[Essar Steel purchase tax] Doctrine of promissory estoppel does not apply in tax matters: Supreme Court

The Supreme Court on Friday upheld the penalty imposed by the Gujarat government on Essar Steel in relation to a purchase tax case in which the company deliberately diverted natural gas and naphtha to its sister concern, Essar Power, for generation of electricity [State of Gujarat v. Arcelor Mittal Nippon Steel India]. .A Bench of Justices MR Shah and Sanjiv Khanna held that Essar Steel did not comply with a stipulation under the exemption certificate granted to it by the government with regard to purchase of natural gas and naphtha at concessional rates under a sales tax exemption incentive..The Court held that the incentive benefit given to Essar Steel could not have been transferred to Essar Power, since power producing industries were not eligible for the same."We have held that Essar Steel Limited did not comply with original entry. As per latest incentive policy, benefit was eligible to certain industries. Power producing industries were ineligible for the same and thus Essar Power was not eligible for purchase tax exemption," the Court said.It was a deliberate violation and a clear case of wrongly claiming exemption, the Court ruled."This was a clear case of false and wrong claim of exemption, as the exempted goods were transferred to a third person and used in an ‘ineligible’ industry...This is a case of deliberate violation and evil doing,” the judgment said.Pertinently, the Court held that the doctrine of promissory estoppel will not apply in tax matters."While exemption notification must be liberally construed, the beneficiary must fall within ambit of the notification. Promissory estoppel will not be applicable in this case," the Court held.The doctrine of promissory estoppel is not as such applicable in taxation matters, and rules of promissory estoppel cannot be used to amend or alter rules framed in pursuance of a statute, the Court added."The principle of promissory estoppel shall not be applicable contrary to the statute. Merely because erroneously and/or on misinterpretation, some benefits in the earlier assessment years were wrongly given, cannot be a ground to continue the wrong and to grant the benefit of exemption though not eligible under the exemption notification," the Court made it clear..Essar Steel had purchased natural gas and naphtha at concessional rates under the sales tax exemption incentive. The exemption was granted between 1993 and 2007. However, it had diverted the same to Essar Power instead of using it within its premises. The Sales Tax Department had sought to levy ₹480 crore as purchase tax, contending that the diversion amounted to a violation of conditions for availing tax incentives. The Gujarat High Court had in May 2016 ruled against the department, leading to the present appeal before the apex court. .The top court noted that Essar Power, under the incentive scheme, was not eligible at all for exemption from payment of purchase tax as in fact power generating companies were put in the list of ‘ineligible industries’. "Therefore, by such a modus operandi, the benefit, which was not available to the EPL was made available by such transfer of raw materials by the Essar Steel Ltd. to Essar Power Limited. Therefore, in the facts and circumstances of the case, the levy of penalty is justified and warranted," the Court concluded. .[Read Judgment]