mindtree 115JB 115O SEZ exemption withdrawal · PDF file3.m/s opto eurocor healthcare limited,...
Transcript of 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 :
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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 :
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1.UNION OF INDIA
REPRESENTED BY THE SECRETARY
TO THE MINISTRY OF FINANCE
GOVERNMENT OF INDIA
NEW DELHI.
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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 :
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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
ELECTRONIC CITY, BANGALORE-560100
(REP BY DR MANJE GOWDA, DIRECTOR)
3.M/S OPTO EUROCOR HEALTHCARE LIMITED,
VSEZ UNIT, PLOT NO. 83, 2ND FLOOR, 1ST PHASE
ELECTRONIC CITY, BANGALORE-560100
(REP BY DR. MANJE GOWDA, DIRECTOR)
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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.)
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AND :
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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
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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 :
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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
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(By Sri.KALYAN BASAVARAJ, ASG FOR R1 &R2
Sri K.V.ARAVIND, ADV., FOR R3 & R4)
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 SEX ACT READ WITH THE SECOND
SCHEDULE THERETO & HENCE, UNENFORCEABLE VIDE
ANN-A.
W.P.No.39358/2012
BETWEEN :
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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 :
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1.UNION OF INDIA
THROUGH THE SECRETARY
MINISTRY OF FINANCE,
DEPARTMENT OF REVENUE,
GOVERNMENT OF INDIA,
NORTH BLOCK,
NEW DELHI-110 001.
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2.MINISTRY OF FINANCE
THROUGH THE SECRETARY
DEPARTMENT OF REVENUE,
GOVERNMENT OF INDIA,
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,
MINISTRY OF FINANCE,
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
AND 227 OF THE CONSTITUTION OF INDIA WITH A
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 &
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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
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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
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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.
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(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
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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. .........................................................
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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. …………………………………….
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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
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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
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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?
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(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
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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
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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.
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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