Civil Appeal No. 7710-7714 of 2021 · Supreme Court of India

Under the said scheme, a prestigious unit was eligiblefor incentives up to 90% of the fixed capital investment. That pursuantto the said Scheme, the respondent – Essar Steel Ltd. (hereinafter referredto as “ESL”) invested approximately Rs.5000 crores formanufacture ofHRC. That the said exemption was provided as per Entry 255 of thenotification issued by the Government of Gujarat under Section 49(2) ofthe Act, 1969. That the Unit No.2 of the ESL was granted Sales Taxexemption in terms of Entry No.255(2) of the Notification dated05.03.1992 issued under Section 49(2) of the Act, 1969 for the periodfrom 22.02.1993 to 21.02.2007 up to a maximum monetary limit ofRs.2050 crores.2.2 At this stage, it is required to be noted that the said exemptionas per Entry No.255(2) vide Notification dated 05.03.1992 was subjectto fulfilling certain conditions provided in the said original Entry No.255(2),which shall be dealt with hereinafter below.2.3 That the exemption granted to Unit No.2 of the respondentwas an exemption from payment of purchase tax on raw materials for(i) Naphtha; and (ii) Natural Gas.

The applicable purchase tax at therelevant time on Naphtha was @16% on the taxable value and for NaturalGas, it was @20% on taxable value. At this stage, it is also required tobe noted that this exemption had been made available to steelmanufacturing units and the units/entities engaged in generating electricitywere specifically excluded from this exemption by placing them in thelist of industries “Not Eligible” for this incentive.2.4 As per the original Entry No.255(2) dated 05.03.1992, thecondition No.6 required the eligible units to actually use the goodspurchased within the State of Gujarat as raw materials, processingmaterials or consumable stores in the manufacture of goods for salewithin the State of Gujarat or outside the State of Gujarat or as packingmaterials in packing of the goods so manufactured. STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH732SUPREME COURT REPORTS[2022] 12 S.C.R.2.5 That thereafter vide Government Notification dated 14.11.2000,Entry No.255(2) came to be amended w.e.f.

14.11.2000 whereby it wasprovided that the goods were to be actually used by the eligible units asraw materials, processing materials or consumable stores in its industrialunits for which it has obtained the eligibility certificate. That thereafterEntry No.255(2) came to be further amended vide Notification dated16.01.2002, which provided that the eligible units, who claim exemptionfrom purchase tax on purchase of the goodseven if the goods are usedas raw materials, processing materials or consumable stores in itsindustrial units for which it has obtained the eligibility certificate in themanufacturing of goods for dispatch to its another unit or division situatedwithin the State of Gujarat or outside the State of Gujarat for use in themanufacture of other goods for sale by such other unit.2.6 At this stage, it is required to be noted that under all the aforesaidthree notifications, one of the main requirements was that the eligibleunit furnishes to the selling dealer a certificate in Form No.

26 and obtainedfrom the registering authority, declaring inter alia that the goods shall beused by it as raw materials, processing materials or consumable storesin its industrial unit for which it has obtained the eligibility certificate, forthe manufacture of goods in its industrial unitas per the conditionsprovided under the three notifications.2.7 On commissioning of the Unit No.2, the Natural Gas and Naphtha purchased by the respondent – ESL, against declarations in Form No.26 were sold to Essar Power Limited (another company)(hereinafter referred to as “EPL”) and the EPL utilized the Natural Gasand Naphtha purchased from ESL for the purpose of generating/manufacturing electricity, which came to be sold to the ESL by the EPL.It is the case on behalf of the respondent – ESL that the said electricitygenerated by EPL was used by it for the purpose of manufacturingHRC in its industrial unit.2.8 The Officers of the Sales Tax conducted a surprise visit at thepremises of the respondent – ESL in the month of July, 2001.

A noticewas issued by the Sales Tax Officer calling for certain informationincluding details of branch transfers, deemed exports, transfer of finishedgoods etc. The Sales Tax Department thereafter raised a dispute interalia regarding breach of declaration given in Form No.26 while purchasingNaphtha/Natural Gas having been committed by the respondent – ESLon the ground that the goods so purchased were transferred to EPL for ABCDEFGH733generation of electricity, which was then used in Unit No.2 for themanufacture of HRC. A notice was issued on 30.06.2002 by the SalesTax Officer calling upon the ESLto give clarification in respect of thepurported breach of conditions of exemptions, including the transfer of Naphtha/Natural Gas to EPL for generation of electricity. That the Assessing Officer passed the Assessment Orders in respect of UnitNo.2 for Assessment Years 1995-1996 to 1997-1998 and 2000-2001holding inter alia that no tax was due and payable by the respondent –ESL on account of any purported breach of the conditions of the exemptionadmissible under Entry 255(2).2.9 Subsequently, a notice dated 30.05.2005 came to be issued bythe Deputy Commissioner of Sales Tax for initiating levy of purchasetax of Rs.480.99 crores and for levying penalty for the period 1995-1996to 2005-2006 on the ground that the respondent – ESL has contravenedthe provisions of the Act, more particularly, Entry No.255 and availedthe exemption wrongly.

The respondent -ESL filed a writ petition beforethe High Court challenging the notice issued by the Deputy Commissioner. By order dated 28.03.2006, the High Court restrained the departmentalauthorities fromimplementing or enforcing the assessment orders subjecttothecondition that in respect of Unit No.2, the respondent – ESLshoulddeposit 50% of the tax dues within the time stipulated in the order. The assessment orders by the Deputy Commissioner of Sales Tax cameto be challenged by way of appeals before the Joint Commissioner. TheJoint Commissioner – the first Appellate Authority vide order dated30.04.2013 imposed purchase tax under Section 50 of the Act for theyears 1998-1999 and 1999-2000. However, the first Appellate Authorityaccepted in the first appeal that till the amendment took place in EntryNo.255 on 14.11.2000, even if the purchased goods were used formanufacture at any place in the State of Gujarat, there was no breach ofthe conditions stipulated in Form No.26 and for the said assessmentyears, the purchase tax together with interest and penalty imposed cameto be set aside.

Thus, the Joint Commissioner/first Appellate Authorityconfirmed the levy of purchase tax in respect of the purchase of goodstill 14.11.2000.2.10 Being aggrieved against the order passed by the JointCommissioner dated 30.04.2013, both, the respondent -dealer – ESLandthe State Government preferred the appeals before the Tribunal. Thatby order dated 29.01.2015, the Tribunal allowed the second appeals STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH734SUPREME COURT REPORTS[2022] 12 S.C.R.preferred by the respondent-ESL holding that the respondent – ESLisnot liable to pay any tax, interest or penalty on the disputed transactionsand dismissed the cross objections of the State.2.11 Feeling aggrieved and dissatisfied with the orders passed bythe Tribunal allowing the second appeals preferred by the respondent –dealer - assessee and dismissing the cross objection preferred by the State and holding that the respondent – ESL is not liable to pay any tax, interest or penalty on the disputed transactions, the State preferred thepresent appeals before the High Court being Tax Appeal Nos.

136 of2016 to 140 of 2016. By impugned common judgment and order, the High Court has dismissed the said appeals mainly on the ground ofpromissory estoppel and also observing that the respondent – ESL hasnot violated any of the conditions provided under the original EntryNo.255(2) dated 05.03.1992.2.12 Feeling aggrieved and dissatisfied with the impugned commonjudgment and order passed by the High Court, the State has preferredthe present appeals.

255(2) and the statutory Form No.26, it isabundantly clear that the parent Notification dated 05.03.1992 extendsthe exemption only to ‘the eligible unit’ for utilizing the raw materials for ABCDEFGH735manufacture of goods in that unit itself. It is submitted that the wordingsused in the notification are clear and unambiguous that the exemptionshall become available only if the said eligible unit utilizes the rawmaterials for manufacture of goods in the very same ‘eligible unit’. It issubmitted that therefore the raw materials – Naphtha and Natural Gaswere required to be used by the ‘eligible unit – Essar Steel Ltd.’ in thevery same steel unit and for manufacture of the steel only.3.3 It is submitted that if the interpretation made by the HighCourt and the Tribunal is accepted, in that case, even when the eligibleunit does not itself utilizes the raw materials, it may, after availing theexemption, simply transmit the raw materials to any other unit or entity, even the said entities are ‘not eligible’ to the exemption and such entitiesthough are ‘not eligible’ would then get the benefit of exemption.

It issubmitted that that could not be the object and purpose of grantingexemption to the ‘eligible units’ only.3.4 It is submitted that while introducing the incentive scheme, the Department issued the list of industries of ‘eligible units’ and ‘noneligible units’ for any exemption from sale/purchase tax on procurementof raw materials. It is submitted that in the present case the powergenerating companies were specifically put in the ‘non eligible units’category. It is submitted that in the present case despite being fully awareof the clear and unambiguous terms and conditions of the notificationswherein the power producing companies were specifically made‘ineligible’ for availing the exemptions and though ESLwas required touse the raw materials - Naphtha and Natural Gas in their own unit, afteravailing the exemption from payment of purchase tax, the ESL did notuse the said raw materials in its unit but sold the said rawmaterials toanother company – EPL,and EPL used the said raw materials – Naphthaand Natural Gas for generating the electricity, which came to besubsequently sold to the ESL.It is submitted that, thus, through suchcircuitous method, the ESL passed on the benefit of exemption to EPL,which otherwise the EPL was not eligible and/or entitled to.3.5 It is submitted that, thus, the interpretation advanced by theassessee – ESLaccepted by the High Court and the Tribunal wouldcompletely defeat the purpose of exemption notifications and would begiving premium to such dishonest assessee/dealer, who after availingthe exemption would sell the raw materials to another industry/entity, who as such are not entitled to and/or eligible for such an exemption.

It STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH736SUPREME COURT REPORTS[2022] 12 S.C.R.is submitted that if the interpretation advanced by the assessee isaccepted, in that case, it would permit industries, which are eligible forexemption to simply purchase the raw materials; not use them for anymanufacturing in their own units, and then simply transmit them for useand manufacture by other units, even though such units are not eligiblefor exemption under the notification/policy.3.6 It is further submitted by Shri Maninder Singh, learned SeniorAdvocate appearing on behalf of the State that in the present case, thewordings used in the parent exemption notification and Entry No.255(2)dated 05.03.1992 are very much clear and unambiguous. It specificallyprovides the conditions for availing the exemption and the eligible unitshave to fulfill all the conditions stipulated in the parent Entry No.255(2)dated 05.03.1992.3.7 It is submitted that as per the law laid down by this Court incatena of decisions, the provisions of an exemption notification are to beconstrued strictly.

It is submitted that even in the case of any perceivedambiguity, the provision has to be construed in favour of the Revenue. Reliance is placed on the decision of the Constitution Bench of this Courtin the case of Commissioner of Customs (Import), Mumbai Vs.Dilip Kumar and Company and Others,(2018) 9 SCC 1(para 66)as well as another decision of this Court in the case of Union of Indiaand Anr. Etc. Etc. Vs. V.V.F. Limited and Another, Etc. Etc., (2020)SCC Online SC 378(paras 53-55).3.8 It is further submitted by Shri Maninder Singh, learned SeniorAdvocate appearing on behalf of the State that what is weighed with High Court that levy of the purchase tax is hit by the principle ofpromissory estoppel by observing that by the subsequent Notificationsdated 14.11.2000 and 16.01.2002, the State could not have taken therights which are available under the parent Notification dated 05.03.1992.3.9 It is submitted that as such the subsequent Notification dated14.11.2000 can be said to be clarificatory in nature and therefore, conditions provided in the parent Entry No.

255(2) dated 05.03.1992cannot be said to have been affected by subsequent notifications. It issubmitted that as such by the subsequent Notification dated 14.11.2000,the conditions in the original Entry No. 255(2) dated 05.03.1992 havebeen explicitly made clear and as such there is no basic modification ofthe conditions imposed in the parent Entry No.255(2) dated 05.03.1992.It is submitted that both the Notifications dated 05.03.1992 and 14.11.2000 ABCDEFGH737provided the basic condition that the eligible unit shall have to furnish tothe selling dealer a certificate in Form No.26 that the raw materialspurchased shall be used as input in its industrial unit only. It is thereforesubmitted that as such the subsequent Notification dated 14.11.2000 byno stretch of imagination can be said to be modifying the basic conditionsof availing the exemption provided in the parent Entry No.255(2) dated05.03.1992.3.10 It is submitted that as such the clarificatory notification dated14.11.2000 had made it abundantly clear and beyond any pale of doubtthat any such exemption on purchase of raw materials, shall be availableonly to the unit when it is consuming the raw materials for manufactureof goods in the very same unit.

It is submitted that it is a settled positionof law that any such amendment being only clarificatory in nature, appliesto all entities uniformly and from the date of original notification grantingthe exemption itself. Reliance is placed on the decision of this Court inthe cases of Union of India and Anr. Etc. Etc. Vs. V.V.F. Limitedand Another, Etc. Etc. (supra) and Bengaluru DevelopmentAuthority Vs. Sudhakar Hegde and Ors., (2020) 15 SCC 63 (paras32 to 35). It is submitted that therefore the view taken by the High Courtin the impugned judgment that the Notification dated 14.11.2000 wouldapply only to such units, which get established after 14.11.2000 isunsustainable and deserves to be reversed by this Court.3.11 It is further submitted that even the further amended EntryNo.255(2) dated 16.01.2002 can be said to be expanding the scope ofeligibility for availing the exemption. It is submitted that the subsequentEntry No.255(2) dated 16.01.2002 cannot be said to be taking awaysomething what was provided in the parent Entry No.255(2) dated05.03.1992. it is submitted that therefore the High Court has erred inapplying the principle of promissory estoppel to hold that by subsequentnotifications the benefit of exemption under Entry No.255(2) dated05.03.1992 cannot be taken away.3.12 It is further submitted by Shri Maninder Singh, learned SeniorAdvocate appearing on behalf of the State that even the High Court haserred in observing that denying the benefit of exemption under 1992notification would result in denying the respondent – ESL facility of usingthe electricity generated by EPL. It is submitted that the said finding ofthe High Court is patently erroneous and unsustainable.

It is submittedthat as per the settled proposition of law, any tax exemption granted STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH738SUPREME COURT REPORTS[2022] 12 S.C.R.under a statutory provision by the Government is a concession, whichdoes not create any legally enforceable right against the Governmentand the Government is always empowered to vary or withdraw the saidexemption and that the principle of promissory estoppel shall have noapplicability in this behalf. Heavy reliance is placed on the decision ofthis Court in the case of Union of India and Anr. Etc. Etc. Vs. V.V.F.Limited and Another, Etc. Etc. (supra)(paras 40 to 45) and anotherdecision of this Court in the case of Kothari Industrial CorporationLimited Vs. Tamil Nadu Electricity Board and Anr., (2016) 4 SCC134 (paras 10 to 14). It is further submitted that the aforesaid findingsthat to deny the exemption to the respondent – ESL under the parentEntry No.255(2) dated 05.03.1992 would be denying the respondent –ESL the facility of using the electricity generated by EPL is absolutelyerroneous and is unsustainable.

It is submitted that the arrangementbetween the respondent –assessee – ESL and EPL as such has nobearing on the liability of the respondent – assessee to fulfill its taxobligation. It is submitted that even otherwise in the present case, theraw materials – Naphtha and Natural Gas purchased by the eligible unit– ESL though was required to be used by Essar Steel in its own units, the ESL sold the same to the EPL and EPL used the said raw materialsfor generation of electricity, which came to be sold to the ESL under thepower purchase agreement. It is submitted that as submitted hereinabove, the electricity generation companies were as such put in the ‘not eligible’list and, therefore, as such the EPL was not eligible for exemption underparent Entry No.255(2) dated 05.03.1992 and, thus, through the circuitousmethodology or modus operandi, the EPL got the benefit of exemptionthough ‘not eligible’.3.13 In the alternatively, it is submitted by Shri Maninder Singh, learned Senior Advocate appearing on behalf of the State that evenassuming that the subsequent amended Entry No.

255(2) issued vide Notifications dated 14.11.2000 and 16.01.2002 are not to be madeapplicable, which according to the High Court was hit by principle ofpromissory estoppel, in that case also, the respondent – assessee – ESLwas required to satisfy all the conditions, which are provided in the parentEntry No.255(2) dated 05.03.1992, which the ESL failed to fulfill/satisfy.3.14 It is further submitted that in the field of taxation, everyassessment year is an independent year and merely because in the earlierassessment years, some benefit, though was not available, was wrongly ABCDEFGH739given, the same can be corrected in the subsequent assessment yearsand the tax is to be permitted to be levied as per the law. It is submittedthat in the present case, it can be said that though right from the verybeginning, the ESL did not comply with the requisite conditions providedin the parent Entry No.255(2) dated 05.03.1992, still they got theexemption benefit for the period prior to 2000 erroneously.

It is submittedthat that does not take away the right of the State to levy the tax, whichotherwise is permissible under thelaw and which is levied in accordancewith law.3.15 It is further submitted that in the present case, consideringthe modus operandi adopted by the ESL and the EPL and despite beingfully aware of the clear and unambiguous terms of the exemptionnotification and despite the power producing companies were specificallymade ‘ineligible’ for availing the exemption and despite the fact that asper the conditions provided in the parent Entry, the raw materials –Naphtha and Natural Gas were required to be used by the assessee –ESL in its own unit, the raw materials came to be sold to an ‘ineligible’entity – EPL and the ‘ineligible unit’ indirectly/directly got the benefit ofexemption though not entitled to and/or eligible and used the said rawmaterials in their own unit for generation of electricity, the respondent –assessee is liable to pay the penalty in terms of Section 45(5). It issubmitted that therefore the orders passed by the Joint Commissionersetting aside the penalty confirmed by the Tribunal and the High Courtalso deserve to be quashed and set aside.3.16 Making above submissions and relying upon the abovedecisions, it is prayed to allow the present appeals.

It is submitted that evensubsequently, the name of ESIL has been changed to Arcelor MittalNippon Steel India Limited.4.2 It is submitted by Shri Rai, learned Senior Advocate appearingon behalf of the respondent that in the present case there are concurrentfindings in favour of the original writ petitioner - respondent herein byboth, the Tribunal as well as the High Court, whereby it is held that the Essar Steel Ltd. is eligible for exemption under the parent Entry No.255(2)vide F.D.’s Notification dated 05.03.1992. It is submitted that there areconcurrent findings by the Tribunal as well as the High Court that thesubsequent amended Entry No.255(2) issued vide GovernmentNotifications dated 14.11.2000 and 16.01.2002 are not applicable to therespondent and accordingly the question of imposition of penalty wouldnot arise. It is submitted that even otherwise in absence of any malafides proved on the part of the respondent, there shall not be any levy ofpenalty.4.3 It is submitted that the respondent made eligible investment inits first unit (Unit No.

1) pursuant to the Resolution dated 07.05.1986issued by the Industries, Mines and Energy Department of the Government of Gujarat, and, therefore, was certified as entitled to availincentives during the eligible period from 01.08.1990 to 31.07.2004 up toupper monetary limit of Rs.237.59 crores. It is submitted that, thus, theinvestment made in Unit No. 1, started manufacturing HBI for whichsales tax exemption incentives were admissible under Entry 118 of thenotification issued by the Government of Gujarat under Section 49(2)ofthe Gujarat Sales Tax Act, 1969.4.4 It is submitted that on 26.07.1991, the State of Gujarat by wayof a resolution announced a Scheme known as “The Scheme for SpecialIncentives to Prestigious Units, 1990-95 (Modified)” for attractinginvestment in core sector industries. Pursuant to the aforesaid scheme, the respondent undertook investment of approximately Rs.5,000 croresfor the manufacture of HRC in its second unit (Unit No.

2) and it wasentitled to incentives during the eligible period from 22.02.1993 to21.02.2007 up to the monetary limit of Rs. 2050 crores. It is submittedthat for Unit No. 2 as an eligible unit, the respondent was entitled to ABCDEFGH741exemption under Entry 255 of the Notification issued by the Governmentof Gujarat under Section 49(2) of the Act, 1969.4.5 It is further submitted that the respondent, in accordance withthe eligibility certificate and the exemption granted as aforesaid, availedexemption from payment of purchase tax and sales-tax. It is submittedthat as such the respondent had always intended to install a captivepower plant up to 200 MW, but due to the requirement of the appellant-State, a separate power plant was commissioned by Essar Power Limited,a group company of erstwhile Essar Steel India Limited. It is submittedthat on commissioning of Unit No. 2, Natural Gas and Naphtha purchasedby the respondent – Essar Steel Ltd. against declarations in Form No.26were converted into electricity through Essar Power Limited and utilizedas an input for the purpose of manufacturing HRC in the industrial unitof the respondent – ESL. It is submitted that this was done by nature ofa job-work arrangement and after complying with all the necessarystatutory formalities from 1994-95.4.6 It is submitted that the respondent was/is duly eligible underthe parent Entry No.255(2)/parent Notification dated 05.03.1992to seekexemption from payment of the purchase tax.

It is submitted that eventhe Commissioner of Sales Tax in its earlier order dated 16.8.2002 andthereafter by the Assessing Officer in the assessment orders for the Assessment Years 1995-1996 to 1997-1998 and 2000-2001 also allowedand/or permitted the respondent-Essar Steel Ltd. to avail the exemptionunder parent Entry No.255(2) dated 05.03.1992. It is submitted that inthe present case, even for the subsequent Assessment Years also the Tribunal as well as the High Court have also held that the respondent-Essar Steel Ltd. was/is entitled to the exemption from payment ofpurchase tax as per parent Entry No.255(2) dated 05.03.1992.4.7 It is submitted that as such and even as observed and held bythe High Court, the respondent – ESL met with the conditions prescribedunder original parent Entry No.255(2) dated 05.03.1992 and so at therelevant time, it was granted the benefit of the Scheme. It is submittedthat as such the respondent –ESL was granted the exemption underparent Entry No.255(2) dated 05.03.1992 for the Assessment Years priorto 14.11.2000.4.8 It is submitted that as such the respondent – ESL fulfilled/complied with all the eligibility criteria/conditions required to avail theexemption under the first/parent Entry No.255(2) dated 05.03.1992.

It is STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH742SUPREME COURT REPORTS[2022] 12 S.C.R.submitted that eligibility criteria to avail the exemption under the first/parent notification was that the goods so purchased must be used in theunit and anywhere within the State of Gujarat. It is submitted that theconditions mentioned in the first/parent notification does not restrict theuse of goods in the eligible unit, but on the contrary, it provides for useanywhere within the State of Gujarat. It is submitted that even as perthe condition No.6, the eligible unit was permitted to actually use thegoods purchased within the State of Gujarat as raw materials.4.9 It is therefore submitted that when the goods were transferredto Essar Power Limited, which is situated within the State of Gujarat forconversion to electricity, on job-work basis and the power so generatedwas used in the manufacturing of goods by the respondent –Essar Steel, the conditions set out in the first/parent notification stood fully satisfied.

It is submitted that the Scheme under the first/parent notification neverenvisaged or provided for use of goods in the same form in which theywere purchased. It is submitted that in the present case, Naphtha and Natural Gas purchased, were used in the form of power in Unit No. 2and, therefore, there was no breach of declarations given in Form No.26for purchase of these goods.4.10 It is submitted that as per the settled law, while decidingwhether an entity is entitled to incentives, a strict interpretation of theprovisions should be made. However, after accepting that an entity isentitled to the incentives, when determining any questions arising quathe scope of the incentives, a liberal approach should be adopted. Relianceis placed on the decision of this Court in the case of AssistantCommissioner (CT) LTU and Anr. Vs. Amara Raja BatteriesLimited, (2009) 8 SCC 209.4.11 It is submitted that admittedly, the respondent’s Unit No.2was eligible to get the exemption prior to the second notification.

Theappellant - State did not raise any objection, nor did they levy any taxliability prior to the second notification. It is submitted that rather videletter dated 16.08.2002 issued by the Commissioner of Sales Tax, theappellant – State confirmed that there has been no breach by therespondent. It is submitted that therefore, once the Unit No.2 was foundto be eligible under the parent notification, unless it changed its modusoperandi, it ought to have been given the exemption under the first/parentnotification. ABCDEFGH7434.12 It is further submitted that it was never the case on behalf ofthe State that the respondent was in breach of the first/parent notification. It merely alleged that the conditions as substituted under secondnotification have been violated. It is submitted that therefore it isimperative to assess if the second and third notifications were at allapplicable to the respondent – Essar Steel Ltd.4.13 It is submitted that in any event the first/parent notificationalso stated that “if the eligible unit fulfills the conditions specifiedhereunder and further conditions as may be laid down from time to time”.It is submitted that while the appellant State may further add to theconditions provided under the first/parent notification, such furtheradditional condition could not be in effect to alter/amend the originalcondition, i.e., the goods are to be used within the State of Gujarat.4.14 It is submitted that by the second notification, the originaleligibility condition was amended and the requirement of use within the State of Gujarat was changed to within the industrial unit for which theeligibility certificate was obtained.

It is submitted that this change in theoriginal condition was not permitted since the first/parent notificationonly stipulated imposition of additional conditions and did not envisagean amendment of the original condition.4.15 It is further submitted that the second notification would beapplicable only for the industries that were setup after 14.11.2000. It issubmitted that the first notification was issued pursuant to the incentiveScheme. It is submitted that in terms of the said Scheme, the respondentwas entitled to incentives during the eligible period from 22.02.1993 to21.02.2007 up to the monetary limit of Rs. 2050 crores if the conditionsprevalent at the time of grant of the incentives were met.4.16 It is submitted that a conjoint reading of the Scheme alongwith the first notification would indicate that the State invited industriesto invest in its State by offering incentives, which once granted would bevalid for a fixed period i.e., till 21.02.2007 in case of the respondent, subject to the eligibility conditions being met.

It is submitted that the firstnotification only stipulated imposition of additional conditions which hadto be complied with by the eligible entities.4.17 It is further submitted that the third notification by which theparent Entry No.255(2) dated 05.03.1992came to be amended, furtherprovided that eligible unit could claim exemption from purchase tax on STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH744SUPREME COURT REPORTS[2022] 12 S.C.R.purchases of goods even if the goods are used as raw materials, packingmaterials, consumable stores in its industrial unit for which it had obtainedthe eligibility certificate for the manufacture of goods for dispatch to itsanother unit or division situated within the State of Gujarat for use in themanufacture of another goods for sale by such another unit or divisionor to such another unit or division situated outside the State for use in themanufacture of other goods for sale by such other unit.4.18 It is submitted that the Scheme and the first notification asinitially enacted permitted the use of Natural Gas and Naphtha forgeneration of electricity outside the unit when the electricity was used inthe eligible unit as was accepted in the assessment orders for thepreceding years.

Similarly, the amendments made vide third notificationpermit the use of purchased goods in the manufacture of goods in theunit, for transfer to other unit as well, within or even outside the State of Gujarat for use in the manufacture of other goods. It is submitted that, thus, pursuant to the amendment, use of the goods even in other unitwithin or outside the State of Gujarat has been permissible.4.19 It is submitted that therefore when the notification initiallyenacted on 05.03.1992 and amended vide third notification w.e.f.16.01.2002 permitted the use of goods outside the unit, it cannot be saidthat only for a short intervening period between 14.11.2000 to 15.01.2002,the Government had different intentions to restrict the use entirely in theeligible unit only and that the conditions under the Scheme which grantedincentives for a tenure of 14 years would be changed on yearly basis.4.20 It is submitted that the scheme never envisaged or providedfor use of goods in the same form in which they were purchased, and Naphtha and Natural Gas purchased by the respondent were used in theform of power in Unit No.

2 and, therefore, there was no breach ofdeclarations given in Form No. 26 for purchase of these goods.4.21 It is further submitted that even otherwise any amendmentmade to the original eligibility condition, would be prospective in natureand applicable only to fresh industrial units/entities which would becomeeligible after 14.11.2000. The amended notification would not be applicableon industries that were setup pursuant to, and eligible under the firstnotification and whose rights had crystallised for 14 years under the firstnotification.4.22 It is submitted that as such the respondent – Essar Steel hasnot committed any breach of declarations given in Form No. 26. Merely ABCDEFGH745because Natural Gas and Naphtha were used for generation of electricitythrough EPL, which was ultimately used in the eligible unit, the respondent– ESL cannot be said to have breached the given conditions.4.23 It is submitted that even assuming that the second and thethird notificationswere applicable to the respondent – ESL, the amendedcondition does not require “direct” use of purchased goods in the unitand therefore even when Natural Gas/Naphtha after conversion intoelectricity is used in the unit, the condition is satisfied.

It is submitted thatthere are concurrent findings of fact both, by the High Court and the Tribunal that there is no diversion of the fuel purchased by the respondent-ESLat a concessional rate, and the same was given to EPL only for alimited purpose for conversion to electricity and was thereafter used bythe respondent – Essar Steelin its manufacturing process.4.24 It is further submitted by Shri Rai, learned Senior Advocateappearing on behalf of the respondent – ESL that even otherwise thedemand of the purchase tax was barred by the Rule of promissoryestoppel and legitimate expectation as observed and held by the Tribunalas well as by the Hon’ble High Court.4.25 It is submitted that the respondent invested a sum of Rs.5000crores for the manufacture of HRC in its Unit No. 2 by relying upon theincentives provided by the appellant-State. The said incentive providedin the Scheme and the first notification imposes a condition that thegoods purchased by the eligible entity would be used by it within the State of Gujarat as raw materials, processing materials or consumablestores in the manufacture of goods to be sold by the eligible entity.

It issubmitted that therefore thereafter the State is estopped from amendingthe conditions required to be met for obtaining the incentives, since therespondent acted upon the assurance of the State that as long as it metthe conditions, it would be eligible for receiving exemptions for a fixedamount of time as contemplated under the Scheme.4.26 It is submitted that based on the assurance of the State, therespondent had changed its position irretrievably by making hugeinvestments in Unit No. 2 and by entering into various agreementsincluding the one with Essar Power Limited for supply of electricity. It issubmitted that therefore the Hon’ble High Court and the Tribunal werecorrect in invoking the principle of promissory estoppel as a rule ofevidence to recognize the crystallised rights of the respondent. STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH746SUPREME COURT REPORTS[2022] 12 S.C.R.4.27 It is further submitted that even otherwise in any case theimposition of penalty by the State upon the respondent is illegal andwithout any basis in law.

It is submitted that (a) the respondent has notbreached the conditions as stipulated in the first notification; (b)the secondand the third notifications are not applicable to the respondent and; (c)even assuming that the second and third notifications are applicable tothe respondent, the conditions therein have not been breached by therespondent, the question of imposition of penalty would not arise.4.28 It is further submitted that even otherwise, the State hasmechanically imposed the penalty, at the maximum rate of 150%, withoutany application of mind or adjudication. It is submitted that therefore, theimposition of penalty without appreciating the factual circumstancessurrounding the dispute is arbitrary, unjust, and illegal, and therefore the Tribunal as well as the Hon’ble High Court has rightly set aside theimposition of penalty.4.29 It is further submitted that as held by this Court in severaljudgments the imposition of penalty is the result of a quasi-criminaladjudication.

Reliance is placed upon the decision of this Court in Hindustan Steel Ltd. Vs. State of Orissa, (1969) 2 SCC 627andExcel Crop Care Limited Vs. Competition Commission of Indiaand Anr., (2017) 8 SCC 47.4.30 It is submitted that in the facts of the present case therespondent had been under a genuine bona fide belief that it was eligibleto claim exemption under the first notification based on the declarationmade in Form No. 26 and that the amended notifications would not governthe respondent since the incentives had been assured under the Schemefor a fixed period of time and such belief of the incentive was alsoupheld by the letter dated 16.08.2002 issued by the Commissioner of Sales Tax, which confirmed that there has been no breach by therespondent and that the State has not made out a case of mala fideintention or willful and deliberate contravention of the statutory provisionsby the respondent, there is no justification at all for levy of the penalty.4.31 Making above submissions, it prayed to dismiss the presentappeal.

While answering the aforesaid questions, the original EntryNo.255(2) vide Notification dated 05.03.1992 and the subsequentamended Entry No.255(2) amended by Notifications dated 14.11.2000and 16.01.2002 and the conditions/eligibility criteria mentioned in thesaid notifications are required to be referred to, which read as under:-1. Original Entry No.255 (2) vide F.D’s Notification dated05.03.1992.Entry No. Class of Sales of Purchases Conditions 255 (2) Sale or raw materials, processing materials, consumable stores or packing materials by a registered dealer to an eligible unit. (1) If the eligible unit furnishes to the selling dealer a certificate in Form 26 appended hereto declaring inter alia that the goods are required for use by him within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or as packing materials in packing of the goods so manufactured.

(2) If the eligible unit fulfils the conditions specified hereunder and further conditions as may be laid down from time to time. STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH748SUPREME COURT REPORTS[2022] 12 S.C.R.Conditions:-6. The eligible unit shall actually use the goods purchased withinthe State of Gujarat as raw materials, processing materials orconsumable stores in the manufacture of goods for sale withinthe State of Gujarat or outside the State of Gujarat or as packingmaterials in the packing of the goods so manufactured.2. Amendments in Entry No.255(2) vide GovernmentNotification dated 14.11.2000Entry No. Class of Sales of Purchases Conditions 255 (2) Sale or raw materials, processing materials, consumable stores or packing materials by a registered dealer to an eligible unit. (1) If the eligible unit furnishes to the selling dealer a certificate in Form 26 appended hereto and obtained from the registering authority, declaring inter alia that the goods shall be used by it as raw materials, processing materials or consumable stores in its industrial unit for which it has obtained the eligibility certificate in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of goods so manufactured.

Conditions:6. The eligible unit shall actually use the goods purchased as rawmaterials, processing materials or consumable stores in its industrialunit for which it has obtained the eligibility certificate in themanufacture of goods for sale within the State of Gujarat or outsidethe State of Gujarat, or as packing materials in the packing ofgoods so manufactured. (c) In Form 26, for the words “within the State of Gujarat” thewords “in the industrial unit for which the eligibility certificate hasbeen obtained” have been substituted.3. Amendment in Entry No.255(2) vide GovernmentNotification dated 16.01.2002. ABCDEFGH749Entry No. Class of Sales of Purchases Conditions 255 (2) Sale or raw materials, processing materials, consumable stores or packing materials by a registered dealer to an eligible unit. (1) Insertion of condition (IA) after condition (I) or (IA) If the eligible unit furnishes to the selling dealer a certificate in Form 26 appended hereto and obtained from the registering authority, declaring inter alia that the goods shall be used by it as raw materials, processing materials or consumable stores in its industrial unit for which it has obtained the eligibility certificate, in the manufacture of goods for dispatch to its another unit or division situated within the State for use in the manufacture of another goods for sale by such another unit or division or to its another unit or division situated outside the State for use in the manufacture of other goods.

(b) Insertion of condition 6(A) after condition 6(6A) The eligible unit shall actually use the goods so purchasedas raw material, processing material or consumable stores in itsindustrial unit for which it has obtained the eligibility certificate, inthe manufacture of goods, which are dispatched to its anotherunit or division situated within the State for use in the manufactureof other goods for sale by such another unit or division or to itsanother unit or division situated outside the State for use in themanufacture of other goods.

In case such conditions are not fulfilled, the issue ofapplication of the notification does not arise.14.2 It is settled law that the notification has to be read as awhole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. An exceptionand/or an exempting provision in a taxing statute should be construed STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH754SUPREME COURT REPORTS[2022] 12 S.C.R.strictly and it is not open to the court to ignore the conditions prescribedin industrial policy and the exemption notifications.14.3 The exemption notification should be strictly construed andgiven meaning according to legislative intendment. The Statutoryprovisions providing for exemption have to be interpreted in the light ofthe words employed in them and there cannot be any addition orsubtraction from the statutory provisions.14.4 As per the law laid down by this Court in catena of decisions, in the taxing statute, it is the plain language of the provision that has tobe preferred, where language is plain and is capable of determiningdefined meaning.

Strict interpretation to the provision is to be accordedto each case on hand. Purposive interpretation can be given only whenthere is an ambiguity in the statutory provision or it alleges to absurdresults, which is so not found in the present case.14.5 In the present case, the intention of the State to provide theincentive under the incentive policy was to give benefit of exemptionfrom payment of purchase tax was to the specific class of industriesand, more particularly, as per the list of ‘eligible industries’. Exemptionwas not available to the industries listed in the ‘ineligible’ industries. Itwas never the intension of the State Government while framing theincentive policy to grant the benefit of exemption to ‘ineligible industries’like the power producing industries like the EPL, which as such was putin the list of ‘ineligible’ industries.14.6 Now, so far as the submission on behalf of the respondentthat in the event of obscure in a provision in a fiscal statute, constructionfavourable to the assessee should be adopted is concerned, the saidprinciple shall not be applicable to construction of an exemptionnotification, as it is clear and not ambiguous.

Thus, it will be for theassessee to show that he comes within the purview of thenotification. Eligibility clause, it is well settled, in relation to exemptionnotification must be given effect to as per the language and not to expandthe scope deviating from the language. There is a vast difference anddistinction between a charging provision in a fiscal statute and anexemption notification.

Even as per the original Entry No.255(2) dated 05.03.1992 and even asper the Form No.26 appended thereto, the eligible unit was required toactually use the raw materials purchased. In the subsequent notification, it is made explicitly clear that the raw materials so purchased are to beused by the eligible unit in its industrial unit. Therefore, the basicrequirement that the eligible unit has to actually use such raw materialspurchased by him is in no way modified and/or amended. On the contrary, the subsequent amended Entry No.255(2) dated 14.11.2000 can be saidto be expanding the scope of eligibility as it was. Earlier the eligible unitwas required to actually use the goods purchased within the State of Gujarat and as per the subsequent amended Entry No.255(2) dated14.11.2000 even if such goods are used by it outside the State of Gujaratin that case also such eligible unit was held to be eligible for exemption.

Even as per the condition No.6 in the amended Entry No.255(2) dated14.11.2000, it is specifically mentioned that the eligible unit shall actuallyuse the goods purchased, which was the requirement in the first notificationalso. Therefore, the subsequent amended Entry No.255(2) videnotification dated 14.11.2000 can be said to be clarificatory and/orexpanding the scope of eligibility, but in no case, it can be said to betaking away any right under the original Entry No.255(2) dated05.03.1992.

ESL had furnished wrong and false declarations. In the originalnotification/entry, it was not provided that even if the raw materials sopurchased is not used by itself after availing the exemption, the samecan be sold to another entity, which is ‘ineligible’ industry. It did notprovide that in such a situation also and despite the fact that raw materialis not actually used by the eligible unit, which was required to be usedeven as per the declaration in Form No.26, such eligible unit shall beentitled to the exemption. No such promise was given. The wordingsand the language used in the exemption notifications are very clear, simple STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH758SUPREME COURT REPORTS[2022] 12 S.C.R.and unambiguous. Therefore, when there was no such promise and/orrepresentation, the demand cannot be said to be hit by the principle ofpromissory estoppel as observed and held by the Tribunal as well as the High Court in the impugned judgment and order.20.2 The doctrine of promissory estoppel is an equitable remedyand has to be moulded depending on the facts of each case and notstraitjacketed into pigeonholes.

In other words, there cannot be any hardand fast rule for applying the doctrine of promissory estoppel but thedoctrine has to evolve and expand itself so as to do justice between theparties and ensure equity between the parties. In the present case, theprinciple of promissory estoppel shall not be applicable.20.3 In taxing matters, the doctrine of promissory estoppel assuch is not applicable and the Revenue can take a position differentfrom its earlier stand in a case with established distinguishing features.[See Commissioner of Central Excise, Bangalore – 1 Vs. BalPharma Limited, Bangalore and Ors., (2011) 2 SSC 620].20.4 The rules of promissory estoppel and estoppel by conductmay not be applied to alter or amend the specific terms and againststatutory provisions. All the terms and conditions contained in theexemption notification shall prevail and the person claiming the exemptionhas to fulfil and satisfy all the eligibility criteria/conditions mentioned inthe exemption notification.

This is a case of deliberate violation and evil doing.23.1 In the present case, as the difference between total tax paidand the purchase tax is more than twenty-five percent, the respondent isdeemed to have failed to pay the tax as per sub-section(5) of Section 45and, therefore, liable to pay the penalty not exceeding one and one-halftimes. The words used in sub-section (6) of Section 45 is “there shall belevied on such dealer a penalty not exceeding one and one-half times thedifference”. As noted above, in the present case, the modus operandiwhich was adopted by the respondent – Essar Steel warrants a penalty. Though, the raw material was required to be used by itself for themanufacture of their goods, after availing the exemption as eligible unitand instead of using the same for itself/himself, the ESL sold the raw STATE OF GUJARAT v. ARCELOR MITTAL NIPPON STEELINDIA LIMITED [M. R. SHAH, J.] ABCDEFGH760SUPREME COURT REPORTS[2022] 12 S.C.R.materials to an‘ineligible’ entity – EPL, who used it for manufacture ofits own goods – generating the electricity, which again came to be soldto ESL under the power purchase agreement.23.2 As observed hereinabove, as such the EPL, under theincentive scheme, was not eligible at all for exemption from payment ofpurchase tax as in fact power generating companies were put in the listof ‘ineligible industries’. Therefore, by such a modus operandi, the benefit, which was not available to the EPL was made available by such transferof raw materials by the Essar Steel Ltd. to Essar Power Limited.

Asobserved hereinabove, there is a breach of declaration in Form No.26also. Therefore, in the facts and circumstances of the case, the levy ofpenalty is justified and warranted. The Joint Commissioner, the Tribunalas well as the High Court have committed a grave error in quashing andsetting aside the penalty imposed by the Assessing Officer.