Holding

The State Government was entitled to issue the comprehensive G.O. of 26‑27‑Nov‑1993 withdrawing tax exemption, and the later G.O. of 24‑Nov‑1998 is a clarificatory order operating retrospectively.

Summary

The Supreme Court examined whether the Kerala State Government could, under Article 162 of the Constitution, issue a comprehensive Government Order (G.O.) dated 26‑27 November 1993 withdrawing tax exemption granted under the Kerala General Sales Tax Act, 1963, due to an acute power shortage. The Court held that the State had such authority and that the G.O. was valid. It further ruled that the later G.O. dated 24 November 1998, which modified the negative list, was a clarificatory order and therefore operated retrospectively, not prospectively, as claimed by the industrialists. The Court noted that the High Court had not examined the scope of the clarificatory G.O. of 19 April 1994, the interpretation of clause 7 of the 1993 G.O., and certain provisions of G.O. No. 169/95/ID, and remitted these issues to the Division Bench for consideration. Consequently, the civil appeals filed by the State were allowed, and the matters were sent back to the High Court for further determination.

Issues considered

Whether the State Government had authority under Article 162 to issue the comprehensive G.O. of 26‑27 November 1993 withdrawing tax exemption.
Whether the clarificatory G.O. dated 19‑April‑1994 and the subsequent G.O. dated 24‑November‑1998 are prospective or retrospective in effect.
Interpretation of clause 7 of the 26‑27‑Nov‑1993 G.O. concerning the definition of ‘power intensive units’ (whether ‘and’ is conjunctive or disjunctive).
Whether the High Court had correctly considered the relevant clauses of the G.O.s and the inter‑departmental clarification dated 5‑July‑2000.

Legislation cited

Electricity Act
Kerala General Sales Tax Act, 1963s. 10(1), s. 10(3)

Subjects

tax exemptiongeneral sales taxKeralaArticle 162retrospective effectclarificatory government orderpower shortagenegative listpower intensive unitclause interpretation

Judgment

!

_,, SECRETARY TO GOVERNMENT AND ORS. A
v.
MIS PEEKAY RE-ROLLING MILLS (P) LTD.

APRIL 3, 2007

[S.H. KAPADIA AND P. K. BALASUBRAMANYAN, JJ.] B

Kera/a General Sales Tax Act, 1963-s.10- Tax exemption-Granted
by a Notification-Withdrawal thereof in respect ofcertain industries specified
in a negative list, by a Government Order-By a clarificatory Government
Order negative list modified by including certain more industries in the c
negative list-Denial of tax exemption-Propriety of-Operation of the
clarificatory G.O. whether prospective-Held: State Government had the
authority under Article 162 of the Constitution to issue a G. 0. withdrawing
tax exemption on account of acute power shortage-There is no infirmity in
issuance of the G.O. withdrawing exemption-The subsequent G.O. being D
clarificatory to the previous G. 0., will operate retrospectively-Certain
questions not considered by High Court, remitted back-Constitution of
India, 1950-Article 162-Retrospective Operative-Taxation-Sales Tax.

Under a Notification dated 4.11.1993, tax exemption was given under s~
10 of Kerala General Sales Tax Act, 1963 to medium Scale units for sevenI E
years from the commencement of commercial_ production. Thereafter, due to.
acute power shortage in the State, Government in a G.O. dated 26127-11-1993
stated that certain industries included in the negative list would not be eligible
for State Investment Subsidy. One of the items in the negative list was "power
intensive unit" whose total power requirement exceeded 2500 KVA and where.
F
.)
the cost of power exceeded 25% of the cost of production. The G.O. denied
the subsidy to the units provisionally registered on or after 31.12.1993. The
Government order dated 26/27-11-1993 was clarified by a clarificatory G.O.
dated 19.4.1994 that tax exemption would continue to be available to all the
Industries which were provisionally registered before 31.12.1993. By a further
clarificatory G.O. NO. 169198/ID dated 24.11.1998 State Government modified G
the negative list by including all types of steel re-rolling mills, units
manufacturing iron ingots.

Respondent - Company (in appeal No. 8031/2004) started an industrial

723 H
i )

724 SUPREME COURT REPORTS [2007] 4 S.C.R.

A unit on account of the tax exemption by Notification dated 4.11.1993. It
commenced its commercial production on 31.3.1995. Thereafter, it made
additional investment and sought tax exemption therefore and the same was
granted for seven years from 31.3.1995 to 30.3.2002. During the pendency
of the exemption application before Director of Industries additional capital
investment was made which led to increase in the contract load. Claim of
B respondent in respect of the additional capital investment was rejected by
placing reliance on G.O. dated 26/27-11-1993 and on the ground that the unit
was having a load factor of more than 2500 KVA.

The rejection was challenged. Single Judge of High Court dismissed
the Petitions. Division Bench allowed the writ appeals. Hence the present
C appeal

The question for consideration in the case of the respondent - Company
(in Civil Appeal NO. 803412004) was whether it was entitled to tax exemption
on additional investments made after 24.11.1998. Contention of the respondent
was that the G.O. dated 24.11.1998 operated prospectively.
D Allowing the appeals and remitting the matter to High Court, the Court

HELD : 1.1. The State Government had the authority under Article 162
of the Constitution oflndia to issue G.O. dated 26/27.11.1993 withdrawing
the tax exemption on account of acute power shortage in the State.
E (Para 7] (728-G]

1.2. The comprehensive G.O. dated 26/27.11.1993 issued by the State
Government on account of acute power shortage is applicable to the facts of
the present case. It is undisputed that on 4.11.1993 the State Government
had issued a statutory Notification u/s 10(1) inter alia granting exemption to
F medium scale units from payment of sales tax for seven years. Similarly, the
State had given concessions under Electricity Act. It had promised subsidies.
All these exemptions/concessions were withdrawn by G.O. dated 26/
27.11.1993 by the Ministry oflndustries on account of acute power shortage.
There is no infirmity in the issuance of the said G.O. dated 26/27.11.1993.
(Para 8] [729-A~B]
G
2.1. G.O. dated 26./27.11.1993 got modified by G.O. d~ted 24.11.1998.
Therefore, if the said G.O. dated 26/27.11.1998 is found t~ be applicabl,e.,then
the G.O. dated 24.11.1998 would apply as a clarificatory G.O.
[Pata 18) (732-C

H 2.2. G.O. dated 24.11.1998 is clarificatory. Therefore, it cannot be said
~
I

SECRETARY TO GOVT. v. PEEK.A Y RE· ROLLING MILLS (P) LTD. [KAPADIA,J.) 725
that G.O. dated 24.11.1998 is prospective and not retrospective. A
(Para 18) (732-C-D]

3. Since the Division Bench of the High Court has not examined the
question of interpretation of clause 7 of the G.O. dated 26/27.11.1993, the
scope of clarificatory G.O. dated 19.4.1994, and Cause 3 of G.O. No. 169/95/
ID dated 1.11.1995, to that extent alone, the matter is remitted to the Division · B
Bench for its consideration. (Para 13] (731-B]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8031 of2004.

From the Final Judgment and Order dated 07.10.2003 of the High Court
ofKerala at Emakulam in W.A. No. 1561 of2003s. C
WITH

CA Nos. 8032-8034 of2004.

R. Venkataramani, G. Prakash and Beena Prakash for the Appellants.· D
F.S. Nariman, S. Ganesh and L.N. Rao, E.M.S. Anan, Fazlin Anan, Ajay
K. Jain, M.P. Vinod and M. Markose for the Respondent.

The Judgment of the Court was delivered by

KAPADIA, J. Civil Appeal Nos. 8031104 and 8032-8033104 E
l. Being aggrieved by the common judgment dated 22.8.2003 delivered
by the Division Bench of the Kerala High Court in W.A. Nos. 991 and 1316
of2003, th~ State has come to this Court by way of the present civil appeals.

2. Facts giving rise to these civil appeals are as follows. F
J
3. Peekay Re-Rolling Mills (P) Ltd., respondent herein, was registered
as an industrial unit on 6.9.1991. They claim to have set up an industrial unit
in the State on account of tax exemption given to industrial units from
payment of sales tax for the fixed period commencing from the date of
commercial production. Tax exemption was in fact granted under Section 10 G
of the Kerala General Sales Tax Act, 1963 ("1963 Act") vide notification dated
4.11.1993. Under that notification, tax exemption was admissible to medium
scale units for seven years from the commencement of commercial production.
In the present case, the respondent commenced the said production on'
31.3.1995. In between, on account of acute power shortage in the State, the H
726 SUPREME COURT REPORTS [2007] 4 S.C.R.

A Government issued an Order inter a/ia stating that certain industries included
in the negative list would not be eligible for State Investment Subsidy and
certain other assistance. One of the items in the negative list, being item no.
7, was "power intensive units", whose total power requirement exceeded 2500
KV A and where the cost of power exceeded 25% of the cost of production.
By clauses 2 and 4 of the said G.O., all units in the negative list provisionally
B registered on or after 31.12.1993 were denied State Investment Subsidy. By
clause 3 of the said G.O., expansion/ modernization/ diversification of existing
·units in the negative list was also disqualified from tax exemption from the
Government except in cases where an application was made by the unit on
or before 3 l.12.1993.
c 4. Subsequent to the commencement of commercial production on
31.3.1995 and prior to March, 1996, additional investment was made by the
respondent for the construction of building, installittion of plant and machinery,
electrification etc. This expansion was undertaken for the purpose of downline
integration to enable the respondent to manufacture ste~l ingots, an input in
D- the manufacture of iron rods and.bars. After starting commercial production,
the respondent made an application for tax exemption on 20.6.1997. The
Director of Industries issued eligibility certificate and based on the said
certificate, the Commissioner of Taxes granted exemption on 19 .12.1997 on the
initial investment to the respondent to the tune of Rs. 2.66 crores (approx.)
for seven years from 31.3.1995 to 30.3.2002. D11ring the pendency of the
E exemption application before the Director of Industries, additional capital
investment of Rs. 5 crores (approx.) was made. This led to the increase in the
contract load and, therefore, an application was made on 24.9.1997 by the
respondent claiming tax exemption on the basis of additional capital investment.
This application dated 24.9 .1997 was rejected by the competent authority on
F the ground that the respondent was a power intensive unit having a load
factor of more than 2500 KVA. Reliance was placed on G.O. dated 26127.l l.1993 L
in that regard. This order led to litigation. Without going into unnecessary
details, suffice it so state that both, the Government and the Director of
Industries, pr9ceeded to reject the claim for tax exemption by placing reliance
G on the above G.O. dated 26/27.11.1993. This led to the filing ofO.P. Nos. 32947
and 32807 of 2000 by the respondent herein in the High Court. To complete
the chronology of events, on 19.4.1994 the Government issued a clarification
to the G.O. dated 26/27.11.1993. By the said G.O., it was c:arified that tax
exemption would continue to be available to all industries which were
provisionally registered before 31.12;1993 and only those industries in the
H negative list which stood registered on or after 31.12.1993 alone would be
J
SECRETARY TO GOVT. v. PEEKAYRE-ROLLINGMILLS(P)LTD. [KAPADIA,J.] 727

ineligible for financial assistance/ tax exemption from the Government. Therefore, A
in the said O.P. Nos. 32947 and 32807 of2000 one of the grounds taken by
the respondent was that the Government as well as the Director of Industries
had erred in denying tax exemption to the respondent without considering the
clarificatory G.O. dated 19.4.1994. In the said writ petitions, the 1Jrder passed
by the Director of Industries dated 21.10.2000 holding that the respondent
was not entitled to tax exemption in respect of the additional capital investments .B
was questioned. This order was passed by the Director of Industries based
on an inter departmental letter dated 5.7.2000 addressed by the Principal
Secretary to the Director of Industries, which the Department has termed as
"clarification". Before the High Court, it was also contended by the respondent
that eligibility for tax exemption had to be decided only with reference to C
statutory notification under Section 10( 1) of the said 1963 Act and not with
reference to the general executive orders which do not have statutory flavour
and that by the said G.O. dated 26/27.11.1993 it was not open to the State
Government to withdraw the benefit of tax exemption granted vide notification
dated 4.11.1993.
D
5. By judgment dated 10.4.2003, the learned Single Judge held that G.O.
dated 26/27 .11.1993 was a comprehensive Notification dealing with various
subjects. It was further held that ev_en under Section 10(3) of the said 1963
Act, specific power was given to the Government to cancel or modify any
notification under Section 10(1) of that Act and, therefore, the effect of the E
said G.O. dated 26/27.11.1993 was to modify/ amend Notification dated
4.11.1993. The learned Single Judge further held that when the Government
had statutory power to issue such a notification, any G.O. issued with.out
reference to the provisions of the statute should be deemed to be issued in
exercise of such power. In the circumstances, the contention advanced on
behalf of the respondent to the effect, that G.O. dated 26/27.11.1993 cannot F
cause an amendment/ modification to the statutory notification dated 4.11. l 993
under Section 10(1) of the said 1963 Act, stood rejected. In the petition, one
of the contentions raised by the respondent was that the respondent's unit
was not a Power Intensive Unit because its expenses on account of the cost
of power was less than 25% of the cost of its total production. In this
connection, respondent placed reliance on clause 7 ofG.O. dated 26/27.11.1993. G
This argument was rejected by the learned Single Judge holding that th~ issue
can be decided on interpretation of clause 7 with reference to the' connnected
load and not with reference to the cost of production attributable to power
charges. The learned Single Judge interpreted the word 'and' in clause 7 and
read it as disjunctively. On that basis, the learned Single Judge held that H
:.,,j
;

728 SUPREME COURT REPORTS [2007] 4 S.C.R.

A though the word 'and' was used in clause 7, the two conditions, namely, the ...
contract load above 2500 KV A and the cost of power at more than 25% of
the cost of production, cannot be read conjunctive!}' and that they have to
be read disjunctively. In other words, the learned Single Judge has read the
word 'and' as ~or'. The learned Single Judge also rejected the contention
raised by the respondent that the respondent was entitled to exemption since
B its unit stood registered before 31.12.1993. This argument was rejected on the
j
ground that under clause 3 of G.O. dated 26/27.l 1.1993, expansion of existing
unit in the areas included in the negative list was not entitled to tax exemption
unless application was made on or before 31.12. 1993. According to the learned
Single Judge, the respondent was granted tax exemption on initial investments
c for the full period of seven years from 31.3.1995 to 30.3.2002. This, according
to the learned Single Judge, was in view of the clarificatory G.O. dated ~

19.4.1994. According to the learned Single Judge, the respondent's unit was
not in the negative list on 26.11.1993. It came under the negative list only by
virtue of additional investments made by the respondent after 1. 7.1995 and,
therefore, it was not a case of existing industry in the negative list making
D additional investments and claiming tax exemption thereon. According to the
learned Single Judge, it was a case where by rnaking additional investments,
the respondent had brought its unit into the negative list. For the aforestated '--
reasons, 0. P. Nos. 32807 and 32947 of2000 were dismissed.

6. Aggrieved by the said judgment, the respondent herein carried the )'

E matter in writ appeals to the Division Bench. By the impugned judgment, it
has been held that, G.O. dated 26/27.11.1993 was a general Notification
withdrawing grant of subsidy and as against the said G.O., the exemption
Notification dated 4.11.1993 was a specific Notification issued under Section

F
10(1) of the said 1963 Act and, therefore, the specific Notification would
override the general G.O./ Notification dated 26/27.11.1993. Accordingly, the
1
writ appeals were allowed, hence, these civil appeals.
"'-
7. We are of the view that the State Government had the authority under
Article 162 of the Constitution to issue G-.0. dated 26/27 .11.1993
~ -
withdrawing
:

the tax exemption on account of acute power shortage in the State. However,
F
G for the reasons mentioned hereinbelow, we are not examining the larger ·
question of principle, namely, applica.bility of specific Notification under Section
10(1) of the 1963 Act vis-a-vis comprehensive Notification dated26/27. l l.l993
issued by the Ministry of Industries withdr~wing all tax exemptions including
'-
those under Section 10(1) of the 1963 Act.

H
• SECRETARY TO GOVT. v. PEEKA Y RE-ROLLING MILLS (P) LTD. [KAPADIA, J.] 729

- 8. We are proceeding on the basis that the comprehensive G.O. dated
26/2 7. l l.1993 issued b~ the State Government on account of acute power
shortage is applicable t~ the facts of the present case. It is undisputed that
A

on 4.11.1993 the State Government had issued a statutory Notification under
Section 10( I) inter a/ia granting exemption to medium scale units from payment
of sales tax for seven years. Similarly, the State had given concessions under
Electricity Act. It had promised subsidies. All these exemptions/ concessions B
were withdrawn by G.O. dated 26/27.11.1993 by the Ministry oflndustries on
account of acute power shortage. We do not find any infirmity in the issuance
of the said G.O. dated 26/27.11.1993.

9. The question still remains as to the scope of the cfarificatory G.O. C
dated 19.4.1994. This question has not been examined by the Division Bench.
According to the appellants, the said clarificatory G.O. was not applicable to
units which made additional investments after 26.11.1993. However, this aspect
has not been examined by the Division Bench. The Division Bench has also
not examined clause 3 ofG.O. No. 169/95/ID dated l.11.1995, which reads as
follows: D

-4
"3. Investments in generators shall be eligible for the purpose of Tax
Exemption Additional investment for balancing equipment and lines of
backward or forward integration shall qualify only as additional
investment for the purpose of tax exemption. Additional investment
for purposes of determining tax exemption eligibility will mean those E
investments necessary to the running of the unit which however do
not; qualify independently as expansion/diversification/ modernization,
units shall consequently be entitled only to increase in the monetary
limit for tax exemption already enjoyed without extension in the period.
Tax Exemption for additional investments may be given during the
F
period the unit is enjoying its initial Tax Exemption or when the unit
-,.. is enjoying tax exemption on account of expansion/ diversification/
modernisation."

10. The Director of Industries, in his order dated 21.10.2000 while rejecting
the respondent's claim for tax exemption has relied upon an inter departmental G
letter dated 5.7.2000. The effect of this letter has also not been considered by
the Division Bench, whether the letter is an amendment or a clarification.

11. Similarly, the Division Bench has failed to consider clause 7 ofG.O.
dated 26/27.11.1993. We.reproduce hereinbelow clause 7:
H
730 SUPREME COURT REPORTS [2007] 4 S.C.R.

A "7. Power intensive units based on electro thermal/ electro chemical
processors or units where total power requirement exceeds 2500 KV A
of contract load and where cost of power is more than 25% of cost
of production of the items manufactured except where the units
generate their power requirements in excess of 2500 KVA of contract
load by own captive power." (emphasis supplied)
B
12. As stated above, according to t:.e appellants, the word 'and' in the
above quoted clause should be read as 'or' whereas, according to the
respondent, clause 7 defines power intensive units to mean units whose total
power requirement exceeds 2500 KVA of contract load and where the cost of
C power is more than 25% of cost of production of the items manufactured by
the units. As stated above, the learned Single Judge has accepted the
contention advanced on behalf of the appellants herein. However, this is an
important aspect. The said clause 7 refers to the Load Factor and to the cost
of power as percentage of cost of production. According to the appellants,
the Cost Factor has no nexus with the object sought to be achieved, namely,
D lowering of consumption. According to the appellants, under clause 7 both
the cost and the load factors were required to be taken into account so that
in cases where the limit of 2500 KVA is not exceeded, investment is not
discouraged. According to the appellants, if both the conditions were to be
satisfied for making a unit power intensive unit then, in the present case, the
said G.O. dated 26/27.11.1993 would not apply since during the relevant
E period the respondent's unit did not incur expenses on account of cost of
power exceeding 25% of the total cost of production. In the present case, the
Division Bench has failed to consider the following aspects in the matter of
interpretation of clause 7 of the said G.O. dated 26/27.11.1993. The reason for
issuance of the said G.O. was to curb excess electricity consumption and not
F to curb additional investments. The underlying reason for issuance of the.
said G.O. was to restrict power consumption and not to restrict expansion of
units in terms of additional investments. This is the basic argument advanced
on behalf of the respondent in support of their contention that the word 'and'
in clause 7 should be read conjunctively. On the other hand, it is argued on
G behalf of the appellants that the word 'and' in the said clause should be read
as 'or' since the reason for issuance of the said G.O. was to curb excess
electricity consumption either by way of exceeding the prescribed ceiling of
2500 KVA or by way of additional investments (capital expenditure for additional
facility). These aspects have not been considered by the Division Bench
though it had been considered in favour of the appellants by the learned
H Single Judge.
SECRETARY TO GOVT. v. PEEKAYRE-ROLLING MILLS(P)LTD. [KAPADIA, J.] 731
13. For the above reasons, we hold that the State Government was A
entitled to issue comprehensive G.O. dated 26/27 .11.1993 on account of acute
power shortage in the State. We further hold that the comprehensive G.O.
applies across the board to all units which became power intensive units. To
that extent, we find merit in the civil appeals filed by the State. However, since
the Division Bench of the High Court has not examined the points referred B
to above, to that extent alone, we remit the matter to the Divisi.on Bench for
its consideration.

14. Subject to above, the civil appeals filed by the State stand allowed.
There is no order as to costs.

Civil Appeal No. 8034104

[Sales Tax Officer & Ors. v. Premium Ferro Alloys Ltd.]

15. Although, the dates of events are different, the matter is similar on
the question of withdrawal of tax exemption to the case just decided vide Civil D
Appeal Nos. 8031/04 and 8032-8033/04 concerning Secretary to Government
-" & Ors. v. Mis Peekay Re-rolling Mills (P) Ltd..

16. One of the points which arises for determination in the present case
is whether Premium Ferro Alloys Ltd. is entitled to claim tax exemption on
additional investments made after 24.11.1998. It is urged on behalf of the said E
company (respondent herein) that G.O. No. 169/98/ID dated 24.11.1998 by
which the State Government modified the negative list by including all types
of steel re-rolling mills, units manufacturing iron ingots, operated prospectively.
In this connection reliance was placed on clause 3 of the said G.O.

17. We do not find any merit in the above contention. We quote f 1

hereinbelow clause 2 and clause 3 of the said G.O. dated 24.1 L1998.

"2. The Director oflndustries & Commerce has in his letter read above
proposed some. modifications to the negative list. The Government
have examined the proposal of the Director of Industries & ·commerce
and decided to amend the G.O. read above by including the following d
industries also in the negative list.
I. Metal Crushers including Granite Manufacturing Units.
2 1
All types of steel Re-Rolling Mills, Units Manufacturing iron
ingots.
H
I

1
732 SUPREME COURT REPORTS (2007] 4 S.C.R.

A 3. Ferro Silicon .... .

4. Calcium Carbide
5. Cement Manufacturing
6. Potassium Chlorate
B 3. This order will be effective front the date of order and will be
applicable to all units taking provisional registration or IEM/SIA as
the case may be from the date of this order. All the conditions
stipulated in the G.O. read above and subsequent amendments/
clarifications issued thereon will be applicable to this order also."
c 18. Reading the above two clauses, it is clear that the G.O. dated 26/
27.11.1993 got modified by G.O. dated 24.11.1998. Therefore, if the said G.O.
dated 26/27.11.1993 is found to be applicable then the G.O. dated 24.11.1998
wh~h is modification of the earlier G.O. dated 26/27.11.1993 would apply as
a clarificatory G.O.. We may reiterate that in our judgment in Civil Appeal Nos.
D 8031/04 and 8032-8033/04 the question of interpretation of clause 7 of G.O.
dated 26/27 . 11.1993 has been remitted to the High Court. However, as far as
retrospectivity of G.O. dated 24.11.1998 is concerned, we are of the view that
the said G.O. is clarificatory. Therefore, there is no merit in the contention
raised on behalf of Premium Ferro Alloys Ltd. that the said G.O. \lated
E 24 .11.1998 is prospective and not retrospective.

19. However, the issues, which we have remitted to the Division Bench
in the earlier matters (Civil Appeal Nos. 8031/04 and 8032-8033/04), also arise
in the present case.

F 20. In the circumstances, we remit this case also to the Division Bench.
Accordingly, we request the Division Bench Q.f the High Court to tag W.A.
No. 1477 of2003 with W.A. Nos. 991,1316 and 1561 of2003 and decide the "'
appeals accordingly.

21. Subject to above, the appeal is allowed with no order as to costs.
G K.K.T. Appeal allowed.