Holding

An exemption is a defeasible concession; the State, under the relevant statutory powers and the scheme, may modify or withdraw it, so the respondents have no indefeasible right and the corrigendum is valid and applicable prospectively.

Summary

The Rajasthan government introduced a Sales Tax Exemption Scheme for industries under its Fourth Industrial Policy, classifying cement units under different categories. Two sick cement manufacturers applied for exemption claiming parity with new units, but while their applications were pending the government issued a corrigendum changing the wording to place sick units on par with new units across categories. The Rajasthan High Court quashed the corrigendum and granted relief, but the Supreme Court reversed that decision. The Court held that an exemption is a defeasible concession and, being granted under Section 15 of the Rajasthan Sales Tax Act, Section 8(5) of the Central Sales Tax Act and clause 9 of the scheme, the State could modify or withdraw it. The respondents did not have an indefeasible vested right, nor could promissory estoppel bind the State. Consequently, the corrigendum was valid and applicable prospectively from its publication, and the respondents were liable to pay the differential sales tax, though without interest or penalty for the period the matter was sub‑judice.

Issues considered

The corrigendum's effect: whether it operates retrospectively or prospectively on the respondents' exemption rights.
Whether the respondents possessed a vested or indefeasible right to the exemption under the original scheme.
Whether the State Government has the power to modify or withdraw the exemption under the Rajasthan Sales Tax Act, Central Sales Tax Act, and the scheme's provisions.
Whether the corrigendum violates Article 14 (equality) or is arbitrary.
Whether the principle of promissory estoppel precludes the State from altering the concession.

Legislation cited

Central Sales Tax Act, 1956s. 8(5)
Rajasthan Sales Tax Act, 1994s. 15

Subjects

sales tax exemptionindustrial policycorrigendumdefeasible rightpromissory estoppelArticle 14public interestRajasthan Sales Tax ActCentral Sales Tax Actfiscal concession

Judgment

A STA TE OF RAJASTHAN AND ANR.
v.
J.K. UDAIPUR UDYOG LTD. AND ANR.

SEPTEMBER 28, 2004 ·

B [RUMA PAL AND ARUN KUMAR, JJ.]

Rajasthan Sales Tax Exemption Scheme for Industries, 1988: Annexure
'B', Sri. Nos. I, 2, 3. 4(a) & (b).

c SoughtSales Tax-Exemption--Fourth Industrial Policy-Scheme framed under
to make Rajasthan "a most favoured destination for industries"-
Scheme provided for exemption from sales tax for certain industrial units~
Industries were classified into three categories under Sri. Nos. I, 2 and 3
ofAnnexure 'B '-Such industries entitlecf to exemption at a flat rate of 25%
for eleven years-New units were placed at Sri. No. I-Two companies
D manufacturing cement appliedfor exemption on par with units under Sri. No.
I-While the said applications were pending a corrigendum was issued
replacing the words "new units at Sri. No. I" by "new units at Sri. Nos. I,
2 and 3 as the case maybe" Corrigendum was to take effect prospective/j;-
Sick units were thus placed under Sri. No. 4(a) on par with cement units under
Sri. No. 3-Validity of-Held: Scheme was notified under S. I 5 RST Act and
E S. 8(5) CST Act and, therefore, Government was competent to modify or
revoke the grant of exemption-It is more so as there was no promissory
estoppe/-The cement units had no indefeasible rights for the grant of
exemption Apart from this, exemption being a creature of the Scheme
Government had the right to review or modify the Scheme-The Fourth
F Industrial Policy wasframed in public interest-Therefore the corrigendum
issued with the intention to effectuate the policy is in public interest-Benefits
given to sick industrial units which had not availed of such benefits in the
past at par· with new units did not refer to industries at Sri. No. I-Sick
cement plants would be covered by the words "all categories" of cement
plants/units at Sri. No. 3-Since the original scheme did not declare the
G intention ofthe Government to make Rajasthan a "most favoured destination
for industries" the corrigendum was issued to remove this ambiguity-Hence,
corrigendum not violative ofArt. I 4 ofthe Constitution--Rajasthan Sales Tax
Act, 1994,- S. 15--Central Sales Tax Act, 1956, S. 8(5).

H Sales Tax-Exemption-High Court quashed notification reducing rate
812
STATE v. J.K. UDAIPUR UDYOG LTD. 813

- of exemption-Appeal against the said decision admitted-But no stay was
granted-Ultimately High Court's decision reversed-Liability to tax-Held:
A

the primary liability to pay sales tax is on the seller-Although the seller
could not recover sales tax from its customers till the High Court's decision
was reversed, yet they are liable to pay the differential amount of tax-
However, no interest or penalty could be charged during the period the B
matter was subjudice before the Supreme Court provided the principal
amount is paid within the time specified by the Government.

Words & Phrases:

"Exemption "-Meaning and nature of-Explained. C

The appellant-State framed a scheme granting exemption to
industrial units from payment of sales tax on intra-state and inter-state
sale of goods and by-products manufactured within the State. The scheme
was part of the New Fourth Industrial Policy of the State. D
The Policy stated that the object of the scheme was to make the State
"a most favoured destination for industries" and to encourage the setting
up of industries in the State. Pursuant to this Policy the Rajasthan Sales
Tax/Central Sales Tax Exemption Scheme for industries. 1998 was framed
and notified under Section 15 of the Rajasthan Sales Tax Act, 1994 and
Section 8(5) of the Central sales Tax Act, 1956. The scheme came into E
force on 1.4.1998.

For the purpose of exemption. Annexure 'B' to the Scheme classified
the industries into three categories under Sri. Nos. 1, 2 and 3 accordi~g
to the kind of industry. All categories of cement plants/units were placed F
under Sri. No. 3 and were entitled to exemption at flat rate of 25% for
eleven years. Sick units were placed under Sri. No. 4; Clause (a) thereof
covering sick units, which had not availed of benefits, previously, provided
for same benefits, which were available to "new units at Sri. No. 1". The
benefits ranged from 100% in 1st year to 30% in 11th year. Clause (b)
covering other sick units provided for lesser benefits which were, however, G
higher than those available to units under Sri. No. 3. Clause 4 further
provided for obtaining sanction from the appropriate Screening
Committee for availing of the benefits under the Scheme. Thereafter an
eligibility certificate was to be issued to the applicant unit by the assessing
authority. Clause 4 further provided that the benefits under the scheme H
814 SUPREME COURT REPORTS [2004) SUPP. 4 S.C.R.

A would be available from the date of the application filed by the applicant-
unit complete in all respects, as certified by the authorized officer.
-
The respondent-companies were manufacturers of cement in
different units within the State and were sick companies. The respondent-
company applied for ex.emption under the scheme claiming benefits at
B par with units under Sri. No. I. The director of Industries certified that
the application of one of the companies was complete. The certificate
stipulated that the incentive, if any, availed of by the said company
would be entirely at its risk subject to the decision of the Screening
Committee. The company also gave an undertaking that in the event of
c refusal of sanction it would pay the tax. While the application of the said
company was pending, the Government issued a corrigendum replacing
• the words "New units at Sri. No. 1" with "New units under Sri. No. 4
as the case may be". Thus sick cement units under Sri. No. 4(a) were
expressly put on par with new cement units under Sri. No. 3. The said
company subn.iitted a representation to the Screening Committee that
D the corrigendum should not affect the company.. While deferring the
case, the Screening Committee said that the unit could avail of the
benefit's under. the scheme to the extent permissible under the
corrigendum from the date of its issuance. Neither any sanction under
clause 4(e) nor an. eligibility certificate under clause 4(f) had been issued
E to the said company under the scheme till date.
As far as the other respondent-company was concerned,
its application under the scheme was certified as complete and
was sanctioned. However the quantum of benefits was granted
in terms of the corrigendum from the date of issuance of the
F Corrigendum. Accordingly the eligibility certificate was issued to this
company restricting t~e benefits under the scheme on the basis of the
corrigendum.

Since the respondents had been availing of the higher rates of
G exemption against Sri. No. 1, consequent upon the decision of the
Screening Committee granting tire benefits under the corrigendum.
provisional assessment orders and notices were issued to both the
respondent companies. by the Sales Tax Authorities over the differential
sales tax.

H The respondent-companies filed writ petitions before the High Court
... STATE v. J.K. UDAIPUR UDYOG LTD . 815

claiming that their rights under the scheme were crystallized with effect A
from the date of the certification of their applications under clause 4(h)
of Annexure 'B' to the scheme, which could not be taken away by the
corrigendum with retrospective effect.

A Single Judge held that the impugned corrigendum amounted to
an amendment of the scheme and that the corrige~dum would operate
B
prospectively from the date of its publication in the official gazette. The
Division Bench, while upholding this decision, further held that the rights
available to the respondent-companies under the official scheme were
substantive right5; and that these rights could not be affected adversely
unless the subsequent notification clearly manifested an intention to do C
so and that there was no such manifest intention. It was further held
that the amendment was arbitrary and violative of Article 14 being
discriminatory vis-a-vis other sick industries. It was also held that the.
amendment could not discriminate against sick cement plants which
had not availed of benefits of tax exemption earlier, so that such sick
D
industries were treated in a manner worse than sick cement industries
which had availed of exemptions from sales tax earlier. '.l'he Division
Bench accordingly held that the respondent-companies were entitled to
avail of the benefits under the scheme as originally notified and that
such rights were not affected by the corrigendum. However, the
corrigendum notification was not quashed. Hence the appeal. E

On behalf of the appellant-State, it was contended that the
respondents had no vested right to the benefits of the scheme as available
to new units under Sri. No. 1 of Annexure 'B' to the scheme: that the
impugned corrigendum merely made explicit the intention of the State F
Government to treat the sick units of a particular industry on par with
new units of such industries; that the State Government had. the power
to withdraw or modify the benefit of the scheme not only under Section
15 of the RST Act read with Section 8 of the CST Act but also under
Clause 9 of the scheme; that the respondents had failed to establish that
"
the State Government was bound by the principle of promissory estoppel G
from modifying or withdrawing the concession: that the corrigendum
was not discriminatory and merely treated sick cement units and new
cement units equally; and that the appellant-State did not intend to take
away the benefits enjoyed by the respondents prior to the date of
publication of the corrigendum.
H
816 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
·~

A On behalf of the respondents-companies, it was contended that
there was no power under Section 8(5) of the CST Act to withdraw an
exemption with retrospective effect; that on the date on which the
respondent-companies' applications were certified as being complete,
rights accrued to the industrial units which could not be withdrawn and
it was not necessary to rely upon the principle of promissory estoppel
B for the. purpose of claiming continued exemption; that the subsequent
notification was not a corrigendum but an amendment of the scheme
and could not be construed as amounting to withdrawal of the rights
conferred under the scheme as originally published: that sick units had
been treated as a class apart irrespective of the nature of the industry;
C that the corrigendum if construed in the manner suggested by the
appellants would be violative of Article 14; that in any event this Court
should protect the respondent-companies in so far as they had availed
of the benefits of the scheme as originally published at least from the
date of the order of the High Court: and that the decision of the High
D Court not having been stayed by this Court, the respondent-companies
had not recovered sales tax from their customers by virtue of Section
14(2) of the RST Act and it would in these circumstances be inequitable
to saddle them with sales tax liability for the period subsequent to the
decision of the High Court.

E Allowing the appeals, the Court

HELD: 1. The answer to the question whether the subsequent
notification could operate as far as the respondent-companies are
concerned with effect from the date of publication of the corrigendum
in the official gazette would depend upon the nature of the rights of the
F
respondent-companies under the scheme. [832-A-B-C-D) ·

2. An exemption is by definition a freedom from an obligation,
which the exemptee is otherwise liable to discharge. It is a privilege
granting an advantagt: not available to others. An exemption granted
G under a statutory provision in a fiscal statute is a concession granted by
the State Government so that the beneficiaries of such concession are
not required to pay the tax or duty they are otherwise liable to pay
under such statute. The recipient of a concession has .no legally
enforceable right against the Government to grant a concession except
to enjoy the benefits of the concession during the period of its grant.
H
STATEv. J.K. UDAIPUR UDYOG LTD. 817

This right to enjoy is a defeasible one in the sense that it may be taken A
away in exercise of the very power under which the exemption was
granted. (832-D-E-F]

Shri Baku/ Oil Industries v. State of Gujarat, [1987] SCC 31; Kasinka
Trading v. Union of India, (1995) 1 SCC 274 and Shrijee Sales Corpn. v.
Union of India, [1997) 3 SCC 398, relied on.
B

3.1. In the present case the scheme having been notified under the
power in the State Government to grant exemptions both under Section 15
of the Rajas!han Sales Tax Act, 1994 and Section 8(5) of the Central Sales
Tax Act, 1956 in the public interest, the State Government was competent C
to modify or revoke the grant for the same reason. Thus what is granted can
be withdrawn unless the Government is precluded from doing so on the
ground of promissory estoppel, which principle is itself subject to
considerations of equity and public interest. [832-F-G-H]

Sales Tax Officer v. Shree Durga Oil Mills, [1998) l SCC 572, relied D
on.

3.2. The vesting of a defeasible right is, therefore, a. contradiction in
terms. There being no indefeasible right to the continued grant of an
exemption (absent the exception of promissory estoppel), the question of E
the respondent-companies having an indefeasible right to any facet of such
exemption such as the rate, period etc. does not arise. [832-H; 833-A-B]

4. In any event, the High Court erred in fact in holding that one of the
respondent-companies had a vested right to the benefits of the scheme.
Clause 4 of the scheme clearly provides that the benefits under the scheme F
were subject to the sanction of the Screening Committee. No sanction has
been issued to the said respondent-company till date. (833-B-C]

5. Apart from this, the exemption being a creature of the scheme is
subject to the scheme. Clause 9 of the scheme makes it clear that the right
under the scheme was temporary in the sense that the scheme could be
G
modified or reviewed. It is true that clause 9 also provides that such review
or modification could take place only in the public interest. But nevertheless
the right conferred was a modifiable or revocable one. If any right under
the scheme were held to be unmodifiable it would be contrary to the scheme
itself. Therefore even if one were to assume that the respondent companies H
818 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A were entitled to the benefits of the scheme on par with new units under Sri.
No. I with ef(eet from the date of the certification of their application under
clause 4(h), the right could be modified with effect from the date on which
the scheme was modified. The further argument of the respondent that the
subsequent notification could not be construed asa modification and would
apply only to subsequent applicants is unacceptable. There is no ambiguity
B
in the language of the subsequent notification. On the contrary the use of
the word c?rrigendum itself indicates the intention was to correct and to
rectify what the State Government thought had been erroneously done.
[833-C, D, E, F]

c 6. The New Industrial Policy. pursuant to which, the scheme had
been framed by the State Government was indisputably in the public
interest. Therefore, if the intention of the State Government was to
effectua!e the policy by issuing the subsequent notification it cannot be
said that the St~te Government was not acting in the public interest.
The Industrial Policy which resulted in the exemption scheme expressly
D
provided that the rate of benefits which were to be given to sick industrial
units which had not availed of any such benefits in the past would be at
par with a n~w· unit. But that does not mean that the words "new unit"
in the policy referred to industries under Sri. No. I of ~nnexure 'B'. Sri.
No. 3 of Annexure 'B' refers to "all c~tegories" 9f cement plants except
E mini ce"!ent plants mentioned in .Annexure 'A' !O the scheme. If "All
categories" would necessarily include new cement plants and sick
industrial units falling within the definition of Clause 2(k)(ii), which
were also entitled to the sam'e level of benefit as all other new cement
Units. It would be incongruous to grant sick industrial units, which' do
F not fall within clause 2(k)(ii) higher benefits than sick industrial units,
which
,
do. [833-F, G, H; 834-A, - C, D, E, F]

7. The thrust of the industri.al policy was to give an incentive to
new entrepreneurs. It is true that there are separate provisions for sick
industries but given the main object of the policy to make Rajasthan a
G "most favoured destination for industries", it could not have been the,
intention of the State.Government to give a lower benefit to new industries
and to give higher·benefits tq, sick industrial units already.established in
.. the State. However, when the scheme was first notified although the
body of the scheme effectuated the objective, t.he entry under column 3
H against Sri. No. 4 in Annexure B did not clearly reflect this. It was to
- STATE v. J.K. UDAIPUR UDYOG LTD.

clarify this ambiguity that the subsequent notification was issued by the
State Government. [834-H; 835-A, B, C, D]
819

A

8. The corrigendum cannot be said to be violative ofArticle 14. Although
Sri. No. 3 would include all categories of cement industries, the question
whether Sri. No. 4(b) would relate to sick cement industries not covered by
clause 2(k)(iii) or Sri. No. 4(a) is not an issue, which requires to be finally B
decided in the present case. The finality given to the decision of the Screening
Committee in terms of Clause 4(a) is "subject to other provisions provided
for in the scheme". Any dec_ision of the Screening Committee cannot be
contrary to the provisions of the scheme. Besides, all that the Screening
Committee has held is that the respondent companies are to be treated on c
par with other cement companies, with effect from the date of the subsequent
notification. [835-D-E-F-G; 836-A-B-C]

9. The Division Bench had not quashed the corrigendum notification
but had contented itsetf with construing it. The mere fact that this Court
has not granted a stay of operation of the decision of the High Court D
would not give the respondent-companies any right to the fruits of that
decision if the decision is ultimately reversed by this Court. Besides the
respondent-companies should have been aware that with the admission
of the appeal from the High Court's order their rights thereunder were
precarious. [836-F-G-H] E
Union of India v. West Coast Paper Mills Ltd, [2004) 2 SCC 747,
relied on.

10. The mere circumstance that the respondent-companies having
availed of the exemption scheme were prohibited from collecting the tax F
from its, customers or that they had not collected the sales tax from their
customers is of no consequence. The primary liability to pay the sales tax
is on the seller. The seller ma~ or may not be entitled to recover the same
from the purchaser. The State Government is entitled to recover the same
from the respondent-companies irrespective of the fact that the respondent-
G
companies may have lost the chance of passing on their liability to pay sales
tax to their purchasers. [836-H, 837-A, B, C]

British Physical Lab India Ltd. v. State of Karnataka, [1999) 1 SCC
170; Shree Cement Ltd. v. State of Rajasthan, [2001] l SCC 765; Shree
Digvijay Cement Co. Ltd. v. State of Rajasthan, [2000] I SCC 688 and State H
A
820 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

of Rajasthan v. Mahaveer Oil Industries Ltd, [1999) 4 SCC 357, held
inapplicable.
-
Shree Digvijay Cement Co. v. State of Rajasthan, [1997) 5 SCC 406,
referred to.

B 11. As tar as the other respondent is concerned, its right to obtain
benefits under the scheme by reason of clause 4(b) of Annexure 'B'
was in any event provisional since no sanction has been granted to
the company. The undertaking given by this company was to the
effect that the benefits of the scheme were being availed of at the
C risk of the company till the sanction was granted by the Screening
Committee. [838-F, G, H)

12. In such circumstances it must be open to the State Government
to recover sales tax dues allowing the respondent-companies to only
keep such benefits as had been already availed of by them up to the date
D of publication of the scheme in the official gazette and thereafter at the
rates specified and according to the provisions of the scheme as modified
by the corrigendum notification. However no interest or penalty will be
charged from the respondent-companies by the appellants on the
differential amounts for the period the matter was sub judice before this
E ·Court provided the respondent-companies pay the principal amount of
sales tax within such time as may be specified by the appellants in this
regard. [838-H; 839-A, B, C)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8193 of2003.

F From the Judgment and Order dated 11.12.2001 of the Rajasthan High
Court in D.B.C.S.A. No. 337 of 2001.

WITH

C.A. Nos. 8194-8201, 8203-8206 of 2003.
G
C.S. Vaidyanathan, Aruneshwar Gupta, Additional Advocate General
for State and Arparjit Singh Bedi for the Appellants.

S. Ganesh, U.A. Rana, M.L. Patodi, Arvind Kumar, Sadeep Kharel for
H Mis. Gagrat & Co. for the Respondents.
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 821

The Judgment of the Court was delivered by A
RUMA PAL : A scheme was framed by the first appellant granting
exemption to industrial units from payment of sales tax on intra-state. and
inter-state sale of goods and by-products manufactured within the State of
Rajasthan. By a subsequent notification the extent of the percentage of
exemption available to sick industries was sought to be corrected. The B
disputes in these appeals relate to the interpretation of the scheme and the
effect of the corrigendum.

The scheme was part of the New 4th Industrial Policy of the State. The
Policy stated that the object of the scheme was to make Rajasthan "a most
favoured destination for industries" and to encourage the setting up of
c
industries in the State. The policy describes the nature of the exemptions
which were sought to be granted to the different kinds of industries with
exemption/deferment incentives for 11 years in respect of some industries
and 14 years for others. A greater incentive was granted to industries being
set up in the five industrial growth centres in the State. The incentives D
available during the first year were to be gradually tapered off to a particular
percentage of the fixed capital investment at different rates in respect of some
industries. However, in respect of cement industries the percentage of
exemption proposed was at a flat rate of 25% for 11 years. According to the
policy the scheme would also give benefits for the first time to sick units. E
The sick units were classified into two categories as follows:

(1) "Those units which have not availed of any benefits in the past
will get full benefits at par with a new unit.

(2) Those units which have availed of sales tax benefits in the past F
will get ST benefit on a tapering basis up to 11 years
(maximum 80% and minimum l 0% exemption/deferment on a
t~ering basis)".

Pursuant to this Policy the Rajasthan Sales Tax/Central Sales Tax
Exemption Scheme for Industries, 1998 (referred to as 'the scheme') was G
framed and notified in exercise of the powers conferred on the State
Government by section 15 of'.the Rajasthan Sales Tax Act, 1994 (referred
to as "RST Act") and by sub~section (5) of Section 8 of the Central Sales
Tax Act, 1956 (referred to as 'the CST Act"), The scheme came into force
from 1st April 1998. Clause 1-(b) of the scheme envisages that "an industrial H
822 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A unit which commences commercial production during the operative period
of this scheme, shall be entitled to claim benefits under this scheme." Clause
3(a) provides that the scheme shall be applicable to:

(i) the new industrial units;

B (ii) the industrial units going for expansion;

(iii) the industrial units launch,ing diversification; and

(iv) the sick industrial units.
c A "New Industrial Unit" has been defined in clause 2(k) as:-

(i) "New Industrial Unit" means an industrial unit which.
commences commercial production during the operative period
of this Scheme including a unit set up on the site of an existing
D industrial unit by making separately identifiable ·capital
investment; subject however, that where an industrial unit
manufacturing the same product is established on the site of
an existing unit, the benefit penhissible for a new unit shall be
available to it only on the production in excess of 80% of the
installed capacity of the existing unit.
E
(ii) "New Industrial Unit" shall also include a sick unit:-

(a) which has not availed of any benefits of exemption from
tax or deferment of tax;
F
(~) which has been appraised by financial institution and
appropriate rehabilitation plan has been formulated; and

(c) which has been purchase:d by a new management other
than by way of collusive transfer and such management
G has made additional fixed! capital investment not less than
25% of the depreciated value_ of the assets of such unit".

Tb; respondents ·in these appeal~ vliz Mis. J.K. Udyog and J.K.
Synthetics Ltd were writ petitioners before the High Court of Rajasthan and
are companies which manufacture cement in different units within the State
H
STATE v. J.K. UDAIPUR UDYOG LTff [RUMA PAL, J.] 823

of Rajasthan. The respondent-companies in these appeals are undisputedly A
'sick'.

The description of the type of units, exten~ of the percentage of
exemption from tax liability, the maximum exemption permissible under the
scheme and the maximum time limit for availing the exemption under the
scheme have been set out in Annexure 'B' to the Scheme.
B

We set out below the material portion of Annexure B to the exemption
scheme.

. c
SI. Type of Units Extent of the Maximum exemption Maximum
No. percentage of in tenns of percentage availing
exemption from of eligible fixed capital limit for
total tax liability investment (FCI) exemption
from tax.

1 2 3 4 5

J. New Units other 1st year 100% 100% of eligible fixed Eleven
D
than the units
mentioned at
2nd year
3rd year
90%
80%
capital investment in
cases where such .years

S.No. 2 and 3 and 4th year 70% investment exceeds
units.going in for 5th year 60% Rs. 1,50,00 lacs, and
expansion or 6th year 50% 125% of eligible FCI
diversification 7th year 50% in cases where such E
8th year 40% investment does not
9th year 40% exceed Rs. 150,00 lacs
I Ith year 30%
30%

2. (a) New Units of )st year 100% 125% of eligible fixed Thirteen
knitwears, gems and 2nd year 100% capital investment years F
jewellery, textile, 3rd year 90%
electronics and 4th year 80%
telecommunications, 5th year 70%
computer software, 6th year 60%
foot wears and 7th year 50%
leather goods, and 8th year 50% G
ceramic 9th year 40%
(b) Very Prestigious 10th year 40%
Units I Ith year 30%
12th year 30%
13th year 30%
30%
H
824 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A 3. All categories of 25% of I 00% of eligible FCI Eleven
cement Plants/units total years
including pioneering liability
to Prestigious unit
Very prestigious/
Premier
B Units except mini
cement plants ment-
ioned in Annexure-A

4. Sick Units: Same Eleven
(a) Sick units which which are years
have not availed of
c benefits of
available
to new
exemption from tax Units at
or determent of tax S.No. I
previously,

(b) Other sick units !st year 80% 100% of eligible Eleven
which have availed 2nd year 70% fixed capital years
D of the benefits of 3rd year 60% investment
exemption from tax 4th year 50% in cases where such
or deferment of tax 5th year 40% investment exceeds
6th year 30% Rs. 150.00 lacs and
7th year 20% 125% of FCI in cases
8th year 10% where s~ch investment
9th year 10% does not exceed
E 10th year 10% Rs. 150.00 lacs
1 lth year 10%

It is apparent from this annexure that for the purposes of deferring the
rate of exemption the industries were classified into three categories under
Sri. Nos. I, 2 and 3 according to the kind of Industry. Cement plants/units
F have been separately placed in Sri.No. 3.

According to the respondent-companies, however, sick units were
treated as a special category, and irrespective of the nature of the industry,
were covered by Srl.4. It is the respondent's case that as far as their cement
units were concerned they were not covered by Sri. No. 3 but by Sri. No.
G
4 (a) and thus, according to them, they were entitled to the higher benefits
accorded to new units under Sri. No. I. According to them the words under
column 3 against Sri. No. 4 made this clear.

According to the appellants on the other hand, this was never the
H intention of the State Government which had wanted to treat sick industrial
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 825

units of a particular kind on par with new industrial units of that kind in the A
matter of grant of exemption. But we are anticipating the dispute which is
considered in detail subsequently. Returning to the scheme : - the procedure
for obtaining exemption under the scheme has been provided in clause 4, the
relevant extract of which reads as under:

"Sanction of benefits under the Exemption Scheme and issue
B
of Eligibility Certificate:-

(a) In order to avail the benefit under this Scheme, the applicant
industrial unit shall have to obtain sanction from the State
Level Screening Committee or District Level Screening C
Committee, as the case may be. The Screening Committees
shall act as quasi-judicial authorities whose decisions shall be
final subject to other provisions provided for in this Scheme.

(b)
D
(c)

(d) ................ .

(e) The appropriate Screening Committee shall, .after having
examined the application of an industrial unit and after having E
gathered or collected such other information, documents or
evidence as may be considered necessary and after having got
conducted such further enquiry as deemed proper in the
circumstances of the case, sanction the benefits under this
Scheme to the said unit if it is found fully covered by the F
provisions of this Scheme and is not in any way debarred or
disqualified to claim the said benefits. However, in particular,
the said Screening Committee shall reject the application of the
applicant, unit

(i) where its case does not fall within the parameters of this G
Scheme, or

(ii) where it has failed in spite of adequate opportunity being
given, to supply any information asked for or adduce any
evidence required for; or H
826 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A (iii) where any case of avoidance or evasion of tax is pending
against it at any forum or it is found penalized _for such
offence, within a period of two years immediately
preceding the date of the filing of the application; however,
the said Screening Committee may waive this
disqualification in an appropriate case if the offence is
B
technical or venial in nature or has been compounded .
•
(t) In case of sanction of benefits under the Scheme, such sanction
shall be communicated in writing to the Assessing Authority
of the applicant unit, who shall issue Eligibility Certificate to
C the said unit in Form C, appended to this notification, within
a period of seven days from the date of the receipt of the
sanction, and a copy of such Certificate shall also be sent to
the Member Secretary of the concerned Screening Committee.

(g) The Eligibility Certificate issued under this Scheme shall
D remain in force till the permissible exemption from tax in
accordance with the provisibns of this scheme is not exhausted,
or till such Certificate is not amended, suspended or revoked.

(h) The benefits under this Scheme shall be available from the date
E of the application filed by the applicant unit completed in all
respects, as certified by the member Secretary of the appropriate
Screening Committee.

(i) .During the currency of the Eligibility Certificate, the unit
concerned shall be exempted from payment of tax on
p· the intra-State sales/inter-State sales of the goods and
by-products manufactured by it within the State including the
waste items derived therefrom ~d the packing matei-ial used
therewith."

The order in which the steps envisaged for grant of benefits under this
G clause of the scheme was therefore;

I) making of an application by the industrial unit;

2) the certification of the application as complete and the provisional
H availability of the benefits (clause 4(h) );
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 827

3) The examination of the application by the Screening Committee A
after collecting infonnation/enquiry etc Clause (4( e));

4) The sanction or rejection of the application by the Screening
Committee. (Clause (4(e));

5) In case of sanction, the communication of the sanction to the B
Assessing Authority. (Clause (4(f))

6) The issuance of Eligibility Certificate by the Assessing Authority
within seven days. (Clause 4(t));

7) The availability of exemption from payment of tax during the
c
currency of the Eligibility Certificate until the exemption was
either exhausted or unless the certificates were amended, suspended
or revoked. (Clauses 4(i)).

The respondent companies applied for exemption under the scheme D
claiming benefits at par with units under Sri. No. l. As far as Mis. J.K.
Synthetics Limited is concerned, the Director of Industries certified that the
application was complete. The certificate issued under Section 4(h) on 20th
February, 1999 made it clear:

"This certificate will not be treated as sanction of incentive under E
the Sales Tax Exemption Scheme, I 998. Incentive if any availed
under Clause 4(h) of the aforesaid scheme will be entirely at the risk
of the unit, subject to decision of the Slate level Screening Committee.
A suitable undertaking shall be taken by the concerned assessing
authority in this regard from the unit." F
In tenns of the requirement, Mis. J.K. Synthetics Limited gave an
undertaking in writing to the effect that the incentives availed by the company
from the date of completion of the application till the grant of sanction of
eligibility certificate would be entirely at the risk of the company and in case
the company's application was rejected for any reason, the company shall G
pay the tax which was being availed of on the basis of the certificate of
completion.

While the application of M/s. J.K. Synthetics was pending for
consideration by the Screening Committee, the corrigendum was issued on H
828 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A 30th September, 1999, by the Finance Department inter-alia, amending the
third column against Sri.No. 4 of Annexure B by replacing the phrase "New
units at Sri. No. I" with "New units at Sri. No. 1,2 and 3 as the case may
be". Thus sick cement units under Sri.No. 4 (a) were expressly put on par
with new cement units under Sri.No. 3.

B Mis. J .K. Synthetics Limited submitted a representation to the Screening
Committee that the corrigendum should not affect the company. The
Screening Committee deferred its decision on the ground that as the particular
unit of Mis. J.K. Synthetics Limited in respect of which the exemption was
claimed was not sick, although the company itself had been declared sick,
c it should await the rehabilitation programme duly approved by the BIFR
providing the benefit of sales tax incentives scheme to all such units. While
deferring the case till the approval of the rehabilitation programme by BIFR,
the Screening Committee said that the unit could avail of the benefit under
the scheme to the extent permissible under the corrigendum. Neither any
sanction under clause 4(e) and consequently no Eligibility Certificate under
D clause 4(f) have been issued to Mis. J.K. Synthetics Limited under the scheme
till today.

As far as Mis. Udaipur Udyog Limited is concerned, its application
under the scheme was certified as complete under Clause 4(h)on 26th July,
E 1999 and was sanctioned on 30th December, 1999. However, the quantum
of benefit was granted in terms of the corrigendum from the date of issuance
of the corrigendum. The eligibility certificate was issued to
Mis. J.K. Udyog on 29th February, 2000 also restricting the benefits under
the scheme on the basic; of the corrigendum.

F Since the respondent had been availing of the higher rates of exemption
against Sri.No. l, consequent upon the decision of the Screening Committee
granting the benefits under the corrigendum, provisional assessment orders
and notices were issued to both the respondent companies by the Sales Tax
Authorities over the differential sales tax.

G Mis. J.K. Synthetics Limited and J.K. Udyog Limited filed separate writ
petitions before the High Court of Rajasthan challenging the corrigendum
a
dated 30th September, 1999; in the alternative prayer was made to hold
that the corrigendum had no application to the respondent companies; for
quashing the decisions of the Screening Committee in so far as the respondent
H companies were given the benefit of the exemption scheme on the basis of
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 829

the corrigendum and for quashing the provisional assessment orders and A
notices.

The submission of the respondent companies before the High Court
inter alia was that the scheme as originally framed allowed the companies
to avail of the benefit of the exemption scheme under the Sri.No. 4(a) read
with Sri. No. 1 for a period of 11 years up to a maximum limit of hundred B
percent of the companies' eligibility fixed capital investment at percentages
of the total tax liability ranging from 100% in the first year to 30% in the
11th year. These rights of the companies under the scheme were claimed to
be crystalised with effect from the date of the certification of their applications
under clause 4 (h), which could not be taken away by the corrigendum with c
retrospective effect.

The learned single judge accepted the submission of the respondent
companies that the impugned corrigendum really amounted to an amendment
of the scheme. But it was held that the State Government was competent to
modify the scheme and, therefore, the respondent companies were entitled D
to relief in terms of the scheme as originally notified up to the date of
amendment and subsequent thereto as provided in the corrigendum. Since the
corrigendum had been published in the Official Gazette on 7th January, 2000
it was held that it would be applicable with effect from that date.

Several appeals were preferred both by the State of Rajasthan as well
E
as by the respondent companies from the decision of the learned Single
Judge. The Division Bench disposed of all the appeals by the judgment
impugned before us. The Appellate Court agreed with the learned Single
Judge that the corrigendum notification was in fact an amendment of the
scheme and therefore, this would operate only prospectively i.e. from 7th F
January, 2000. The plea of the respondent companies thatthe State Government
was bound by the principles of promissory estoppel from modifying or
amending the scheme was negated by the Division Bench. The respondent
companies have not sought to challenge this conclusion before us. The
Division Bench however held that the rights of the respondent companies of
enjoying the benefit under the original scheme including the maximum
G
amount of exemption, the maximum period of exemption, and the percentage
of exemption were available to the respondent companies with effect from
the date of certification of their applications under clause 4(h) and were
substantive and that these rights could not be affected adversely unless the
subsequent notification clearly manifested an intention to do so. It was held H
830 SUPREME COURT REPORTS (2004] SUPP. 4 S.C.R.

A that the corrigendum did not contain any such explicit provision nor could
any inference be drawn that accrued rights were to be affected. It was held
that even if this proposition was unacceptable, the amendment was arbitrary
and violative of Article 14 being discriminatory vis-a-vis other sick industries.
It was further held that .the amendment could not discriminate against sick
cement plants which had not availed of benefits of tax exemption earlier, so
B
that such sick industries were treated in a manner worse than sick cement
industries which had availed of exemptions from sales tax earlier. The
Division Bench accordingly held that the respondent companies were entitled
to avail of the benefits under the scheme as originally notified in the manner
provided in column 3 of Serial No. I of Annexure B read with Serial No.
c 4(a) and that such rights were not affected by the corrigendum published on
7th January, 2000. However, the corrigendum notification itself was not
quashed as hoo been prayed for.

The appellants have impugned the decision of the Division Bench and
have contended that the Division Bench had erred in fact and in .Jaw in
D coming to the conclusion that the respondent companies had a vested right
to the benefits of the scheme as available to new units, under Sri. No. I of
Annexure 'B' to the scheme. It is pointed out that as far as J.K. Synthetics
is concerned its application has not been sanctioned at all. It is contended
that the corrigendum notification was in fact a corrigendum and not an
E amendment, and that the corrigendum merely made explicit the intention of
the State Government to treat the sick units of a particular industry on par
with new units of such industries. It is further contended that even if the
corrigendum were construed as an amendment, the State Government had the
power to 'Yithdraw or modify the benefit of the scheme not only under
Section 15 of the RST Act read with Section 8(5) of ihe CST Act but also
F
under clause (9) of the scheme which provides for the power to the State
Government to review or modify the exemption scheme "as and when needed
in public interest". It is submitted that an1exemption is in the nature of a
concession and was by that reason a defeasible right. It is submitted that
exemptions granted could not create any vested right in the beneficiaries of
G the exemption to the continued grant of the exemption until and unless the
beneficiary was able to establish that the State .Government was bound by
the principles of promissory estoppel from modifying or withdrawing the
concession. It is submitted that since the respondent companies had failed
to establish any promissory estoppel on the part of the State. Government,
the Government could withdraw or modify the concession given at least from
H
STA TE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 83 l

the date of the publication of the corrigendum notification. As far as the High A
Court's findings on the issue of discrimination is concerned, it is submitted
that in fact there were no other cement units in the State in comparison with
which it could be said that the respondents-companies were being unfairly
treated. The language of Sri. No. 3 in Annexure B was also relied upon to
contend that the corrigendum was not discriminatory and merely treated sick
cement units and new cement units equally.
B

Counsel for the respondent-companies has submitted that there was no
power in the State Government to issue the corrigendum with retrospective
effect. It is submitted that the scheme was issued not only under Section 15
of the RST Act but also under Section 8(5) of the CST Act. The exercise C
of the power was thus, to use counsel's language, 'inseverable'. It is argued
that as there is no power under Section 8(5) of the CST Act to withdraw an
exemption with retrospective effect the entire exercise of issuing the
corrigendum must fail. In addition, it is submitted that even Section 15 of
the Act did not allow the State Government to withdraw an exemption with
retrospective effect. It is stated that under clause 4(h) read with clause 5(g),
D
on the date on which the respondents-companies' application was certified
as being complete, rights accrued to the industrial units which could not be
withdrawn and it was not necessary to rely upon the principle of promissory
estoppel for the purpose of claiming continued exemption. It is submitted that
the subsequent notification was not a corrigendum but an amendment of the E
scheme and could not be construed as amounting to withdrawal of the rights
conferred under the scheme as originally published. It is submitted that sick
units have been treated as a class apart irrespective of the nature of industry.
It is also submitted that the corrigendum if construed in the manner advocated
by the appellants, would be violative of Article 14. Finally, it is submitted
that in any event this Court should protect the respondent-companies in so
F
far as they had availed of the benefits of the scheme as originally published
at least from the date of the order of the High Court. It is submitted that the
High Court had struck down the corrigendum notification, Therefore,
Annexure B as originally notified would revive. The decision of the High
Court not having been stayed by this Court, the respondent-companies had G
not and indeed could not recover the sales tax from their customers by virtue
of Section 14(2) of the RST Act and it would in these circumstances be
inequitable to saddle them with sales tax liability for the period subsequent
to the decision of the High Court. Reliance has been placed on the decision
of this Court in State of Rajasthan v. Mahaveer Oil Industries and Ors.,
H
832 SUPREME COURT REPORTS (2004] SUPP. 4 S.C.R.

A [1999] 4 sec 357 °in support of the submission.

The issue whether the subsequent notification should be read as a
correction or an amendment of the scheme as originally notified would be
relevant only if the appellants sought to give retrospective effect to it. Since
the appellants have stated before us that they do not intend to take away the
B benefits which may have actually been enjoyed by the respondent companies
prior to the date of publication of the corrigendur11 viz 7th January, 2000,
a determination of the issue would be an academic exercise and a consideration
of the several decisions cited with regard to the principles for deciding
whether a statutory provision has retrospective effect, is unnecessary. The
c question is whether the subsequent notification could operate as far as the
respondent companies ar~ concerned with effect from 7 .1.2000. The answer
to this question would depend upon the nature of the rights of the respondent
companies under the scheme.

An exemption is by definition a freedom from an obligation which the
D
exemptee is otherwise liable to discharge. It is a privilege granting an
advantage not available to others. An exemption granted under a statutory
provision in a fiscal statute has been held to be a concession granted by the
State Government so that the beneficiaries of such concession are not
required to pay the tax or duty they are otherwise liable to pay under such
E statute. The recipient of a concession has no legally enforceable right against
the Government to grant a concession except to enjoy the benefits of the
concession during the period of its grant. This right to enjoy is a defeasible
one in the sense that it may be taken away in exercise of the very power under
which the exemption was granted. [See: Shri Baku/ Oil Industries & Anr. v.
State of Gujarat, [ 1987] 1 SCC 31; Kasinka Trading v. Union of b:zdia,
F
(1995] 1 SCC 274 and Shrije_e Sales Corpn. v. Union of India, (1997] 3 SCC
398].

In this case the scheme being notified under the power in the State
Government to grant exemptions both under Section 15 of the RST and
G Section 8(5) of the CST in the public interest, the State Government was
competent to modify or revoke the grant for the same reason. Thus what is
granted can be withdrawn unless the Govi;:mment is precluded from doing
so on the ground of promissory estoppel, which principle is itself subject to
considerations of equity and public interest. (See: Sales Tax Officer v. Shree
Durga Oil Mills, (1998] I SCC 572). The vesting of a defeasible right is
H
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 833

therefore, a contradiction in tenns. There being no indefeasible right to the A
continued grant of an exemption (absent the exception of promissory
estoppel), the question of the respondent companies having an indefeasible
right to any facet of such exemption such as the. rate, period etc. does not
arise.

In any event, the High Court erred in fact in holding that Mis. J.K.
B
Synthetics had a vested right to the benefits of the scheme. Clause 4 of the
scheme clearly provides that the benefits under the scheme were subject to
the sanction of the Screening Committee. No sanction has been issued to Ml
s. J.K. Synthetics till date.
c
Apart from this, the exemption being a creature of the scheme is subject
to the scheme. Clause 9 of the scheme makes it clear tHat the right under the
scheme was temporary in the sense that the scheme could be modified or
reviewed. It is true that clause 9 also provides that such review or modification
could take place only in the public interest. But nevertheless the right D
conferred was a modifiable or revocable one. If any right under the scheme
is held to be unmodifiable it would be contrary to the scheme itself. Therefore
even if one were to assume that the respondent companies were entitled to
the benefits"ofthe scheme on par with new units under_ Sri.No. I with effect
from the date of the certification of their application under clause 4(h), the
right could be modified with effect from the date on which the scheme was E
modified. The further argument of the respondent that the subsequent
notification could not be construed as a modification and would apply only
to subsequent applicants is unacceptable. There is no ambiguity in the
language of the subsequent notification. On the contrary the use of the word
corrigendum itself indicates the intention was to correct and to rectify what F
the State Government thought had been erroneously done.

Coming now to the question of public interest. The 4th New Industrial
Policy pursual).t to which the scheme had been framed by the State Government
was indisputably in the pub1ic interest. Therefore, ifthe intention of the State
Government was to effectuate the pelicy by issuing the subsequent notification G
it cannot be said that the State Government was not acting in the public
interest. The Industrial Policy which resulted in the exemption scheme
expressly provided that the r1;1te of benefits which were to be given to sick
industrial units which had not availed of any such benefits in the past would
be at par with a new unit. But does this mean that the words "new unit" in H
834 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A the policy referred to industries under Sri. No. 1 ? We think not. New units
of different kinds of industries had been separately classified both under the
policy and under Sri. Nos. 1,2 and 3 of Annexure B to the scheme. Each of
the three categories at Sri. Nos. 1,2 and 3 have been granted different rates
of exemption Serial No. 1 relates to new industries not covered by Sri.No.
B 2 and 3. It is therefore, the residuary category and any new industry covered
by Sri. Nos. 2 and 3 would not be covered by Sri. No. 1. Serial No. 2 speaks
of particular industries such as knitwears, gems and jewellery, textile,
electronics telecommunications, computer software, footwear and leather
goods and ceramics. This category of industries has been sub-classified under
·the heads of (a) "new units" and (b) very prestigious units". A very
C prestigious unit is not defined in the scheme itself but is referred to in the
industrial policy as those industries which have a fixed capital investment of
Rs. 50 crore or more and regular employment of250 persons. Sri.No. 3 makes
no such distinction and refers to "all categories" of cement plants except mini
cement plants mentioned in Annexure 'A' to the scheme. Subject to the
D exception of Annexure A all categories of cement plants/units including new
units have been allowed exemption of 25% of the total tax liability for 11
years. There is no .tapering of the incentive for the 11 years that the benefit
was to be available a:s is the case under the other Serial Numbers. "All
categories" would necessarily include new cement plants and sick industrial
E units falling within the definition of Clause 2(k)(ii), which was also entitled
to the same level of benefit as all other new cement units. It would be
incongruous to grant sick industrial units which do not fall within clause
2(k)(ii) higher benefits than sick industrial units which do. Since a sick
industrial unit is granted a particular benefit subject to the fulfillment of
various conditions, it implies that the industry which fulfils the conditions
F would be better off than the one which does not. If we were to accept the
respondents' interpretation of the original notification under Sri.No. 4(a) and
(b), higher benefits would be available to sick industrial units which did not
comply with the conditions imposed under clause 2(k)(ii). Such a conclusion
is not only illogical but would serve to make a distinction between sick
G .industrial units on an irrational basis. Clause 2(k)(ii) therefore indicates that
the highest benefit that a sick industrial unit can claim under the scheme, is
to be treated at par with new industries.

The thrust of the industrial policy was to give an incentive to new
entrepreneurs. It is true that there are separate provisions for 'sick industries'
H
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 835

but given the main object of the policy to make Rajasthan a "most favoured A
destination for industries", it could not have been the intention of the State
Government to give a lower benefit to new industries and to give higher
benefits to sick industrial units already established in the State. However,
when the scheme was first notified although the body of the scheme
effectuated the objective, the entry under column 3 against Sri.No. 4 in
Annexure B did not clearly reflect this. Doubtless the interpretation put by
B
the respondent companies and accepted by the High Court on the entries
against Sri.No. A as it originally stood in Annexure B, is a possible
interpretation, but in our opinion Annexure B was equally susceptible of the
interpretation put forward by the appellants before us particularly in the
context of the Industrial Policy. c
It was to clarify this ambiguity that the subsequent notification was
issued by the State Government to correct or amend Annexure B to the extent
· that it could be interpreted in a manner not in keeping with the published
industrial policy of the State and the substantive provisions of the scheme.
D
For these reasons also the corrigendum cannot be said to be violative
of Article 14. On the contrary, if the corrigendum were not to be given effect
to, the entire scheme would operate irrationally by making an invidious
distinction between sick cement units as we have already said. The irrationality
is also apparent vis-a-vis industries referable to Sri.No. 2. Under the scheme,
E
the highest rate of exemption and greatest benefits is granted to new units
under Sri.No. 2. If the respondents' interpretation of the corrigendum is
accepted, a sick industry of a particular kind which otherwise falls under
Sri.No. 2 would, by virtue of the entry against Sri.No. 4, be entitled to much
lesser than new units of the same kind of industry as it would be treated on
par with new units of different kinds of industries under Sri.No. I. This is F
perhaps the reason why the corrigendum was not challenged by those
industries covered by Sri. No. 2 which are sick and which are not new
industrial units within the meaning of clause 2(k)(ii) of the scheme. Although
it appears to us that Sri.No. 3 would include all categories of cement
industries, the question whether Sri. No. 4(b) would relate to sick cement
G
industries not covered by clause 2(k) (iii) or Sri. No. 4(a) is not an issue which
requires to be finally decided in this case, particularly when there is no such
industry before us which claims the benefit of clause 4(b).

Learned counsel for the respondents' additional contention is that the
Screening Committee had proceeded on the basis that the sick cement units H
836 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A were covered under Sri.No. 4 and not Sri.No. 3. It is argued that such decision
ofthe Screening Committee being final in terms of Clause 4(a) of the scheme,
it was not open to the State to contend otherwise. The argument is without
force. The finality given to the decision of Screening Committee in terms of
Clause 4(a) is "subject to other provisions provided for in the scheme". Any
decision of the Screening Committee cannot be contrary to the provisions of
B the scheme. Besides all that the Screening Committee has held is that the
respondent companies are to be treated on p-ar with other cement companies,
with effect from the date of the subsequent notification. That is also what
the appellants contend, namely that Sri.No. 4(a) expressly puts sick cement
units on par with new cement units under Sri.No. 3.
c The respondent companies are therefore required to avail of the benefits
under the scheme on the basis of the corrigendum with effect from 7.1.2000.
Learned counsel for the respondent companies may be right in his contention
that if a sanction is granted and an Eligibility Certificate issued on the basis
of the sanction, then having regard to the provisions of Section 4(h) the period
D of exemption under the sanction ought to cover the date of the certification
of the application as complete under Clause 4(h). But it is again unnecessary
to decide the ambit of the Screening Committee's power, as the appellants
have not argued that the benefits of the higher rate of exemption already
availed of by the respondent companies with effect from the date of
E certification under clause 4(h) up to 7th January, 2000 should be taken away
from them.

This brings us to the last argument of the respondent companies viz.
that they should not be made liable for the sales tax on the basis of the
corrigendum for the period they had availed of the exemptions after the
F decision of the High Court. The submission proceeded on the basis that the
High Court had quashed the corrigendum Notification. As we have noted
earlier the Division Bench had not quashed the corrigendum notification but
had contented itself with construing it. The mere fact that this Court has not
granted a stay of operation of the decision of the High Court would not give
the respondent companies any right to the fruits of that decision if the
G
decision is ultimately reversed by this Court. Besides the respondent-
companies should have been aware that with the admission of the appeal from
the High Court's order their rights thereunder were precarious. [See: Union
of India v. West Coast Paper Mills Ltd., [2004] 2 SCC 747, 753].

H The mere circumstance that the respondent companies having !lVailed
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 837

of the exemption scheme were prohibited from collecting the tax from its A
customers or that they had not collected the sales tax from their customers,
(which assertion is strongly disputed by the appellants), is ofno consequence.
The primary liability to pay the Sales Tax is on the seller. The seller may
or may not be entitled to recover the same from the purchaser. The State
Government is entitled to recover tlie same from the respondent-companies B
irrespective of the fact that the respondent-compallies may have lost the
chance of passing on their liability to pay sales tax to their purchasers.

It is true that this Court has on some occasions granted relief from
payment of sales tax to an assessee despite having found against the assessee
on equitable considerations. But on every occasion there was something more c
than the mere impossibility of the assessee passing on the tax to its
purchasers. Thus in the case of British Physical Lab India Ltd. v. State of
Karnataka and Anr. , [1999] 1 SCC 170, the State Government had itself
issued a notification reducing the rate of tax. The notification was struck
down by Court. The State Government then sought to recover the difference
between the reduced rate as°bad been notified by it and the rate generally D
applicable. This Court granted relief to the assessee since the State Government
had itself issued the notification concerned.

Similarly in Shree Cement Limited and Anr. v. State of Rajasthan and
Others, [2000] 1 SCC 765, relief was granted having regard to the peculiar
E
history of the case. By three notifications covering 1990 to 1994 issued by
the State of Rajasthan the rate of tax payable by local dealers in respect if
inter-state sales had been reduced. The notifications were challenged by
cement manufacturers from outside the State. The High Court rejected the
challenge. When the non local cement manufacturers came to this Court, this
Court held that the notifications were void and quashed them. Shri Digvijay F
Cement Companies v. State of Rajasthan, [1997] 5 SCC 406. A fourth
notification was subsequently issued by the State of Rajasthan similar to the
earlier three notifications which had been quashed. The fourth notification
was challenged directly before this Court by means of a writ petition under
Article 32. This time the Bench which entertained the writ petition disagreed
G
with the view expressed earlier by this Court in respect of Shri Digvijay
Cement and referred the matter to a larger Bench. The Constitution Bench
overruled the decision in Shri Digvijay Cement 1• The question then was
whether the local manufacturers would be entitled to the benefit of the

1. c20001 1 sec 688. H
838 SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.

A decision of the Constitution Bench despite the fact that the notifications under
which they had availed of a lower rate of tax had been decided against them
in Shri Digvijay Cement. This Court held in favour of the local manufacturers.
The circumstance that the notifications were subsequently held to be valid
by a larger Bench operated to protect them from liabilities which had arisen
by virtue of the earlier erroneous decision.
B
In State of Rajasthan and Anr. v. Mahaveer Oil Industries & Others,
[1999] 4 SCC 357, this Court allowed the assessee to retain benefits under
a scheme upto 4.4.1994 despite the fact that the assessees were held not
entitled to such benefits, on the ground that in another proceeding this Court
c had allowed similar industries to retain the benefit up to 4.4.1994. What is
of significance is that the assessees were denied further benefit even though
they had been successful before the Single Judge, before the Division Bench
of the High Court and no stay had been obtained from this Court at any stage.
It was said:

~n "The respondents have been aware throughout that the judgment of
the Single Judge was appealed against. Even after the Division
Ben~h dismissed the appeal the matter was carried further by filing
the pres~~! special leave petition/appeal before this Court. The
respond~nts cpntinued to enjoy the benefits of the said two Schemes
E since 1'1.~jstay."wa~ obtained. Nevertheless, the question whether the
. ··~··
resppndents are. entitled
>..}
to the said benefits, has been sub judice
thr~ughout. Since the appeitl is now being decided against the
respondents, they· cannot claim the benefit of an eligibility certificate ·
which was granted entirety on account of a judgment of a Single
Judge in their favour which is now being set aside."
F
As far as Mis. J.K. Synthetics is concerned, their right to obtain benefits
under the scheme by reason of clause 4(b) was in any event provisional. The
undertaking given by this company was to the effect that the benefits of the
scheme were being availed at the risk of the company till the sanction was
granted by the Screening Committee. Since no sanction has been granted to
G
the company, the company was aware that its rights to the benefits under the
scheme were conditional and that it might be called upon to meet its sales
tax liabilities in the event sanction was not granted on its application.

In such circumstances it must be open to the State Government· to
H recover sales tax dues as it is entitled to under the RST Act allowing the
STATE v. J.K. UDAIPUR UDYOG LTD. [RUMA PAL, J.] 839

respondent companies to only keep such benefits as had been already availed A
of by then upto 7th January, 2000 and thereafter at the rates specified and
according to the provisions of the scheme as modified by the corrigendum
notification. However, no interest or penalty will be charged from the
respondent companies by the appellants on the differential amounts for the
period the matter was sub judice before this Court provided the respondent
companies pay the principal amount of sales tax within such time as may be
B
specified by the appellants in this regard.

We, therefore, allow the appeals and set aside the impugned decision
without any order as to costs.
c
v.s.s. Appeals allowed.