In K. M. Refineries & Infraspace Pvt Ltd WRIT PETITION NO. 2209 OF 2018, the Nagpur Bench of the Bombay High Court, has rendered an important decision on the continuity of the erstwhile incentives in the GST regime.

The judgement addresses the concerns that with the introduction of the GST, the incentives offered by the government to promote development in backward areas may have been curtailed.

The judgement in K. M. Refineries & Infraspace Pvt Ltd directs the state authorities to implement the incentive scheme as amended up-to-date with a discretion to modify the scheme to bring it in line with the new tax structure under the General Sales Tax scheme, but without reducing or restricting the benefits as conferred.

M/s PDS Legal, a well known firm of Advocates & Solicitors has summarized the key takeaways of the decision of the Bombay High Court in K. M. Refineries & Infraspace Pvt Ltd as follows.

Facts

K. M. Refineries & Infraspace Pvt Ltd., set up a factory unit at village Dabha, Tahil Nandgaon Khandeshwar, District Amravati in view of the incentives offered under the state government scheme intending to have industries at disperse places all over Maharashtra under the “New Package Scheme of Incentives, 1993” (Incentive Scheme).

The Incentive Scheme would offset the increased cost of production and the Petitioner would be able to compete with other similar industries in marketing its products at affordable rates, without causing any loss to the Petitioner. Under the Incentive Scheme, monetary and other incentives in the nature of tax subsidy or tax exemption at the rates prescribed in the scheme and other benefits were given.

On introduction of the GST, the benefits under the scheme were claimed to have been curtailed and the government stated that the benefits would be available in terms of the Government Resolution dated 12.06.2018. This was challenged by the Petitioner inter alia invoking doctrine of promissory estoppel.

Judgement of the Bombay High Court

The High Court on analysis of the Scheme and the law has held:-

(a) The scheme had the object of making an effort to ensure the even distribution of industrial units across the state of Maharashtra so that employment is provided to larger sections of the society and there occurs equal distribution of wealth and means of production, to the common benefit of inhabitants of state.

(b) A promise is given by the state to the industries that, if the industries come out of their secure shells in Mumbai-Thane-Pune industrial belt and set up their industrial units in diffused virgin pastures of the state, spread out in rural and remote areas, the industrial units would be eligible for various incentives offered in the Incentive Scheme. These incentives are meant for offsetting the additional investment and increase in cost of production of the industrial units so that the goods and services could be produced at competitive rates and without incurring any losses.

(c) The Petitioner having changed its position and having made investments, has forged a legal relation with the state, and therefore, now the state would be bound by the promise that it gave to the Petitioner through the Incentive Scheme.

(d) The doctrine of promissory estoppel clearly applies here and would forbid the government from taking any decision of not completely implementing the Incentive Scheme or reducing the incentives to the detriment of the Petitioner and to that extent the decision would have to be held as illegal.

(e) The object and purpose of the Incentive Scheme is in consonance with the ideals held aloft by the directive principles of State policy contained in Part – IV of the Constitution of India, in particular, Article 39(c) which provides that that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. Taking away or reducing the benefits of the Scheme would be contrary to the object and purpose of the Directive Principles of State Policy.

The High Court held that the reduction under the Incentive Scheme in the name of new policy of GST is clearly not permissible and the Incentive Scheme that was in operation on the date of issuance of Eligibility Certificate would have to be enforced against the state. The state would modify the Incentive Scheme in such a way that it is consistent with the new tax structure and at the same time it also does not result in reducing or restricting the benefits which have been conferred upon an industrial unit like that of the Petitioner under the Incentive Scheme.

Conclusion

The decision invokes both the principles of promissory estoppel and the Directive Principles of State policy to hold the state good to its promise when the assessee has acted on such a promise. The decision resonates the principles laid down by the Hon’ble Supreme Court in Manuelsons Hotels Private Limited v. State of Kerela ((2016) 6 SCC 766) on application on doctrine of promissory estoppel.

The principles laid down would apply to other states and to the area based incentives offered under the erstwhile central excise law, where upon finding curtailment in the promised incentives/benefits assessees may consider approaching respective High Courts to claim continuity of such promised incentives / benefits even under the GST regime.

DOWNLOAD: Download judgement of the Bombay High Court

DOWNLOAD: Download expert summary by M/s PDS Legal

Text of Judgement of the Bombay High Court in K. M. Refineries and Infraspace Pvt. Ltd vs. The State of Maharashtra WRIT PETITION NO. 2209 OF 2018

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
WRIT PETITION NO. 2209 OF 2018
M/s K. M. Refineries and Infraspace Pvt.
Ltd., a Company through its Director, Shri
Vishnu Prasad Sankle, having Office at
Survey No.30/2, Dabha, Tq. Nandgaon
Khandeshwar, Distt. Amravati.
… PETITIONER
V E R S U S
1. The State of Maharashtra
through Principal Secretary, Department of
Industries, Energy and Labour, Mantralaya,
Mumbai – 32.
2. The Director of Industries Maharashtra
State having Office at Directorate of
Industries, New Administrative Building,
2nd Floor, Opposite Mantralaya, Madam
Cama Road, Mumbai – 32.
3. The General Manager,
District Industries Centre, Amravati.
4. The Joint Commissioner of Sales Tax
(Adm.), Amravati Division, Amravati. … RESPONDENTS
Mr. Firdos Mirza a/w Mr. Gaurav V. Kathed, Advocate for Petitioner.
Mr. K. L. Dharmadhikari, AGP for Respondent Nos.1 & 4.
CORAM : SUNIL B. SHUKRE AND
S. M. MODAK, JJ.
DATE : JULY 16, 2019
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
2/24 915.wp.2209.18
ORAL JUDGMENT – [PER SUNIL B. SHUKRE, J.]
. Heard. Rule. Rule made returnable forthwith. Heard finally
by consent.
2. The facts of this Petition appear on quite a narrow canvass.
Suffice it to say, for the purposes of this Petition that the Petitioner – a
registered Company dealing in manufacture of Vegetable Oil and Allied
Oil products, fired by the enthusiasm created by the Government scheme
intending to have industries at disperse places all over Maharashtra under
‘New Package Scheme of Incentives, 1993’ (for short, ‘Incentive Scheme’),
set up a factory unit at village Dabha, Tahil Nandgaon Khandeshwar,
District Amravati with the hope that the incentives offered under the
Incentive Scheme would offset the increased cost of production and the
Petitioner would be able to compete with other similar industries in
marketing its products at affordable rates, without causing any loss to the
Petitioner – Company.
3. Under the Incentive Scheme, monetary and other incentives
in the nature of tax subsidy or tax exemption at the rates prescribed in the
scheme and other benefits were given. The document of Incentive Scheme
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
3/24 915.wp.2209.18
required that the Eligibility Certificate be issued by the Implementing
Agency and invariably the Implementing Agency would be the concerned
District Industries Centre headed by an officer of the rank of General
Manager.
4. The Petitioner made an application for issuance of the
Eligibility Certificate by the District Industries Center, Amravati. The
Petitioner was found eligible for getting the certificate, and therefore, by
the final order issued on 20th March 2017, the General Manager, District
Industries Centre, Amravati issued the Eligibility Certificate which was
valid for nine years. Under the Incentive Scheme, the date from which the
Eligibility Certificate shall take effect for availing of the sales tax
incentives was to be specified by the Commissioner of Sales Tax.
5. In the instant case, the Eligibility Certificate reached the table
of the Commissioner of Sales Tax for specifying the date from which the
incentives to be given to the Petitioner were to take effect. The
Commissioner of Sales Tax prescribed the effective date, but, while doing
so, curtailed the validity period by about three years by his order passed
on 10th August 2017. The Petitioner has taken an exception to such
curtailment of the validity period by filing this Petition. The Petitioner has
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
4/24 915.wp.2209.18
also raised another grievance in this Petition. He submits that incentives
given in the Incentive Scheme have been substantially reduced by new
policy prescribing new tax structure of the State and according to him,
this violates principle of promissory estoppel.
6. It is the submission of the learned Counsel for the Petitioner
that the curtailment of validity period is not permissible under the
Incentive Scheme. It is also his submission that, even if new tax structure
has come into being it would have no adverse impact on the monetory
incentives given under the Incentive Scheme by virtue of the Application
of the doctrine of ‘Promissory estoppel’. The law consistently laid down by
the Hon’ble Apex Court right from the case of M/s Motiram Padampat
Sugar Mills Company Limited V/s State of Uttar Pradesh and others,
(1979) 2 Supreme Court Cases 409, reiterated in the case of Gujarat
State Financial Corporation V/s M/s. Lotus Hotels Pvt. Ltd. (1983) 3
Supreme Court Cases 379, would demonstrate it, submits learned
Counsel.
7. Mr. Dharmadhikari, the learned AGP for Respondent Nos.1 &
4 submits that even if there is any change in the tax structure, the
Petitioner would not be entitled to receive the original tax benefits as
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
5/24 915.wp.2209.18
provided under the Incentive Scheme of 1993 and whatever benefits that
might be conferred upon the Petitioner would be made available only in
terms of Government Resolution recently issued on 12th June 2018 and
also the other instructions that have been issued so far or would be issued
from time to time. He points out that under the new tax structure which
has a centralized system of Sales Tax under the name General Sales Tax
(for short, ‘GST’ for the sake of convenience), there is no provision for
grant of any exemption from GST, and therefore, the assesse or the tax
payer is liable to first pay the GST and at the most eligible units would get
refunds based on Eligibility Certificates as provided under the Government
Resolution dated 12th June 2018.
8. We have gone through the document of the Incentive Scheme
of 1993, placed on record. It elaboratively speaks of the incentives to be
given to the Industries. The object of the Incentive Scheme is to achieve
dispersal of the industries outside MumbaiThanePune
industrial belt and
to attract industries to underdeveloped and developing areas of the State.
The Incentive Scheme was originally introduced in 1964 and was
amended from time to time. One of the significant amendments, was in
the year 1993. It extended the period of Incentive Scheme to 30th
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
6/24 915.wp.2209.18
September 1998. Another significant amendment was made in the year
2007 vide Government Resolution dated 30th March, 2007. It appears that
the Incentive Scheme has been further extended by few more Government
Resolutions and there is no dispute about the fact that the Incentive
Scheme came to be extended for further periods from time to time and it
was in operation when the impugned order was passed by the
Commissioner of Sales Tax. In fact, there is no document placed on record
which shows that the Incentive Scheme has been superseded by any other
scheme or policy. Be that as it may, the fact remains that the scheme had
the object of making an effort for ensuring even distribution of industrial
units across the State of Maharashtra so that the employment is provided
to larger sections of the society and there occurs equal distribution of
wealth and means of production, to the common benefit of inhabitants of
State.
9. The Incentive Scheme as modified from time to time
envisages giving of promotional and financial incentives. The financial
incentives include the tax exemptions, cash subsidies for payment of tax
interest, subsidies, various matters and other exemptions. The
promotional incentives include Industrial Promotion subsidy, refund of
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
7/24 915.wp.2209.18
Octroi/Entry Tax (in lieu of Octroi) and the like. The promotional and
financial incentives could be availed of only upon the industry qualifying
itself in terms of the eligibility conditions prescribed in the scheme. The
industry is required to obtain an Eligibility Certificate from the
Implementing Agency, which is defined to be the concerned District
Industries Centre. The decision of the Implementing Agency as per clause 3.1(
1), though subject to such directions as the Government may issue
from time to time in this regard, is final and binding on the Eligible Unit.
Clause 3.1 (3) prescribes that the Commissioner of Sales Tax shall endorse
the Eligibility Certificate issued by the Implementing Agency and it shall
be his duty to specify the date of effect of eligibility for the incentives
under the Incentive Scheme.
10. The provisions contained in clause 3.1
would clearly show
that it is for the Implementing Agency to decide about the issuance of
Eligibility Certificate which decision is final and it is for the Commissioner
of Sales Tax to specify the date from which the Eligibility Certificate shall
take effect. These provisions further indicate in clear terms that there is no
authority given to the Commissioner of Sales Tax to modify, enlarge or
curtail the validity period decided by the Implementing Agency and the
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
8/24 915.wp.2209.18
only power which has been given to him is as regards specification of a
particular date from which the Eligibility Certificate shall take effect. But
by the impugned order dated 10th August, 2017, the curtailment has been
done, which is beyond the powers of the Commissioner of Sales Tax. This
order, therefore, would have to be quashed and set aside.
11. Apart from the curtailment of the period of Eligibility
Certificate, the Petitioner has yet another grievance. The grievance is
about reduction of the incentives offered under the Incentive Scheme
which is in detriment to the interest of the Petitioner and also the larger
societal interest. The Petitioner submits that no reduction of the incentives
already offered under the Incentive Scheme in operation on the date on
which the Eligibility Certificate was issued could have been made and if it
has been made now, it would be in violation of the principle of promissory
estoppel.
12. The learned Counsel for Petitioner submits that it is well
settled law that the promise solemnly given by the State cannot be
withdrawn to the detriment and the disadvantage of the person, who has
acted upon it and suffered liabilities. According to the learned AGP, even
if there is reduction in the incentives, it would not ultimately affect the
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
9/24 915.wp.2209.18
Petitioner in adverse manner, and therefore, there is no breach of the
principle of promissory estoppel. In order to resolve the issue so raised, it
would be necessary for us to first understand the doctrine of Promissory
estoppel.
13. An insightful exposition of the doctrine of promissory estoppel
could be found in the case of M/s. Motilal Padampat Sugar Mills Co.
Ltd. V/s State of Uttar Pradesh and Others reported in (1979) 2
Supreme Court Cases 409. The observations of the Hon’ble Apex Court
appearing in Paragraph No.24 are relevant and they are reproduced thus :
“24. This Court finally, after referring to the decision in the
Ganges Manufacturing Co. V. Sourujmull1, Municipal
Corporation of the City of Bombay v. Secretary of State for
India2 and Collector of Bombay v. Municipal Corporation of
the City of Bombay3, summed up the position as follows :
Under our jurisprudence the Government is not exempt
from liability to carry out the representation made by
it as to its future conduct and it cannot on some
undefined and undisclosed ground of necessity or
expediency fail to carry out the promise solemnly made
by it, nor claim to be the judge of its own obligation to
1 (1880) ILR 5 Cal 669
2 (1905) ILR 29 Bom 580
3 1952 SCR 43
::: Uploaded on – 06/08/2019 ::: Downloaded on – 31/08/2019 10:12:24 :::
10/24 915.wp.2209.18
the citizen on an ex parte appraisement of the
circumstances in which the obligation has arisen.
The law may, therefore, now be taken to be settled as a result of
this decision, that where the Government makes a promise
knowing or intending that it would be acted on by the promisee
and, in fact, the promisee, acting in reliance on it, alters his
position, the Government would be held bound by the promise and
the promise would be enforceable against the Government at the
instance of the promisee, notwithstanding that there is no
consideration for the promise and the promise is not recorded in
the form of a formal contract as required by Article 299 of the
Constitution. It is elementary that in a republic governed by the
rule of law, no one, howsoever high or low, is above the law.
Everyone is subject to the law as fully and completely as any other
and the Government is no exception. It is indeed the pride of
constitutional democracy and rule of law that the Government
stands on the same footing as a private individual so far as the
obligation of the law is concerned : the former is equally bound as
the latter. It is indeed difficult to see on what principle can a
Government, committed to the rule of law, claim immunity from
the doctrine of promissory estoppel. Can the Government say that
it is under no obligation to act in a manner that is fair and just or
that it is not bound by considerations of “honesty and good faith”?
Why should the Government not be held to a high “standard of
rectangular rectitude while dealing with its citizens”? There was a
time when the doctrine of executive necessity was regarded as
sufficient justification for the Government to repudiate even its
contractual obligations; but, let it be said to the eternal glory of
this Court, this doctrine was emphatically negatived in the Union
of India v. IndoAfghan
Agencies1 case and the supremacy of the
rule of law was established. It was laid down by this Court that the
Government cannot claim to be immune from the applicability of
the rule of promissory estoppel and repudiate a promise made by it
on the ground that such promise may fetter its future executive
action. If the Government does not want its freedom of executive
action to be hampered or restricted, the Government need not
make a promise knowing or intending that it would be acted on by
the promisee and the promisee would alter his position relying
upon it. But if the Government makes such a promise and the
promisee acts in reliance upon it and alters his position, there is no
reason why the Government should not be compelled to make good
such promise like any other private individual. The law cannot
acquire legitimacy and gain social acceptance unless it accords
with the moral values of the society and the constant endeavour of
the Courts and the legislature must, therefore, be to close the gap
between law and morality and bring about as near an
approximation between the two as possible. The doctrine of
promissory estoppel is a significant judicial contribution in that
direction. But it is necessary to point out that since the doctrine of
promissory estoppel is an equitable doctrine, it must yield when
the equity so requires. If it can be shown by the Government that
1 (1968) 2 SCR 366
having regard to the facts as they have transpired, it would be
inequitable to hold the Government to the promise made by it, the
Court would not raise an equity in favour of the promisee and
enforce the promise against the Government. The doctrine of
promissory estoppel would be displaced in such a case because, on
the facts, equity would not require that the Government should be
held bound by the promise made by it. When the Government is
able to show that in view of the fats as have transpired since the
making of the promise, public interest would be prejudiced if the
Government were required to carry out the promise, the Court
would have to balance the public interest in the Government
carrying out a promise made to a citizen which has induced the
citizen to act upon it and alter his position and the public interest
likely to suffer if the promise were required to be carried out by the
government and determine which way the equity lies. It would not
be enough for the Government just to say that public interest
requires that the Government should not be compelled to carry out
the promise or that the public interest would suffer if the
Government were required to honour it. The Government cannot,
as Shah, J., pointed out in the IndoAfghan
Agencies case, claim
to be exempt from the liability to carry out the promise “on some
indefinite and undisclosed ground of necessity or expediency”, nor
can the Government claim to be the sole judge of its liability and
repudiate it “on an ex parte appraisement of the circumstances”. If
the Government wants to resist the liability, it will have to disclose
to the Court what are the facts and circumstances on account of
which the Government claims to be exempt from the liability and it
would be for the Court to decide whether those facts and
circumstances are such as to render it inequitable to enforce the
liability against the Government. Mere claim of change of policy
would not be sufficient to exonerate the Government from the
liability: the Government would have to show what precisely is the
changed policy and also its reason and justification so that the
Court can judge for itself which way the public interest lies and
what the equity of the case demands. It is only if the Court is
satisfied, on proper and adequate material placed by the
Government, that overriding public interest requires that the
Government should not be held bound by the promise but should
be free to act unfettered by it, that the Court would refuse to
enforce the promise against the Government. The Court would not
act on the mere ipse dixit of the Government, for it is the Court
which has to decide and not the Government whether the
Government should be held exempt from liability. This is the
essence of the rule of law. The burden would be upon the
Government to show that the public interest in the Government
acting otherwise than in accordance with the promise is so
overwhelming that it would be inequitable to hold the Government
bound by the promise and the Court would insist on a highly
rigorous standard of proof in the discharge of this burden. But
even where there is no such overriding public interest, it may still
be competent to the Government to resile from the promise “on
giving reasonable notice, which need not be a formal notice, giving
the promisee a reasonable opportunity of resuming his position”
provided of course it is possible for the promisee to restore status
quo ante. If, however, the promisee cannot resume his position, the
promise would become final and irrevocable. Vide Emmanuel
Avodeji Ajaye v. Briscoe.”
14. Two propositions of law emerge from the above observations.
Firstly, once the promise is solemnly given by the State with an intention
that when acted upon, it would create a legal relation and acting on it the
promisee has changed his/her position and incurred liability, the State
must be held as bound by the promise, except when owing to change of
circumstances or subsequent developments larger public interests demand
that the promise be not enforced against the State lest newly established
balance of equities would tilt against the Government or larger public
interest. Secondly, the doctrine is equitable in nature, and therefore, it
must yield when the equity so requires. But, that does not mean that the
Government can claim to be exempt from the liability to carry out the
promise on some indefinite and undisclosed ground of necessity or
unacceptability and that the Government will have to disclose the facts
and circumstances on account of which the Government seeks its
exemption from the liability. Thus, the exemption to the Government can
be granted only on the basis of facts and circumstances of each case and
the burden to establish a case for exemption would be upon the
Government.
15. The principle of promissory estoppel has now been firmly
entrenched in India with its consistent reiteration and following in the
later cases. One of such cases is that of Gujarat State Financial
Corporation V/s M/s. Lotus Hotels Pvt. Ltd. Reported in (1983) 3
Supreme Court Cases 379.
16. Now, if we look at the Incentive Scheme, one feature of the
Scheme that would prominently strike us is that of a promise given by the
State to the industries. The promise is that, if the industries come out of
their secure shells in MumbaiThanePune
industrial belt and set up their
industrial units in diffused virgin pastures of the State, spread out in rural
and remote areas, the industrial units would be eligible for various
incentives offered in the Incentive Scheme. These incentives are meant for
offsetting the additional investment and increase in cost of production of
the industrial units so that the goods and services could be produced at
competitive rates and without incurring any losses.

17. Relying upon such a promise and assurance given by the
State, the Petitioner has opened its industrial unit at village Dabha by
making substantial investment. The Petitioner has acted upon the promise
and the promise had been given by the State with an intention to create
legal relation. The Petitioner having changed its position and having made
investments, has forged a legal relation with the State, and therefore, now
the State would be bound by the promise that it gave to the Petitioner
through the Incentive Scheme and which it confirmed it by issuing the
Eligibility Certificate.
18. It would be clear from the facts stated and the discussion
made by us thus far that the doctrine of promissory estoppel clearly apply
here and would forbid the Government from taking any decision of not
completely implementing the Incentive Scheme or reducing the incentives
to the detriment of the Petitioner and to that extent the decision would
have to be held as illegal. Once a promise has been solemnly given with
an intention that it would be acted upon and which has been indeed acted
upon and liabilities suffered by the promisee, the State cannot be
permitted to backtrack on the promise and change its position so as to
cause loss to the promisee. There can be an exception to the application of
the principle of promissory estoppel, but, the facts and circumstances
necessary for exempting the Government from its liability do not exist on
record and the reply of the State also does not convincingly point out any
such exceptional facts and circumstances warranting toning down or
withdrawing of its promise, much to the disadvantage of the Petitioner. If
the State has to reverse its promise, it must demonstrate specifically the
facts and circumstances showing that enforcing of the promise against it
would be highly iniquitous. The Government cannot change its stand
merely upon its ipse dixit. There must be in existence justifiable facts and
circumstances to change the decision or otherwise the State must give full
effect to the decision, which in the present case is to be found in the
Incentive Scheme. This is the essence of the rule of law.
19. In the earlier paragraph, we have found that the Incentive
Scheme has been framed by the State with a view to ensure equal
distribution of wealth and means of production to the common benefit of
citizenry of the State. The ostensible purpose was to encourage setting up
of industrial units across the State of Maharashtra so that the employment
is made available to greater sections of the society and the economy of the
State as a whole stands to gain. The object and purpose of the Incentive
Scheme is in consonance with the ideals held aloft by the directive
principles of State policy contained in Part – IV of the Constitution of
India, in particular, Article 39(c). Article 39(c) lays down thus :
“39. Certain principles of policy to be followed by the State –
The State shall, in particular, direct its policy towards securing –
(a) …………………………………………………………………………….;
(b) …………………………………………………………………………….;
(c) that the operation of the economic system does not result in
the concentration of wealth and means of production to the
common detriment;
(d) ……………………………………………………………………………..;
(e) ……………………………………………………………………………..;
(f) ……………………………………………………………………………..”
20. Though the earlier decisions of the Hon’ble Supreme Court
indicated that the courts were hardly concerned with the directive
principles, they being not justiciable or enforceable in the courts of law
like the fundamental rights, the duty of the courts in relation to the
directive principles of the State policy came to be stressed much in later
decisions, especially after 13member
Bench in Keshavananda V/s State
of Kerala, (1973) 4 SCC 225. This case laid down certain broad
propositions as regards fundamental rights, such as –

(i) There is no disharmony between the directives and the fundamental
rights, because they supplement each other in achieving the
common goal and establishing a welfare of State;
(ii) Fundamental rights cannot be enjoyed fully unless conducive
atmosphere for their enjoyment is created, which is possible only
when the directive principles are implemented;
(iii) Parliament is competent to abrogate any of the fundamental rights
by amending the Constitution in order to enable the State to
implement the directive principles;
(iv) Though the mandate of Article 37 is directed at the State, the courts
are also bound by the mandate, within the parameters of the
Constitution or any other statute under their consideration; and
(v) The courts have a duty while interpreting the Constitution and
statutes to harmonise the social objective underlying the directive
principles with the individual rights.
21. In the case of Centre of Legal Research V/s State of Kerala
reported in AIR 1986 SC 1322, the Hon’ble Apex Court held that the
Court may issue suitable directions so that the Government may perform
its duty to implement the directive principles of State Policy.

22. In the case of Sheela V/s Union of India, reported in 1986
SC 1773, the Hon’ble Apex Court had taken a similar view in order to
enforce the legislation passed to protect children. The Hon’ble Apex Court
has also struck down an executive order or law for violating the directive
principles (See – Cf. Ashwathanarayana V/s State of Karnataka, (1989)
Supp. (1) SCC 698; A. I. Bank Officers V/s Union of India, (1989) 4 SCC
96).
23. The law so crystallized in relation to the status of the
directive principles of State Policy would tell us that if there is any action
of the State or any executive order made by the State which dilutes or
abridges the mandate of the directives, the Court in exercise of power of
judicial review can annul the action or the executive order. The only
condition necessary for doing so would be that the executive order or the
law underlying the impugned action or order should have a reasonable
nexus with the directive principles or should be made for implementing
the directive principles and this has to be ascertained by examining nature
and character of the basic executive order or the law. Sometimes, even the
basic law or order could be in derogation of the directives. In that event
also, the court would have the power to strike down the same. A useful
reference in this regard may be made to the observations of the Hon’ble
Apex Court in paragraph Nos.3, 4 and 5 of Tinsukhia Electric Supply Co.
Ltd. V/s State of Assam and Others, reported in (1989) 3 Supreme
Court Cases 709. For the sake of convenience, we reproduce here a
portion from the relevant observations made in paragraph No.5, which
reads as follows :“
5. Whenever a question is raised that the Parliament or the
State legislature have abused their powers and inserted a
declaration in a law for not giving effect to securing the Directive
Principles specified in Article 39(b) and (c), the court can and must
necessarily go into that question and decide. See the observations of
Justice Mathew in Kesavananda Bharati Case at page 855 of the
report (SCC p.896). If the court comes to the conclusion that the
declaration was merely a pretence and that the real purpose of the
law is the accomplishment of some object other than to give effect
to the policy of the State towards securing the Directive Principles
as enjoined by Articles 39(b) and (c), the declaration would not
debar the court from striking down any provision therein which
violates Article 14, 19 or 31………………………………………………….”
24. The interpretation given by the Hon’ble Apex Court as regards
the status of the directive principles of State Policy, in our considered
opinion, applies to the facts and circumstances of the present case. The
Incentive Scheme, as stated earlier, has been framed ostensibly to achieve
one of the directives contained in Article 39(c) for ensuring equal
distribution of wealth and means of production. Specific incentives to the
industries have been offered and many of the industries have also availed
of those incentives by setting up their industrial units situated in various
parts across the State of Maharashtra. These units have been established
by making substantial investment and even at the risk of increase in the
expenditure on account of transportation, marketing and the like. Thus,
these units have suffered liabilities with the hope that the increased cost of
production would be evened out appropriately by the incentives given to
them.
25. Now, midway through the operation of the Incentive Scheme,
many of the incentives are being taken away or reduced and if this is
permitted, it would certainly adversely affect not only the industrial units,
but also the whole process of achieving the directive of Article 39(c) that
operation of economic system does not result in the concentration of
wealth and means of production to the common detriment. Such
reduction under the Incentive Scheme in the name of new policy of GST is
clearly not permissible and the Incentive Scheme that was in operation on
the date of issuance of Eligibility Certificate would have to be enforced
against the State. The only liberty that could be granted to the State
would be of modifying the Incentive Scheme in such a way that it is
consistent with the new tax structure under the General Sales Tax Scheme
and at the same time it also does not result in reducing or restricting the
benefits which have been conferred upon an industrial unit like that of the
Petitioner under the Incentive Scheme.
26. In the result, we find that this Petition deserves to be allowed
and it is allowed accordingly.
27. The impugned order dated 10th August 2017 is hereby
quashed and setaside
and the Commissioner of Sales Tax or any
authorized Officer is directed to specify the effective date of the Eligibility
Certificate without curtailing the validity period in terms of clause –
3.1(3) of the Incentive Scheme within a period of four weeks from the
date of receipt of this Judgment.
28. The Respondents are directed to implement the Incentive
Scheme as amended uptodate
with a discretion to modify the scheme so
as to bring it in line with the new tax structure under the General Sales
Tax scheme, but without reducing or restricting the benefits as conferred
upon the Petitioner under the Incentive Scheme within a period of eight
weeks from the date of receipt of this Judgment.
29. Rule is made absolute in these terms. No order as to costs.
JUDGE JUDGE