1

R

IN THE HIGH COURT OF KARNATAKA AT

DATED THIS THE 12 TH DAY OF JUNE, 2013

BEFORE

THE HON’BLE MR. JUSTICE H.N. NAGAMOHAN DAS

W.P.No. 16896/2012 C/W W.P.Nos. 21939-942/2011 & 21943-946/2011 , W.P.No.23199/2011, W.P.No.39358/2012 (T-IT)

W.P.No. 16896/2012

BETWEEN : ------M/S LTD GLOBAL VILLAGE, R.V.C.E. POST, MYLASANDRA, MYSORE ROAD, BANGALORE-560059. (REPRESENTED BY ITS CEO & MANAGING DIRECTOR SRI. KRISHNAKUMAR NATARAJAN AGED ABOUT 54 YEARS, S/O SRI.K. NATARAJAN) ... PETITIONER (By Sri. CHYTHANYA K. K., ADV.)

AND : ------1.UNION OF REPRESENTED BY THE SECRETARY TO THE MINISTRY OF FINANCE GOVERNMENT OF INDIA NEW DELHI. 2

2.THE COMMISSIONER OF INCOME-TAX-LTU J S S TOWERS, 100 FT RING ROAD, BANASHANKARI III STAGE, BANGALORE-560085. ... RESPONDENTS (By Sri. E. I. SANMATHI, SR.ADV., FOR R1)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA WITH A PRAYER TO DECLARE THE NEWLY INSERTED PROVISO TO SECTION 115JB (6) BY FINANCE ACT, 2011 AS ULTRA VIRES SECTION 27 OF THE SEZ ACT READ WITH THE SECOND SCHEDULE THERETO & HENCE,UNENFORCEABLE.

W.P.Nos. 21939-942/2011 & 21943-946/2011

BETWEEN : ------1.M/S OPTO INFRASTRUCTURE LIMITED OPTO SEZ, NANJANGUD & HASSAN PLOT NO. 83, 2 ND FLOOR, 1 ST PHASE ELECTRONIC CITY, BANGALORE-560100 (REP BY DR. MANJE GOWDA, DIRECTOR)

2.M/S OPTO CARDIAC CARE LIMITED, VSEZ UNIT, PLOT NO. 83 2ND FLOOR, 1ST PHASE ELECTRONIC CITY, BANGALORE-560100 (REP BY DR MANJE GOWDA, DIRECTOR)

3.M/S OPTO EUROCOR HEALTHCARE LIMITED, VSEZ UNIT, PLOT NO. 83, 2ND FLOOR, 1ST PHASE ELECTRONIC CITY, BANGALORE-560100 (REP BY DR. MANJE GOWDA, DIRECTOR) 3

4.M/S OPTO CIRCUITS (INDIA) LIMITED (UNIT-III-SEZ UNIT) (VISAKHAPATNAM SPECIAL ECONOMIC ZONE) PLOT NO. 83, ELECTRONIC CITY, HOSUR ROAD BANGALORE-560100 (REP BY DR MANJE GOWDA, DIRECTOR)

5.M/S MANGALORE SEZ LIMITED NO. 16, "PRANAVA PARK ", 3 RD FLOOR INFANTRY ROAD, BANGALORE-560001 (REP BY RAJIV BANGA, MANAGING DIRECTOR)

6.M/S LIMITED, SEZ DEVELOPER BIOCON SPECIAL ECONOMIC ZONE PLOT NO.2 TO 5, PHASE IV BOMMASANDRA INDUSTRIAL AREA BOMMASANDRA JIGANI LINK ROAD BANGALORE-560099 (REP BY S R SUNDARESH VICE PRESIDENT COMMERCIAL)

7.M/S RGA SOFTWARE SYSTEMS PVT LTD SY.NO. 51 TO 64, OUTER RING ROAD BELLANDUR VILLAGE, VARTHUR HOBLI BANGALORE-560103 (REP BY RAMAKRISHNAN, CFO)

8.M/S PRIMAL PROJECTS PVT LTD PRITECH PARK SEZ SY.NO.51 TO 64, OUTER RING ROAD BELLANDUR VILLAGE, VARTHUR HOBLI BANGALORE-560103 (REP BY RAMAKRISHNAN, CFO). ... PETITIONERS (By Sri. K.S. RAVISHANKAR, ADV.) 4

AND : ------1. THE UNION OF INDIA MINISTRY OF FINANCE NORTH BLOCK, NEW DELHI-110 001 REP BY ITS SECRETARY

2.THE UNION OF INDIA MINISTRY OF COMMERCE NORTH BLOCK, NEW DELHI-110 001 REP BY ITS SECRETARY

3.THE BOARD OF APPROVALS MINISTRY OF COMMERCE & INDUSTRIES (SEZ), GOVERNMENT OF INDIA UDYOG BHAVAN, ROOM NO. 2L63-C, 2ND FLOOR NEW DELHI-110 017 REP BY ITS CHAIRMAN.

4.THE CHIEF COMMISSIONER OF INCOME TAX, C R BUILDINGS, QUEENS ROAD BANGALORE-560001 ... RESPONDENTS

(By Sri.N.R. BHASKAR, CGSC FOR R1 & R2 Sri M.V.SHESHACHALA, ADV., FOR R3 & R4 Sri K.V.ARAVIND, ADV., FOR R3 & R4 )

THESE WRIT PETITIONS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA WITH A PRAYER TO HOLD THAT THE IMPUGNED AMENDMENTS/PROVISIONS OF THE FINANCE ACT, 2011 IN 5

ANNEX.E ARE ILLEGAL, ARBITRARY, UNREASONABLE, UNFAIR AND VIOLATIVE OF VARIOUS ARTICLES OF CONSTITUTION PARTICULARY ARTICLES 14, 77, 109 AND 110 AND ALSO VIOLATIVE OF THE DOCTRINE OF PROMISSORY ESTOPPEL.

W.P.No.23199/2011

BETWEEN : ------M/S. SUBEX LIMITED ADARSH TECH PARK, OUTER RING ROAD, DEVARABISANAHALLI, BANGALORE-560037 REP BY ITS FOUNDER CHAIRMAN, MANAGING DIRECTOR & CEO Sri. SUBASH MENON AGED ABOUT 44 YEARS S/O JAYAPALA MENON. ... PETITIONER

(By Sri. CHYTHANYA K.K., ADV.)

AND : ------1.UNION OF INDIA REP BY THE SECRETARY TO THE MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NEW DELHI.

2. COMMISSIONER OF INCOME-TAX-3 BENGALURU, KARNATAKA STATE. 3. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -12 (3), BENGALURU, KARNATAKA STATE. ... RESPONDENTS 6

(By Sri.KALYAN BASAVARAJ, ASG FOR R1 &R2 Sri K.V.ARAVIND, ADV., FOR R3 & R4)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA WITH A PRAYER TO DECLARE THE NEWLY INSERTED PROVISO TO SECTION 115JB (6) BY FINANCE ACT 2011 AS ULTRA VIRES SECTION 27 OF THE SEX ACT READ WITH THE SECOND SCHEDULE THERETO & HENCE, UNENFORCEABLE VIDE ANN-A.

W.P.No.39358/2012

BETWEEN : ------M/S RAJESH EXPORTS LIMITED REP BY ITS CHAIRMAN, SRI.RAJESH METHA, S/O. JASVANTRAI METHA, AGED ABOUT 49 YEARS, NO.4, BATAVIA CHAMBERS, KUMARA KRUPA ROAD, KUMARA PARK EAST, BANGALORE-560 001. ... PETITIONER

(By Sri.A. SHANKAR, ADV.) AND : ------1.UNION OF INDIA THROUGH THE SECRETARY MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI-110 001. 7

2.MINISTRY OF FINANCE THROUGH THE SECRETARY DEPARTMENT OF REVENUE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI-110 001.

3.MINISTRY OF COMMERCE & INDUSTRY THROUGH THE SECRETARY, DEPARTMENT OF COMMERCE, UDYOG BHAVAN, NEW DELHI-110 107.

4.CENTRAL BOARD OF DIRECT TAXES, THROUGH THE SECRETARY, MINISTRY OF FINANCE, NORTH BLOCK, NEW DELHI-110 001.

5.THE COMMISSIONER OF INCOME-TAX, BANGALORE-III, C.R.BUILDING, QUEENS ROAD, BANGALORE-560 001. ... RESPONDENTS

(R1, R2, R4 AND R5 ARE SERVED)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA WITH A PRAYER TO HOLD THAT THE IMPUGNED AMENDMENTS/ PROVISIONS OF THE FINANCE ACT 2011 IN ANN-C ARE ILLEGAL, ARBITRARY, UNREASONABLE, UNFAIR & VIOLATIVE OF VARIOUS ARTICLES OF CONSTITUTION PARTICULARLY ARTICLES 14, 19 (1)(g) 21, 77, 109 & 110 & 8

ALSO VIOLATIVE OF THE DOCTRINE OF PROMINSSORY ESTOPPLES & DOCTRINE OF LEGITIMATE EXPECTATION.

THESE WRIT PETITIONS HAVING BEEN HEARD AND RESERVED FOR ORDERS THIS DAY, NAGAMOHAN DAS, J PASSED THE FOLLOWING;

O R D E R

In these writ petitions the petitioners have prayed to declare the newly inserted proviso to Section 115JB(6) and 115-O(6) of the Income

Tax Act in the second schedule to the Special Economic Zones Act 2005

(for short ‘SEZ Act’) as ultra vires, arbitrary, unfair and violative of Article

14 of Constitution of India.

2. In the month of April 2000, the Government of India announced Special Economic Zone scheme with a view to provide international competitive environment for exports. The object of the scheme include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single window approval mechanism and package of incentives to attract foreign and domestic investments for promoting export lead growth. The scheme was implemented through various notifications 9

and circulars issued by the concerned ministries/departments from time to time. This system of issuing notifications and circulars resulted in certain practical problems and does not lend enough confidence among the investors. In order to overcome the problems of the present scheme and to give a long term and stable policy frame work the Central Act for Special

Economic Zones had been found necessary. Accordingly the Special

Economic Zone Bill was introduced in the parliament. The Bill was passed in the Loksabha on 09.05.2005 and in Rajyasabha on 11.05.2005. The

President of India gave his assent to the Bill on 23.06.2005. Thus the

Special Economic Zones Act, 2005 (for short ‘SEZ Act’)came into force.

Section 7 of the SEZ Act specifies that any goods or services exported or imported from the domestic tariff area by any unit in a special economic zone shall be exempted from payment of taxes, duties or cess subject to prescribed terms, conditions and limitations. Section 26 of the SEZ Act specifies certain concessions under the Customs Act, Customs Tariff Act,

Central Excise Act, Central Excise Tariff Act, Domestic Tariff Area,

Service Tax Act under Chapter V of the Finance Act, 1994, Securities

Transaction Tax leviable under Finance Act, 2004 etc. Section 27 of the 10

SEZ Act specifies that provisions of Income Tax Act, 1961 to apply to SEZ units and developers subject to modifications specified in Schedule-II.

Under the SEZ Act the following profit linked deductions and incentive relating to Income Tax are allowed to SEZ units:

(i) Under the existing provisions of Section 10AA of the IT Act, a deduction of hundred per cent is allowed in respect of profits and gains derived by a unit located in Special Economic Zone (SEZ) from the export of articles or things or from services for the first five consecutive assessment years; of fifty per cent for further five assessment years; and thereafter, of fifty per cent of the ploughed back export profit for the next five years. (ii) Further, under Section 80-IAB the IT Act, a deduction of hundred per cent is allowed in respect of profits and gains derived by an undertaking from the business of development of an SEZ notified on or after 1 st April, 2005 from the total income for any ten consecutive assessment years out of fifteen years beginning from the year in which the SEZ has been notified by the Central Government.

In addition to the above, the following incentives were also available in respect of SEZs before the Finance Act, 2011. 11

(i) The provisions of sub-section (6) of Section 115JB of the IT Act allowed for an exemption from payment of minimum alternate tax (for short “MAT”) on book profit in respect of the income accrued or arising on or after 1 st April 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone (SEZ), as the case may be.

(ii) Furthermore, the provisions of sub-section (6) of section 115- O of the IT Act, allowed for an exemption from payment of tax on distributed profits [Dividend Distribution Tax (DDT)] in respect of the total income of an undertaking or enterprise engaged in developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after 1 st April, 2005 out of its current income. Such distributed income was also exempt from tax under sub-section (34) of Section 10 of the IT Act.

3. Petitioners are SEZ developers/co-developers/units. The petitioners by taking necessary permissions and approvals under the SEZ

Act and Rules are carrying on activities inside the SEZ. The petitioners 12

contend by acting on the promises made under the provisions of SEZ Act,

Rules and exemptions provided under various Acts including the Income

Tax Act made huge investments in establishing the SEZ units. It is contended that petitioners borrowed massive loans from various financial institutions and investment on land, buildings, infrastructure facilities etc.

Petitioners have commenced their projects on the basis that income accrued or arising from business carried on by them as SEZ developer or unit are exempted from applicability of Minimum Alternate Tax (MAT) as provided under sub-section 6 of Section 115 JB and sub-section 6 of

Section 115-O of the Income Tax Act.

4. When the matter stood at that stage, the Union Finance

Minister moved the Union Budget for 2011-2012 on the floor of Parliament and the Finance Bill, 2011 was introduced. In terms of this Finance Bill,

2011 a proviso was inserted below Section 115 JB (6) and 115-O (6) of

Income Tax Act in the Second Schedule to SEZ Act and they are as under:

Section 115-JB. Special provision for payment of tax by certain companies-

1...... 13

2. …………………………………….

3. …………………………………….

4. …………………………………….

5. ……………………………………

6. The provisions of this section shall not apply to the income accrued or arising on or after the 1 st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.

Provided that the provisions of this sub-section shall cease to have effect in respect of any previous year relevant to the assessment year commencing on or after the 1 st day of April, 2012

Section 115-JB. Special provision for payment of tax by certain companies-

1......

2. …………………………………….

3. …………………………………….

4. ……………………………………. 14

5. ……………………………………

6. Notwithstanding anything contained in this section, no tax on distributed profits shall be chargeable in respect of the total income of an undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2005 out of its current income either in the hands of the Developer or enterprise or the person receiving such dividend: Provided that the provisions of this sub-section shall cease to have effect from the 1 st day of June, 2011. (underline is mine)

5. Petitioners being aggrieved by the insertion of the above provisos to sub-section 6 of Section 115-JB and sub-section 6 of Section

115-O of the Income Tax in the second schedule to the SEZ Act are before this court.

6. Sri A. Shankar and Sri K.K.Chaitanya, learned Advocates for petitioners contend that the impugned amendments under the Finance

Act, 2011 are opposed to the Doctrine of Promissory Estoppel. It 15

is contended that the Government by introducing sub-section 6 of Section

115-JB made an express promise exempting the petitioners from the applicability of payment of MAT and under sub-section 6 of Section 115-O the Payment of tax on dividend distribution. On the basis of this promise made by the Government the petitioners invested and established units by the borrowing massive loans. The proposed amendments are therefore opposed to Doctrine of Promissory Estoppel. It is contended that when the petitioners made investments, they legitimately expected that the exemptions provided under Section 115-JB and 115-O will be continued.

Now abruptly, arbitrarily, unfairly and to the detriment of the petitioners the impugned amendments are brought in and as such the same is opposed to the Doctrine of Legitimate Expectation. The impugned amendments are opposed to the very object of SEZ Act. Therefore, the impugned amendments to the SEZ Act are unconstitutional, beyond the power and authority and administrative competence of Ministry of Finance. The impugned amendment is contrary to Section 27 of the SEZ Act. Section 27 of SEZ Act empowers the parliament to modify the provisions of Income

Tax Act. But under the impugned amendments the Parliament amended 16

Schedule-II to the SEZ Act and as such the same is illegal and without authority of law. Reliance is placed on number of decisions.

7. Per contra, Sri Indra Kumar, learned senior counsel for the respondents contend that exemptions provided under Section 115-JB and

115-O of the Income Tax Act did not had sunset provisions and as such the impugned amendments are in accordance with law. It is contended that the legislative action of withdrawal of benefit under the fiscal policy of the

State is not hit by Doctrine of Promissory Estoppel . It is contended that the exemption granted to the petitioners eroded the tax base and in the public interest the impugned amendments are brought and as such they are legal and valid. Reliance is placed on number of decisions.

8. Heard arguments on both the side and perused the entire writ papers. Though number of decisions are relied on, only relevant decisions are referred in this order. On the basis of pleadings and arguments, the following points will arise for my consideration:

(i) Whether the impugned amendments brought by the Ministry of Finance to a special statute “SEZ Act” which comes under the exclusive domain of Ministry of Commerce is unconstitutional and without authority?

17

(ii) Whether the impugned amendments are violative of Article 14 of the Constitution of India ?

(iii) Whether the impugned amendments are opposed to Doctrine of Promissory Estoppel?

(iv) Whether the impugned amendments are opposed to principles of Legitimate Expectancy?

THE SCOPE OF JUDICIAL REVIEW

9. The Indian Constitution provides for three organs called –

Legislative, Executive and Judiciary making jointly responsibly for securing social, economic and political justice to all citizens. The legislative powers are distributed between the Central legislature and

State legislatures. A mechanism is provided through courts vesting with the powers of judicial review to determine the validity of the

Acts passed by the legislatures. Judicial review is an integral part of our constitutional system. If the laws enacted by the legislature are found to be violative of any Article of the Constitution the Supreme

Court and the High Courts are empowered to strike down the said laws. In exercising the powers of judicial review, the courts do not 18

and cannot go into the question of wisdom behind legislative measure. It is for the legislature to decide as to what laws they should enact. The task of the courts is to interpret the laws and to adjudicate about their validity. It is in this back ground the Supreme

Court in State of A.P. vs. Mcdowell and Co. [AIR 1996 SC 1627] held that “a law made by the Parliament or the Legislature can be struck down by courts on two grounds and two grounds alone, viz.,

(1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part-III of the Constitution or of any other constitutional provision. There is no third ground. ”

Further the Supreme Court in Government of A.P. vs. Smt.

P.Lakshmidevi [AIR 2008 SC 1640] held that “ the constitutional courts do have the power to declare a law to be invalid.

Invalidating a statute is a grave step and must therefore be taken in very rare and exceptional circumstances. The court must not invalidate a statute lightly, for invalidation of a statute made by the legislature elected by the people is a grave step. The legislature must be given freedom to do experimentations in exercising its 19

powers, provided of course it does not clearly and flagrantly violate its constitutional limits. All decisions in the economic and social spheres are essentially ad hoc and experimental. Since the economic matters are extremely complicated, this inevitably entails special treatment for special situations. The State must, therefore, be left with wide latitude in devising ways and means of fiscal or regulatory measures, and the Court should not unless compelled by the statute or by the Constitution, encroach into this field, or invalidate such law. Greater latitude must be given to the legislature while adjudging the constitutionality of the fiscal statute because the court does not consist of economic or administrative experts. It has no expertise in these matters and in this age of specialization when policies have to be laid down with great care after consulting specialists in the field, it will be wholly unwise for the court to encroach into the domain of the executive or legislative and try to enforce its own views and perceptions .”

10. Thus the scope of judicial review power of this court under Article 226 of the Constitution is subject to certain conditions. 20

This power of judicial review is to be exercised very rarely and in exceptional circumstances. The courts can invalidate the law made by the legislature only when the legislature lacks the competency to do and the law enacted is violative of any of the constitutional provisions. It will be wholly unwise for the court to encroach into the domain of the executive or legislative in economic and social spheres since they are essentialy adhoc, experimental, extremely complicated and they are made under special situations. Keeping these principles in view, it is necessary to examine the fact situation in the present case.

On point No.1

11. Learned counsel for the petitioners firstly contend that as per the Government of India (Allocation of Business) Rules, all matter relating to development, operation and maintenance of special economic zones and units exclusively falls within the domain of

Ministry of Commerce, Government of India. The impugned amendments in the Schedule-II to the SEZ Act is made by the 21

Ministry of Finance, Government of India through a money bill.

Therefore, it is contended that the impugned amendments to

Schedule-II to the SEZ Act by the Ministry of Finance lacks legislative competency. I decline to accept this contention of learned counsel for the petitioners. Firstly, the Government of India

(Allocation of Business) Rules relied on by the petitioners are not applicable to the proceedings and the business of parliament. These

Rules are only applicable to the Government of India and not to the

Parliament. The proceedings and the business of the parliament is governed by “Rules of Procedure and Conduct of Business in the

Lok Sabha” (for short “Rules of Loksabha”). Chapter-I , Rule 2(1) of Rules of Loksabha defines “Finance Minister” includes any

Minister. Further “Member incharge of the Bill” means the Member who has introduced the Bill and every Minister in the case of

Government Bill. “Minister” means a member of the Council of

Ministers and includes a member of the Cabinet, a Minister of State, a Deputy Minister or a Parliamentary Secretary. Further the Rules of Loksabha provides for Government bill and private members bill. 22

A perusal of the Rules of Loksabha do not bar the Finance Minister from moving a bill for amendment to SEZ Act. On the other hand, a reading of the Rules specifies that Finance Minister includes any minister and as such he is competent to move a bill seeking amendment of SEZ Act which comes under the domain of Ministry of Commerce. Therefore, I decline to accept the contention of learned counsel for the petitioners that the impugned amendment to the SEZ Act suffers from lack of legislative competency.

12. The Supreme Court in Madurai District Central Co- operative Bank Ltd. vs. Third ITO [1975] 101 ITR 24 held as under:

Once Parliament has the legislative competence to enact a law with respect to a certain subject-matter, the limits of that competence cannot be judged further by the form or manner in which that power is exercised. Though it would be unconventional for Parliament to amend a taxing statute by incorporating the amending provision in an Act of a different pith and substance, such a course would not be unconstitutional. It is true that the Income-tax Act is a permanent Act while the Finance Acts are passed every year and their primary purpose is to prescribe the rates at which the income-tax will be charged under the Income-tax Act. But that does not mean that a new and distinct charge 23

cannot be introduced under the Finance Act. Exigencies of the financial year determine the scope and nature of its provisions. If Parliament has the legislative competence to introduce a new charge of tax, it may exercise that power either by incorporating that charge in the Income-tax Act or by introducing it in the Finance Act or for the matter of that in any other statute.

In view of the law declared by the Supreme Court the Finance

Minister by introducing the Finance Act before the Parliament has the legislative competence to amend the Income Tax Act or any matter relating to the tax in any other statute. Therefore, the impugned amendment to the SEZ Act passed by the parliament on the Finance Bill introduced by the Finance Minister is well within the legislative competency since the same relates to a charge in the

Income Tax Act. Therefore, I hold point no.1 in negative.

On Point No.2

13. Learned counsel for the petitioners contend that the impugned amendments are absolutely capricious, arbitrary, unfair, unreasonable and such the same is violative of Article 14 of the

Constitution. I decline to accept this contention of learned counsel 24

for the petitioners. It is settled position of law that every tax exemption and incentive shall have a sunset clause. Every fiscal legislation providing for tax exemption must have a life span fixed in the enactment. In the instant case by introducing sub-section 6 to

Section 115JB and sub-section 6 to Section 115O of Income Tax Act a permanent exemption was given to SEZ establishments/units. It is settled principle that there can be no permanent tax exemption or incentive in fiscal legislation. Realizing this lapse on the part of the

Government the impugned provisos were introduced restricting the exemption only for a particular period. In the impugned amendment it is made clear that it is prospective in nature. Therefore the impugned amendments can neither be said unreasonable or arbitrary.

14. The contention of learned counsel for the petitioners that even sunset clause must be a road map to end the tax exemption and not an abrupt end. In the instant case, the exemption was provided in the SEZ Act in the year 2005. The petitioners enjoyed this benefit for a period of five years. The impugned amendments are shown in the Finance Bill and placed before the Parliament in the 25

month of March 2011 for the years 2011-2012. The proposed amendments specify that the MAT will come to an end from 1 st

April, 2012 and tax on distribution of dividends will come to an end from 1 st June 2011. Thus the impugned amendments are prospective in nature. The road map is not a condition precedent for the

Parliament to introduce sunset clause. The Parliament has the sovereign legislative power to withdraw the tax exemption by way of legislative amendment.

15. On account of various concessions, exemptions and allowances under different statues companies started arranging their tax affairs in such a way as to become zero tax companies. This situation laid to the companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a way as to avoid payment of income tax as a result of the concessions, exemptions and incentives given to them. Therefore the legislature in their wisdom introduced Section 115JB providing for payment of minimum alternate tax and Section 115O providing for payment of tax on the distribution of the dividends. At the time of 26

passing SEZ Act, sub-section 6 of Section 115JB and sub-section 6 to Section 115O of the Income Tax Act was introduced totally exempting the SEZ establishment/units from payment of minimum alternate tax and tax on distribution of dividends. While all other companies are made liable to pay MAT and tax on dividend distribution, the SEZ establishments and units were exempted though they are making profits. This situation has lead to discrimination amongst SEZ establishment/units and other companies. Realizing this discrimination among the companies the legislature in their wisdom brought the impugned amendments to remove the discrimination. Therefore, the impugned amendments are in accordance with Article 14 of the Constitution and not against it.

16. The SEZ Act is an outcome of Globalisation. The investment contribution by the SEZ units/establishments has lead to some development. The question is this development is for whose benefit and at what cost. The Government in assessing this aspect of the matter in its wisdom felt the necessity to withdraw the tax benefit 27

and accordingly passed the impugned amendments. As held by the

Supreme Court in Lakshmidevi’s case all decisions in the economic and social spheres are essentially adhoc and experimental. Since the economic matters are extremely complicated, this inevitably entails special treatment for special situations. The State must, therefore, be left with wide latitude in devising ways and means of fiscal or regulatory measures, and the courts should not unless compelled by the statute or by the Constitution, encroach into this field or invalidate such law. Therefore I hold point No. 2 in negative.

On point no.3 and 4

17. The concept of Promissory Estoppel and Legitimate

Expectancy are not defined in any law. These two concepts are fashioned by the courts while reviewing the administrative acts in the field of administrative law. The judicial pronouncements defines

“Promissory Estoppel” means ‘where one party has by his words written or oral or by conduct made to other a clear and unequivocal promise which is intended to create legal relations or affect a legal 28

relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so.’ So also the judicial pronouncements defines “Legitimate expectation” means ‘an expectation of a person from a representation or promise made by an administrative authority including an implied representation or from consistent past practice that he will be treated in certain way even though he has no legal right in private law to receive such treatment.’

18. The Doctrine of Promissory estoppel and Legitimate expectation are the offsprings of equity and they are flexible in nature. These Doctrines are evolved by the courts to avoid injustice to a party. The distinction between these two concepts/principles/doctrines is very narrow. The relief of promissory estoppel springs out of legal relationship. On the other hand, the Doctrine of Legitimate Expectancy is not based on any 29

legal right but on reasonable expectation. Therefore, the relief of

Legitimate Expectation is far below the promissory estoppel. In the instant case the petitioners are seeking relief on the Doctrine of

Promissory Estoppel, a superior relief based on statutory promise made under sub-section 6 of Section 115JB and sub-section 6 of

Section 115O of Income Tax Act. When petitioners are claiming relief under the Doctrine of Promissory Estoppel then it is not necessary for this Court to consider the doctrine of legitimate expectation.

19. As already stated the Doctrine of Promissory Estoppel is an offspring of equity and the same is flexible in nature. It is necessary to notice the law laid down by the Apex Court while considering the scope of Promissory Estoppel. In Motilal Padampat

Sugar Mills Co. Limited. vs State Of Uttar Pradesh And Others [ITR

(Vol.118) 1979 SC 326] it is held as under:

“The doctrine of promissory estoppel cannot be applied in the teeth of an obligation or liability imposed by law. Promissory estoppel cannot be invoked to compel the Government or even a private party to do an act prohibited by law. There can also 30

be no Promissory estoppel against the exercise of legislation power. The legislature can never be precluded from exercising its legislative function by resort to doctrine of promissory estoppel ”

In Union of India vs. Godfrey Philips India Ltd [ITR 158 1986

SC 575] it is held as under:

“There can be no promissory estoppel against the legislature in the exercise of its legislative functions nor can the Government or a public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It is equally true that promissory estoppel cannot be used to compel the Government or a public authority to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority to make. The doctrine of promissory estoppel being an equitable doctrine, it must yield when equity so require. If it can be shown by the Government or public authority that having regard to the facts as they have transpired, it would be inequitable to hold the Government or public authority to the promise or representation made by it. The Court would not raise an equity in favour of the person to whom the promise or representation was made and enforce the promise or 31

representation against the Government or public authority. The doctrine of promissory estoppel would be displaced in such a case because, on the facts, equity would not require that the Government or public authority should be held bound by the promise or representation made by it.

In Sales Tax Officer vs. Shree Durga Oil Mills STC (vol 108)

1998 SC 274 it is held:

“The view taken by this Court in Kasinka's case was reiterated by a Bench of three-judges in the case of Shrijee Sales Corporation & Anr. Vs. Union of India (1997) 3 SCC 398. It was laid down in that case that the determination of applicability of promissory estoppel against the Government hinges upon balance of equity or public interest. In case there is a supervening public equity, the Government would be allowed to change its stand; it would then be able to withdraw from representation made by it which induced persons to take certain steps which may have gone adverse to the interest of such persons on account of such withdrawal. Once public interest was accepted as the superior equity which can override individual equity, the aforesaid principle should be applicable even in cases where a period had been indicated for operation of the promise. In that case, a notification was issued exempting customs duty on PVC. By a second notification 32

the exemption was withdrawn. The Court held that the facts of the case revealed that there was a supervening public interest and the Government was competent to withdraw the first notification without giving any prior notice to the respondent.

20. From the above referred decisions it is manifest that the legislature can never be precluded from exercising its legislative power by resort to the Doctrine of Promissory Estoppel. Since it is an equitable doctrine, it must yield when equity so requires. The courts would decline to enforce this doctrine if it results in great hardship to government and would be prejudicial to the public interest. Keeping these principles in mind it is necessary to examine the fact situation in the instant case.

21. It is not in dispute that by inserting sub-section 6 to

Section 115JB and Section 115O of the Income Tax Act the petitioners are exempted from paying minimum alternate tax and tax on distribution of dividends. By introducing the impugned provisos in the second schedule to SEZ Act the benefit extended is now withdrawn. In the circumstances, the petitioners are claiming relief 33

on the basis of Doctrine of Promissory Estoppel. It is settled position of law that this doctrine must yield when the equity so requires. Firstly the exemption provided do not have a sunset clause and now under the impugned amendment this flaw in the law is removed. Secondly, the inequality between SEZ companies and other companies is removed. Thirdly, the exemptions provided to

SEZ companies resulted in erosion of tax base. Respondents in their statement of objections stated that they have foregone revenue from

SEZ units to the tune of Rs.692 crores in 2006-07, Rs.2710 crores in

2007-08, Rs.4099 crores in 2008-09 and Rs.4990 crores in 2009-10.

Fourthly, the impugned amendment relates to fiscal policy of the state and any decision in the economic sphere is adhoc and experimental in its nature and therefore the Government is well within it sovereign power to regulate the same. Lastly the impugned amendments do not transgress any of the fundamental rights of the petitioners guaranteed under the Constitution. Therefore, I hold that

Doctrine of Promissory Estoppel cannot be made applicable to 34

nullify the impugned amendments. Accordingly these two points 3 and 4 are held in negative.

For the reasons stated above, the writ petitions are hereby dismissed.

Sd/- JUDGE.

LRS.