Holding

Pepsico India Holdings Ltd. is entitled to the sales‑tax exemption; the State is bound by promissory estoppel and must honour the exemption.

Summary

Pepsico India Holdings Ltd. sought to set up a medium‑scale soft‑drink plant in Kerala relying on a 1993 state policy that exempted new industrial units from sales tax for seven years. The company obtained assurances from KSIDC and the State Industries Department that it would receive the exemption, entered a lease, paid consideration, placed firm orders and made advance payments before 1 January 2000, and commenced production in March 2001. Subsequent notifications withdrew the exemption for units set up after 1 January 2000, but carved out an exception for units that had taken "effective steps" before that date. The Deputy Commissioner of Commercial Taxes denied the exemption despite an eligibility certificate issued by the Director of Industries, leading to multiple writ petitions. The Supreme Court held that the company satisfied the conditions, that the word "any" in the notification was to be given a liberal meaning, and that the State was bound by the doctrine of promissory estoppel to honour its earlier assurance. Consequently, the appeal was allowed and the sales‑tax exemption was granted.

Issues considered

The appellant's entitlement to sales‑tax exemption under the 1993 notification as amended, given the timing of its advance payments and commencement of production.
Whether the doctrine of promissory estoppel applies to bind the State to its earlier assurance of exemption.
Whether the eligibility certificate issued by the Director of Industries is conclusive, or whether the Deputy Commissioner can lawfully deny the exemption.
Interpretation of the terms "effective steps" and the word "any" in the exemption notification.

Legislation cited

Subjects

sales tax exemptionpromissory estoppelKerala General Sales Tax Acteligibility certificateindustrial policyeffective stepsinterpretation of notificationtax incentiveadministrative law

Judgment

',,

[2009] 8 S.CR. 1073

- PEPSICO INDIA HOLDINGS P. LTD.
v.
STATE OF KERALA & ORS.
(Civil Appeal No. 3456 of 2009)
A

MAY 11, 2009
B

. "'
[S.B. SINHA AND DR. MUKUNDAKAM SHARMA, JJ.]

Kera/a General Sales Tax Act, 1963 - s. 10 - Sa/es Tax
- Exemption from, to new industrial units - By a Notification
- By further Notification, exemption withdrawn - However, c
withdrawal notification not applicable to industries already
..• having commenced production or taken effective steps to
establish the unit before the cut off date - Company in
question taking effective steps for setting up its unit after
• getting assurance from the competent authority that it would D
get the tax exemption - Revenue issuing show cause notice
to the company for payment of sale tax - Challenge to the
same upheld upto Supreme Court - Despite grant of
Eligibility Certificate by the competent authority, Revenue
denied grant of exemption to the Company - Held: The E
company was entitled to sale tax exemption - Revenue is
_. bound by the doctrine of promissory estoppel.

Practice and Procedure - Cost - Denial of payment of,
to successful litigating party - On the ground that it instructed
its counsel not to appear in the case despite the fact that the F
case was part-heard.

A policy decision was taken by State of Kerala by
way of a Notification dated 3.11.1993 providing exemption·
to new industrial unit set up in the State from payment G
,, of sales tax with a view to attract more investment in the
State. The Notification provided for issuance of Eligibility
Certificate in respect of medium and large scale industry
by Director of Industries and Commerce assisted by
1073 H
1074 SUPREME COURT RE:PORTS [2009] 8 S.C.R.

A Kerala State Industrial Development Corporation (KSIDC)
or Kerala Financial Corporation on appiication made by
the units.

Appellant company, relying on the policy decision,
-
8 intended to set up a medium scale industrial unit in the
State. On getting the assurance from KSIDC that the new
industrial unit would be exempted from paymel1t of sales
tax as per the Notification, appellant-company entered
into an agreement for lease in respect of land for setting
up the unit. It paid a sum towards the amount of
c considetation for acquisition of the land by a demand
draft on 24.12.1999: It also took steps for procurement of
machinery etc. in December, 1999.

The Notification dated 3.11.1993 was amended by
D Notification dated 31.12.1999 notifying to withdraw the
exemptions. However, the exemption, thereby was not
withdrawn in respect of units which had already
commenced commercial production, set up or taken
effective steps to set up industrial units prior to 1.1.2000
E etc.

A further amendment was made to the Notification
dated 31.12.1999 by a notification dated 31.3.2000. It was
explained thereby, that the unit shall be deemed to have
placed firm orders for the purchase of plant, machinery
F etc., if the unit had made advance payments therefor by
means of demand draft/cheque which had been credited
to the account of seller prior to 1.1.2000.

Appellant-company though commenced its
G commercial production on 6.3.2001, it was not granted
the Eligibility Certificate. In revenue recovery proceedings
for provisional sales tax assessment, demand notice was
issued to the appellant. The liability was denied stating
that the company was exempt from payment of sales tax
H having fulfilled all the requirements of exemption
'I" PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1075
KERALA & ORS.

.. Notification. A
... The order of demand was also challenged in writ
petition, which was disposed of directing the competent
authority to decide the application for exemption from
payment of sales tax. Special Secretary (Taxes)
addressed a letter to Commissioner of Commercial taxes
B
clarifying that appellant was eligible for grant of sales tax
;~ "i
exemption. Principal Secretary (Industries) also wrote a
letter to the Director of Industries and Commerce re-
confirming that it was eligible for sales tax exemption.
However, the application was not decided and extension c
of time for disposal of the same was granted.
_.
f Thereafter, Provisional Assessment Notice for the
·period April, 2002 to December 2002 was challenged in
.._
another writ petition. During pendency of the writ petition, D
grant of Eligibility Certificate was denied to the appellant.
The writ petition was decided in favour of the appellant
upto Supreme Court. Thereafter, appellant was granted
Eligibility Certificate by Director of Industries and
Commerce. Despite that, Deputy Commissioner (General) E
Commercial Tax denied the benefit of sales tax exemption
on the ground that the appellant failed to take effective
" steps in terms of relevant notifications. Writ petition was
;.. filed challenging the denial of exemption benefit which
was dismissed by High Court. Intra-Court appeal was also
F
dismissed. Hence the present appeal.

Allowing the appeal, the Court
_, HELD: 1.1 In the facts and circumstances of the
case, the respondents must, thus, be held to be bound G
.. by the doctrine of promissory estoppel. [Para 42] [1113-
G-H]

Kusumam Hotels (P) Ltd. v. Kera/a State Electricity Board
and Ors. 2008 (9) SCALE 448; Mis. Badri Kedar Paper Pvt.
~ H
1076 SUPREME COURT REPORTS (2009] 8 S.C.R.

A Ltd. v. U.P. Electricity Regulatory Commn. and Ors. 2009 (1)
•
SCALE 137; A.P. Steel Re-Rolling Mill Ltd. v. State of Ketala
and Ors. (2007) 2 SCC 725; U.P. Power Corporation Ltd. ahd
...
Anr. v. Sant Steels and Alloys (P) Ltd. and Ors. (2008) 2 SCC
771, relied on.
B Tata Iron and Steel Co. Ltd. v. S,ate of Jharkhand and
Ors. (2005) 4 SCC 272, distinguished.
.-
1.2. The Notification dated 3.11.1993 was issued in
terms of an industrial policy, pursuant whereto exemption
c was to be granted for a period of seven years. Appellant
had placed orders for supply of plant and machinery both
with advances and without advances. What was
necessary was to take effective steps for setting up of
...
new industrial units. A deeming provision existed in terms
D whereof the effective steps would be considered to have .J

been taken; if it has: (a)obtained provisional registration
(applicable only in the case of SSI units); (b) owned or
acquired or has been allotted land for establishing the
industrial units and applied for financial support from any
regular financial institution/ Government before 1.1.2000;
E
or (c) in the case of self financed units acquired or placed
firm orders for the purchase of the necessary plant and
machinery before 1.1.2000. [Para 32] [1105-C-H]

1.3. It is in the aforementioned context, applications
F for grant of exemption by the self-financed units are
required to be taken into consideration. They are either
to acquire or place firm orders for the necessary plant
and machinery. It is not that order for entire machinery
and equipment were required to be placed for, before the
G first day of January, 2000. Even in relation thereto, a legal
fic;tion has been created stating that if such unit had ~ ...
made any advance payments therefor by means of I.-
demand draft or cheque, the requirements would stand
satisfied. The Director of Industries and Commerce,
H opined that apart from a few items, firm orders have been
J
='
'
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1077
KERALA & ORS.
placed in respect of some machineries by means of A
• demand draft or cheques and the same has been
credited to the account of the sellor prior to the first day
of January, 2000. [Paras 32 and 33) [1106-B-E]

1.4. The exemption Notification dated 3.11.1993 was B
withdrawn by a Notification dated 31.12.1999, subject of
course to an exception carved out therein, viz., the
~
industries which had been set up on or before 1.1.2000
and which have already commenced commercial
production, set up or taken effective steps to establish
industrial unit prior to 1.1.2000 were to be allowed the
c
benefit of exemption. That Notification stood amended on
31.3.2000 in terms whereof some benefits had been given
to an entrepreneur like the appellant. Appellant need not
have questioned the validity thereof as the Notification in
.. question was issued by relaxing the conditions imposed D
,, in the Notification dated 31.12.1999 which was one of
--< withdrawing the grant of earlier benefit&. Thus, by.reason
of the said notification, certain benefits had been
confirmed on it. [Paras 34 and 35) (1108-A-D]
E
1.5. Only because the procedural sanction of grant
of financial exemption was to be received from the
Deputy Commissioner (General) Commercial Taxes, the
same, would not mean that the conditions had not been
satisfied. In any event, the certificate granted by the F
Director deserved serious consideration. Both the Single
Judge as also the Division Bench did not consider this
aspect of the matter. [Para 36) [1108-E-F] ·

1.6. Although payment of advance in respect of some
machinery and plant would subserve the requirements for G
the purpose of obtaining the eligibility certificate, the
Single Judge read the word 'any' to be synonymous to
the word 'all', whereas the Division Bench considered it
to be "substantial". It is in that view of the matter the
H
1078 SUPREME COURT REPORTS [2009] 8 S.C.R.

A opinion of the Single Judge in first round of litigation
assumes importance. [Para 37) [1108-G-H; 1109-A]

2. Although a contention has been raised that despite
opportunities granted, the appellant had not adduced the
additional evidence to establish compliance of the
8
conditions precedent for grant of eligibility certificate, it
has not been denied or disputed that even in the first
round of litigation, the requisite documents formed part ,,.
of the writ petition. The Deputy Commissioner (General)
C Commercial Taxes, even if it be assumed that he was not
totally bound by the observations made in the first round
of litigation, should have taken into consideration the
interpretation of the Notification adverted to by the Single
Judge of High Court in the first round of litigation. [Para
31) [1104-G-H; 1105-A-B]
D
3. Ordinarily, this Court would not have gone into the
findings of the fact arrived at by the statutory authorities
but was only required to consider the correctness of
judgment of the Single Judge as also the Division Bench
E of the High Court. However, even in a case of this nature,
the authorities stuck to their own stand which is not
expected from a statutory authority. [Para 39) [1109-E-F]

K.I. Shephard and Ors. v. Union of India and Ors. (1987)
4 SCC 431; Rajesh Kumar and Ors. v. Dy. CIT and Ors.
F (2007) 2 SCC 181; State of Rajasthan and Anr. v. Mahaveer
Oil Industries and Ors. (1999) 4 SCC 357, referred to.
Case Law Reference:
(1999) 4 sec 357 referred to. Para 33
G
(1987) 4 sec 431 referred to. Para 39
(2001) 2 sec 181 referred to. Para 39
(2005) 4 sec 212 distinguished. Para 40
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1079
KERALA & ORS.
2008 (9) SCALE 448 relied on. Para 41 A
2009 (1) SCALE 137 relied on. Para 41
(2001) 2 sec 12s relied on. Para 42
(2ooa) 2 sec 111 relied on. Para 42
B
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3456 of 2009.

From the Judgment & Order dated 11.12.2008 of the High
Court of Kerala in Writ Appeal No. 2922 of 2007. c
Harish N. Salve, Amar Gupta, C.S. Lodha, Andhya Kumar,
Vibha Datta Makhija, Purvez Bilimoria-in-person for the
Appellants.

.. Dushyant Dave, P.V. Dinesh, Santhosh Krishnan and D
Anirudh Rajput for the Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted.
E
1. Interpretation of an exemption notification dated
3.11.1992 issued by the State of Kerala dated 3.11.1993 as
modified by notifications dated 31.12.1999 and 31.3.2000 is
in question herein.
F
2. The said question arises in the following factual matrix.

Appellant is a private limited company. It intended to set
up a medium scale industrial unit at Kanjikode, Palakkad in the
State of Kerala for manufacturing soft drinks under the brand
name 'Pepsi'. Such a decision was taken purported to be G
relying on or on the basis of a policy decision taken by the State
of Kerala to grant exemption from payment of sales tax with a
view to attract more investment in the State. The said policy
decision was issued by way of a Notification bearing SRO
H
1080 SUPREME COURT REPORTS [2009] 8 S.C.R.

A No.1729/1993 issued under Section 1O of the Kerala General
Sales Tax Act, 1963 (hereinafter referred to for the sake of
,.
brevity as, "the said Act") providing for exemption to N1:!w
Industrial Units set up in the State of Kerala, the relevant clauses
whereof read as under :
B
"4. In the case of new Industrial Units under Medium and
Large Scale Industries, there shall be an exemption for a
period of seven years from the date of commencement of
commercial production-
c (a) · in respect of the tax payable by such units under the
Kerala General Sales Tax Act, 1963-

(i) On the turnover of sale of goods
manufactured and sold by them within the
D state; and
J

(ii) On the turnover of goods, taxable at the point
of last purchase in the State, which are use1d
by such units for manufacturing other goods
for sale within the State or inter-state; and
E
(b) in respect of the Surcharge payable under Section
3 of the Kerala Surcharge on Taxes Act, 1957 (Act
11 of 1957) in relation to the goods referred to in
sub-clause (a) above."
F 3. The said notification provided for issuance of eligibility
certificate in respect of medium and large scale industries
assisted by the Kerala State Industrial Development
Corporation ("KSIDC" for short) or the Kerala Financiail
Corporation inter alia by the Director of Industries and
G Commerce on application made by such units, and orders of
exemption issued by the Secretary, Board of Revenue (Taxes),
Thiruvananthapuram. It is stated that in stead and place of
Secretary, Board of Revenue (Taxes), Thiruvananthapuram, the

H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1081
KERALA & ORS. [S.B. SINHA, J.]
said jurisdiction of the Board was being exercised by Deputy A
Commissioner (General) Commercial Taxes.

4. Appellant is said to have written a letter to the Principal
Secretary, Department of Industries, Government of Kerala on
or about 11.5.1999 seeking confirmation of the benefits, such B
as incentive of sales tax exemption on the goods produced etc.,
available to the proposed new unit, stating:

"Proposal for Investments in Kera/a State

PepsiCo in India c
PepsiCo Inc. has set up a fully integrated operation in India
- manufacturing, research and development marketing,
distribution, exports and franchise - covering fruit/
vegetable processing, snack foods and beverages.
Presently, our activities provide direct/indirect employment D
to over 60,000 persons. We are also one of the large
exporters in the country.
PepsiCo activities in Kera/a
E-
PepsiCo India Holdings Ltd. revived the closed and sick
manufacturing unit of Contract Bottling Company Ltd. at
Angamaly, by entering into an arrangement for the
manufacture of soft drinks.

We now propose to make substantial investments of over F
Rs.50 crores in the first two phases spread over three
years in setting up a new unit in Kerala for the manufacture
of soft drinks with the full range of Pepsi brands. We expect
the project will generate substantial direct/indirect
employment opportunities and also stimulate other related G
economic activities. The Greenfield unit will either be set
up directly or, by assisting a local entrepreneur.

H
1082 SUPREME COURT REPORTS [2009] 8 S.C.R.

A CONFIRMATION REQUESTED

1. Availability of Sa/es Tax exemption benefit

As per the State Government's Industrial policy, new
industrial Units under the medium and large scale sector
B are eligible for exemption from sales tax, purchasu tax,
surcharge and central sales tax for a period of seven
years, upto aggregate financial limit of upto 100% of the
value of fixed capital investments of the unit. Soft drinks
has been notified as a thrust industry in the list of food
c processing industries notified by the Government. We
request your confirmation that the proposed green field
unit, which will be set by the Company directly, or through
a nominee entrepreneur, will be eligible for Sales Tax
exemption.
)
D
2. Allotment of land for setting up new unit
In our discussions with the Hon'ble Finance Ministur and
the State Industries Development Corporation, we were
assured that the Government would speedily allocate land
E (approx. 25 to 30 acres) with adequate water supply,
power etc. in Kerala. The preferred location for us is
Walayar or Kanjikode. Kindly confirm that we can get
possession of land within 4 weeks, as we propose to put
up the plant in 9 months from the date of land allocation."
F
5. A meeting took place by and between the
mpresentatives of the appellant and the authorities concerned.
By a letter dated 12.5.1999, Kerala Industrial Infrastructure
Development Corporation replied to the appellant's
G aforementioned letter dated 11.5.1999 in the following terms:

"This is with reference to your letter dated 11th May 1999
addressed to Mr. K. Mohandas, Principal Secretary
(Industries). We are extremely delighted to find your
proposal for investment in the State of Kerala.
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1083
KERALA & ORS. [S.B. SINHA, J.]
As regards the two points which have asked in your letter, A
i.e. availability of sales tax exemption benefit and allotment
of land for setting up of the unit, I wish to inform you the
following:-

1. Availability of Sales Tax exemption benefit: 8
We are requesting the KSIDC to clarify the position. You
may kindly discuss with the Managing Director, KSIDC.

, 2. Allotment of land for setting up the new unit:-

Regarding this, as we discussed, we offer to give you the
c
required land in the Districts of either Palakkad, Ernakulam
or Kozhikkode, as per your choice. The land can be made
available as per the time frame you have indicated in your
letter."
D
6. Indisputably, KSIDC by its letter dated 13.5.1999
confirmed that the new industrial unit would be exempted from
payment of sales tax for the first seven years subject to a ceiling
of 100% of capital investment.
E
7. The Chairman of KSIDC by its letter dated 4.6.1999
informed the appellant that all promotional support and possible
assistance under the State Government's industrial policy would
be extended to the proposed new industrial unit, stating:

"As per your telephonic talk with me a few days ago, F
recently while I was in Thiruvananthapuram I briefly
discussed with the Hon'ble Minister of Industry, Kerala Smt.
Suseela Gopalan about your plans for investing in Kerala
for setting up a bottling plant and allied facilities. The
Principal Secretary, Dept. of Industry was also present G
during the discussion.

The Hon'ble Minister has assured that all
promotional support and possible assistance under the
State Govt.'s Industrial policy will be extended to the new H
1084 SUPREME COURT REPORTS [2009] 8 S.C.R.

A venture you are planning to set up.

Please rest assured that our Co-operation, KINFRA,
and the District Industries Centre, Palakkad will extend
their co-operation to your executives concerned."
B 8. Pursuant or in furtherance of the said assurance given
to the appellant, it entered into an agreement for lease in
respect of 50 acres of land for setting up the new industriall unit
at Kanjikode in the district of Palakkad on 28.12.1999. For the
aforementioned purpose, a sum of Rs.2,77,64,000/- towards
C the amount of consideration for acquisition of the said land was
paid on 24.12.1999 by a demand draft. It furthermore took
steps for procurement of machinery, etc. being:

(a) Filed IEM with SIA vide SIA ACK/2655/SIA/IMO/
D 1999 dated 28.12.1999.

(b) Obtained the necessary consent from the Kerala
State Pollution Control Board on 20.12.1999

(c) Placed firm orders for supply of large numbe!r of
E plant and machinery and in some cases made
advance payments through cheques. The fact that
in cases where advances payments were made,
the payment was credited prior to January 1, 2000 •
was confirmed by Deutsche Bank by their le!tter
F dated September 29, 2000. This included the
following, apart from several others:

Pet conveyor systems on 28.12.1999

Blow Moulder, including installation and
G commissioning thereof, on 20.12.1999

Paramix Plant, Deaeration Plant, Mixing Plant,
Beverage Chilling Plant, Carbonation Plant and
Switch & Control Unit & Frame on 28.12.1999.
H
'\

PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1085
KERALA & ORS. [S.B. SINHA, J.]

- 9. The aforementioned Notification dated 3.11.1993,
however, was amended by a notification dated 31.12.1999,
stating:

"Government have decided to withdraw the exemptions/
A

deferment in respect of tax under the Kerala General Sales B
Tax Act, granted to Industrial Unit as per Notification SRO
No. 1729/93 in respect of Industrial Units which are set up
...
on or after 1.1.2000, existing units which undertake
diversification, expansion or modernization and also in
respect of small scale industrial units which are registered
as sick unit~ on or after 1.1.2000. But in the case of units
c
which have already commenced commercial production,
set up or taken effective steps to set up industrial units prior
to 1.1.2000 or which have been registered as sick, units
prior to 1.1.2000, will be allowed the benefit of exemption
or deferment, as the case may be, granted as per D
notification SRO No. 1729/93.

This notification is intended to achieve the above object."

10. Yet again an amendment was effected by issuance of E
a notification dated 31.3.2000, which is in the following terms:

"S.R.O. NO. 29512000: - In exercise of the powers
conferred by Section 10 of the Kerala General Sales Tax
Act, 1963 (15 of 1963) the Government of Kerala, having
considered it necessary in the public interest so to do, F
hereby make the following amendments to notification
issued in GO (P) No. 181/99/TD dated 31st December,
1999 and published as SRO No. 1092/99 in the Kerala
Gazette Extraordinary No. 2433 dated 31st December,
1999, namely:- G
~ • AMENDMENT

In the said Notification,
(i) in sub-clause (ii), for the words, figures and brackets, H
-
1086 SUPREME COURT REPORTS [2009] 8 S.C.R.

A "(b) owned or acquired" or has been allotted land for
establishing the industrial unit and (c) applied for financial
support from any regular financial institution/Government
of acquired the necessary plant machinery provided that
the unit "commences commercial production on or before
-
B 31st day of December, 2000", the following shall be
substituted, namely:-

"(b) owned or acquired or has been allotted land for
establishing the industrial units and applied for financial
support from any regular financial institution/government
c before 1.1.2000 or (c) in the case of self financed units
acquired or placed firm orders for the purchase of the
necessary plant and machinery, before 1.1.2000 provided
that the unit commences commercial production on or
before the 31st day of December, 2001".
D )

(ii) in sub-clause (iii), for the words, figures "acquired
necessary plant and machinery" and equipments before
the first day of January 2000, provided that such units
"commences commercial products under such
E diversification, expansion or modernization or before the
31st day of December 2000", the following shall be
substituted, namely:-

"(a) or acquired necessary plant and machinery and/or
equipments or (b) has owned or acquired or has been
F allotted land and has applied for loan from any regular
financial institution and/or (c) has placed firm order,; for the
purchase of such plant and machinery and equipments
before the 1st day of January 2000 provided that such unit
commences commercial production of'such diversification,
G expansion or modernization on or before the 31st day of
December, 2001.

A unit shall be deemed to have placed firm orders
for the purchase of plant, machinery and equipments if
H such unit had made any advance payments therefore by
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1087
KERALA & ORS. [S.8. SINHA, J.]

+ means of demand draft of Cheque which has been A
credited to the account of the seller prior to 1st January
2000. The onus of proving that an industrial unit had
placed firm order for purchase of such plant, machinery
and equipments prior to 1st January 2000 shall be on
such industrial unit: 8

(iii) after sub-clause (iv), the following sub-clause
shall be inserted, namely:-

"(v) where on enquiry it is found that any industrial unit
had secured exemption by furnishing false information or c
forged documents, the authority which issued the
-- exemption order, shall, after affording such industrial unit
a reasonable opportunity of being heard, cancel the
exemption"."
D
(emphasis supplied)

11. Indisputably again, the new industrial unit of the
appellant commenced commercial production on and from
6.3.2001. Appellant, however, was not granted the eligibility
certificate. E

Revenue recovery proceedings in connection with the
provisional sales tax assessment for the month of April 2000
were also started wherefor a notice of demand for a sum of
Rs.47,83, 769/- was issued to the appellant on 17.5.2001. F
Appellant replied thereto, stating that it was exempt from
payment of any sales tax having fulfilled all the requirements in
terms of the aforementioned exemption notification. It also
applied for grant of sales tax exemption on 20.6.2001.

A writ petition marked as O.P. No. 20675 of 2001 was filed G
.,.
by it before the Kerala High Court in July 2001 questioning the
aforementioned order of assessment dated 17.5.2001. By
re.ason of an order dated 7.9.2001, the aforementioned writ
petition was disposed of, directing:
H
.J._

1088 SUPREME COURT REPORTS [2009] 8 S.C.R.

A "Petitioner submits that his Ext. P6 application for t
exemption from payment of sales tax is pending before the
second respondent. In the meanwhile, steps have already
been taken for assessment and completed as p~r Ext. P7
whereby huge amounts are to be paid. There is already a
B stay granted by this Court and the same is pending from
13.07.2001 onwards. The only grievance is regarding the
delay in disposal of Ext. P6 application. In the above
circumstances there is no purpose in keeping the original
petition pending. Therefore, the original petition is
c disposed of directing the second respondent to take up
for consideration Ext. P6 application on merits and pass
appropriate orders thereon, in accordance with law, within
_:-
a period of two months from today. Petitioner will
immediately produce a copy of this order along with a copy
of this judgment before the second respondent. It is made
D '
clear that Ext. P. 7 order will be subject to the orders
passed by the second respondent on Ext. P6 application.
Till such time orders are passed by the second
respondent, interim order passed by this Court will
continue."
E
12. Pursuant thereto or in furtherance thereof, the matter
was placed before the Special Secretary (Taxes) who by
reason of a letter dated 15.11.2001 addressed to the
/
Commissioner of Commercial Taxes clarified that the appellant
F was eligible for grant of sales tax exemption.
13. The Principal Secretary (Industries) also wrote a letter
to the Director of Industries & Commerce on or about
21.12.2001 reconfirming that it was eligible for sales tax
exemption.
G
Yet again, the said authority by a letter dated 25.7.2002 ~
.._.
informed the Director of Industries & Commerce stating that the
term 'necessary plant and machinery' need not be the entire
plant and machinery and further that the appellant could be held
(
H to have taken effective steps as per the said notifications. The
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1089
KERALA & ORS. [S.8. SINHA, J.]

Director of Industries & Commerce, however, could not pass A
an appropriate order in terms of the direction of the learned
single judge and sought for an extension which was allowed by
an order dated 1.8.2002.

14. The Sales Tax Officer, Palakkad, however, issued
8
Provisional Assessment Notice for the period April 2002 to
December 2002 on or about 7.2.2003. Questioning the legality
and/or validity of the said notice and the order of assessment,
the appellant filed writ petition being O.P. No. 8563 of 2003 in
the Kerala High Court.
c
15. During pendency of the said writ petition, the Director
of Industries & Commerce by its order dated 8.6.2003 rejected
the prayer for grant of eligibility certificate made by the
appellant, stating:
D
" .... In tum vide letter No. 29815/82/02/ID dt. 23.12.2002
Government have clarified that there is no need to issue
a general clarification for SRO No. 1092/99 and 295/2000
regarding STE. This position was reported to the State
Level Committee held on 15.3.2003 for clarification. Also E
the views in the matter contained in letter No. 23364/83/
2000/TD dt. 15.11.2001 of the Special Secretary to
Government (Taxes) to the Commissioner of Commercial
Taxes, Thiruvananthapuram and in Lr. No. 36693/82/01/
ID dated 21.12.2001 of the Principal Secretary to
Government (Industries) were also presented before the F
State Level Committee for its consideration. As per SRO
No. 29/99 dated 6.1.1999 the Government have authorized
the State Level Committee, under Section 10 of the KGST
Act, as the competent authority to issue clarifications,
wherever necessary, regarding the scheme of tax G
exemption.

The State Level Committee examined the above
issues and held that in the case of Mis Pepsicola India
Marketing Company, the purchase orders and the other H
1090 SUPREME COURT REPORTS [2009] 8 S.C.R.

A documents related to payment of actvance to machinery
suppliers do not show that the Company has fully satisfied
the definition of "Effective steps" as required and as
stipulated in SRO No. 1092/99 as modified by SRO No.
295/2000.
B
ORDER

In the above circumstances and for the foregoing
reasons, the claim of Mis Pepsicola India Marketing
Company, Kanjikode, Palakkad for getting Eligibility
c Certificate for STE vide their application dated 30.5.2001
(Ext. P6 in OP No. 20675/2001) stands rejected."

16. A learned single judge of the High Court disposed of
the writ petition filed by the appellant being O.P. No. 8563 of
D 2003.
In coming to its conclusion, the learned judge took into
consideration the averments contained in paragraphs 6, 7, 8,
9, 12 and 13 of the counter affidavit filed on behalf of the State
that the appellant had not complied with the essential conditions
E for grant of exemption from payment of sales tax as advance
payment in the specified manner had not been made by it
before 1.1.2000 having regard to the fact that the Notification
required such payments in respect of 'necessary plant and
machinery and/or equipments' and not to any or 'certain or a
F small portion of the plant and machinery necessary for the
project', to hold:
"31. The latter part of Sub-clause (iii) which is applicable
to Sub-clauses (ii) and (iii) alike is a deeming provision
G as per which if any advance payments are made by means
of demand drafts or cheque for the purchase of plant,
machinery and equipments which have been credited to
the account of the seller prior to January 1, 2000, it shall
be deemed that firm orders have been placed by the unit
for the purchase of such plant, machinery and equipments.
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1091
KERALA & ORS. [S.B. SINHA, J.]
This deeming provision, if complied with, it must be noted, A

- ~
only dispenses with the requirement of establishing that
firm orders have been placed by the unit for the purchase
of plant, machinery and equipments which are required for
setting up the unit and for commencing commercial
production. This, however, does not mean that the above B
is the only means for establishing that "firm orders have
been placed". The last sentence in Clause (iii) latter part
• states that "the onus of proving that an industrial unit had
placed firm order for purchase of such plant, machinery and
equipments prior to 1st January, 2000 shall be on such c
industrial unit". This makes the position clear that it is open
to the industrial unit to independently establish by
producing other materials that firm orders for purchase of
plant, machinery and equipments are placed before
January 1, 2000."
>. D
It was furthermore held:
"33. In the case of small-scale industrial unit, if it has
~
--"< obtained provisional registration prior to January 1, 2000,
it could be said that the said unit has taken effective steps. E
Similarly, an industrial unit can be considered to have taken
effective steps, if it has owned or acquired or has been
allotted land for establishing the industrial unit and also
applied for loan from any regular financial institution/
-(
Government before January 1, 2000. Similarly, in the case F
of self financed units acquired or placed firm orders for the
purchase of necessary plant and machinery before January
1, 2000, it can be considered to have taken effective steps
provided the unit commences commercial production on
or before December 31, 2001. Regarding the third
G

-
situation, it is stated that a unit shall be deemed to have
placed firm orders for the purchase of plant, machinery and
• equipments if such units had made any (emphasis
supplied) advance payments therefor by means of demand
draft or cheque which have been credited to the account
H
1092 SUPREME COURT REPORTS [2009] 8 S.C.R.

A of the seller prior to the first day of January, 2000. Here it
-t
must be noted that Sub-clauses (ii) and (iii) provide for the
circumstances under which an industrial unit can be ..;...
considered/deemed to have taken effective steps but it is
not exhaustive. The burden is on the industrial unit to
B establish that the unit had placed firm orders for purchase
of plant, machinery and equipments prior to January 1,
2000."

The learned judge furthermore opined that the doctrine of
promissory estoppel shall be applicable in a case of this nature.
c
Respondents preferred a writ appeal thereagainst which
was dismissed by the Division Bench of the said Court by an
order dated 15.6.2004. A Special Leave Petition being SLP
No. 17308 of 2004 filed thereagainst has also been dismissed.
D ~
The Director of Industries & Commerce thereafter granted
an Eligibility Certificate to the appellant stating that it was also
eligible for grant of sales tax exemption. Despite the same,
however, the Deputy Commissioner (General) Commercial
.Taxes denied the grant of benefit of sales tax exemption on the
E
premise that it had failed to take effective steps)n terms of the
relevant notifications by an order dated 5.1.2007.

Another writ petition being W.P. (C) No. 3115 of 2007 was
filed by the appellant. By an order dated 30.11.2007, the said ,
F writ petition was dismissed. An intra court appeal preferred
thereagainst has been dismissed by reason of the impugned
judgment.
17. Before adverting to the rival contentions of the parties,
we may place on record a disturbing fact. This case, on being
G
mentioned by a Senior Counsel of this Court, this Court, by an
order dated 5.01.2009 directed the matter to be placed at the
top of the Board, subject to overnight part-heard. It was taken
up for hearing out of turn.
~
-
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1093
KERALA & ORS. [S.B. SINHA, J.]
' A
Mr. H.N. Salve, learned Senior Counsel, started his
j.
submissions on 3.3.2009. On the next day, i.e. on 4.3.2009, he
made a statement that he had been instructed not to argue.

The proceeding sheet of this Court reads as under:

"Mr. Harish Salve, learned senior counsel appearing B
on behalf of the petitioner states today that he has been
instructed not to appear in this case. Ms. Vibha Datta
Makhija, Advocate-on-record also states that in that view
of the matter she too would withdraw herself from this
case. Thus, there is no representation on the part of the c
petitioner.

Mr. Purvez Bilimoria, Executive Director (Legal)
appearing for the petitioner company seeks adjournment
in this matter. Keeping in view the facts and circumstances
.. of this case, we are of the opinion that this Court can not
D

-\ allow the same.
J We called upon Mr. Bilimoria to argue the matter as
a party in-person. He expresses his inability to do so. We
refuse to adjourn the matter and call upon the learned E
senior counsel appearing on behalf of the State of Kerala
to proceed with the arguments. However, any written
, submissions filed on behalf of the petitioner shall be
entertained."
F
~' 18. However, after the arguments of Mr. Dave were over,
Mr. Bilimoria sought permission to appear in the case. W~
have, despite such a reprehensible conduct on the part of the
~ appellant, allowed its representative to argue the case on behalf
of the appellant-in-person. F
19. Mr. Purvez Bilimoria would urge:

i. Eligibility certificate ha\{ing been granted by .the
authorities of KSIDC arid the Director of Industries
and Commerce, the Secretary of State could not H

i'I
1094 SUPREME COURT REPORTS [2009) 8 S.C.R.

A have sit in appeal over their decisions particularly
when the High Court itself had gone into the issues.

ii. Grant of Eligibility Certificate could have been
denied only when the conditions other than those
noticed by the Kerala Finance Corporation were
8
not satisfied.

iii. Having regard to the findings of the High Court in
Writ Petition being O.P. No. 8563 of 2003, the writ
appeal and the Special Leave Petition
c whereagainst were dismissed; the State could not
have taken a contrary stand.

iv. The State having regard to the promises made to
the appellant pursuant whereto it altered its position
D was bound thereby.

v. The amen.ded notifications and in particular the
notification dated 31.3.2000 being benevolent
ones, the same should have been construed
liberally.
E
vi. Appellant, pursuant to or in furtherance of the
promise, having not collected any tax from its
consumers, a purposive interpretation to the sajd
notification should have been rendered by the High
F Court.

20. Mr. Dushyant Dave, learned senior counsel appearing
on behalf of the respondents, on the other hand, would contend:

(i) A finding of fact having been arrived at by the
G authorities that the appellant had not placed firm
orders of necessary plant and machinery within the
meaning of the provisions of exemption notification
which having been affirmed by both the learned
Single Judge as also the Division Bench of the
H High Court, no interference therewith is warranted.
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1095
KERALA & ORS. [S.B. SINHA, J.]

(ii) The judgment an'd order dated 7.9.2001 in O.P. No. A
20675 of 2001 cannot be held to be binding upon
the Director of Industries as also the Deputy
Commissioner (General) Commercial Taxes as by
reason thereof the said authorities were merely
asked to consider the matter relating to grant of B
eligibility certificate.

(iii) The Director of Industries having issued a
certificate, subject to the concurrence of the Deputy
Commissioner (General) Commercial Taxes, the C
same was not conclusive.

(iv) The exemption granted under the notifications being
conditional, the said condition being imperative in
character requires a strict interpretation.
D
21. The exemption notification was issued for the purpose
of achieving the economic growth in the State. The letters
exchanged by and between the appellant and the authorities
of the State, which we have noticed heretobefore, in no
uncertain terms, show that the appellant was intending to set E
up a plant in the State of Kerala pursuant to the provisions
made by the State.

22. It is beyond any doubt or dispute that pursuant to or in
furtherance of the said assurance, the appellant altered its
position. It made a huge investment. It entered into an F
agreement of lease with the authorities of the State for which it
had expended a sum of Rs. 2,77,64,000/-. The lease is for a
period of 99 years with an option of renewal for another period
of 99 years. Indisputably, again in relation to a part of the plant
and machinery, it had placed orders. The Deutsche Bank had G
issued a certificate on 29.9.2000 in that behalf, stating:

"This is to confirm that the following cheques issued by
Pepsi Cola India Marketing Company, which were
deposit.ed by the parties in their respective accounts were H
1096 SUPREME COURT REPORTS [2009] 8 S.C.R.

A duly honoured and credited' to the party's respective
accounts."

23. Indisputably, again the appellant had commenced
commercial production much before the cut-off date fixed
therefor, viz. 31.12.2001.
8
24. The grant of eligibility certificate is in two tiers. But, it
is of some significance to note that the Director of Industries
and Commerce is the appellate authority of the Deputy
Commissioner (General) Commercial Taxes, as would appear
C from a notification dated 3.11.1993. On the one hand, in relation
to the grant of exemption, the power of the Board of Revenue
is being exercised by the Deputy Commissioner (General)
Commercial Taxes, the Director of Industries and Commerce
was the appellate authority; on the other, the latter's decision
D was made subject to the ultimate grant of exemption by the
former.

The effect of such a dichotomy merits serious
consideration.

E 25. It stands admitted that the contention raised by the
respondents herein in the first round of litigation that the
investment in the plant and machinery must be substantial was
for all intent and purport rejected. Interpreting clauses (a), (b)
and (c) of the notification, it was held that the conditions
F imposed thereby are not absolute. Clauses (b) and (c) of the
notification were read together. It was furthermore held that the
term "any" referring to advance payment is linked up with all the
clauses.

G The said writ application had to be filed by the appellant
as the Director of Industries refused to grant the eligibility
certificate in its favour. The Deputy Commissioner (General)
Commercial Taxes was a party thereto. It has been stated
before us that he had not filed any affidavit in the said
H proceedings. Only the Director of Commerce and Industries
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1097
KERALA & ORS. [S.B. SINHA, J.]
did. Even the special leave petition was filed by the Industries A
Department and not by the Commercial Taxes Department.

The Director had granted a certificate in terms of the order
of the High Court. The eligibility certificate was granted in the
prescribed form. It was shown that a fixed capital investment 8
of Rs. 30,46,94,552 has been made under the following heads:

"i) Land : Nil

ii) Building : Rs. 1,56,02,600/-
c
iii) Plant & Machinery : Rs. 26,71,62,774/-

iv) Pollution Control Devices: Rs. 8,12,294/-

v) Lab equipr:nents : Nil
D
vi) Diesel Generator : Rs. 99,73,589/-
vii) Electrification : Rs. 1, 11,43,295/-
Total : Rs. 30,46,94,552/-"
E
26. To that extent, the appellant had been found to be
eligible for grant of exemption. Conditions entailing the eligibility
certificate specified therein read as under:
"This Eligibility Certificate is issued on the condition that
the Deputy Commissioner (General), Commercial Taxes F
who is the sanctioning authority shall decide on the
eligibility of the unit for ST Exemption under the relevant
notification, vjde general procedure in this regard clarified
by the State Level Committee, in its meeting held on
15.3.2003" G

An explanatory note had been appended thereto; Clauses
3 and 7 whereof read as under:
"3. Plant & Machinery:
H
1098 SUPREME COURT REPORTS [2009] 8 S.C.R.

A The claim of the unit under Plant & Machinery for
eligibility certificate is Rs. 32, 10, 13,534/-. This claim
includes investment in Plant & Machinery, Pollution control
devices and lab equipments. Rs. 26,71,62,774/- and Rs.
8, 12,294/- are found admissible under Plant & Machinery
B and Pollution Control devices respectively, based on
admissible bills, invoices and receipts. Investments on Lab
equipments are not admitted as the claim is not supported
with a certificate of requirement issued by BIS or other
similar organizations vide proviso (11) of the Manual of
c STE.
7. Purchase of Machinery

The unit has not acquired its machinery prior to
1.1.2000. All the items were acquired after 31.12.1999."
D
27. The Director of Industries and Commerce, furthermore,
noticed the advance payments made by the appellant to the
supplier, stating:

"Of the above, item nos 3 & 4 are not any item/ constituent
E of necessary Plant & Machinery. They relate to expenditure
in connection with either pre acquisition or post acquisition
stages of Plant & Machinery in the course of
commissioning the unit. Deducting the above, the actual
advance payment before 1.1.2000 towards identifiable
F constituents/ component of necessary Plant & Machinery
is only Rs. 13. 75 lakhs and this is advance paid prior to
1.1.2000 towards part of the Plant and Machinery costing
105.00 lakhs as against the total cost of Rs. 3210.13 lakhs
involved in the necessary plant & machinery required for
G starting commercial production in the unit. It, therefore,
shows that plant & machinery costing Rs. 3105.13 lakh
were not paid of any advance to machinery suppliers prior
to 1.1.2000 and they all were acquired on different dates
after 1.1.2000.
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1099
KERALA & ORS. [S.B. SINHA, J.]
During May 2000, amendments were made by the A
unit in the earlier placed purchase orders to accommodate
in the purchase/ supply orders additional machineries as
well as items varying in specifications/ with different
capacities than the particular ones for which orders were
placed prior to 1.1.2000. As per this amendment, the total B
value of the machinery for which the advance payment was
made changes from Rs. 105.00 lakhs to Rs. 285.80 lakhs.
It shows that final 'firm orders' even for the items for which
advances were paid prior to 1.1.2000 were placed (along
with firm orders for certain new items) only on different . c
dates in May 2000. This may be kept in mind while ·
proceeding further, if found necessary."

28. The Deputy Commissioner (General) Commercial
Taxes reopened the entire issue. He, despite the fact that the
contention of the State raised in O.P. No. 8563 of 2003 had D
not been accepted by the learned Single Judge of the High
Court, which was affirmed not only by the Division Bench of the
High Court but also by this. Court, proceeded to opine:
(i) Appellant did not fulfill the eligibility criteria. E
(ii) It did not place orders for supply of machinery.

(iii) The conditions for grarit of exemption had not been
satisfied.
F
29. We may proceed on the premise that the said judgment
does not operate res judicata as therein it was directed:
"45. For all these reasons, I set aside exhibit P26 order. I
had given sufficient indications in this judgment in regard G
to the scope of the expression "have taken effective steps"
for setting up the industrial unit prior to the first day of
January, 2000 used in S.R.O. No. 1092 of 1999. I direct
the second respondent to independently consid~r the
petitioner's application for sales tax exemption (exhibit P8)
H
1100 SUPREME COURT REPORTS [2009] 8 S.C.R.

A in the light of the observations contained in this judgment
and after considering the documents with· regard to the
placing of firm orders in respect of plant and machinery
and equipments furnished by the petitioner untrammeled
by the view taken by the State Level Committee in exhibit
B P19 proceedings as well as in exhibit P26. The
Government in their communication dated December 23,
2002 has clearly stated that there is no need for issuing .I-
any general clarification regarding the scope of S.R.O. No.
1092 of 1999 and S.R.O. No. 295 of 2000. Thus the
c second respondent is entitled to take a decision on the
petitioner's application independently."

It was observed:
"... The principles regarding interpretation of an exemption
D provision in a taxing statute laid down by the Supreme • 1-
Court as already noted in paragraph 29 supra where the
Supreme Court has held that a provision granting incentive
for promoting economic growth and development in a
taxing·statute should be liberally construed and restrictions
E placed on it by way of exception should be construed in a
reasonable and purposive manner so as to advance the
object of the provision. In this case, the Government when
they took a decision to discontinue the incentive provided
in Notification S.R.O. No. 1729 of 1993 with effect from
F January 1, 2000 by way of exception decided to extend
the benefit of the said notification to the four categories
mentioned in paragraph 21 supra. These exceptions, as
already noted, are based on the principle of promissory
estoppels as considered by the Supreme Court in
Mahaveer Oil Industries' case (1999] 115 STC 29. The
G
circumstances under which a unit can be considered to
have taken effective steps were incorporated in
Notifications S.R.O. Nos. 1092 of 1999 and 295 of 2000
only as a measure to help the units which have taken
effective steps for setting up the industrial unit based on
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1101
KERALA & ORS. [S.B. SINHA, J.]
Notification S.R.O. No. 1729of1993. I have also observed A
• that the notification itself gives sufficient clues regarding
.. the meaning to be given to the expression "have taken
effective steps" in paragraph 33 supra. According to me
Sub-clauses (ii) and (iii) of Clause 1 of Notification S.R.O.
No. 1092 of 1999 as amended by Notification S.R.O. No. B
295 of 2000 have to be considered and understood in the
above background. If the latter part of Sub-clause (iii) of
Clause 1 of Notification S.R.O. No. 1092 of 1999 inserted
by Notification S.R.O. No. 295 of 2000 is understood in
the above background, the use of the expression "any" c
preceding the expression "advance payments" would
indicate that the quantum of advance payment is irrelevant
and that it is sufficient to make advance payments even if
it is negligible when compared to the value of the plant,
machinery and equipments." D
30. In the aforementioned context, we may notice the
judgment of the learned Single Judge in the second round of
litigation in W.P. (C) No. 3115 of 2007 wherein it was observed:

"34. The total cost of plant and machinery as claimed by E
the petitioner, in the application for sales tax exemption is
Rs. 32, 10, 13,534/-. As noted in para 13 above (which is
extracted from Ext. P13) apparently firm orders had been
., placed by the petitioner only for three items which would
come under the category of necessary plant and F
machinery. Though three replies were given by the
petitioner to Ext. P13, viz., Ext. P14 on 30.6.2005, Ext. P22
dated 29.9.2006 and thereafter Ext. P23 written
submissions was made on 1.12.2006 after the personal
hearing, it was not the case of the petitioner at any point
G
of time that firm orders had been placed by them for other
' • plant and machinery which will come under the category
of necessary plant and machinery in terms of the
notification ... lt is not the petitioner's case that any plant and
machinery as such was acquired before the cut off date
H
1102 SUPREME COURT REPORTS (2009] 8 S.C.R.

A i.e. 1.1.2000. In the circumstances the finding in Ext. P24 ..
that the petitioner had not acquired or placed firm orders
for the purchase of necessary plant and machinery seems
to be based on the materials on record and is otherwise
tenable.
B *** *** ***

... The items of plant and machinery for which firm orders
were placed prior to the cut off date on 1.1.2000 even
according to the petitioner are obviously only a small
c percentage of the plant and machinery ... "

While, however, doing so, we may place on record that the
following contentions had been raised :

"(1) The petitioner's eligibility for sales tax exemption was
D
certified by the Director as per Ext. R1 (a) and
consequently it was not open to the Deputy Commissioner
·of Commercial Taxes, the third respondent to again
consider that question. The third respondent had the
jurisdiction only to quantify the exemption that the petitioner
E was entitled to, eligibility having been already certified.

(2) That at any rate, the petitioner had taken effective steps
for setting up a new industrial unit prior to the first day of
January, 2000, being a self financing unit it had placed firm
F orders for the purchase of necessary plant and machinery
before 1.1.2000. It has commenced commercial production
before 31st of December, 2001.

(3) The finding in Ext. P24 that the activity carried on by
the petitioner does not tantamound to manufacture is
G fundamentally erroneous."
t ...
We are herein concerned with contention Nos. 1 and 2.

So far as contention No. 1 is concerned, he determined
'H the said question in paragraph Nos. 21 to 32, inter alia, stating:
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1103
KERALA & ORS. [S.B. SINHA, J.]

;. "24 ... Should the certificate of eligibility issued by the A
, competent authority necessarily be a certificate of
exemption. Firstly, clause 10(d) states that the eligibility
certificate referred to in clause (b) shall contain the date·
of commencement of commercial production and the
monetary limit of exemption the unit is eligible for. In my B
view clause 10(d) indicates what should necessarily be
contained in the eligibility certificate issued under clause
J.
1O(b). This therefore could also be indicative of the
parameters of the authority required to be exercised by the
Director of Industries in terms of the notification. What is c
required to be certified in the eligibility certificate, is
therefore the date of commencement of commercial
production and the monetary limit of the exemption that the
unit is eligible for. Can it be said that if these two factors
are certified, the unit in question would be entitled to sales
D
tax exemption? If these two factors are certified in the
eligibility certificate issued by the Director, does it oblige
the Deputy Commissioner of Commercial Taxes to
necessarily consider the unit in question as entitled for tax
exemption? Mr. Vellapally contends that once the unit is
_,- certified as eligible for tax exemption then the limited brief E
available to the Secretary, Board of Revenue or the
Deputy Commissioner of Commercial Taxes (who is
currently the competent authority) is only to quantify the
' monetary limits of the tax exemption that the unit is entitled
to." F

Contention No. 2 was dealt in paragraphs 33 to 36,
concluding:

"(i) the activity carried on by the petitioner in its unit at
G
Kanjikode, Palakkad, engaged in the production of soft
• drinks is a manufacturing activity within the meaning of
SRO 1729/93.

0
(ii) In terms of the scheme for exemption from payment of
tax as contained in SRO No. 1729/93, the certificate of H
1104 SUPREME COURT REPORTS [2009) 8 S.C.R.

A eligibility to be issued by the Director is intended only to ~
certify the actual commencement of commercial production
~

of the unit before the cut off date and the monetary limit of
tax exemption that the unit would be eligible for. At the
same time, the Director of Industries is not required to
B certify the entitlement of the unit for tax exemption.

(iii) The entitlement of the unit for exemption from payment
of tax is to be certified by the Deputy Commissioner of
sales tax, in SRO No. 1729/1993. Such certification of the
entitlement is to be contained in the exemption certificate
c issued by the Deputy Commissioner.

(iv) Ext. P24 order passed by the Deputy Commissioner
cannot be said to be without jurisdiction. It is with
jurisdiction and the finding therein to the effect that the
D petitioner has not satisfied the conditions mentioned in
SRO No. 1729/93 as amended by SRO 1092/99 and
modified by SRO No. 295/2000 is correct and justified. The
said finding does not require any interference.

(v) Ext. P24 is therefore upheld subject to the finding in
E
para (i) above viz. the activity carried on by the petitioner
in its unit for the production of soft drinks is a manufacturing
activity within the meaning of SRO No. 1729/1993."

F
It was opined:

•... In. my view Ext. P2 judgment obviously cannot be
construed as conferring authority on the second
respondent to decide the question of eligibility entitlement
/

-
of the petitioner for sales tax exemption. If the direction
G issued in Ext. P2 judgment is construed in such a fashion,
it will amount to altering the scheme for tax exemption as
provided in the statutory application." t

31. Although a contention has been raised before us that
despite opportunities granted, the appellant had not adduced
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1105
KERALA & ORS. [S.8. SINHA, J.]

~ the additional evidence to establish compliance of the A
conditions precedent for grant of eligibility certificate it has not
been denied or disputed that even in the first round of litigation,
the requisite documents formed part of the writ petition. The
Deputy Commissioner (General) Commercial Taxes, therefore,
in our opinion, even it be assumed that he was not totally bound B
by the observations made therein, should have taken into
consideration the interpretation of the notification adverted to
by the learned Single Judge.

32. This brings us to the question of interpretation of the C
notifications.

The notification dated 3. 11.1993 was issued in t~rms of
an industrial policy; pursuant whereto exemption was to be
granted for a period of seven years. Appellant had placed
orders for supply of plant and machinery both with advances D
and without advances.
What was necessary was to take effective steps for setting
up of new industrial units. A deeming provision existed in terms
whereof the effective steps would be considered to have been E
taken; if it has :

{a) obtained provisional registration (applicable only in
the case of SSI units);

(b) owned or acquired or has been allotted land for F
establishing the industrial units and applied for
financial support from any regular financial
institution/ government before 1.1.2000; or

(c) in the case of self financed units acquired or placed G
firm orders for the purchase of the necessary plant
and machinery before 1.1.2000.
Although clause (a) has no application in the instant case
but it becomes relevant for the purpose of construing the
notification so as to measure the level of rigours imposed H
1106 SUPREME COURT REPORTS [2009) 8 S.C.R.

A thereby. In case of SSI units, thus, merely a provisional
registration would serve the purpose. Even no investment was
necessary for obtaining the benefit. So far as clause (b) is
concerned, mere application for financial support from any
regular financial institution again would entitle the entrepreneur
B to obtain the benefit of the exemption notification.

It is in the aforementioned context, applications for grant
of exemption by the self-financed units are required to be taken
into consideration. They are either to acquire or place firm
orders for the necessary plant and machinery. It is not that order
C for entire machinery and equipment were required to be placed
for before! the first day of January, 2000. Even in relation
thereto, a legal fiction has been created stating that if such unit
had made any advance payments therefor by means of demand
draft or cheque, the requirements would stand satisfied.
D
33. The Director of Industries and Commerce, as noticed
hereinbefore, opined that apart from a few items, firm orders
have been placed in respect of some machineries by means
of demand draft or cheques and the same has been credited
E to the account of the sellor prior to the first day of January, 2000.

It is also of some significance to notice that the exemption
notification appears to have been drafted having regard to the
decision of this Court in State of Rajasthan and Another v.
F Mahaveer Oil Industries and Others [(1999) 4 SCC 357].

A comparative chart placed before us by Mr. Billimoria may
be noticed :
Mahaveer Oil
G This Court's observation

Notification 1092/99 as amended

The respondent - firm got its provisional registration
H certificate on 15.2.1990.
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1107
KERALA & ORS. [S.B. SINHA, J.]

t This is merely a provisional registration issued by the A
Directorate of Industries
.-<

Mere registration.would be good enough for SSI units.

They applied for allotment of land and land was allotted to
them by RICO Limited, by its letter dated 19.2.1990. B
Possession of the land was handed over on 7.3.1990 and lease
... agreement was executed in March 1990.

For this land, a very small amount was paid.

If you bought or were allotted land and had merely applied
c
for a loan from a regular financial institution/ government, before
... the relevant date it is good enough .

A loan of Rs. 7.5 lakhs was sanctioned by the Rajasthan
Financial Corporation in favour of the respondents on D
17.4.1990.

It is not stated how much loan was actually availed of by
the respondents on or before 7.5.1990.

Mere application for loan is good enough for those who E
--··
----{
acquired land.

Mahaveer Oil claimed that they placed orders for
machinery on 18.4.1990.
F
It is, however, not stated whether any amount either as
earnest or advance for the purchase of machinery was paid by
the respondents to anybody before 7.5.1990.

Show payment of any advance towards plant and
machinery and it will be deemed that necessary orders have G
; been placed.
The aforementioned comparative chart throws a light on
· the legislative intent and deliberate dilutions of the rigours as
to what effective steps would merit consideration of the H
1108 SUPREME COURT REPORTS [2009] 8 S.C.R.

A application for grant of exemption by an entrepreneur.
~

34. It is also of some significance that the said notification ,,____

was withdrawn by a notification dated 31.12.1999, subject of
course to an exception carved out therein, viz., the industries
which had been set up on or before 1.1.2000 and which have
B
already commenced commercial production, set up or taken
effective steps to establish industrial unit prior to 1.1.2000 were
to be allowed the benefit of exemption.

That notification stood amended on 31.3.2000 in terms
c whereof some benefits had been given to an entrepreneur like
the appellant, as noticed hereinbefore.

35. App~llant need not have questioned the validity thereof .
as the notification in question was issued by relaxing the
D conditions imposed in the notification dated 31.12.1999 which
was one of withdrawing the grant of earlier benefits. Thus, by
reason of the said notification, certain benefits had been
confirmed on it.

36. There cannot be any doubt whatsoever that the burden
E of proof was on the appellant. According to the Director of
Industries, he had discharged the burden. Only because the F
procedural sanction of grant of financial exemption was to be
received from the Deputy Commissioner (General) Commercial
Taxes, the same, in our opinion, would not mean that the
F conditiOns had not been satisfied. In any event, the certificate
granted by the Director deserved serious consideration.

,Both the learned Single Judge as also the Division Bench
did not consider this aspect of the matter.
G 37. Although payment of advance in respect of some
machinery and plant would subserve the requirements for the ~ .,
~
purpose of obtaining the eligibility certificate, the learned Single
Judge read the word 'any' to be synonymous to the word 'all',
whereas the Division Bench considered it to be "substantial".
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1109
KERALA & ORS. [S.B. SINHA, J.]

ltis in that view of the matter the opinion of the learned Single A
Judge in O.P. No. 8563 of 2003 assumes importance wherein,
as noticed hereinbefore, it was categorically held:
,
"... Regarding the third situation, it is stated that a unit shall
be deemed to have placed firm orders for the purchase 8
of plant, machinery and equipment if such units had made
any (emphasis supplied) advance payments therefor by
means of demand draft or cheque which have been
credited to the account of the seller prior to the first day of
,January, 2000 .. ."
c
The High Court although laid emµhasis on the word "any"
but proceeded on the basis as if, purchase of plant, machinery
and equipment prior to 1st January, 2000 in their entirety, was
imperative.
D
38. Appellant's bonafide is not in dispute. The fact that it
had set up an industry and started commercial production nine
months prior to the cut-off date, viz., 31.12.2001 is also not
disputed.

39. Ordinarily, this Court would not have gone into the E
findings of the fact arrived at by the statutory authorities but was
only required to consider the correctness of judgment of the
learned Single Judge as also the Division Bench of the High
Court. However, even in a case of this nature, the authorities
stuck to their own stand which is not expected from a statutory F
authority. See, however, K.I. Shephard and Others v. Union
of India and Others (1987) 4 SCC 431 and Rajesh Kumar and
Others v. Dy. CIT and Others (2007) 2 SCC 181)

40. Mr. Dave has placed strong reliance on a decision of G
this Court in Tata Iron & Steel Co. Ltd. v. State of Jharkhand
~ and Others [(2005) 4 SCC 272] wherein it was held:

"42. Eligibility clause, it is well settled, in relation to
,exemption notification must be given a strict meaning.
H
1110 SUPREME COURT REPORTS (2009) 8 S.C.R.

A 43. In Collector of Customs v. Maestro Motors Ltd. this
Court held: (SCC p. 418, para 9)

"It is settled law that to avail the benefit of a notification a
party must comply with all the conditions of the notification.
Further, a notification has to be interpreted in terms of its
B
language.""

The aforementioned observations were made having
regard to the nature of exemption claimed by the appellant
therein as also having regard to the industrial policy of the
C State of Jharkhand.

41. We may, however, notice that recently in Kusumam
Hotels (P) Ltd. v. Kerala State Electricity Board & Ors. [2008
(9) SCALE 448), this Court held:
D "17. It is now a well settled principle of law that the doctrine
of promissory estoppel applies to the State."

The said principle was reiterated in Mis. Badri Kedar
Paper Pvt. Ltd. v. U.P. Electricity Regulatory Commn. & Ors.
E (2009 (1) SCALE 137] in the following terms:

"... It is furthermore well known that even a right under a
mandatory provision can be waived. [See Babula/
Badriprasad Varma v. Surat Municipal Corporation and
Ors.] If it had made a representation pursuant whereto or
F
in furtherance whereof a consumer of electrical energy had
altered its position, the doctrine of promissory estoppel
shall apply. The doctrine of promissory estoppel, it is now
well-settled, applies also in the realm of a statute."
G 42. An exemption notification and a notification withdrawing
the benefit granted would, however, stand on different footings.
For the said purpose, the industrial policy is required to be kept
in mind. It must also be taken into consideration for the purpose
of construing the exemption notification.
H
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1111 '
KERALA & ORS. [S.B. SINHA, J.]

In A.P. Steel Re-Rolling Mill Ltd. v. State of Kera/a and A
Others [(2007) 2 SCC 725], this Court held:

"32. The general principles with regard to construction of
exemption notification are not of much dispute. Generally,
an exemption notification is to be construed strictly, but
8
once it is found that the entrepreneur fulfils the conditions
laid down therein, liberal construction would be made.

34. A question as to whether, in a given situation, an
entrepreneur was entitled to the benefit under an
exemption notification or not, thus, would depend upon the C
fact of each case. A bare perusal of the notification dated
6-2-1992 issued by the first respondent would show that
the purport and object thereof was to grant benefit of a
, concessional power tariff which came into force on and
from 1-1-1992. The phraseology used in the said D
notification postulates that the benefit was to be granted
in regard to the "enhanced power tariff'. Thus, where the
new units had started production between 1-1-1992 and
31-12-1996, such exemption was available to the
entrepreneurs. E

35. Evidently, except in a situation as might have been
existing in Hitech Electrothermics that any application filed
by the entrepreneur had not been processed within a
reasonable time, in which case .benefit might not be denied
on equitable ground; in cases where there has been a F
substantial failure on the part of the industrial unit to obtain
such benefit owing to acts of omission and commission
on its part, in our opinion, no such benefit can be given."

Yet again in U.P. Power Corporation Ltd. and Another v. G
Sant Steels & Alloys (P) Ltd. and Others [(2008) 2 SCC 777],
it was opined:

"24. Learned Senior Counsel invited our attention to a
decision of this Court in State of Punjab v. Nestle India Ltd.
H
1112 SUPREME COURT REPORTS [2009] 8 S.C.R.

A in which a representation was made by the Government
in the manner dehors the rules but a statement was made
by the Finance Minister in his Budget speech for 1996-
1997 making representation to the effect that the State
Government had abolished purchase tax on milk. The
B manufacturers of milk products, therefore, were not paying
the purchase tax on milk for Assessment Year 1996-1997
and mentioned this fact in their returns. The taxing authority
entertained such returns. The manufacturers passed on the
benefit of exemption to the dairy farmers and milk
c producers. However, after expiry of the said assessment
year, the Government took a decision not to abolish
purchase tax on milk and the taxing authority therefore
raised a demand for Assessment Year 1996-1997. On
these facts, the Court held that in absence of proof of any
overriding public interest rendering the enforcement of
D
estoppel against the Government was inequitable, .I.

notwithstanding that no exemption notification as required
by the statute was issued. It was held that the State
Government cannot resile from its decision to exempt milk
and ~aise a demand for the aforesaid assessment year.
E However, the same principle of estoppel was not invoked
after Assessment Year 1996-1997. The Court enforced
the principle of estoppel. All the earlier cases on the subject
were reviewed by the Court and ultimately it was concluded
as follows: (SCC pp. 481-82, para 47)
F
"47. The appellant has been unable to establish any
overriding public interest which would make it inequitable
to enforce the estoppel against the State Government. The
representation was made by the highest authorities
G including the Finance Minister in his Budget speech after
considering the financial implications of the grant of the
exemption to milk. It was found that the overall benefit to
the State's economy and the public would be greater if the
exemption were allowed. The respondents have passed
H on the benefit of that exemption by providing various
PEPSICO INDIA HOLDINGS P. LTD. v. STATE OF 1113
KERALA & ORS. [S.B. SINHA, J.]

facilities and concessions for the upliftment of the milk A
producers. This has not been denied. It would, in the
circumstances, be inequitable to allow the State
Government now to resile from its decision to exempt milk
and demand the purchase tax with retrospective effect from
1-4-1996 so that the respondents cannot in any event B
readjust the expenditure already made. The High Court
was also right when it held that the operation of the
estoppel would come to an end with the 1997 decision of
the Cabinet."

It was furthermore observed:
c
"35. In this 21st centur1. when there is global economy, the
question of faith is very important. The Government offers
certain benefits to attract the entrepreneurs and the
entrepreneurs act on those beneficial offers. Thereafter, D
the Government withdraws those benefits. This will
seriously affect the credibility of the Government and would
show the short-sightedness of governance. Therefore, in
order to keep the faith of the people, the Government or
its instrumentality should abide by their commitments. In E
this context, the action taken by the appellant Corporation
in revoking the benefits given to the entrepreneurs in the
hill areas will sadly reflect their credibility and people will
not take the word of the Government. That will shake the
faith of the people in the governance. Therefore, in order F
to keep the faith and maintain good governance it is
necessary that whatever representation is made by the
Government or its instrumentality which induces the other
party to act, the Government should not be permitted to
withdraw from that. This is a matter of faith."
G
Furthermore, in this case, the appellant admittedly has
even not realized any tax from its purchasers. Keeping in view
the facts and circumstances of the case, we are of the opinion,
that the respondents must, thus, be held to be bound by the
doctrine of promissory estoppel. H
1114 SUPREME COURT REPORTS [2009] 8 S.C.R.

A 43. For the reasons aforementioned, the impugned
judgment is set aside. The appeal is allowed. However, in view
of the fact that the appellant had instructed the Senior Counsel
not to appear in the matter despite the fact that the same was
heard in part, we not only deny cost to it but also direct that the
s appellant must pay a sum of rupees one lakh to the Kerala State
Legal Services Authority within four weeks from date.

K.K.T. Appeal allowed.