Holding

The classification in para 2.18 of the 1989 policy, restricting sales‑tax deferment/exemption to units that went into production after 1 April 1986, is a valid, non‑arbitrary classification and does not violate Article 14.

Summary

Orissa Sponge Iron Ltd., which invested under the 1980 industrial policy and began production on 1 April 1984, sought deferment/exemption of sales tax under the 1989 policy. The 1989 policy, via para 2.18, limited such benefits to "continuing units of 1980 policy" that went into production after 1 April 1986, thereby excluding the appellant. The company argued that this classification violated Article 14, was a drafting mistake, and that the 1989 scheme was merely a continuation of the 1980 scheme, invoking Nakara and seeking relief under Article 142. The Supreme Court held that the cut‑off date was a rational classification, not a mistake, that the 1989 policy was a new scheme (so Nakara did not apply), and that no extraordinary relief under Article 142 was warranted. Consequently, the appeal was dismissed.

Issues considered

The validity of the cut‑off date (1 April 1986) in para 2.18 of the 1989 policy under Article 14 of the Constitution.
Whether para 2.18 contains a drafting mistake.
Whether the 1989 policy is a continuation of the 1980 policy, making Nakara v. Union of India applicable.
Whether relief can be granted under Article 142 of the Constitution.

Legislation cited

Constitution of Indias. Article 14, s. Article 142
Orissa Sales Tax Act, 1947s. 7

Subjects

Article 14Article 142sales tax exemptionindustrial policyclassificationdiscriminationOrissa Sales Tax Actdefermentcut‑off datetax law

Judgment

ORISSA SPONGE IRON LTD. AND ANR. A
v.
STATE OF ORISSA AND ORS.

DECEMBE~ 9, 1997

[S.C. SEN AND M. JAGANNADHA RAO, JJ.) B

01issa State Industlial Policy Resolution, 1989: Para 2. 18.

.Sales Tfil-Defennent/Exemption-Old and new industlial unit~Dis
climination between-1989 Policy and Notification dated 16.8.1990 extended C
benefit of defennent/exemption of sales tax to industlial units which had gone
into production after 1.4.1986 and denied the same to units which went into
production earlie1-Held: Such di.mimination between old and new units is
based on good and valid reasons and not hit by A1t. 14-0lissa Sales Tax,
·Act, 1947, S. 7-0iissa State lndustlial Policy, 198(}-{)iissa State Indust1ial D
Policy, 1986--0rissa State Govemment Notification SRO 790 of 1990
(Finance) dated 16.8.1990-Constitution of India, 1950-Ait. 14. ·

Sales Tm.-Defennent/Exemption-Cut-off date-Validity of-Benefit
of defe1111ent/exemption extended to those continuing units of 1980 which had
gone into production after 1.4.1986--Held, fv:ing of cut-off date not bad as E
the 1989 policy was a new policy and not a continuation of the 1980
policy-01issa Sales Tax Loan Scheme Rules, 1980.

Sales Ta.x-Defennent/Exemption-Para 2.18--Use of words "after
1.4.1986''-Held: Cannot be presumed to be a mistake ·by the draftsman.
F
Constitutio11 of India, 1950: A1ticle 142.

Relief-Indust1ial unit seeking benefit of 01issa State I11dust1ial Policy
Resolution, 1989-Such indusuial u11it had no case 011 merits-{]11der the
circumstances, relief u11der A1t. 142 refused.
G
The appellant-Company availed of the incentive of interest-free loan
for sales tax paid under the Orissa State Industrial Policy, 1980 when it
went into commercial production with effect from 1.4.19~4.- The ' State
Governmen.t introduced a new policy w.e.f. 1.4.1986, which provided for
deferment/exemption from sales tax but the benefit thereof could not be H
299
300 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.
A availed of by the continuing units of 1980 whether they had gone into
production before or after 1.4.1986. However, in the Industrial Policy
Resolution of 1989, the units of 1980 policy, which went into production
after 1.4.1986, were granted benefit of deferment/exemption of sales tax.
Being aggrieved the appellant filed a writ petition before the High Court
B contending that the definition of 'continuing units of 1980' in para 2.18 of
the 1989 policy was violative of Article 14 of the Constitution. Hence this
appeal.

On behalf of the appellants it was contended that the words in para
C 2.18 of the 1989 policy "after 1.4.1986" must be a drafting mistake; that the
cut-off date of 1.4.1986 must be declared as bad because the 1989 scheme
could not be treated as a new scheme, but was a continuation of the 1980
scheme; that the classification of units into two groups, those which went
into production before 1.4.1986 and those which went into production after
1.4.1986 was violative of Article 14 of the Constitution; and that since tlie
D appellant was the only unit before this Court, this Court should grant
relief under Article 142 of the Constitution.

Dismissing the appeal, this Court

E
HELD : 1.1. The deferment/exemption Notification dated 16.8.1990
under Section 7 of the Orissa Sales. Tax Act, 1947 classifies the medium
and large-scale units of the Orissa State Industrial Policy Resolution, 1989
(entitled to deferment) into three types of which the category at Serial No.
3 thereof is relevant in this case. Under the Orissa State Industrial Policy,
F 1980, where units have made investments after 1.8.1980, there could be
three types of units firstly, those which made investment after 1.8.1980 but
which, like the appellant, went into production before 1.4.1986 : secondly,
those units which made investments after 1.8.1980 and before 1.4.1986 but
had gone into production after 1.4.1986 and before 1.12.1989; thirdly, those
G units which made investments after 1.8.1980 and before 1.4.1986 but which
had gone into production after 1.12.1~89. Now, out of these three types,
only the second and third, were made eligible to take benefits of column 3
of Serial No. 3 and not the fim type. Units of type two and three alone were
permitted to surrender benefits of 1980 policy and come under the 1989
H policy as per para 7.3.2 of the 1989 policy. [311-B-C; 312-C-F]
ORISSA SPONGE IRON LTD. v. STATE 301

i.2. The 1989 policy extended the benefit of deferment/exemption of A
sales tax under serial No. 2 to the new units of the 1986 policy, which went
into production after 1.4.1986. It also extended its benefits under Serial No.
3 to the second and third types of units of the 1980 policy where the
investment was made after 1.9.1980 and before 1.4.1986. Obviously, the
Government which is the delegated authority, felt that in all these cases, B
i.e. those falling under the 1986 policy and type two and three of the 1980
policy, the common factor was the factum of production after 1.4.1986.
Such a common treatment, in fact, ought to have been brought into being
even when the 1986 policy was introduced. The State realised, when it came
to the 1989 policy, that so far as types two and three of the 1980 policy were C
concerned, where also the production was after 1.4.1986, those units were
entitled to the same benefits of deferment/exemption as the new 1986 units.
Obvionsly, the first type of unit under the 1980 policy where even though
the units made investment after 1.8.1980 and before 1.4.1986 the unit had
gone into production before 1.4.1986, could not and would not fit into such
a scheme. At the same time, if the benefit of deferment/exemption which D
came into being for the new units under the 1986 policy was m~t extended
to the second and third type of units of the 1986 policy, both of which went
into production after 1.4.1986, then perhaps there was a good case for a
plea by the second and third type of units of 1980 policy to contend that
they were being discriminated against as compared to the new units of 1986 E
policy. So far as the first type of unit of the 1980 policy, where the
investment was between 1.9.1980 and 1.4.1986 but where the unit (like the
appellant) had gone into production before 1.4.1986, those units could not,
therefore, stand comparison with the new units of 1986 policy, the second
and third type units of the 1980 policy - for the date of production by latter F
units was a date on or after 1.4.1986. After all, the principle of defer-
ment/exemption was introduced only under the 1986 policy and was con-
tinued under the 1989 policy and there was nothing wrong in extending
benefits to type two and three of the 1980 policy so as to avoid discrimina-
tion as far as possible, between them and the new units of 1986 policy.
G
[312-G-H; 313-A-G]

13. It was for the policy-maker to consider whether he should not
allow the older units to get be?efits of sales tax, which they were proposing
to give to new units. If they felt that units which were already established
at lesser cost and which got well stabilised, should not be allowed to have H
302 SUPREME COURT REPORTS [1997) SUPP. 6 S.C.R.

A any advantages over new industries, then such a classification would be
perfectly valid. (315-8)

Bharat General and Textile Industries Ltd. v. State of Maharashtra,
(1989) Suppl. 1 SCC 153 and Mohd. Jabbar Malik Lasjan v. State of J. & .
K., [1994) Supp. 3 SCC 24, relied on.
B
2.1. The argument that units of the second and third type under the
1990 policy did not go into production before 1.4.1986 only on account of
bad planning or inefficiency could not, be accepted. There could be a
variety of factors like • increase in cost construction, machinery, the
C comparative backwardness of the area, administrative delays or labour
problems • as to why some units could not go into production before
1.4.1986. (315-C-D]

2.2. It is well settled that the State has greater latitude in taxation
matters and in particular, in the grant of sales tax exemptions. [315-D]
D
Kera/a Hotel and Restaurant Associations v. State of Kera/a, (1990) 2
SCC 502 and P.M. Aswathanarayana Setty v. State of Kamataka, [1989)
Suppl. 1 SCC 696, relied on.

3. Para 2.18 of the 1989 pnlicy and the corresponding provisions of
E the Notification SRO 790/90 (Finance) dated 16.8.1990, insofar as they
extended the benefit of the 1989 policy only to the continuing units of 19811
policy which had gone into production after 1.4.1986, the said classification
is valid and is not hit by Article 14 of the Constitution of India. (316-A-B]

4.1. A reading of the 1989 policy shows that it is a new policy and not
F a continuation of the 19811 policy. It is clearly stated in para 732 that
unless a unit of 1980 policy which had taken advantage of the said 19811
policy surrenders the interest-free loan received by it the said units cannot
opt to come under the 1989 policy. Further, while the 19811 policy was for
granting interest-free loan as per the provisions of the Orissa Sales Tax
G Loan Scheme Rules, 19811 • to cover sales tax already paid, the 1989 policy
dealt with grant of "defennent/exemption" of sales tax duties as specified in
the Notification under Section 7. [309-D-F]

D.S. Nakara v. Union of India, (1983) 1 SCC 305, held inapplicable.

H 4.2. What was done under the 1989 policy was to bring uniformity of
ORISSA SPONGE IRON LTD. v. STATE [M. JAGANNADHA RAO, J.] 303

approach in the deferment/exemption scheme and avoid discrimination A
between units, which were similarly circumstanced, as far as possible.
Therefore, it has to be held that the cut-off date of 1.4.1986 has ample
significance and the exclusion of type one of the 1980 scheme to which
category the appellant belonged and the inclusion of the second and third
type of units of the 1980 scheme into the 1989 scheme was for good and B
valid reasons. [313-G-H; 314-A]

5. The appellant's contention that there was a mistake in para 2.18
of the 1989 policy by the draftsman in using the words "after 1.4.1986" has
absolutely no basis. This Court cannot presume any such mistake.
[309-A-B] C
6. The appellant's contention that it was the only industry, which has
come up to this Court seeking the benefit of 1989 policy, and, therefore, in
the interest of justice this Court should exercise its powers under Article
142 of the Constitution is not acceptable. The appellant has no case on
merits and even otherwise, this is not a fit case for grant of any relief under D
Article 142 of the Constitution. [316-C]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8580 of
~·
1997.

From the Judgment and Order dated 14.5.96 of the Orissa High E
Court in O.J.C. No. 4056 of 19~5.

Shanti Bhushan, D. Manda!, Ms. Sangeeta Manda! and Naideep
Gupta for the Appellants.

H.N. Salve, Ms. Kirti Mishra and Preetesh Kapur for the Respon- F
dent.

The Judgment of the Court was delivered by

M. JAGANNADHA RAO, J. Leave granted.

This Civil Appeal is directed against the judgment of the Orissa High G
Court in O.J.C. No. 4056/1995 dated May 14, 1996 dismissing the writ
petition filed by the appellants. The appellants are aggrieved by the In-
dustrial Policy Resolution of 1959 of the S~ate of Orissa which came into
force from 1.12.1989 insofar as it restricted the benefit of deferment/ex-
emption of sales-tax to industries which had gone into commercial produc- H
304 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.
A tion after 1.4.1986 and denied such benefit to those which had gone into
production before 1.4.1986. The industrial policy of 1989 in this behalf was
notified by the Orissa Government under S.R.O. No. 790/90 (Finance)
dated 16.8.1990 issued under Section 7 of the Orissa Sales tax Act w.e.f.
1.12.1989 to which we shall refer in detail later, we are concerned with
B medium and Large - Scale Industrial units.

The appellant-Company was incorporated on 9.4.1979 for manufac-
ture of Sponge Iron in the District of Kedhanar in the State of Orissa. The
land was acquired and purchased on 4.4.1980 and the appellant proceeded
to construct the factory. It went into commercial production w.e.f. 1.4.1984.
c The Industrial Policies in the State of Orissa with whic4 we are
concerned in this appeal are three policies, (i) the Policy of 1980, (ii) the
policy of 1986 and (iii) the Policy of 1989. .
r
(I) 1980 POLICY: interest-free loan for Sales tax paid.
D
In the Industrial Policy of 1980 which came into effect from 1.8.1980
it was stated that Large and Medium industries would be entitled to
reimbursement of entire cost of preparation of project/feasibility report
subject to a certain maximum if a 25% cost is initially deposited and if the
E reports are obtained from approved agencies. Otherwise reimbursement
would be after implementation of project. These industries, whether new
on intending to expand or diversify shall be eligible for interest-free Sales-tax
loan equivalent to the Sales-tax paid within the State by the units during
the first five years subject to an annual maximum limit of 10 per cent of
the capital invested but not exceeding Rs. 20 lakhs per year. The loan shall
F be repaid after 10 years of each year's drawal. The Policy deals with various
other benefits given to Large and Medium Industries not only in regard to
Sales-tax but in regard to electricity's charges, etc.

The appellant availed of the above-said Sales-tax incentives when it
G went into commercial production with effect from 1.4.1984. In other words,
the appellant was entitled to an interest-free Sales-tax loan as per the 1980
Policy for a period of 5 years subject to an annual maximum limit of 10 per '
cent of the capital invested but not exceeding Rs. 20 lakhs per year and
the said loan could be repaid after 10 years or each year's drawal.

H (II) 1986 POLICY: Defennent of Sales Tax/Exemption.
ORISSASPONGE IRON LTD. v. STATE [M. JAGANNADHARAO,J.] 305

Government of Orissa came forward with a new Policy in 1986. A
Under definition A, the State is divided into Zones A, B and C w.e.f.
1.4.1986. The effective date as per definition (D) under the said Policy was
1.4.1986, being the date from which the incentives available under the
Industrial Policy Resolution of 1980 and other relevant Policy Resolutions
would cease to be operative except for the continuing industries to which the B
1980 Policy applied. It was further stated that continuing industries of 1980
policy are those which have made any laizd of investment before the effective
date or have availed themselves of any ince11tiye on facility under the
Industrial Policy of 1980.

Part D deals with concessions relating to Sales-tax. Sub-para (i)
c
thereof deals with exemption of Sales-tax on raw-materials, while sub-para
(ii) deals with exemptions of Sales-tax on finished products produced by
all existing and new Khadi, village and cottage industries.

So far as medium and large industrial units are concerned, sub- D
clause (iii) of para D deals with Sales-tax deferment scheme while
sub-clause (iv) deals with exemption of Sales-tax on finished products in
lieu of deferment. The two sub-paras read as follows :

"(iii) Sales tax Deferme11t Scheme : E
New medium and large industrial units will be eligible to defer
payment of Sales Tax collected on their finished products for a
period of 5 years in Zones 'B' and 'C' and 7 years in Zone 'A'
from the date of their commercial production. Deferred amount F
in respect of each year wo.uld be paid in full after the expiry of
the period of deferment, annually.

(iv) Exemption of Sales-tax on finished products in lieu of
deferment:
G
In lieu of the Sales-Tax Deferment Scheme, new medium and large
industrial units can opt for exemption of Sales"Tax on their finished
products for a period of 3 years if located in Zones B and C and
for a period of 5 years if located in Zone A from the date of their .
commercial production."
306 SUPREME COURT REPORTS [1997) SUPP. 6 S.C.R.

,A But in view of exclusion of Continuing units of 1980 - which have
either made investments or availed of incentives/facilities of 1980 policy -
from the 1986 policy, the Continuing units of 1980 policy could not avail
of the 1986 policy regarding deferment/exemption, whether they went into
production before 1.4.1986 or after 1.4.1986. It was only in the 1989 policy,
B that the units of 1980 policy which went into production after 1.4.1986 were
granted benefit of deferment/exemption of sales tax, as shown below.

(III) 1989 POLICY: Defemient of Sales Tax/Exemption.

We then come to 1989 Policy Resolution for which the effective date
C is 1.4.1989, Para 2.7 defines New Jndust1ial unit as industrial units where
fixed capital investment has been made only on or after 1.4.1989. Para 2.9
defines Pioneer units and Special Class Entrepreneur, in para 2.11.

(a) Para 2.17 defines Continuing Units of 1986 Policy as follows :
D
"Continuing units of 1986 Policy means any industrial unit where
fixed capital investment commenced on or after the 1st April, 1986
and prior to the effective date and, the unit has gone or goes into
commercial production after the 1st April, 1986."

E (b) Para 2.18 defines "Continuing unit of 1980 Policy" as follows :

"Continuing Units of 1980 Policy" means any industrial unit,
where fixed capital investment commenced on or after the 1st
August, 1980 and prior to the Ist April 1986 and the unit has gone
F or goes into commercial production after the !st April, 1986."

The offending part is the underlined portion above and the main
grievance of the appellant is that in the abovesaid para 2.18 while defining
"Continuing units of 1980 Policy", the State ought not to have restricted
Sales-tax benefit to units which had gone into production after 1.4.1986 and
G should not have denied the same to these units which had gone into
production before 1.4.1986. The appellant is aggrieved because the
appellant's unit has gone into production before 1.4.1986 i.e. on 1.4.1984.

We shall refer to the incentives granted under the 1989 policy. The
H scheme of 1989 divides the incentives into three Parts as Part I, II and III.
· ORISSASPONGEIRONLTD.v.STATE[M.JAGANNADHARAO,J.] 307
(a) Part I deals with incentives of deferment/exemption from sales A
tax in respect of new industries established after 1.12. 1989. Provision is made
for deferment of payment of Sales tax upto 9 years or 7 years depending
on whether they were located in different geographical areas Zones A,B
& C. If one opts for the benefit of defe1ment, it will be for 9/7 years as the
case may be while if one opts for exemption it will be for 7/5 years. B
(b) Part II of the 1989 Policy deals with incentives granted in favour
of the Continuing units of the 1986 Policy, i.e. as stated in para 2.17. where
investment has been made after 1.4.1986 and prior to 1.12.1989 and where
production started after 1.4.1986. They get the same sales tax incentives as
Part I, applicable to new industries of 1989 Policy. C

(c) Part III of the 1989 Policy deals with incentives granted in favour
of the 'Continuing units of the 1980 Policy' i.e. as stated in para 2.18, where
investment has been made after 1.8.1980 and prior to 1.4.1986 but where
production started after 1.4.1986. They are again given the same sales-
tax incentives as in Part-I, applicable to new industries of 1989 policy, D
subject however to the provision relating to surrender of loan or other
benefits received under the 1980 Policy. This is mentioned in para 7.3.2
as follows ;

·7.3.2. Exemptio11/Defe1ment of Sales Tax on finished products : The E
Sales Tax incentive on finished products as is applicable to new
industrial units under Part I shall be applicable to continuing units
of 1980 Policy, after the effective date, provided that Sales Tax
Loan, if any, availed of under the Olissa Sales Tax Loan Scheme
Rules, 1980 is surrendered within the time limit prescribed in the
F
operational guidelines/instructions.

Then it is stated in Para 7.3.3 that similar benefits are extended to units of
1980 Policy to the extent of increased production over and above the
installed capacity of an existing industrial unit which has taken up expan-
sion/modernisation/diversification after 1.8.1980 and before 31.3.1986 and G
which has gone into production after 1.4.1986.

The f?lievance of the appellant before the High Cowt :

The appellant's grievance was that the definition of 'continuing units
of 1980' (para 2.18) got incorporated into para 7.3.2 and precluded units H
308 SUPREME COURT REPORTS (1997] SUPP. 6 S.C.R.

A such as the appellant which made investment under the 1980 policy but
which went into production before 1.4.1986 - from swTe11de1i11g the benefits
of interest free loan and obtaining the sales tax defennent/exemption benefits
of the 1989 scheme. If the discriminatory part of the definition in para 2.18
of the 1989 policy is struck down, then the appellant could avail the benefit
B of para 7.3.2 and surrender the loan, and then claim deferment/exemption
of sales tax as per the 1989 policy.

The High Cowt's decision :

The appellant therefore approached the High Court of Orissa
C contending that the definition of 'Continuing units of 1980' in para 2.18 was
violative of Article 14 of the Constitution and was arbitrary and
unreasonable. This contention was rejected by the High Court on the
ground that while granting exemption from sales tax, the Government must
have taken into account a variety of circumstances and that the
D Government has a great latitude in taxation matters and the same could
not be interfered with in writ jurisdiction.

Contentions in this Cowt :

In this appeal, it is contended by Shri Shanti Bhushan, the learned
E counsel for the appellant that the words in clause 2.18 of the 1989 policy
"after the Ist April 1986" must be a drafting mistake and the Government
must have meant "after Ist August 1980". It was also contended that in view
of the decision in Nakara V. U.0.1., [1983] I sec 305, th~ cut off date
1.4.1986 in para 2.18 of the 1989 policy must be declared as bad because
p the 1989 scheme could not be treated as a new scheme, but was a
continuation of the 1980 scheme. In any event, even treating the 1989
scheme as a new scheme, it was discriminatory inasmuch as the
classification of units into two groups, those which went into production
before l.4.1986 and those which went into procution after 1.4.1986 was
violative of Article 14. Finally, Shri Shanti Bhushan contended that this was
G the only unit which was before us and we should grant relief under Article
142 of the Constitution of India.

On the other hand, Shri Harish Salve contended that the above
submissions are not correct and the learned counsel supported the view
H taken by the High Court.
ORISSA SPONGE IRON LTD. v. STATE (M. JAGANNADHA RAO, J.] 309

Is there a draftsman's mistake? A

So far as the first contention that there was mistake in para 2.18 of
the 1989 policy by the draftsma·n in using the words_ 'after the Isl April 1986
is concerned, this contention, in our opinion, has absolutely no basis, we
cannot presume any. such mistake. Further, para 7.3.3 which deals with B
expansion of units of 1980 Policy also refers to same cut off date. Moreover,
the Gazette notification (Finance) dated· 16.8.1990 in S.R.O. 790/90
(referred to below) issued under Section 7 of the Act to reflect the 1989
policies again contains the same date 1.4.1986 under item 3 and item 6. It
is, therefore, absolutely clear that there is no question whatsoever of any C
mistake. On the other hand, we shall also show, in the further discussion
below, that there is not only no mistake but there is good reason for
stipulating the said cut off date.

Does Nakara apply?
D

The other contention based on Nakara's case (1983] 1 SCC 305 is
also not tenable. This argument is based on the theory that the 1989 policy
is a continuation of the 1980 policy. A reading of the 1989 policy shows
that it is a new policy and not a continuation of the 1980 policy. It is clearly E I
stated in para 7.3.2 that unless a unit of 1980 policy which had taken
advantage of the said 1980 policy surre.nders the interest free loan received
by it the said unit can not opt to coinc under the 1989 policy. Further,
while the 1980 policy was for granting "interest free loan" as per the
provisions of the Orissa Sales Tax Loan Scheme Rules, 19?0 - to cover sales
tax already paid, the 1989 policy dealt with grant of "deferment/exemption"
F
of sales tax duties as specified in the notification under section 7. Inasmuch
as the 1989 policy is a new scheme, in our opinion Nakara (1983] 1 SCC
305 cannot apply. In Nakara case certain rules conferred particular benefit
on members of a particular class and subsequently, by another order, the
said benefit was denied to a section of that class based on a cut off date. G
It was held that such withdrawal of an existing right was bad since the cut·
off date had no nexus with the object of the scheme. This Court in that
case clearly stated at several places that what they were laying down would
not be applicable if a cut off date was introduced in a new scheme for the
first time. It was stated (at p.333): · H
310 SUPREME COURT REPORTS [1997) SUPP. 6S.C.R.

A "And beware that it is not a new scheme, it is only a revision
of existing scheme. It is not a new retiral benefit. It is an upward
revision of an existing benefit. If it was a wholly new concept, a new
retiral benefit, one could have appreciated an argument that those
who had already retired could nor expect it."
B This is because whenever any financial benefit is intended to be
conferred on persons on units etc. for the first time from an anterior date,
the State has to fix some cut off date and could not be compelled to go
back into the past without time limit. If the State should confer financial
benefits retrospectively without any time limit, it might indeed be
C impossible for the State to come forward with any beneficial scheme. Every
such beneficial scheme which is introduced by the State will depend for its
implementation upon considerable sacrifice of the finances of the State. Tn
view of our finding that the 1989 scheme is a new one, as distinct from the
1980 shceme, the apellant cannot rely on Nakara [1983) 1 SCC 305.
D
Is the classification in para 2.18 of 1984 policy on the c01respondi11g provision
of SRO 790 of 1990 dated 16.8. 1990 violative of A1ticle 14?

We then come to the main point which was strongly urged by the
learned counsel for the appellant. namely, that para 2.18 of the new policy
E of 1989 was violative of Article 14 insofar as it denied the benefits of the
sales tax deferment/exemption to those units which went -into production
before 1.4.1986. The Learned counsel explained that among those units
which made investments after 1.8.1980 under the 1980 policy some, like the
appellant, were managed efficiently and could go into production before
F 1.4.1986 while some others, which were managed badly, could not go into
production either before 1.4.1986 when the 1986 policy came into being or
before or after 1.12.1989 (when the1989 policy came into being). It was not
open to the State to confer sales tax benefits on those units which, by
reason of bad management or inefficiency, could not go into production
G before 1.4.1986. To reward the less efficient and to debar the efficient from
the benefits of 1989 Policy was, according to the appellant's counsel, clearly
discriminatory and violative, Article 14.

The above argument is attractive but does not stand close scrutiny.

H We shall presently divide the units which have come under the 1980
ORISSA SPONGE IRON LTD. v. STATE [M. JAGANNADHA RAO, J.] 311

policy into three types, we will show that, for good reasons, only two types A
of such units were given benefit of the 1989 policy, while excluding one
particular type (like the appellant), from benefits of the 1989 Policy.

Before we do so, we shall refer to the relevant portion of the statutory
notification dated 16.8.1990 (Finance) Orissa Publication in the gazette B
which reflects the 1989 policy which came into force w.e.f. 1.12.1989. This
notification was issued under Section 7 of the Orissa Sales Tax Act, 1947,
in relation to medium and large-sized industries, to reflect the 1989 Policy.
Para 1( a) thereof deals with defe11ne11t of sales tax and para l(b) with
exemption. Those who opted for deferment would get, as per Column 4, a
benefit of defe1ment of 9 years or 7 years time for payment of sales tax in C
different zones. Those who opted for exemption would get benefit for a
period which was less than the period mentioned in Col.4, by two years. In
other words those who opt for defennent would get benefit for 2 more years
as compared to those who opt for exemption.
D
The gist of the deferment/exemption notification classifies the
medium and large-scale units of the 1989 Policy (entitled to deferment) as
follows :

1 2 3 4 E
Class of
SL No. Effective date Period
Industrial unit
1. New medium/large where fixed capital 9 yrs. in some Distt.
industrial units (of investment has been of 7 years in some
1989 policy) made only on or Distt. F
after 1.12.1989
2. Continuing med- Where fixed capital
ium/large industrial investment has been
set up on or after made on or after
1.4.1986 (after 1986 1.4.1986 but before G
policy) 1.12.1989 and the - do -
unit had gone into
commercial
production after
1.4.1986.
H'
312 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.

A 3. Continuing me- where fixed capital
. <lium/large indus- investments
trial units set up on commenced on or
or after 1.8.1980 after l.8.1980 and
(after 1980 policy) prior to 1.4.1986 - <lo -
B and the units had
gone into commer-
cial production after
1.4.86.

(Note : Serial Nos. 4 to 6 deal with similar concesson to expanding on
C industries and there also SI. No. 6 deals with 1980 policy units).
We are concerned in the case before us with Serial No. 3 above
relating to the Continuing units of 1980 and the alleged discrimination
thereunder denying benefit of the 1989 Policy to such units of the 1980
policy which went into production before 1.4.1986.
D
Under the 1980 policy, where units have made investments after
1.8.1980, there could be three types of units : firstly, those which made
investment after 1.8.1980 but which, like the appellant, went into produc-
tion before 1.4.1986 : seco11dly, those units which made investment after
1.8.1980 and before 1.4.86 but had gone into production after 1.4.1986 and
E before 1.12.1989; thirdly, those units which made investments after 1.8.1980
and before 1.4.1986 but which had gone into production after l.12.1989.
Now, out of these three types, only the second a11d third, were made eligible
to take benefits of column 3 of Serial No. 3 and not the first type, units of
type two and three alone were permitted to surrender benefits of 1980
policy and come under the 1989 policy as per para 7.3.2 of the 1989 policy.
F
We shall be comparing Serial Nos. 2 (relating tu units of 1986 policy)
and Serial No. 3 (relating to units of 1980 policy) in the above said
notification for finding out if there was any justification for conferring
benefit of 1989 policy on units of types two and three of 1980 policy and
G excluding type 011e of 1980 policy from the benefits of the 1989 Policy.
Firstly, so far as the 1989 policy is concerned, it extended the benefit
of deferment/exemption of sales tax under serial No. 2 to the new units of
the 1986 policy which went into production after 1.4.1986. Then the 1989
policy extended its benefits under Serial No. 3 to the second and third type
H of units of the 1980 policy where the investment was made after 1.8.80 and
ORISSASPONGElRONLTD.v. STATE[M.JAGANNADHARAO,J.] 313

before 1.4.1986 provided the units have gone into production after 1.4.1986. A
Obviously, the Government which is the delegated authority, felt that in all
these cases, i.e. those falling under the 1986 Policy and type two and three
of the 1980 Policy, the common factor was the factum of production after
1.4.1986. Such a common treatment, in fact, ought to have been brought
into being even when the 1986 policy was introduced. The State realised, B
when it come to the 1989 policy, that so far as types two and three of the
1980 policy were concerned, where also the production was after 1.4.1986,
those units were entitled to the same benefits of deferment/exemption as
the new 1986 units. Obviously, the first type of un.it under the 1980 policy
where even though the unit made investment after 1.8.1980 and before
l.4.1986 the unit had gone into production before 1.4.1986, could not and C
would not fit into such a scheme. At the same time, if the benefit of
deferment/exemption which came into being for the new units under the
1986 policy was not extended to the second and third type of units of the
1980 policy, both of which went into production after 1.4.1986, then per-
haps there was a good case for a plea by the second and third type of units D
of 1980 policy to contend that they were being discriminated as compared
to the new units of 1986 policy. It could perhaps be legitimately contended
by them that the fact that investment was made by them between 1.8.1980
and 1.4.1986 and the fact that so far the new units of 1986 scheme were
concerned, they made investments after 1.4.1986, - was irrelevant and what E
was relevant was the date of production. So far as the first type of unit of
the 1980 policy, where the investment was between 1.8.1980 and 1.4.1986
bnt where the unit (like the appellant) had gone into production before
1.4.1986, those units could not therefore stand comparison with the new
units of 1986 policy, or the second and third type units of 1980 policy - for
the date of production by latter units was a date on or after 1.4.1986. After F
all, the principle of deferment/exemption was introduced only under the
1986 policy and was continued under the 1989 policy and there was nothing
wrong in extending benefits to type two and three of the 1980 policy so as
to avoid discrimination as far as possible, between them and the new units
of 1986 policy. In that context, there was good reason for leaving out the G
first type of units of the 1980 policy. In addition, as stated by us earlier the
scheme of interest free _loan and deferment/exemption were different co,1-
cepts. What was done under the 1989 policy was to bring uniformity of
approach in the deferment/exemption scheme and avoid discrimination
between units which were similarly circumstanced, as far as possible. For H
314 SUPREME COURT REPORTS [1997] SUPP. 6 S.C.R.

A the aforesaid reasons, we find that the cut off date of 1.4.1986 has ample
significance and the exclusion of type one of the 1980 scheme to which ·
category the appellant belonged and the inclusion of the second and third
type of units of the 1980 scheme into the 1989 scheme was for good and
valid reasons. The appellant's contention is therefore not acceptable.
B A similar distinction between new units and old units while granting
exemption from sales-tax was upheld by this Court in M/s. Bharat General
and Textile Industlies Ltd. V. State of Maharashtra, [1989] Suppl. 1 sec 153.
One of the arguments was that (see p.189) the result to the 1983 amend-
ment to Sec. 41-A was that while the old unit had to pay Purchase- tax.
C Sales-tax turnover tax etc. totalling Rs. 1650 per metric ton,the new units
producing the same washed cotton-seed oil got away scot-free without
paying any tax and these stood placed in a very advantageous position.

It was held that in case that the "exemption granted in favour of the
new units has a sound ~conomic and public policy underlying it". After
D referring to what was stated by the Government in the Counter, this Court
observed :

"It cannot, therefore, be contended that the old units should
also have been granted the same benefit as new units since both
the units are engaged in the manufacture of the same type of
E
products. In fact, such a policy, if followed by the Government,
would not only fail to provide incentive to the new indust1ies but
would also place the new uaits at a comparative disadvantage in
being made to face stiff competition with older units which have been
established at lesser cost and which have stabilised themselves in the
F field by successfully numing the units number of years".

Again in Mohd. Jabbar Malik Lasjan v. State of J.K., [1994] Suppl. 3
SCC 24 (to which one of us, S.C. Sen, J. was a party) it was held that though
initially exemption from Sales-tax was granted for a specified period to
G certain industries by placing them under a common heading, a subsequent
denial of extension of the exemption to some only of such industries was
not an arbitrary exercise of power, more so when the industry granted
further exemption was a comparatively new one. This Court observed :

"The Governor, in exercise of its power given by Section 5 of the
H Act, can decide the exemption of any goods from taxation. The
ORISSA SPONGE IRON LTD. v. STATE [M. JAGANNADHARAO, J.] 315

power may be exercised having regard to social, economic ad- A"'"
ministrative and fiscal conservations."

Therefore, it was for the policy-maker to consider whether he should
not allow the older units to get benefits of sales-tax which they were
proposing to give to new units. If they felt that units which were already B
established at lesser cost and which got well stabilised, should not be
allowed lo have any advantages over new industries, then such a
classification would be perfectly valid.

Nor can the argument that units of the second and third type under
the 1980 policy did not go into production before l.4.1986 only on account C
of bad planning or inefficiency, be accepted. There could be a variety of
factors like - increase in cost of construction, machinery, the comparative
backwardness of the area, administrative delays or labour problems - as to
why some units could not go into production before l.4.1986.
D
It is again well settled that the State has greater latitude in taxation
matters and in particular, in the grant of sales tax exemptions. Verma J.
(as he then was) observed in Kera/a Hotel and Restaurant Associations v.
State of Kera/a, [1990) 2 SCC 502 as follows :

"The scope for classification permitted in taxation is greater and E
unless the classification made can be termed to be palpably ar-
bitrmy, it must be left to the legislative wisdom to choose the
yardstick for classification, in the background of the fiscal riding
of the State ........ " (p.512)
F
Venkatachaliah J. (as he then was) stated in P.M. Ashwathanarayana Setty
V. State of Kamataka, (1989) Suppl. 1 sec 696 as follows :

"...... the State enjoys the widest latitude where measures of
economic regulations are concerned. These measures for fiscal and
economic regulation involve an evaluation of diverse and quite G
often conflicting economic criteria and adjustment and balancing
of various conflicting social and economic values and interests. It
is for the State to decide what economic and social policy it should
pursue and what discriminations advance those social and
economic policies." H
316 SUPREME COURT REPORTS [1997) SUPP. 6 S.C.R.

A We, therefore, hold that para 2.18 of the 1989 policy and the corresponding
provisions of the notification SRO 790/90 (Finance) dated 16.8.1990, in-
sofar as they extended the benefit of the 1989 policy only to the continuing
units of 1980 policy which had gone into production after 1.4.1986, the said
classification is valid and was not hit by Art. 14 of the Constitution of India.

B Article 142 :

The last argument of Shri Shanti Bhushan was that the appellant was
the only industry which had come upt'.) this Court seeking benefit of 1989
policy and therefore in the interests of justice, this court should exercise
powers under Art. 142 of the Constitution of India. We are of the view that
C appellant has no case on merits and even otherwise, this is not a fit case
for grant of any relief under Article 142.

For all the above reason§, the appeal is dismissed.

v.s.s. Appeal dismissed.
D