary Secretary. Further the Rules

of Loksabha provides for Government bill and private members bill.


22

A perusal of the Rules of Loksabha do not bar the Finance Minister

from moving a bill for amendment to SEZ Act. On the other hand, a

reading of the Rules specifies that Finance Minister includes any

minister and as such he is competent to move a bill seeking

amendment of SEZ Act which comes under the domain of Ministry

of Commerce. Therefore, I decline to accept the contention of

learned counsel for the petitioners that the impugned amendment to

the SEZ Act suffers from lack of legislative competency.

12. The Supreme Court in Madurai District Central Co-

operative Bank Ltd. vs. Third ITO [1975] 101 ITR 24 held as under:

Once Parliament has the legislative competence to enact a law

with respect to a certain subject-matter, the limits of that competence

cannot be judged further by the form or manner in which that power is

exercised. Though it would be unconventional for Parliament to amend a

taxing statute by incorporating the amending provision in an Act of a

different pith and substance, such a course would not be unconstitutional.

It is true that the Income-tax Act is a permanent Act while the

Finance Acts are passed every year and their primary purpose is to

prescribe the rates at which the income-tax will be charged under the

Income-tax Act. But that does not mean that a new and distinct charge


23

cannot be introduced under the Finance Act. Exigencies of the financial

year determine the scope and nature of its provisions. If Parliament has

the legislative competence to introduce a new charge of tax, it may

exercise that power either by incorporating that charge in the Income-tax

Act or by introducing it in the Finance Act or for the matter of that in any

other statute.

In view of the law declared by the Supreme Court the Finance

Minister by introducing the Finance Act before the Parliament has

the legislative competence to amend the Income Tax Act or any

matter relating to the tax in any other statute. Therefore, the

impugned amendment to the SEZ Act passed by the parliament on

the Finance Bill introduced by the Finance Minister is well within

the legislative competency since the same relates to a charge in the

Income Tax Act. Therefore, I hold point no.1 in negative.

On Point No.2

13. Learned counsel for the petitioners contend that the

impugned amendments are absolutely capricious, arbitrary, unfair,

unreasonable and such the same is violative of Article 14 of the

Constitution. I decline to accept this contention of learned counsel


24

for the petitioners. It is settled position of law that every tax

exemption and incentive shall have a sunset clause. Every fiscal

legislation providing for tax exemption must have a life span fixed in

the enactment. In the instant case by introducing sub-section 6 to

Section 115JB and sub-section 6 to Section 115O of Income Tax Act

a permanent exemption was given to SEZ establishments/units. It is

settled principle that there can be no permanent tax exemption or

incentive in fiscal legislation. Realizing this lapse on the part of the

Government the impugned provisos were introduced restricting the

exemption only for a particular period. In the impugned amendment

it is made clear that it is prospective in nature. Therefore the

impugned amendments can neither be said unreasonable or arbitrary.

14. The contention of learned counsel for the petitioners

that even sunset clause must be a road map to end the tax exemption

and not an abrupt end. In the instant case, the exemption was

provided in the SEZ Act in the year 2005. The petitioners enjoyed

this benefit for a period of five years. The impugned amendments

are shown in the Finance Bill and placed before the Parliament in the


25

month of March 2011 for the years 2011-2012. The proposed

amendments specify that the MAT will come to an end from 1st

April, 2012 and tax on distribution of dividends will come to an end

from 1st June 2011. Thus the impugned amendments are prospective

in nature. The road map is not a condition precedent for the

Parliament to introduce sunset clause. The Parliament has the

sovereign legislative power to withdraw the tax exemption by way

of legislative amendment.

15. On account of various concessions, exemptions and

allowances under different statues companies started arranging their

tax affairs in such a way as to become zero tax companies. This

situation laid to the companies which are making huge profits and

also declaring substantial dividends but are managing their affairs in

such a way as to avoid payment of income tax as a result of the

concessions, exemptions and incentives given to them. Therefore the

legislature in their wisdom introduced Section 115JB providing for

payment of minimum alternate tax and Section 115O providing for

payment of tax on the distribution of the dividends. At the time of


26

passing SEZ Act, sub-section 6 of Section 115JB and sub-section 6

to Section 115O of the Income Tax Act was introduced totally

exempting the SEZ establishment/units from payment of minimum

alternate tax and tax on distribution of dividends. While all other

companies are made liable to pay MAT and tax on dividend

distribution, the SEZ establishments and units were exempted

though they are making profits. This situation has lead to

discrimination amongst SEZ establishment/units and other

companies. Realizing this discrimination among the companies the

legislature in their wisdom brought the impugned amendments to

remove the discrimination. Therefore, the impugned amendments

are in accordance with Article 14 of the Constitution and not against

it.

16. The SEZ Act is an outcome of Globalisation. The

investment contribution by the SEZ units/establishments has lead to

some development. The question is this development is for whose

benefit and at what cost. The Government in assessing this aspect of

the matter in its wisdom felt the necessity to withdraw the tax benefit


27

and accordingly passed the impugned amendments. As held by the

Supreme Court in Lakshmidevi’s case all decisions in the economic

and social spheres are essentially adhoc and experimental. Since the

economic matters are extremely complicated, this inevitably entails

special treatment for special situations. The State must, therefore, be

left with wide latitude in devising ways and means of fiscal or

regulatory measures, and the courts should not unless compelled by

the statute or by the Constitution, encroach into this field or

invalidate such law. Therefore I hold point No. 2 in negative.

On point no.3 and 4

17. The concept of Promissory Estoppel and Legitimate

Expectancy are not defined in any law. These two concepts are

fashioned by the courts while reviewing the administrative acts in

the field of administrative law. The judicial pronouncements defines

“Promissory Estoppel” means ‘where one party has by his words

written or oral or by conduct made to other a clear and unequivocal

promise which is intended to create legal relations or affect a legal


28

relationship to arise in the future, knowing or intending that it would

be acted upon by the other party to whom the promise is made and it

is in fact so acted upon by the other party, the promise would be

binding on the party making it and he would not be entitled to go

back upon it, if it would be inequitable to allow him to do so.’ So

also the judicial pronouncements defines “Legitimate expectation”

means ‘an expectation of a person from a representation or promise

made by an administrative authority including an implied

representation or from consistent past practice that he will be treated

in certain way even though he has no legal right in private law to

receive such treatment.’

18. The Doctrine of Promissory estoppel and Legitimate

expectation are the offsprings of equity and they are flexible in

nature. These Doctrines are evolved by the courts to avoid injustice

to a party. The distinction between these two

concepts/principles/doctrines is very narrow. The relief of

promissory estoppel springs out of legal relationship. On the other

hand, the Doctrine of Legitimate Expectancy is not based on any


29

legal right but on reasonable expectation. Therefore, the relief of

Legitimate Expectation is far below the promissory estoppel. In the

instant case the petitioners are seeking relief on the Doctrine of

Promissory Estoppel, a superior relief based on statutory promise

made under sub-section 6 of Section 115JB and sub-section 6 of

Section 115O of Income Tax Act. When petitioners are claiming

relief under the Doctrine of Promissory Estoppel then it is not

necessary for this Court to consider the doctrine of legitimate

expectation.

19. As already stated the Doctrine of Promissory Estoppel

is an offspring of equity and the same is flexible in nature. It is

necessary to notice the law laid down by the Apex Court while

considering the scope of Promissory Estoppel. In Motilal Padampat

Sugar Mills Co. Limited. vs State Of Uttar Pradesh And Others [ITR

(Vol.118) 1979 SC 326] it is held as under:

“The doctrine of promissory estoppel cannot be applied in the

teeth of an obligation or liability imposed by law. Promissory

estoppel cannot be invoked to compel the Government or even

a private party to do an act prohibited by law. There can also


30

be no Promissory estoppel against the exercise of legislation

power. The legislature can never be precluded from exercising

its legislative function by resort to doctrine of promissory

estoppel”

In Union of India vs. Godfrey Philips India Ltd [ITR 158 1986

SC 575] it is held as under:

“There can be no promissory estoppel against the legislature in

the exercise of its legislative functions nor can the Government

or a public authority be debarred by promissory estoppel from

enforcing a statutory prohibition. It is equally true that

promissory estoppel cannot be used to compel the Government

or a public authority to carry out a representation or promise

which is contrary to law or which was outside the authority or

power of the officer of the Government or of the public

authority to make. The doctrine of promissory estoppel being

an equitable doctrine, it must yield when equity so require. If it

can be shown by the Government or public authority that

having regard to the facts as they have transpired, it would be

inequitable to hold the Government or public authority to the

promise or representation made by it. The Court would not

raise an equity in favour of the person to whom the promise or

representation was made and enforce the promise or


31

representation against the Government or public authority. The

doctrine of promissory estoppel would be displaced in such a

case because, on the facts, equity would not require that the

Government or public authority should be held bound by the

promise or representation made by it.

In Sales Tax Officer vs. Shree Durga Oil Mills STC (vol 108)

1998 SC 274 it is held:

“The view taken by this Court in Kasinka's case was

reiterated by a Bench of three-judges in the case of Shrijee Sales

Corporation & Anr. Vs. Union of India (1997) 3 SCC 398. It was

laid down in that case that the determination of applicability of

promissory estoppel against the Government hinges upon balance of

equity or public interest. In case there is a supervening public

equity, the Government would be allowed to change its stand; it

would then be able to withdraw from representation made by it

which induced persons to take certain steps which may have gone

adverse to the interest of such persons on account of such

withdrawal. Once public interest was accepted as the superior

equity which can override individual equity, the aforesaid principle

should be applicable even in cases where a period had been

indicated for operation of the promise. In that case, a notification

was issued exempting customs duty on PVC. By a second notification


32

the exemption was withdrawn. The Court held that the facts of the

case revealed that there was a supervening public interest and the

Government was competent to withdraw the first notification without

giving any prior notice to the respondent.

20. From the above referred decisions it is manifest that

the legislature can never be precluded from exercising its legislative

power by resort to the Doctrine of Promissory Estoppel. Since it is

an equitable doctrine, it must yield when equity so requires. The

courts would decline to enforce this doctrine if it results in great

hardship to government and would be prejudicial to the public

interest. Keeping these principles in mind it is necessary to examine

the fact situation in the instant case.

21. It is not in dispute that by inserting sub-section 6 to

Section 115JB and Section 115O of the Income Tax Act the

petitioners are exempted from paying minimum alternate tax and tax

on distribution of dividends. By introducing the impugned provisos

in the second schedule to SEZ Act the benefit extended is now

withdrawn. In the circumstances, the petitioners are claiming relief


33

on the basis of Doctrine of Promissory Estoppel. It is settled

position of law that this doctrine must yield when the equity so

requires. Firstly the exemption provided do not have a sunset clause

and now under the impugned amendment this flaw in the law is

removed. Secondly, the inequality between SEZ companies and

other companies is removed. Thirdly, the exemptions provided to

SEZ companies resulted in erosion of tax base. Respondents in their

statement of objections stated that they have foregone revenue from

SEZ units to the tune of Rs.692 crores in 2006-07, Rs.2710 crores in

2007-08, Rs.4099 crores in 2008-09 and Rs.4990 crores in 2009-10.

Fourthly, the impugned amendment relates to fiscal policy of the

state and any decision in the economic sphere is adhoc and

experimental in its nature and therefore the Government is well

within it sovereign power to regulate the same. Lastly the impugned

amendments do not transgress any of the fundamental rights of the

petitioners guaranteed under the Constitution. Therefore, I hold that

Doctrine of Promissory Estoppel cannot be made applicable to


34

nullify the impugned amendments. Accordingly these two points 3

and 4 are held in negative.

For the reasons stated above, the writ petitions are hereby

dismissed.

Sd/-

JUDGE.

LRS.


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