By TIOL News Service

NEW DELHI, JAN 19, 2012: ESSAR Oil Ltd, the respondent was given the benefit of Sales Tax incentive under the Government of Gujarat "Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000" ("the Scheme"), by the High Court of Gujarat, in the impugned judgement.

The operative period of the said scheme was from 16.08.1995 upto 15.08.2000, during which new units have to go into commercial production. The Scheme envisaged grant of Sales Tax incentives by way of Sales Tax Exemption or Sales Tax Deferment or Composite Schemes, for Premier/Prestigious Units according to the location, investment and status of the project. Essar fell in the category of premier unit i.e. new industrial unit having a project cost of more than Rs.1,000/- crores and employing 100 workers on a regular basis and following the employment policy of the State Government.

Since Essar's investment was going to be more than Rs.1,000 crores , the duration of incentive of sales-tax deferment was to be for a period of 17 years from the date of commercial production.

It's a long story of Essar's journey through the administrative and judicial maze.

Essar was encouraged by the State Government to set up a major venture at Vadinar in Jamnagar District of Gujarat as a 100% export oriented unit for refining of petroleum products with a capacity of 9 Million Tons per annum at an estimated project cost of Rs. 1900 crores in collaboration with M/s Bechtel Inc., USA.

By letter dated 11th April, 1990, the then Chief Minister of the State of Gujarat wrote to the Ministry of Planning, Government of India, stating that the project was expected to generate foreign exchange earnings of over Rs.3000 crores within a period of 5 years and that it was expected to be set up in 36 months. It was anticipated by the State Government that the project would "completely change the face of the Vadinar area, which is traditionally a backward area of Gujarat offering direct and indirect employment and will encourage growth of various other ancillary industries in that region ". The letter further said that the project had the full support of the Government of Gujarat and it was being accorded highest priority and that Essar's proposal for setting up the oil refinery should be cleared by the Government of India urgently. The clearance for setting up the oil refinery was then granted by the Government of India.

In January, 1993, Essar applied to the Gujarat Pollution Control Board (GPCB) for grant of a 'No Objection Certificate' to establish the refinery for manufacturing several kinds of petroleum products. By letter dated 15th February, 1993, the GPCB stated that it had no objection from the Environmental Pollution potential point of view in the setting up of the refinery project subject to certain environmental pollution control measures to be taken by the appellant. Essar's proposal regarding the environmental pollution control system was approved by the GPCB on 17th April, 1993 and a Site Clearance Certificate was issued on that date.

On 10.11.1994, Essar filed an application for right of way over 15.49 hectares of forest land for laying Submarine Crude Oil Pipeline, Cooling Water/Return Water Pipeline and Product Jetty for establishment of its Refinery Project at Vadinar, District Jamnagar, to the Conservator of Forests, Marine National Park, Jamnagar. Undisputedly, 15.49 hectares of forest land applied for includes 8.79 hectares of Jamnagar Marine National Park and Sanctuary. Therefore, permission under Section 2 of the Forest Conservation Act ("FCA") was required for the entire 15.49 hectares. At the same time, permission of State Government was required under the Wildlife Protection Act ("WPA") for 8.79 hectares.

On 13.02.1995, the State Government requested the Chief Conservator of Forests, Regional Office, Western Region, Bhopal, to move the Government of India to issue suitable orders to allow Essar to make geophysical survey in Marine National Park/Sanctuary area. The proposal was forwarded by the Chief Conservator of Forests, Bhopal to the Government of India on 15.05.1995.

On 08.09.1995, the State Government in its Forests and Environment Department informed the Government of India in the Ministry of Environment and Forests, inter alia, that the approval "in principle" was granted to Essar to install Single Buoy Mooring / Crude Oil Terminal / Jetty and connecting pipeline in the National Marine Park and Sanctuary area in Vadinar, District Jamnagar on the terms and conditions to be decided in due course by the State Government.

On 11.09.1995 the said Scheme was announced and thereafter on 01.02.1996 Essar applied in the new format to the Industries Commissioner, Gandhinagar for registering the Industrial Undertaking as a "Premier/Prestigious Unit" under the said Scheme.

On 27.11.1997 the Ministry of Environment & Forest, Government of India granted "in-principle" approval to Essar under FCA, 1980 for diverting 15.49 hectares of forest land for non-forest purpose.

On 25.06.1999 Essar was issued the provisional Premier Registration Certificate by the Industries Commissioner. The provisional certificate was valid upto 15.08.2000 i.e. the last date of Scheme, within this time period Essar was obliged to start commercial production, failing which Essar would have to apply for extension of date of commercial production.

In the meantime, in view of the permissions granted to install "marine facilities ", Essar started construction work of laying of water in-take jetty and product jetty in the forest area of Marine National Park and Marine Sanctuary. Essar's grievances are that despite the aforesaid permissions being given to them for construction, the State Forest Department forced Essar to stop work and further lodged on 19.3.1999 a criminal complaint against Essar and its contractor, for offence committed under sections 17(A), 29, 35(6), 51(1) and 58 of the WPA and section 26 of the Indian Forests Act.

In April 1999, a writ petition in the nature of Public Interest Litigation was filed before the High Court of Gujarat by one Halar Utkarsh Samiti ("Samiti") alleging serious violations of several environmental legislations on the part of Essar, who was impleaded as Respondent No.4 in the petition.

By interim order-dated 20.04.1999 passed in that PIL High Court directed Essar not to carry on any construction activity in the Marine National Sanctuary and Marine National Park in violation of the statutory provisions including the provisions contained in Wild life (Protection) Act, 1972.

By order-dated 20.08.1999 the High Court disposed of the said PIL in which Essar undertook to file an Undertaking to the effect that they would not carry out any construction activities at the site in question, without obtaining the approval from the authorities.

On 09.09.1999, a charge sheet was filed against the officers of Essar and its contractor in respect of earlier mentioned offences allegedly committed by them under the WPA and FCA.

On 08.12.1999 the Ministry of Environment and Forest, Government of India granted approval under section 2 of the FCA for the total land of 15.49 hectares of forest land .

In April 2000, said Samiti filed another PIL and subsequently two other PILs were also filed by one Jan Sangarsh Manch and one Shri Alpesh Y. Kogje, in the High Court of Gujarat challenging, inter alia, the permission granted by the State Government to one Bharat Oman Refineries Ltd. ('BORL') to lay pipeline in the Marine National Park and Sanctuary Area. It is pertinent to note here that Essar was not a party to these petitions.

On 29.04.2000 the Government of Gujarat discontinued the said Scheme with effect from 01.01.2000. However, vide the same Government Resolution dated 29.04.2000, it was specifically mentioned that industry units in pipelines cases which have been registered should start production within two years from January 1, 2000 failing which such units shall be rendered ineligible for sales tax incentive. Therefore, the time to start commercial production was thus extended to 01.01.2002. Essar, being a registered unit, was entitled to the benefit of the said extension.

By judgment and order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000 and 03.08.2000 the High Court, in the second PILs, restrained the Government of Gujarat from granting any more authorization and permission for laying down any pipeline in any part of the sanctuary or the national park. As a result of this order, Essar was not given permission to lay down pipelines by the State Government.

Being aggrieved, inter alia, on the ground that it was not a party to the second PILs, Essar filed a review/recall application before the High Court, inter alia, seeking review and recall of the judgment and order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000 and 03.08.2000 passed in the second PILs by the High Court and a further declaration to the effect that Essar's project at Vadinar was not affected in any manner by the said judgment.

By judgment and order dated 23.02.2001 the High Court rejected the said application for review on the ground that there was a factual controversy between Essar and the State Government and that therefore the grievance of Essar was beyond the scope of review.

On 12.04.2001 the Government of Gujarat extended the time for going into commercial production upto 15.08.2003 for various pipeline units including Essar, vide Government Resolution dated 12.04.2001. By that time Essar had obtained Provisional Premier Unit Registration before 15.08.2000 and had also incurred 25% of the Project Cost before 15.08.2000 and therefore, it was entitled to the benefit of this extension.

Essar challenged the aforesaid judgment and order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000, 03.08.2000 and 23.02.2001 of the High Court delivered in the second PILs and the rejection of its review petition in that second PILs respectively by way of filing Special Level Petition before the Supreme Court.

By interim order-dated 11.05.2001 Supreme Court granted stay of the judgment of the High Court in so far as Essar was concerned.

In view of the above stay order granted by Supreme Court, Essar moved the State Government for permitting it to proceed with the construction of jetty and laying the pipeline. By letter dated 29.10.2001, the State Government in the Forests and Environment Department specifically called Essar to ensure that no construction activities were commenced before obtaining all necessary clearances from different Government departments, agencies and the conditions stipulated by the Ministry of Environment and Forests, Government of India as well as the Forests and Environment Department of the State Government were strictly complied with. However, Essar did not commence the construction of jetty or laying down the pipeline in the National Marine Park/Sanctuary area.

It is also pertinent to note that the Government of Gujarat had also challenged the judgment and order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000 and 03.08.2000 of the High Court passed in the second PILs by way of filing Special Leave Petition before the Supreme Court.

Essar just requested by its letter dated 11.04.2002 the Industries Commissioner to extend the date of commercial production to 30.11.2004 instead of 15.08.2003 for the purpose of availing the incentive benefit under the Scheme and cited that the delay in completing the project and consequent delay in starting commercial production was due to the factors beyond the control of Essar. Further by letter-dated 07.05.2002 Essar in continuation of the letter-dated 11.04.2002 requested the Industries Commissioner to extend the date of commercial production to August 2006.

The Industries Commissioner refused to grant any further extension of time vide its letter-dated 28.05.2002 and also made it clear to Essar to go into commercial production within the specified time i.e. till 15.08.2003. Essar, therefore, submitted a representation dated 19.06.2002 to the Chief Minister pointing out the circumstances which had delayed the completion of the project. Similar representations were thereafter made to different authorities of the State Government on 27.06.2002, 14.03.2003, 30.07.2003, 02.12.2003 and 26.12.2003. It appears that the said representations were not responded to.

By an order-dated 19.01.2004, the Supreme Court quashed and set aside the judgment dated 03.08.2000 of High Court and directed the State Government to issue the authorization to Essar in the requisite format under Sections 29 and 35 of the Wild Life (Protection) Act within a fortnight after disapproving the interpretation placed by the High Court on the provisions of the Wild Life (Protection) Act, 1972.

47. In compliance with the above judgment, by letter dated 12.02.2004, the State Government authorized the Chief Wild Life Warden, Gujarat State under Sections 29 and 35 (6) of the Wild Life (Protection) Act to permit Essar for laying oil pipeline in the National Marine Park/Sanctuary area. The Chief Wild Life Warden also issued the requisite permission on 27.02.2004.

In the meantime, the accused i.e. officials and contractors of Essar involved in the Criminal Case of 1999 moved an application for discharge before the Metropolitan Magistrate at Khambalia. By order-dated 27.05.2004 the Magistrate allowed the said application and discharged the accused persons from all the charges levelled against them.

In view of the above permission granted by the Chief Wild Life Warden under Sections 29 and 35 of the Wild Life (Protection) Act, Essar again sent representations dated 06.04.2004, 12.07.2004, 27.07.2004 and 22.12.2004 to the Government requesting extension of time limit for commencement of commercial production for the purpose of sales tax deferment incentive scheme. In view of the above representations, the State Government in the Industries and Mines Department vide Resolution dated 10.05.2006 constituted a Committee comprising of the Advisor to the Chief Minister, the then Additional Chief Secretary, Finance Department and the then Principal Secretary, Industries and Mines department. The Committee was constituted to consider various such representations of Essar and other Companies.

On 26.11.2006 Essar commenced commercial production and started paying sales tax on the products sold by it, under protest.

As nothing was heard from the said Committee constituted in the year 2006 and the representations made by Essar in respect of granting Sales Tax Deferment were undecided, Essar filed a writ petition before the High Court contending that for no fault of it, Essar was prevented from completing the project and that it was on account of being so prevented, Essar could not commence the commercial production within the time limit of 15.08.2003.

By impugned order-dated 22.04.2008 the High Court excluded the intervening period and as such extended the time limit for commencement of commercial production from 15.08.2003 to 02.04.2007.

It is also pertinent to note that in the impugned order, a direction was given to the State Government that while considering Essar's application for the incentives, the State Government shall stipulate the following conditions, provided the final eligibility certificate is issued within one month from the date of receipt of the judgment:-

(i) The petitioner shall not be given the benefit of deferment of Sales-tax/Value Added Tax beyond 14th August, 2020.

(ii) The amount of Sales-tax/VAT already paid/payable by the petitioner for the period upto today shall not be refunded to the petitioner. (The above amount is stated by the petitioner company to be above Rs.300 crores )

(iii) Without adjusting the Sales-tax/VAT paid for the period upto today as aforesaid, the amount otherwise computable under the Incentive Scheme on the basis of the eligible capital investment made by the petitioner in the unit under consideration shall be reduced by Rs.700 crores.

The Supreme Court observed,

“The impugned judgment of the High Court is based on two basic line of reasoning that the respondents are entitled to the benefit of Sales Tax Waiver Scheme firstly on the principle of restitution and secondly, that the respondents cannot be made to lose the benefit under the Sales Tax Waiver Scheme, for an act of Court. In this regard it has been urged that the respondents could not set up the plant for the purpose of commercial production within 15th August, 2003 as it was prevented from doing so by an order of injunction of the High Court. An order of injunction is an act of Court and an act of High Court cannot prejudice anyone. The loss of time suffered by the respondent as a result of the injunction order cannot cause any prejudice to the respondent.

Examining the aforesaid two contentions, this Court finds that there is an overlapping area between the two. The concept of restitution is basically founded on the idea that when a decree is reversed, law imposes an obligation on the party who received an unjust benefit of the erroneous decree to restitute the other party for what the other party has lost during the period the erroneous decree was in operation. Therefore, the Court while granting restitution is required to restore the parties as far as possible to their same position as they were in at the time when the Court by its erroneous action displaced them.

The concept of restitution is virtually a common law principle and it is a remedy against unjust enrichment or unjust benefit. The core of the concept lies in the conscience of the Court which prevents a party from retaining money or some benefit derived from another which he has received by way of an erroneous decree of Court. Such remedy in English Law is generally different from a remedy in contract or in tort and falls within a third category of common law remedy which is called quasi contract or restitution.

From the facts of the case which has been discussed above it is debatable whether the respondent's inability to avail benefit under the said Scheme is because of its own act or because of the act of the appellant. There is a reasonable basis in the argument of the appellant that after this Court granted the stay order on 11.5.2001 on the special leave petition filed by Essar, the respondents should have made an effort of obtaining the necessary licence by again coming to the Court. Admittedly Essar did not do it. Essar merely represented to the State for grant of licence. Assuming that the State had not responded favourably to the representation of Essar by giving the clearance, it was open to Essar to approach this Court for some order as its special leave petition was pending before this Court. Essar did not do it. Therefore, the question remains whether Essar acted with due diligence in obtaining the equitable remedy of restitution. It is well known that due diligence must be exhibited by the party to seek equity.

The second principle that an act of court cannot prejudice anyone, based on latin maxim "actus curiae neminem gravabit" is also encompassed partly within the doctrine of restitution. This actus curiae principle is founded upon justice and good sense and is a guide for the administration of law.

A mere mistake or error committed by Court cannot be a ground for restitution ”.

Now in view of the above, two questions arise for consideration:

(i) Whether the orders dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000 and 03.08.2000 of the High Court whereby the appellant was restrained from giving any further permission for laying pipelines has resulted in any undue advantage to appellant (State)?

(ii) Whether in respect of the order dated 13.07.2000, 18.07.2000, 20.07.2000, 27.07.2000 and 03.08.2000 of the High Court, later on reversed by the Supreme Court on 19.01.2004 on a different interpretation of Section 29 of WPA, the actus curiae principle can be invoked.

On the first question, the Supreme Court observed, “it is clear that the appellant had also challenged this restraining order before this Court. It cannot be said by this restraining order, the appellant had gained any undue advantage. On the contrary, twin objects of development of the backward areas and employment opportunities, which were sought to be achieved by the appellant by floating the said scheme, were adversely affected ”.

In the instant case, no inaction on the part of appellant was pleaded by Essar. In fact before the High Court, Essar expressly gave up its plea of delay against the appellant. In fact the High Court passed the injunction order not because of the inaction of the appellant but the said order was passed in a proceedings which was opposed by appellant right upto this Court.

In this case, the Supreme Court had to interpret the provisions of exemption scheme.

In Novopan India Ltd. Hyderabad v. Collector of Central Exercise and Customs, Hyderabad (2002-TIOL-89-SC-CX) ] the question for consideration before this Court was that, in case of ambiguity, which rule of construction will be applicable to exemption provision.

This Court held that the principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, does not apply to the construction of an exception or an exempting provision, as the same have to be construed strictly. Further this Court also held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubt or ambiguity, benefit of it must go to the State.

The Supreme Court held,

"In this case, Essar was categorically told by letter dated 28.05.2002, which is much prior to the expiry of the period, that time for availing the exemption cannot be extended. Admittedly, Essar failed to meet the deadline. In that factual scenario, the exercise undertaken by the High Court in the impugned judgment by directing various adjustments which virtually re-wrote the State's exemption scheme, is an exercise which is, with great respect, neither warranted in law nor supported by precedents. There is no question of equity here, an exemption is a stand alone process. Either an industry claiming exemption comes within it or it does not."

The appeal is allowed. The High Court judgment is set aside.

(See 2012-TIOL-05-SC-CT in 'MISC')