Exemption of Tax from Framework Agreement

2015-VIL-554-KAR
NANDI INFRASTRUCTURE CORRIDOR ENTERPRISE LIMITED Vs THE STATE OF KARNATAKA
Karnataka Value Added Tax Act – Sections 5(1) and 5(2) – Exemption of tax – framework agreement (FWA) for exemption from levy of tax – Infrastructure project – Assessee appeal against Single Judge order seeking tax exemption under the KVAT Act placing reliance on the assurance or promise granted by the Government of Karnataka under FWA – petition for continuation of exemption promised under KST regime in VAT regime – notifications issued under the KST regime granting exemption to infrastructure project till 13.1.2005.
Revenue contention that with KVAT Act coming into force, no such power is vested with the State Government to extend tax concession, incentive and holidays to the dealers except as provided under sections 5[1] and 5[2] of the KVAT Act.
HELD – by no stretch of imagination, the assessee-company could be construed as a new industrial unit to attract the provisions of Section 5(2) of the KVAT Act. Accordingly, the arguments advanced by the State that the assessee-company is only entitled to the reimbursement of net value added tax paid during the KVAT regime, requires to be negated.
The exemption that was granted under the KST regime by issuing notifications under section 8-A of the KST Act – Such power of granting exemption is very well embedded in the latter portion of Section 5(1) of the KVAT Act, which specifics granting of exemption “subject to such restrictions and conditions as may be specified in the notifications”. Hence, State Government is empowered to grant exemption under section 5(1) of the KVAT Act on the sale of machinery, equipments and construction material to a dealer undertaking an infrastructure project. State cannot contend that it has no power to exempt the dealer unlike KST Act. It is virtually exemption of tax on the goods, subject to certain restrictions and conditions – State is empowered to issue exemption notification to the appellant company on the sale of goods and cannot deny extending the exemption benefit agreed upon, on the pretext that it has no powers under KVAT Act to extend such exemption. The terms agreed in the FWA amounts to promissory estoppels.
There is no bar under the scheme of the KVAT Act to deny the benefit of exemption as extended under the KST Act – The doctrine of promissory estoppel is rightly applicable to the facts of the present case and the Government cannot resile from its promises or assurances of exempting the tax under the KVAT Act – However, Court cannot direct the State Government to issue any notification exempting the non-affiliates of the appellant company from the tax payable under the provisions of the KVAT Act in terms of FWA – the order passed by the learned single Judge is set aside – Government Order No.FD.07.CET.09 dated 07.12.2011 is set aside and State Government is directed to issue appropriate exemption notifications.
Assessee appeal allowed