Delhi High Court
International Amusement Ltd. vs Entertainment Tax Officer & Ors. on 29 January, 2013
Author: S.Ravindra Bhat
* IN THE HIGH COURT OF DELHI AT NEW DELHI\
% RESERVED ON: 29.11.2012
PRONOUNCED ON: 29.01.2013
+ W.P.(C) 1259/1991
INTERNATIONAL AMUSEMENT LTD. ..... Petitioner
Through : Mr. Parag Tripathi, Sr. Advocate with
Mr. Manish Sharma and Sh. Rohan Sharma,
Advocates.
versus
ENTERTAINMENT TAX OFFICER
& ORS. ..... Respondents
Through : Ms. Avnish Ahlawat with Ms. Latika
Chaudhry, Advocates.
W.P.(C) 1394/1991
INTERNATIONAL AMUSEMENT LTD. ..... Petitioner
Through : Mr. Parag Tripathi, Sr. Advocate with
Mr. Manish Sharma and Sh. Rohan Sharma,
Advocates.
versus
ASSISTANT COLLECTOR & ANR. ..... Respondents
Through : Ms. Avnish Ahlawat with Ms. Latika
Chaudhry, Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
WP (C) 1259/91 & 1394/91 Page 1
MR. JUSTICE S.RAVINDRA BHAT
Facts
:
1. The relevant facts of the case are that the Petitioner, a public limited
company, (incorporated under the Companies Act, 1956) provides
constructive and scientific entertainment which is also educative to children
of middle and lower strata of the society in the country. That entertainment
is in the form of various rides and experiences which earlier were only
available abroad. The petitioner used to run the entertainment centre called
'Appu Ghar', at Pragati Maidan, Mathura Road, New Delhi. Appu Ghar is
licensed to function by the Trade Fair Authority of India. The Petitioner, in
order to keep the rates of admission and rides low and reasonable, needs
exemption from entertainment tax which is governed, in Delhi, by the
United Provinces Entertainment and Betting Tax Act, 1937 ("the Act").
2. Section 6(1) of the said Act provides for exemption under sub-clauses
(a) to (d).Section 6(3) of the Act provides for a wide power to the competent
authority, which may by a general or special order to exempt any
entertainment from liability of entertainment tax.
3. The Entertainment Tax Officer, Delhi by his letter dated 12.11.1984
granted exemption to the petitioner from payment of entertainment tax,
w.e.f. 14.11.1984 subject to certain conditions. These were:
WP (C) 1259/91 & 1394/91 Page 2
a) Audit Statement of Accounts of the programme and the actual
utilization of savings were to be furnished within one month of
the programme.
b) Officers of the Entertainment Tax Department were to be
allowed entry to inspect the programme.
c) All advertisements and publicity materials, had to mention that
the programme would be exempted from entertainment tax.
d) Counter-foils of the tickets were not to be destroyed until the
accounts were audited.
4. A show cause notice was issued to the petitioner, on 10.05.1985,
alleging it had without prior consent, increased the admission tickets of two
games. Further, it was alleged that two new games had been introduced by
the Petitioner at high prices. The petitioner responded stating that the
rationale for increasing prices of the games was because the duration of the
game had been increased by a minute. Also, the introduction of new games
was because some other games were not in functional mode anymore. On
24th May, 1985, the respondent issued a letter containing a warning, stating
that the department had considered its representation and that "...it has been
decided to take a lenient view this time and let off with the warning to be
careful in future in adhering to the conditions/rules of exemption and submit
monthly accounts in time, failing which necessary exemption granted to you
will be withdrawn.."
5. Despite the above development, the exemption granted to the
petitioner, in regard to payment of entertainment tax was cancelled by the
second Respondent, by a letter, w.e.f 16.07.1985.The petitioner was asked to
WP (C) 1259/91 & 1394/91 Page 3
affix 25% entertainment tax forthwith on the tickets sold. The petitioner
sought reversal of that decision, by representation dated 18th July, 1985. This
was, however rejected by the Commissioner of Entertainment tax, on 30 th
July, 1985. The petitioner made a further representation; finally, the
respondents rejected its request for grant of exemption, on 20-12-1985.
6. The Petitioner was issued a certificate of exemption from payment of
Entertainment tax by the respondents, dated 24-2-1987; this was subject to
the three conditions which had been indicated earlier, i.e. maintenance of
proper accounts, rates of admission tickets to be fixed with approval of the
administration; that the tickets were to show that they were exempt from
entertainment tax and that the validity of the exemption was to be valid
subject to renewal each year, ending 31st December. The petitioner had
applied for continuation of exemption, on 15th December, 1987. The
exemption expired on 31.12.1987. Similar requests for exemption were
made on 8-12-1988 and 18.12.1989. Finally, by letter/communication dated
16th February, 1990, the application for exemption was rejected. The
respondents also calculated that the petitioner had sold tickets worth
`2,12,31,012/- during the period 1-1-1988 to 31-12-1988 on which the
Entertainment tax was worked out at `53,07,753/-; similarly, for the period
1-1-1989 to 31-12-1989, the amount of entertainment tax demanded was `50
lakhs. The total amount of `1,03,07,753/- was thus demanded towards
arrears of entertainment tax. The petitioner kept making repeated
representations against the demand, and also seeking exemption from
payment of entertainment tax, but to no avail. In WP 1259/1991, ("the first
petition") therefore, the petitioner seeks quashing of the said demand for
WP (C) 1259/91 & 1394/91 Page 4
`1,03,07,753/- and for a direction to grant it exemption from payment of
entertainment tax.
7. In WP 1394/1991 ("the second petition") the relief claimed is for a
direction to quash a demand made by the respondent Entertainment tax
department for `1,78,000- which was claimed as the balance payable. It is
alleged that after the first order, restoring exemption (dated 24-5-1985) and
warning was later followed by a demand dated 18th December, 1987
demanding that entertainment tax differential worked out at `1,50,094/-
being the difference for the period between 1-1-1985 and 15-5-1985 on
account of introduction of the new rides, be paid. The petitioner paid the said
amount on the date of receipt of notice. By notice, dated 23.10.1990, the
Entertainment tax department said that the amount calculated for the said
period (1.1.1985 to 15.5.1985) had been erroneously worked out, and
demanded `1,78,000/-. The respondents cited, as the reason, that the price
hike in the tickets of the two games was unauthorized and in contravention
of the conditions of exemption and that the total amount payable was
`3,28,000/-. The balance of `1,78,000/- was demanded, with a further threat
that in case the amount were not paid, it would be recovered as arrears of
land revenue.
8. The petitioner argues that 'Appu Ghar' is an entertainment centre
providing constructive and scientific entertainment which is also educative
to children of middle and lower strata of the society in the country. In order
to keep rates of admission and rides low and reasonable, it is incumbent
upon the petitioner to obtain exemption from entertainment tax as per the
provisions of United Provinces Entertainment and Betting Tax Act, 1937.
WP (C) 1259/91 & 1394/91 Page 5
The petitioner was granted exemption under Section 6(3) of the Act.
However, the same was subsequently withdrawn by the first Respondent,
thereby levying entertainment tax. The petitioner argues that exemption
could not have been arbitrarily withdrawn by the department without any
reasonable cause and should be revived on year to year basis. It is urged that
the demand of `1.03 crores (impugned in the first petition) in respect of the
past years is unreasonable and uncalled for. The petitioner urged that the
impugned communication, withdrawing the exemption and demanding the
said amount towards entertainment tax is illegal and without jurisdiction.
Moreover, there is no provision in the Act which grants power to the
Respondent to withdraw the exemption. At best, all that could be done is that
the request for exemption can be rejected, on request for renewal, citing
reasons for the same. The respondent, on the other hand, has withdrawn the
exemption with retrospective effect. However, according to the conditions
mentioned while granting exemption stated that a ticket would bear a
mention of the fact that no entertainment tax is paid. Thus, even the
petitioner never charged any amount additional to the original price
pertaining to entertainment tax. Thus, what was not charged cannot be paid
by the petitioner. Furthermore, the Act does not allow taxation on
retrospective basis. Thus, levying of the tax amounting to `1.03 crores is
illegal and bad in law.
9. Learned senior counsel submits that the rejection of the Petitioner's
request for exemption is, in the circumstances of the case, arbitrary.
Elaborating on this contention, it is argued that the first exemption was
granted in 1984; it did not specify its time period. The only condition
WP (C) 1259/91 & 1394/91 Page 6
imposed by it was with regard to specific rates of admission. Having regard
to this fact, the notice dated 10.05.1985 alleged that the rates of certain
games had been increased even though permission was granted for lower
rates. This was replied to on 16.05.1985 and the matter was closed when the
authorities accepted the explanation and issued a warning letter on
24.05.1985. Learned counsel emphasized that the warning meant that there
could not be a change of admission rates for the games. Yet on 16.07.1985,
the exemption granted, despite the warning issued and the matter having
been closed, was withdrawn. The petitioner was aggrieved and represented
against this arbitrary action. Its representations yielded the second
exemption order dated 24.02.1987. This exemption order also imposed the
same three conditions contained in the earlier exemption order and for the
first time stated that validity (of the exemption) would be subject to renewal
each year ending 31st December. It was submitted that so long as the
conditions imposed were satisfied and fulfilled - and there was no reason or
doubt in this regard that the petitioner had complied with the conditions -
the authorities could not have arbitrarily denied exemption. Learned counsel
submitted that even though the statute is silent as to the applicant's right for
exemption, the fact remains that having granted that benefit in 1984 and
again renewed it in 1987, its denial had to be based on strong and on some
reasonable cause. It was emphasized that the mere existence of the power to
deny exemption cannot be invoked in the circumstances of this case once the
petitioner is satisfied of the conditions imposed at the time of original grant
of the exemption (which had no time limit) and the subsequent, i.e. the
second exemption order of 16.02.1987. Learned counsel relied upon the
judgment reported as Mangalore Chemicals and Fertilisers Limited v.
WP (C) 1259/91 & 1394/91 Page 7
Deputy Commissioner of Commercial Taxes and Others 1992 Suppl. (1)
SCC 21 and argued that unless the statute contains provisions of a
substantive nature which are fundamental to the policy underlying the
exemption sought, the mere circumstance of its being embedded in a statute
would not be determinative. In other words, in the absence of any
discernable public policy in denying the exemption, the statutory authority
or agency is bound to act reasonably and cannot mechanically or arbitrarily
reject an application for exemption - as was done in the present case under
Section 6.
10. Learned senior counsel also argued that the respondents have not
denied that the applications for exemption and renewal of the exemptions
were made well within time, i.e. on 15.12.1987, 08.12.1988 and 18.12.1989
for the years ending 31.12.1988, 31.12.1989 and 31.12.1990. Since the last
exemption order dated 16.02.1987 for the first time imposed a time limit, the
authorities had to exercise their powers and grant or refuse the exemption
within reasonable time which in the circumstances would not have been
more than a month. The inordinate delay in applying their mind and
ultimately rejecting the application three years later placed the petitioner in
an irreversibly prejudicial position. Highlighting on this aspect, it was
argued that the condition for working-out the exemption was that admission
rates and rates for rights had to be fixed with the approval of Delhi
Administration and that such rates - after exemption - had to be printed on
the ticket and recovered. This exercise had to be completed periodically
before each show. The petitioner's predicament, submitted learned counsel,
was that it kept filing returns disclosing to the authorities that it was
recovering tickets from the patrons at lower rates as if the exemption were
WP (C) 1259/91 & 1394/91 Page 8
granted. It could not do otherwise because in the event the authorities
accepted its plea ultimately and granted the exemption, the petitioner would
have been charged with obtaining money under false pretenses. Having
created a situation where the petitioners were placed in an awkward position
of having not collected entertainment tax component, the delay in rejection
of the exemption application on the one hand and the demand for huge
arrears of entertainment tax working out to 25% of the entire amounts
collected during the relevant period (which did not contain the tax
component) was extremely unfair. Learned counsel argued that the
respondents were estopped from contending that the exemption sought could
not be granted in the facts of the case. It was submitted that there is no
provision in the statute which in any manner control the grant of exemption;
on the contrary, the conditions spelt-out in the rules were fulfilled. So long
as the petitioner fulfilled the criteria enabling the government to exercise its
power of exemption, the request had to be considered reasonably. In other
words, the power to grant or refuse exemption was a power coupled with a
duty to act reasonably and with expedition. Having at once granted
exemption, the respondents were under a duty to disclose to the Court what
impelled them to refuse them after delay of nearly three years. Equally the
petitioners, by the respondent's initial conduct and their subsequent inaction
had been led to alter that position irreversibly. Therefore, the doctrine of
promissory estoppel applied to the facts and circumstances of this case.
Learned counsel relied upon the decision reported as State of Punjab v.
Nestle India Limited 2004 (6) SCC 465; ITC Bhadrachalam Paper Boards v.
Mandal Revenue Officer 1996 (6) SCC 634 and A.K. International v. Union
of India 2002 (144) ELT 241 (Del). It was also contended by the Petitioner
WP (C) 1259/91 & 1394/91 Page 9
that the department acts as a quasi-judicial authority and thus, it is under an
obligation to pass a speaking and reasoned order. Yet, while withdrawing
exemption, the Respondents gave no reason for the cancellation and thus, the
decision is arbitrary and whimsical in nature. It is pertinent to mention here
that the Entertainment tax department is a statutory authority. Thus, as per
the principle laid down in Indian National Congress (I) v. Institute of Social
Welfare & Ors, reported in (2002) 5 SCC 685. It was held that a quasi
judicial authority has to act strictly in accordance with the statutory
provisions. Thus, in the instant case, the department did not act according to
the provisions specified under section 6(1) of the Act.
11. It was argued that in addition to the above submissions, in the case of
the second petition, that the respondents had on two earlier occasions dealt
with the question of alleged wrongful conduct of the petitioner in increasing
their rates. In the first instance, on 24.05.1985, the chapter was closed with a
mere warning. Subsequently, an amount of `1,50,000/- was demanded and
immediately paid. Having regard to these broad facts, the demand for
`1,78,000/- on the ground that incorrect amounts had been demanded earlier,
was absolutely without jurisdiction. On this aspect, it was urged that the
respondents failed to point out the source of power or jurisdiction to review
an order which had attained finality and had been complied with fully.
Contentions of the Respondents
12. The Respondents submit that the exemption was originally granted to
the petitioner on 18 items of entertainment subject to charging admission
money at the rates approved by the department. However, the petitioner
revised the rate and increased rates of two items of entertainment without
WP (C) 1259/91 & 1394/91 Page 10
intimating the department. Furthermore, two new items were included by the
petitioner without knowledge of the department. Thus, there was
contravention of the conditions of the exemption. This is the reason why the
exemption was withdrawn by the Respondents and the petitioner was levied
with an entertainment tax.
13. The Respondents argue that one of the most essential conditions for
exemption is that the admission rate and rate of rides in 'Appu Ghar' shall be
fixed with the approval of the Delhi administration. Moreover, the validity
of exemption shall be subject to renewal every year. Thus, there is blatant
violation of the conditions agreed upon. Reliance can be placed on Fashion
Design Council of India v. GNCT & Ors reported in (2012) 51 VST 398
(Delhi) wherein it was held that exemption once granted would not be
provided as a matter of right. The relevant paragraph reads as follows:
"19. ....The argument of the FDCI that since similar
exemption have been granted in the past, it is entitled to
exemption from payment of tax as a matter of right is not
supported by law, hence not accepted. For the first few
years exemption from payment of entertainment tax was
granted to FDCI for fashion weeks as the government
was of the opinion to support nascent fashion industry in
Delhi to enable it to strengthen and to make Delhi a
popular center for fashion. Its spin-of benefits to textiles
industry, artisans/handicrafts and tourism sector was
also taken into consideration. However, it was never
intended that such exemptions will be granted
perpetually. From the audit report and balance sheet
submitted by FDCI, it is noted that the net current assests
as on 31.3.2009 was Rs. 8.89 crores which includes cash
and bank balances of Rs. 7.48 cores. Since the financial
health of the organisation is satisfactory, there is no
convincing reason as to why exemption from the payment
WP (C) 1259/91 & 1394/91 Page 11
of entertainment tax on fashion shows organised by it
should be continued at the cost of Government revenue.
However, considering the current scenario of recession
in industrial and export sector and to protect Delhi as
world class city in view of the forthcoming
commonwealth games, the government accepts the plea
of FDCI to grant exemption from payment of
entertainment tax only to an extent of 50% of the tax
amount as a special case. This exemption from payment
of tax upto 50% of the tax amount is allowed on two
events only. It is clarified that this exemption is not
extended to future events being planned by FDCI. The
Commissioner, Excise, Entertainment & Betting Tax may
initiate necessary action as per law."
14. The respondents urge that there is nothing illegal in the denial of
exemption to the petitioner. They also rely on the show cause notice was
issued to the petitioner on 10.05.1985. The reply from the petitioner was
considered on merits and it was well within the powers of the department to
not grant exemption from payment of entertainment tax, if it so deems fit. It
is further urged that the exemption was withdrawn w.e.f. 16.07.1985 and the
petitioner was liable to pay an amount of `3,28,762/- as entertainment tax,
which after negotiations was reduced to `1,50,094/- which was deposited by
the petitioner. However, later on it was found that the calculation of
entertainment tax was based on increase of Re.1 in the rates of admission.
Therefore, on account of wrong calculation of the entertainment tax, i.e.,
merely on the increased rate rather than on the entire amount of the
admission fee (at `3/-) was the reason for difference in amount paid by the
petitioner. Hence, the act of the Respondents is not bad in law as the
provisions of the United Provinces Entertainment and Betting Tax Act, 1937
WP (C) 1259/91 & 1394/91 Page 12
provide for exemption of entertainment tax in full and there is no provision
for charging tax on increased amount only.
15. The respondents argued that the entertainment centre run by the
petitioner in Delhi is a purely commercial establishment. The reason for
grant of exemption from payment of entertainment tax, in the first instance,
was to promote scientific and educational experience amongst children and
adults. However, the arbitrary increase in prices of the rides is nothing more
than a profit motivated action on behalf of the petitioner. Thus, the
respondents say that there is no merit in the plea of the petitioners that denial
of exemption was arbitrary.
16. The Respondents contended that the provisions of the Act clearly
provide that the government has the discretion to grant exemption if it is so
satisfied. Section 6 of the Act clarifies that exemption will not be granted to
institutes providing educational and scientific entertainment for profit
making purposes. The relevant provision in Section 6 the Act is relied on to
say that exemption cannot be claimed as a matter of right, but is dependent
on the facts of each case. The petitioner had no doubt been granted
exemption from payment of entertainment tax by two earlier orders;
however there was no right, much less any vested or enforceable right to
insist that such exemption should be granted as a matter of course, and
continued as long as the petitioner sought it. The authority's duty no doubt
was to consider the request for grant of exemption, and pass appropriate
orders. So long as the authority took into consideration all relevant and
germane factors necessary for deciding that aspect, the court could not say
that exercise of discretion, one way or the other is arbitrary or vitiated.
WP (C) 1259/91 & 1394/91 Page 13
Therefore, the respondents' authority in this case, to deny exemption, on the
basis of previous conduct and behavior of the petitioner, cannot be called
into question in these proceedings. In this case since the petitioner, increased
the entrance fee for the games, which resulted in profits, the respondents had
the discretion of not granting exemption.
17. The relevant provisions of the The United Provinces Entertainments
and Betting Tax Act, 1937- as applicable in Delhi and the rules are
extracted below:
"Section 2. Definitions -
XXX XXX XXX
(3) "entertainment" includes any exhibitional, performance,
amusement, game or sport to which persons are admitted for
payment;
Explanation: - The exhibition of News Reels,
documentaries, advertisement slides and cartoons whether
before or during the exhibition of a feature film is
"entertainment".
6. Exemptions. - (1) The entertainment tax shall not be
charged on payment for admission to any entertainment where
Government are satisfied -
(a) that the whole of the takings thereof are devoted to
philanthropic, religious or charitable purposes
without any charge on the takings for any expenses of
the entertainment; or
(b) that the entertainment is of a wholly educational
character (any question on that point to be determined
in the case of difference by Government in the
Department of Education); or
WP (C) 1259/91 & 1394/91 Page 14
(c) that the entertainment is provided for partly
educational or partly scientific purposes by a society
not conducted or established for profit; or
XXX XXX
XXX
(3) Government may by general or special order
exempt any entertainment or class of entertainments from
liability to the entertainment tax.
XXX XXX
XXX
Provisions of the Rules
9. Rules - (1) Government may make rules for securing the
payment of entertainment tax and generally for carrying into
effect the provisions of this chapter, and in particular -
(a) for the supply and use of stamps or stamped
tickets or for the stamping of tickets sent to be
stamped, and for securing the defacement of
stamps when used;
(b) for the use of tickets covering the admission of
more than one person and the calculation of the
tax thereon, and for the payment of the tax on
the transfer from one part of a place of
entertainment to another and on payments for
seats or other accommodation;
(c) for controlling the use of barriers or
mechanical contrivance (including the
prevention of the use of same barrier or
mechanical contrivance for payment of a
different amount), and for securing proper
records of admission by means of barriers or
mechanical contrivances;
(d) for the checking of admissions, the keeping of
accounts and the furnishing of returns by the
WP (C) 1259/91 & 1394/91 Page 15
proprietors of entertainments to which the
provisions of Section 4 (2) are applied or in
respect of which the arrangements approved by
Government for furnishing returns are made
under Section 4 (2);
(e) for the renewal of damaged or spoiled stamps
and for the procedure to be followed on
applications for refund under this chapter or
under the rules made thereunder;
(f) for the keeping of accounts of all stamps used
under this chapter; and
(g) for the presentation and disposal of
applications for exemption from payment of the
entertainment tax, or for the refund thereof,
made under the provisions of this chapter;
(h) for the exemption from entertainment tax of any
class of the audience or spectators.
XXX XXX XXX
Rule 16. Return required under Section 4 (2) (b) and (c) -
Every proprietor making a consolidated payment
under Section 4 (2) (b) or making payment in
accordance with return of the payments for
admission under Section 4 (2) (c), shall within
three days from the last day of each week ending
with Sunday, submit to the prescribed officer a
return in Form B, showing the number of tickets
issued at each rate, the gross amount received
from the sale of tickets and the amount of tax
collected. He shall also submit along with it a
return in Form B (1), showing the prince of a
programme or synopsis including tax, the number
of programmes, or synopsis issued, the gross
amount received from the sale thereof and the
amount of tax collected.
XXX XXX
XXX
WP (C) 1259/91 & 1394/91 Page 16
Rule 23. Application for exemption - All applications for
exemption under Section 6 (3) of the Act shall be
made to the officer prescribed in this behalf not
later than ten days before the date of the
entertainment. "
Analysis and findings
18. It can be seen from the above discussion that the Petitioner was first
granted exemption in respect of the rides it proposed, in 1984. The
respondent sought an explanation, in May 1985, from the petitioner,
regarding the issue of increase in rates and the introduction of new rides.
The explanation given was that the increase in rates was because the
duration of the rides had increased. The respondents initially issued only a
warning, by the letter dated 24.5.1985 and closed the matter. Thereafter, the
exemption was cancelled on 16th July, 1985. As to this sudden move, the
respondents have not given any reason. It is not the respondents' case that
the petitioner had indulged in any other conduct which disentitled it to the
continuance of the exemption, granted earlier. The petitioner's repeated
entreaties to renewal of exemption went unheeded, until ultimately on
16.2.1987, a fresh exemption order was issued. This order outlined the same
conditions which had been mentioned in the previous exemption order of
1984. However, for the first time, the order stated that its validity was
subject to approval at the end of each year. The petitioner concededly made
application for renewal of the exemption; however the respondents did not
grant it, and repeated requests went unanswered, till on 16.2.1990, the
respondents rejected the request for grant of exemption.
WP (C) 1259/91 & 1394/91 Page 17
19. Section 6 (1) enables the Government to exempt any establishment or
activity, otherwise liable to pay tax, from payment, inter alia, if the
concerned activity is of an "educational character". Section 6 (3) empowers
the Government to issue a general order, exempting establishments, or
classes of establishments from payment of entertainment tax. These two
provisions, therefore, clothe the authorities with wide powers in regard to the
grant of exemption. The issuance of the two exemption orders/certificates to
the petitioner, in this case, i.e., on 18.11.1984, and the other one, on
16.2.1987, show that the Government was satisfied that the prescribed
conditions or eligibility requirements spelt out in Section 6 (1) had been
satisfied by the establishment, i.e., the petitioner. The allegations made
against it, initially were closed with a warning; yet the government chose to
revoke the exemption, by order dated 16th July, 1985. That however, became
irrelevant with the issuance of the second exemption certificate in 1987. The
latter event establishes that the petitioner's eligibility to the grant of
exemption from payment of entertainment tax was no longer in doubt. The
question then is, whether the Government is correct in contending that there
is no right to claim exemption, which is a matter of discretion and that all
circumstances were taken into account, while considering whether to grant
or refuse exemption to the petitioner.
20. The power to exempt under Section 6 is based on a well-known
principle, which enables the executive government - in this case, tax
administrators flexibility and latitude in regard to classes of persons, articles
or situations in the matter of taxation. Such power permits the tax
administrators to apply differential rates of tax, stiffen or lessen, or exempt
WP (C) 1259/91 & 1394/91 Page 18
altogether the tax burden, having regard to the overall objectives of the
taxing statute (Ref. Banarasi Das v State of M.P AIR 1958 SC 909; Hiralal
Rattanlal v Sales Tax Officer AIR 1973 SC 1034; State of Mysore v Nagade
and Gadag 1983 (1) SCC 553). Yet the Courts have- even while recognizing
in principle the wide latitude given to the executive in such matters, held that
the power cannot be arbitrary and should conform to the basic principles
underlying the statute, particular the taxing incidence or the levy sought to
be imposed (Ref Nathpa Jhakri Joint Venture v State of H.P AIR 2000 SC
1268).
21. The conferment of power - of exempting from tax, designedly wide,
to deal with diverse, and at time unforeseen circumstances however, does
not imply that it can be used in a capricious manner. In a country governed
by a written constitution, all power, including the power to deal with diverse
and unforeseen situations and arming the executive with considerable
latitude, has to be exercised reasonably and in a non-arbitrary manner. It is
of course a fact that in fiscal and taxation statutes, the legislature and the
executive have a great degree of flexibility, and Courts cannot "possibly
assess or evaluate what would be the impact of a particular immunity or
exemption and whether it would serve the purpose in view or not. There are
so many imponderables that would enter into the determination that it would
be wise for the court not to hazard an opinion where even economists may
differ." (Ref R.K.Garg v Union of India 1981 (4) SCC 685). Yet, there
cannot be any dispute that even that power has to be used in fair and
reasonable manner.
WP (C) 1259/91 & 1394/91 Page 19
22. The doctrine of promissory estoppel was invoked by the Petitioners to
say that the respondents acted contrary to their representation, and put them
in an irreversibly prejudicial position. In Pournami Oil Mills, Etc vs State Of
Kerala & Anr AIR 1987 SC 590, the Supreme Court applied the doctrine of
promissory estoppel in a case where the sales tax exemption originally
granted was reduced by a later notification, and held as follows:
"Under the order dated 11.4.1979, new small-scale units were
invited to set up their industries in the State of Kerala and with
a view to boosting of industrialisation, exemption from sales tax
and purchase tax for a period of five years was extended as a
concession and the five-year period was to run from the date of
commencement of produc- tion. If in response to such an order
and in consideration of the concession made available,
promoters of any small- scale concern have set up their
industries within the State of Kerala, they would certainly be
entitled to plead the rule of estoppel in their favour when the
State of Kerala purports to act differently..."
Similarly, in Pine Chemicals v The Assessing Authority 1992 (2) SCC 683,
the Supreme Court held that withdrawal of exemption after lapse of a shorter
period, when it had been represented by the state that as an incentive, the
benefit would inure for a longer period, attracted the doctrine of promissory
estoppel. There are similar observations in Mangalore Chemicals and
Fertilisers Limited(supra). In Nestle (supra), the Supreme Court held that:
"24.......Can the government be now allowed to go back
on the representation, and if we do so, would it not
amount to our countenancing the perpetration of what
can be compendiously described as legal fraud which a
court of equity must prevent from being committed. If the
resolution can be read as meaning that the grant was of
rent-free land, the case would come strictly within the
doctrine of estoppel enunciated in section 115 of the
WP (C) 1259/91 & 1394/91 Page 20
Evidence Act. But even otherwise, that is, if there was
merely the holding out of a promise that no rent will be
charged in the future, the government must be deemed in
the circumstances of this case to have bound themselves
to fulfill it. Courts must do justice by the promotion of
honesty and good faith, as far as it lies in their power."
This court is of the opinion that the argument regarding applicability of
promissory estoppel has considerable merit.
23. The Court however, does not rest the decision on the finding that the
respondents were estopped from withdrawing the exemption in this case.
The respondents, as noticed at more than one place in this judgment, had
granted the exemption initially, in 1984, after fully satisfying themselves
that the petitioner fulfilled the eligibility conditions spelt out in Section 6
(1). There was no doubt on that score, even later, because the aberration
faulted by them was with regard to introduction of new rides, and charging
different rates. That matter was settled with a warning in May, 1985. Yet,
the exemption was cancelled, on 16th July, 1985. The petitioner's repeated
entreaties yielded an order of exemption on 16thFebruary, 1987. This latter
development signified the respondents' satisfaction that the petitioner
continued to remain eligible for the exemption. Facially, no doubt the
exemption granted was till end of 1987. Yet, there is nothing on record to
establish that the fact situation regarding the petitioners' eligibility (for
exemption) ever changed. Such being the case, the respondents' inaction for
nearly 3 years, and its denial of exemption, ultimately, in 1990, is founded
on no explanation other than that it possesses the power to deny exemption,
which it chose to exercise, while denying the petitioner's request. This
explanation is quintessentially arbitrary. If the state's argument had been that
WP (C) 1259/91 & 1394/91 Page 21
the petitioner's activities had no longer qualified for exemption, or that the
nature of the relief was too onerous having regard to the changed tax
revenue scenario, that could have passed muster. However, there is nothing
on record to support such a plea; there is no notice to that effect to the
petitioner. Nor does the order rejecting the application for exemption cite
any such or similar reasons. Therefore, the delay in taking and
communicating the decision as well as the lack of any reason for the
decision, is unfair and unreasonable.
24. The court is of the opinion that though the action of the respondents in
denying exemption, in such a delayed manner, is arbitrary, yet the petitioner
too cannot be absolved from the same criticism. Its grievance, now, is no
doubt that the respondent placed it in an irreversible situation, and has made
a demand for Rs. 1.03 crores. Yet, apart from making periodic requests for
exemptions and extensions, it did precious little. To take its argument about
reasonableness, the petitioner was aware that any delay would result in
likely increase of tax liability and ought to have, for those reasons, applied to
this court, with dispatch. Yet, it waited till after the communication denying
exemption was granted. It did not collect the amounts payable from its
patron, towards entertainment tax. The explanation given now, that it did not
collect and this fact was brought to the notice of the authorities, who did
nothing further, in the opinion of this court, wears thin and is unpersuasive.
The least that could have been done by the petitioner was to approach the
court, and seek an appropriate order to protect its interest. Its failure in that
regard has led to increase in its liability, for which it can blame itself.
Therefore, the court is of opinion that having regard to all facts and
WP (C) 1259/91 & 1394/91 Page 22
circumstances, even though the respondents acted in an unreasonable
manner in denying exemption, and demanded `1.03 crores, the entire
demand ought not to be quashed. Taking into consideration all relevant
factors, it is held that ends of justice would be met with if the petitioner
makes payment of 1/3 (33-1/3%) of the said amount (i.e 1/3rd of `1.03
crores). WP 1259/1991 is therefore, allowed to the above extent as far as the
demand is concerned; the order rejecting the application for exemption is
also hereby quashed. The respondents are hereby further directed to consider
all circumstances and if there is no alteration between the fact situation
prevailing on the date of rejection (and if the petitioner so wishes such relief
now, at this distance of time) pass an order granting exemption under
Section 6 of the Act.
25. As far as the second petition, i.e., WP 1394/1991 is concerned, this
court notices that the first demand was made by the respondents for
Rs.1,50,000/- as the differential rates payable on account of the new rides.
This demand was satisfied. The demand was made, despite the unqualified
manner in which the issue was settled, by administering a warning. In these
circumstances, the impugned demand dated 23.10.1990 for `1,78,000/- -
ostensibly demanded on the basis of a calculation error, is without authority
of law. No provision enabling the tax authorities to carry out a rectification
either in regard to amounts demanded, or make such corrected demands, was
brought to the notice of the court. Such demand facially amounts to review
unauthorized by any provision of law. It is therefore, quashed.
26. In view of the above discussion, W.P.(C) 1259/1991 is partly allowed
to the extent indicated above; the petitioner shall deposit the amount directed
WP (C) 1259/91 & 1394/91 Page 23
by the court, within eight weeks, with the respondent authorities. The second
petition, i.e., W.P.(C) 1394/1991 is allowed, and the demand made by the
respondents is hereby quashed. There is no order as to costs.
S. RAVINDRA BHAT
(JUDGE)
R.V.EASWAR
(JUDGE)
JANUARY 29, 2013
WP (C) 1259/91 & 1394/91 Page 24
