M J Antony: Unkept promises

OUT OF COURT

One of the recurring points in litigation in the high courts and the Supreme Court is the broken promises of the state governments. At least three judgements were delivered by the Supreme Court in recent weeks with the industries complaining that they invested huge amounts trusting the government's word, but by amending, clarifying and issuing explanatory notifications, the assurances were withdrawn and they had suffered losses.

One such was Secretary to Government vs Peekay Re-Rolling Mills, in which the grievance of the industry set up in Kerala was that they were initially granted exemptions in sales tax, but later they were withdrawn by government notifications. By then, the unit had made additional investments. Curiously, this extra investment had put it in the "negative list", which made it ineligible for the subsidy.

When the company moved the high court, it allowed its petition. But the government appealed to the Supreme Court. It remanded the case to the high court to reconsider certain questions left out by it. However, the remarks made by the Supreme Court in this judgement are bound to have a discouraging impact on industrialists who want to set up new units or expand the existing ones in underdeveloped regions. For instance, one of the main reasons for withdrawal of the promised tax benefits was that the state was experiencing acute power shortage. The Supreme Court remarked that the state government had the authority under Article 162 of the Constitution to withdraw tax exemption under such circumstances.

The judgement acknowledged that medium scale units were granted tax exemption for seven years. The state had also given concessions under the Electricity Act. It had also promised subsidies. All these were withdrawn by the ministry of industries on account of power shortage. If this view is accepted, any state government can lure industrialists into setting up units in its territory and once the investment is complete and a point of no return is reached, the original incentives could be slowly withdrawn on one excuse or the other. There are few states which cannot invoke power shortage as an excuse, and the Supreme Court has put its seal of approval for such apology.

This judgement, delivered in the first week of this month, apparently goes against the spirit of another judgement delivered exactly four years ago, in Hitech Electrothermics & Hydropowser Ltd vs State of Kerala. In this case, the industry could not be started within the five years stipulated in the incentive scheme because of the lapse of the state electricity board. The government therefore denied the promised benefits in electricity tariff. The company moved the high court. But it held that since it could not keep the deadline, it could not claim the benefit. The company moved the Supreme Court, with success. It said that the delay was caused by the state electricity board, which could not supply power to the unit. The judgement emphasised that the industry could not be penalised for the fault of the state agency.

The Supreme Court dealt with another case of denial of incentives recently in Vividh Marbles Pvt Ltd vs Commercial Tax Officer. In this case, the Rajasthan government issued two schemes. The authorities fouled up the assessment while calculating the promised sales tax exemption. Later, they realised the mistake and issued a show cause notice to the unit for recovery of the balance amount. The company moved the Rajasthan high court, without result. Its appeal to the Supreme Court was also dismissed.

According to the judgement, it might be true that the assessing authority committed a mistake, but the company could not be permitted to derive any benefit to which it was not entitled under the law. "The statutory authorities are entitled to rectify their mistake. When such mistakes are apparent on the face of the record, even no opportunity of hearing is necessary," the judgement said.

Most of the victims of the states' flip-flops are small scale industries which cannot always carry their grievances to the Supreme Court. Litigation would be another expensive and debilitating millstone around their necks. But the big ones which have carried their cases to the apex, have won. A few years ago, TISCO carried its dispute with the Jharkhand state on denial of incentives to the Supreme Court. It directed the government to give the promised incentives to the company. MRF Ltd won a similar victory last year, after losing in the high court twice. The judiciary's own stand is not clearly defined. Therefore, one can expect more of such cases in future if governments, flush with electoral victory, suffer amnesia once they are firmly in the saddle.