Judgment :- Heard the learned Counsel for the petitioner and the learned Government Advocate. 2. The facts briefly stated are as follows: The petitioner is a company registered under the Companies Act, 1956 and a dealer registered under the Karnataka Sales Tax Act, 1957 (hereinafter referred to as ‘the KST Act; for brevity) under the Central Sales Tax Act, 1956 (hereinafter referred to as ‘the CST Act’ for brevity) and the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as ‘the KVAT Act’ for brevity). The Government of Karnataka had extended a package of incentives and concessions to the petitioner vide Order dated 17.8.1994 and incentives in the form of deferment of the payment of tax under the KST Act and the CST Act was extended to the petitioner from the years 1994 to 2006. The petitioner was entitled to avail of sales tax deferment for its project of expansion, modernization and diversification of the petitioner’s plant – which were programmed under what was termed as Phase-I and Phase-II, spread over the period 1994-2006. The base tax liability fixed was in a sum of Rs.4.44 crore per annum. The petitioner however, envisaged a further expansion and modernization of their existing unit and therefore, had approached the State Government for the grant of fresh incentives and concessions. The Government, by its order, dated 26.4.2000 granted the request. The said further expansion was identified by the petitioner as Phase-III. The Government of Karnataka had, pursuant to the order dated 26.4.2000, issued a notification dated 5.6.2000, extending the deferment of the taxes payable under the KST Act, in respect of the goods manufactured and sold by the petitioner in respect of Phase III of the petitioner’s plant for a period of twelve years from 2002 to 2014 subject to certain restrictions and conditions enumerated therein. And on similar terms, by another notification also dated 5.6.2000 extended the deferment of tax payable under the CST Act in respect of the goods manufactured and sold by the petitioner in respect of Phase-III for a similar period of twelve years as above. The Government however, changed its investment policies, and discontinued the incentives and concessions with effect from 1.1.2000. However, Sales Tax incentives were continued in respect of what were termed as “pipe-line projects” of which the petitioner was one, subject to the condition that such projects were completed and commercial production commenced before 1.1.2002. The Government however, changed its investment policies, and discontinued the incentives and concessions with effect from 1.1.2000. However, Sales Tax incentives were continued in respect of what were termed as “pipe-line projects” of which the petitioner was one, subject to the condition that such projects were completed and commercial production commenced before 1.1.2002. This was extended on the representation of the industrial units concerned, by an order dated 24.3.2004, the Government extended the period upto 30.6.2004, insofar as the petitioner is concerned. By a Certificate dated 20.5.2004, the Department of Industries and Commerce, endorsed that the petitioner had invested Rs.223.73 Crore on fixed assets in respect of Phase-III of the project and that the petitioner was eligible for deferment on payment of sales tax, both under the KST Act and the CST Act, on the sale of goods manufactured by it for a period of twelve years from the date of commencement of commercial production, from 26.6.2002 to the extent of 80% of the value of fixed assets. With the ushering in of reforms to bring about a uniform system of taxation known as Goods and Services Tax by the year 2010, the rate of tax payable under the CST Act was sought to be reduced in order to bring about uniformity and it was this object that the Taxation Laws (Amendment) Act, 2007, to amend certain provisions of the CST Act was introduced. By virtue of that, with effect from 1.4.2007, in respect of the sale of goods referred to in Sub-section (3) of Section 8 of the CST Act, by a dealer to a registered dealer in the course of inter-state trade, the rate of tax was fixed at 3%/ It also substituted Section 8, whereby sub-section (1) thereof would not apply to any sale in the course of inter-state trade unless the dealer selling the goods furnishes a declaration by the registered dealer to whom the goods are sold. And under sub-section (2) thereof, tax payable by a dealer on his turnover relating to the sale of goods in the course of inter-state trade, not falling within sub-section (1) shall be at the rate applicable to the sale or purchase of such goods inside the appropriate state under the sales tax law of that state. And under sub-section (2) thereof, tax payable by a dealer on his turnover relating to the sale of goods in the course of inter-state trade, not falling within sub-section (1) shall be at the rate applicable to the sale or purchase of such goods inside the appropriate state under the sales tax law of that state. It is contended that with the above amendment, if a dealer were to effect the inter-state sale of goods of the description referred to above, the rate of tax was at the rate of 3%, with effect from 1.4.2007. Whereas the rate of tax prior to that date was at 4%. And according to the recommendations of the Empowered Committee on Value Added Tax, the rate of tax payable under the CST Act would be progressively reduced by 1% every year resulting in a Nil rate of tax as at 1.4.2010. Further in order to compensate any loss of revenue that the states would suffer, as regards collection of tax under the CST Act, a package was formulated to compensate the losses suffered by the States, by the Union Government. It is contended that the petitioner is entitled to the deferment of payment of tax both under the KST and the CST Acts for the period 2002-2014 in respect of Phase-III of its project. The base tax liability, as already stated, under the Government Order dated 26.4.2000, as amended from time to time, was to continue at Rs.4.44 crore per annum for the period 2002-2006. However, with effect from the date of commissioning of Phase-III of the project, the base tax liability was to be automatically enhanced to Rs.8.84 crore or Rs.4.44 crore plus the average tax liability of three years prior to the commissioning of Phase-III of the project, over and above Rs.4.44 crore, which ever was higher. It is contended that under Sub-clause (iv) of Clause (f) of the Government Order dated 26.4.2000, referred to hereinabove, reads as follows: “(iv) For the period 2002 to 2006, the base tax liability to be maintained by the unit will continue to be Rs.4.44 crore per annum. It is contended that under Sub-clause (iv) of Clause (f) of the Government Order dated 26.4.2000, referred to hereinabove, reads as follows: “(iv) For the period 2002 to 2006, the base tax liability to be maintained by the unit will continue to be Rs.4.44 crore per annum. However, from September 2006, when the I and II phase package expires, the base tax shall get automatically enhanced to Rs.8.84 crore or Rs.4.44 crore plus average tax liability of 3 years prior to September 2006 over and above Rs.4.44 crore, whichever is higher” And that by application of the above formula, the base tax liability, pursuant to the commissioner of Phase-III of the petitioners’ project, works out to a sum of Rs.11.21 crore per annum. Since this is higher than Rs.8.84 crore per annum fixed, as per the Government Order dated 26.4.2000, the petitioner is liable to discharge the base tax liability at the higher figure of Rs.11.21 crore, or Rs.93.46 lakh per month instead of Rs.73.68 lakh per month, if the base liability was at Rs.8.84 crore in accordance with the Government Order dated 26.4.2000. It is contended that prior to 1.4.2007, the petitioner had effected sales of paper and paper boards in the course of inter-state trade to the extent of 62% of its total sales as against its sale eligible to tax under the KVAT Act. Further, the petitioner has effected inter-state sales to the extent of 60% to 71% of its total sales for the succeeding assessment years. In view of the fact that the rate of tax payable under the KST Act stood reduced to 2% with effect from 1.6.2008, the total tax liability of the petitioner under the CST Act was reduced proportionately with each succeeding year. In the result, the petitioner was liable to pay a higher amount towards the base tax liability than the amounts received from collection of sales tax under the CST Act, To wit, with the proposed reduction in the rate of tax under the CST Act to a nil rate with effect from 1.4.2010, the petitioner would not be able to retain any amount by way of taxes under the CST Act. In the result, there is no incentive, in the form of taxes collected by the petitioner. The objective under the Government Order dated 26.4.2000 is now illusory. In the result, there is no incentive, in the form of taxes collected by the petitioner. The objective under the Government Order dated 26.4.2000 is now illusory. Ironically, though the state government is compensated for the loss of revenue suffered by it under the CST Act, the incentive which prompted the petitioner to make huge investments, is taken away. Faced with the above situation, a request was made vide letter dated 23.6.2007 to the Department of Finance, to modify the Government Order dated 26.4.2000, by reducing the base tax liability consequent upon the reduction in the rate of tax payable under the CST Act. A request was also made to grant an interest free sales tax loan to the extent of reduction in so far as liability under the CST Act as regards the expanded capacity of the petitioner’s unit. The petitioner had also sought for a personal hearing before any order was made. However, the Department of Finance had, without affording a hearing to the petitioner, informed the Commissioner of Commercial Tax that the request of the petitioner was rejected – in the following terms: “tax reforms have reduced the tax liability and therefore comparison of quantum of concessions in pre and post reform era is not appropriate”. This was conveyed to the petitioner on 17.1.2008. In the above circumstances, a writ petition in WP 3881/2008 was filed before this court, which as allowed at the initial stage itself, as on 11.3.2008, with a direct to the Finance Department to reconsider the matter. Nineteen months later, by an order dated 14.9.2009, the Finance Department has rejected the request of the petitioner. It is in this background that the petitioner is before this court. 3. This learned counsel for the petitioner, while reiterating the above sequence of events, would contend that while rejecting the request of the petitioner seeking a modification of the Government Order dated 26.4.2000, the Finance Department has observed that there was no promise extend to the effect that if there is a change in the rate of tax under the CST Act, the incentives offered in the above order would be modified accordingly. It was also stated that the State Government cannot grant any interest-free loan sought by the petitioner only on account of the change in the CST Act. It was also stated that the State Government cannot grant any interest-free loan sought by the petitioner only on account of the change in the CST Act. This, it is contended, is illegal as such a rejection completely takes away the incentive offered and on the basis of which the petitioner has made investments. There is a complete denial of incentive on the additional capacity created by it. It is contended that if the rate of tax prescribed at 4% under the CST Act, at the time that the incentive was granted was continued at the same rate, the petitioner would have been in a position to claim incentive by way of collection of tax over and above the base tax liability which would have been repaid after the period of moratorium. However with the reduction in the rate of tax under the CST Act, the incentive available to the petitioner is curtailed. The learned counsel for the petitioner relies on the following decisions to contend as under:- (a) Union of India vs. Suksha International and Nutan Gems and another, 1989(39) ELT 503 , (b) Sri Neelakanteshwar Oil Industries vs. State of Karnataka, 98 STC 303 (c) J. Srirangam Brothers vs. Sales Tax Officer, 10 STC 257, (d) Bajaj Tempo limited vs. Commissioner of Income Tax, 196 ITR 188, (e) Commissioner of Commercial Taxes vs. Industrial Coal Enterprises, 114 STC 365, (f) Panchalingal Carbonic Gas Private Limited vs State of Andhra Pradesh, 141 STC 161. (g) State of Jharkhand vs. Tata Cummins Limited, 145 STC 340, (h) Assistant Commissioner (Claims Tribunal) LTU vs. Amara Raja Batteries Limited, (2009) 24 VST 536 . That from a reading of the above judgments, the principle of law that may be stated is that, while construing a provision granting exemption from taxation the ultimate object in providing the incentive becomes relevant and would have to be gathered from an overall conspectus of the Scheme. Also, an exemption notification must be construed having regard to the purpose and object with which the notification seeks to achieve and an interpretation which makes the exemption illusory and has the effect of giving by one hand and taking away by the other should be avoided. Also, an exemption notification must be construed having regard to the purpose and object with which the notification seeks to achieve and an interpretation which makes the exemption illusory and has the effect of giving by one hand and taking away by the other should be avoided. It is contended that the Government Order dated 26.4.2000 has fixed the base tax liability at Rs.8.84 crore or Rs.4.44 crore plus average tax liability of three years prior to September 2006, over and above Rs.4.44 crore, whichever was higher. This being at a time when the rate of tax was 4% under the CST Act. When the rate of tax under that Act stood progressively reduced each succeeding year – it stood to reason that the tax liability ought to have been re-fixed by adopting the Rule of Proportion, as applied by a Division Bench of the Bombay High Court in the case of Commissioner of Sales Tax v. Berar Oil Industries, 36 STC 473. This has been applied and followed by a Division Bench of this court in the case of Vasu Agarbathies v. State of Karnataka, 2005 (58) KLJ 84. It is further pointed out that the Government of Karnataka in exercise of power Section 19C of the KST Act, had issued various notifications granting exemptions and deferment of taxes payable under the KST Act, to various industrial units, prior to 1.4.2005. It is pointed out that though the notifications were issued under the provisions of the KST Act, the period of exemption spilled over to the period governed by the VAT regime. Pursuant to the introduction of the VAT Act, on and with effect from 1.4.2005, in order to obviate the difficulties faced by the industrial units enjoying the benefits under the above notifications, the Government had issued certain further notifications in exercise of its power under the VAT Act. These notifications are detailed by the petitioner at paragraphs 41(a) and (b) of the petition. In other words, the Government has, in order to continue to give effect to exemptions or deferment granted earlier under the KST Act and to give effect to the Industrial policy of the State, the above notifications have been issued. These notifications are detailed by the petitioner at paragraphs 41(a) and (b) of the petition. In other words, the Government has, in order to continue to give effect to exemptions or deferment granted earlier under the KST Act and to give effect to the Industrial policy of the State, the above notifications have been issued. This is also on the footing that the Government took into account that under the scheme of the VAT Act, the units enjoying the benefits granted under the KST Act, would not be in a position to avail the balance portion of the exemption or deferment, the Government had issued the above notifications. It is also contended that there is another instance wherein the State Government has acted to obviate and reconcile the effect of the inconsistency in the benefit or exemption granted under the KST Act being deprived under the VAT Act. The petitioner contends that reference may be made to Section 14 of the KVAT Act, which provides for a special rebate in respect of certain Input Tax Restricted Goods and the said provisions reads as under: “14. The petitioner contends that reference may be made to Section 14 of the KVAT Act, which provides for a special rebate in respect of certain Input Tax Restricted Goods and the said provisions reads as under: “14. Special Rebating Scheme: Deduction of input tax shall be allowed on purchase of goods specified in Clauses (5) and (6) of sub-section (a) of Section 11, to the extent of the input tax charged at a rate higher than four percent or any lower rate as may be notified by the Government.” It is contended that pursuant to the progressive reduction of tax payable under Section 8(1) of the CST Act, the Government of Karnataka issued Notifications, reducing the notified rate prescribed under Section 14 of the Act in tandem, with the Notifications issued under the CST Act, which reads as follows:- NOTIFICATION No. FD 507 CSL 2007 (IX), Bangalore 01/04/2008 Karnataka Gazette, Extraordinary No.328, dated 01.04.2008 In exercise of the powers conferred by Section 14 of the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004) read with Section 21 of the Karnataka General Clauses Act, 1899 (Karnataka Act III of 1899) and in supersession of the Notification No. FD 507 CSL 2007 (IV), dated 24th March, 2008, the Government of Karnataka hereby notifies that deductions of input tax shall be allowed on purchase of goods, specified in Clauses (5) and (6) of sub-section (a) of Section 11 of the extent of the input tax charged at a rate higher than three percent or such lower rate as may be notified by the Central Government under the proviso to sub-section (1) of Section 8 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), with effect from the day of April, 2008”. It is contended that a reading of Section 14 of the KVAT Act and the above Notification makes it clear that the State Government has sought to implement the same by taking into account the progressive reduction in the rate of tax prescribed under Section 8(1) of the CST Act. In other words, in order to give effect to the said scheme, the Government of Karnataka had issued the aforesaid Notification. In other words, in order to give effect to the said scheme, the Government of Karnataka had issued the aforesaid Notification. It is therefore contended that the Government of Karnataka has stepped in, from time to time, invoking the provisions of the KST Act to ensure that incentives in the form of exemptions and deferment which were made available under the KST Act, could be continued under the KVAT Act. It is also contended that there would be no loss of revenue to the State if the relevant Government Order is modified, as the State is compensated for the loss of revenue on account of reduction of the rate of tax under the CST Act. It is also pointed out that under the impugned order, it is erroneously found that the petitioner had sought for reduction of the base tax liability from Rs.11.21 crore to Rs.8.84 crore. On the contrary, the petitioner has sought that the base tax liability be fixed on a pro-rate basis, consequent to the reduction in the rate prescribed under the CST Act. It is therefore prayed that the petition be allowed. 4. Per contra it is contended on behalf of the Revenue as follows: While reiterating the above facts and events and reproducing the reasons assigned by the Department of finance in rejecting the request of the petitioner – it is contended that the petitioner’s unit was established in the year 1959 and the company had enjoyed tax incentive in the form of deferment payment of tax collected under expansion program for 12 years from 1994-2006 in respect of Phase-I and Phase-II. The total tax deferment benefit availed was to the tune of Rs.75.57 Crore. It is submitted that the expansion under Phase-III was also provided with a tax incentive in the form of deferment payment of tax collected from 2002-2014 by Government Orders subject to the condition that the petitioner pay sales tax of Rs.4.44 Crore plus average tax liability of 3 years prior to commissioner of Phase-III of expansion program or Rs.8.84 Crore per annum which ever is higher. When Phase-III was commissioned, the base sales tax liability, was worked out at Rs.11.21 Crore per annum as per the Government Order dated 26.04.2000 read with Notification dated 5.6.2000 and connected Government Orders and Notifications. When Phase-III was commissioned, the base sales tax liability, was worked out at Rs.11.21 Crore per annum as per the Government Order dated 26.04.2000 read with Notification dated 5.6.2000 and connected Government Orders and Notifications. It is also contended that as a result of the introduction of the KVAT Act from 1.4.2005, the petitioner was eligible for deduction of input tax paid on purchases while calculating the net tax payable. But on that account, the base tax liability was not increased by the Government as it would have violated the terms and conditions of the Government Order dated 26.4.2000 read with Government Notification dated 05.06.2000. It is submitted that having enjoyed tax deferment benefits from 1994-2007, the petitioner is not in a position to challenge the Government Order before this Court, on the plea that palpable injustice has been done by the Government in rejecting his request for special concessions over and above what was envisaged in the Government Orders and Notifications issued to grant tax incentives for Phase I to III from the year 1994. It is contended that the Government of Karnataka has granted certain concessions and incentives to the petitioner’s unit and there is no infringement of any fundamental right in the petitioner’s case. The contention of the petitioner that the rate of tax under the CST Act has been reduced and consequently affecting its deferment taxes with regard to its working capital is not within the hands of the Government of Karnataka, since the phasing out of taxes payable under the CST Act is one of the tax reforms introduced by the Government of India. When the Government of Karnataka itself is in a financial crisis due to global recession, special concession requested by the petitioner cannot be considered by the Government and the petitioner has to repay the taxes deferred since 1994 as per the terms and conditions of the relevant Government Orders and Notifications issued thereto. The Counsel for the respondent relies on the decision of the Supreme Court in Rajasthan Spinning and Weaving Mills vs. Collector of Central Excise, Jaipur, Rajasthan, (1996) 102 476 (SC) wherein the Supreme Court held that exemption notification must be strictly construed and the manufacturer should bring himself squarely within the ambit of the notification and that no extended meaning can be given to the exempted notification and it has to be construed strictly. A request for medication of notification at the middle of availment period is nothing but a prayer for special concession over and above what was offered and accepted by the petitioner. As such, the petitioner cannot seek for special concession as a matter of right. It is contended that, the Government of Karnataka, by issuing the Government Order referred to supra, has not promised anything with regard to the Special concession and had not held out a promise of modification in case of any change in the rate of under the CST Act and there is no estoppel against such statute. It is contended that the concession granted by the Government of Karnataka to the petitioner is a beneficial one which cannot be questioned or challenged before this Court. It is also contended that, by virtue of the said Government Order, the Government of Karnataka has not offered or promised to the petitioner interest free loan to the extent of reduction of central sales tax of expanded capacity. Therefore, the petitioner cannot seek any relief as a matter of right. 5. By way of reply, it is pointed out by the counsel for the petitioner that the respondents are in error in stating that the total deferment of tax availed is in a sum of Rs.75.57 Crore whereas the actual sales tax deferred is at Rs.66.68 Crore and further Rs.22.29 Crore has been re-paid to the State Government. It is contended that the respondents have reiterated the facts of the case and have broadly summarized some of the contentions taken by the petitioner in the Writ Petition and therefore it does not call for any Rejoinder. But, it is pointed out that in view of the introduction of the Karnataka Value Added Tax Act, 2003, with effect from 01.04.2005, the petitioner is eligible for the deduction of Input Tax paid on purchases while calculating the Net Tax payable and consequently, on that account the base tax liability as fixed by the Government Order dated 26.04.2010 was justifiable. It is urged that the Scheme of the Act provides for the deduction of Input Tax, while calculating the Net Tax payable. However, it is not a deduction which is specially made available to the petitioner, but is extended to all dealers registered under the Act, both in the case of deferment and exemption. It is urged that the Scheme of the Act provides for the deduction of Input Tax, while calculating the Net Tax payable. However, it is not a deduction which is specially made available to the petitioner, but is extended to all dealers registered under the Act, both in the case of deferment and exemption. Consequently, the respondents are in error in contending that the petitioner, by virtue of the operation of the KST Act, is eligible for any special concession whereby the petitioner is additionally benefited in any way. It is contended that a request to re-fix the base tax liability and to grant an interest free loan to the extent of reduction insofar as liability under the CST Act as regards the expanded capacity of the petitioner’s unity was made, since, due to the reduction in the rate of tax prescribed under Section 8(1) of the CST Act, with effect from 01.04.2007, the tax liability of the petitioner under the CST Act, would reduce proportionately with each succeeding year. Consequently, it was contended that by application of the formula prescribed in the Government Order dated 26.04.2000, the petitioner would be liable to pay a higher amount towards the base tax liability than the amounts received from collection of sales tax under the Central Act and ultimately, the petitioner will not be able to retain any amounts by way of taxes under the CST Act. It is contended that very objective of the Government Order dated 26.04.2000 was to provide certain incentives to the petitioner to facilitate the expansion of its project, so as to enable the petitioner to retain the amounts collected by way of taxes both under the KST Act and the CST Act, over and above the base tax liability and to repay the same after the period of moratorium. However, the respondents had failed to comprehend that in the aforesaid circumstances, there is no retention of sales tax at the hands of the petitioner and the very incentive sought to be given is taken away. Thus, it is contended that the respondents are in error in contending that the petitioner is seeking special concessions over and above what has been granted earlier. 6. In the light of the above contentions, we may usefully take note of the principles governing interpretation of exemption provisions in fiscal statutes. Thus, it is contended that the respondents are in error in contending that the petitioner is seeking special concessions over and above what has been granted earlier. 6. In the light of the above contentions, we may usefully take note of the principles governing interpretation of exemption provisions in fiscal statutes. In Sri.Neelakanteshwara Oil Industries, supra, this court while referring to the following authorities: a) Cape Brandy Syndicate vs. Inland Revenue Commissioners [1921]1 KB 64. b) Union of India vs. Wood Papers Limited, [1991]83 STC 251. c) Collector of Central Excise, Bombay vs. Parle Exports (P) Limited, [1989] 75 STC 105. d) Commissioner of Wealth Tax, Andhra Pradesh vs. Officer-in-charge (Court of wards-Paigah, [1976] 105 ITR 133, e) Mangalore Chemicals and Fertilizers Limited vs. Deputy Commissioner of Commercial Taxes, [1991] 83 STC 234. has concluded as follows: “9. The following principles relating to interpretation of exemption provisions in taxation laws emerge from the decisions referred to above: (i) The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature. When the words used are plain and clear, they have to be construed in the ordinary sense. There is no occasion to resort to any interpretative process, if the words clearly unambiguously and directly convey the meaning. (ii) All taxing laws should be strictly construed and the assessee shall not be liable to be taxed unless the language of the statute clearly imposes the liability to pay the tax. Similarly all exemptions from tax must also be strictly construed and limited to the exemption itself; that is, there can be no extension or widening of the ambit of exemption at the stage of applicability of exemption. But, once the subject of exemption is clearly identified, then the exemption shall be made available to the identified subject, by adopting a liberal construction. (iii) Where the words of exemption are not defined, the proper course is not to give them the widest meaning, but find out the true meaning with reference to the context, by reading the exemption notification as a whole and by keeping in view, the object and purpose of the exemption and the consequences of the different interpretations. (iii) Where the words of exemption are not defined, the proper course is not to give them the widest meaning, but find out the true meaning with reference to the context, by reading the exemption notification as a whole and by keeping in view, the object and purpose of the exemption and the consequences of the different interpretations. (iv) An interpretation which makes the exemption illusory and has the effect of giving by one hand and taking away by the other, should be avoided; at the same time a liberal interpretation which will do violence to the language employed or which will lead to absurd results, should not also be resorted to. (v) It is always for the person claiming the benefit of exemption to clearly establish that he is entitled to the exemption and this burden cannot be shifted on the revenue.” Further, the apex court in the case of State of Jharkand v. Tata Cummins Ltd., has held thus: “An exemption from payment of tax under an enactment is an exemption from the tax liability. Therefore, every such exemption notification has to be read strictly. However, when an assessee is promised with a tax exemption for setting up an industry in the backward area as a term of the Industrial Policy, we have to read the implementing notifications in the context of the Industrial Policy. In such a case, the exemption notifications have to be read liberally keeping in mind the objects envisaged by the Industrial Policy and not in a strict sense as in the case of exemptions from tax liability under the taxing statute.” We may also note the law on the subject of promissory estoppel as applied by the Apex Court in relation in fiscal statutes. In State of Punjab vs. Nestle India Limited, [2004] 136 STC 35, the Supreme Court has reviewed the law on the subject and has held as follows:- “24. But first a recapitulation of the Law on the subject of promissory estoppel. The foundation of the doctrine was laid in the decision of Chandrasekhar Aiyar, J., in Collector of Bombay v. Municipal Corporation of the City of Bombay (1952) SCR 43. There, in 1865, the Government of Bombay has passed a resolution authorizing the grant of an area to the municipality rent fee for the purpose of setting up a market. The foundation of the doctrine was laid in the decision of Chandrasekhar Aiyar, J., in Collector of Bombay v. Municipal Corporation of the City of Bombay (1952) SCR 43. There, in 1865, the Government of Bombay has passed a resolution authorizing the grant of an area to the municipality rent fee for the purpose of setting up a market. Although possession of the site was made over to the then Municipal Commissioner no formal grant was in fact executed as required by the applicable statute. Acting on the resolution, the corporation spent considerable sums of money in building and improving the market and was in possession for 70 years during which period no revenue had been paid to or claimed by the Government. At this stage, a demand was sought to be raised on account of rent under the Bombay City Land Revenue Act, 1976. The Corporation impugned the demand by filing a suit. The suit was dismissed. An appeal was preferred before the High Court. The High Court reserved the decision of the trial court and held that the Corporation was entitled to hold the land for ever without payment of any rent and the Government had no right to assess the premises. The Collector preferred an appeal before this court. There was no dispute that by reason of non-compliance with the statutory formalities, the Government resolution of 1865 was not a factual grant passing title in the land to the Corporation. There was also no dispute that there was no enforceable contract between the State Government and the Municipal Corporation. Of the three Judges, Das. J., held that the possession of the Corporation not being referable to any legal title was adverse to the legal title of the Government and the right acquired by the Corporation to hold the land in perpetuity included an immunity from payment of rent. Patanjali Sastry, J., differed. Chandrasekhara Aiyar, J., concurred with the conclusion of Das. J., but based his reasoning on the fact that by the resolution, representations had been made to the Corporation by the Government and the accident that the grant was invalid did not wipe out the existence of the representation nor the fact that it was acted upon by the Corporation. Chandrasekhara Aiyar, J., concurred with the conclusion of Das. J., but based his reasoning on the fact that by the resolution, representations had been made to the Corporation by the Government and the accident that the grant was invalid did not wipe out the existence of the representation nor the fact that it was acted upon by the Corporation. What has since been recognized as a signal exposition of the principle of promissory estoppel, Chandrasekhara Aiyer, J. said: “…The invalidity of the grant does not lead to the obliteration of the representation …………….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 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 Indian 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 fulfil it ………..Courts must do justice by the promotion of honesty and good faith, as far as it lies in their power.” 25. In other words, promissory estoppel long recognized as a legitimate defence in equity was held to be found a cause of action against the Government, even when, and this needs to be emphasized, the representation sought to be enforced was legally invalid in the sense that it was made in a manner which was not in conformity with the procedure prescribed by statute. 26. This principle was built upon in Union of India v. Indo-Afghan Agencies Ltd. (1968) 2 SCR 366 where it was said (at page 385): “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 Jude of its own obligation to the citizen on an ex-parte appraisement of the circumstances in which the obligation has arisen”. 27. 27. However, the superstructure of the doctrine with its pre-conditions, strengths and limitations has been outlined in the decision of Motilal Pradesh, (1979) 2 SCC 409 . Briefly stated – the case related to a representation made by the State Government that the petitioners factory would be exempted from payment of sales tax for a period of three years from the date of commencement of production. It was proved that the petitioners had, as a consequence of the representation, set up the factory in the State. But the State Government refused to honour its representation. It claimed sales tax for the period it had said that it would not. When the petitioners went to Court, the State Government took the pleas: (1) In the absence of notification under section 4. A, the State Government could not be prevented from enforcing the liability to sales tax imposed on the petitioners under the provisions of the Sales Tax Act: (2) That the petitioners had waived its right to claim exemption; and (3) That there could be no promissory estoppel against the State Government so as to inhibit it from formulating and implementing its policies in public interest. 28. This court rejected all the three pleas of the Government. It reiterated the well-known preconditions for the operation of the doctrine. (1) a clear and unequivocal promise knowing and intending that it would be acted upon by the promisee: (2) Such acting upon the promise by the promise so that it would be inequitable to allow the promisor to go back on the promise. 29. As for its strengths it was said: that the doctrine was not limited only to cases where there was some contractual relationship or other pre-existing legal relationship between the parties. The principle would be applied even when the promise is intended to create legal relations or affect a legal relationship which would arise in future. The Government was held to be equally susceptible to the operation of the doctrine in whatever area or field the promise is made, contractual, administrative or statutory. The principle would be applied even when the promise is intended to create legal relations or affect a legal relationship which would arise in future. The Government was held to be equally susceptible to the operation of the doctrine in whatever area or field the promise is made, contractual, administrative or statutory. To put it in the words of the Court: “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 promise, 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. (page 72 of STC) (page 442) ……………. Equity will, in a given case where justice and fairness demand, prevent a person from insisting on strict legal rights, even when they arise, not under any contract, but on his own title deeds or under statute, (page 56 of STC) (page 424) …………. Whatever be the nature of the function which the Government is discharging, the Government is subject to the rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it. (page 83 of STC)” (page 453) emphasis* added) 30. So much for the strengths. Then come the limitations. These are: (1) Since the doctrine of promissory estoppel is an equitable doctrine, it must yield when the equity so requires. But 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. (page 443) (2) No representation can be enforced which is prohibited by law in the sense that the person or authority making the representation or promise must have the power to carry out the promise. (page 443) (2) No representation can be enforced which is prohibited by law in the sense that the person or authority making the representation or promise must have the power to carry out the promise. If the power is there, then subject to the preconditions and limitations noted earlier, it must be exercised. Thus, if the statute does not contain a provision enabling the Government to grant exemption, it would not be possible to enforce the representation against the Government, because the Government cannot be compelled to act contrary to the statute. But if the statute confers power on the Government to grant the exemption, the Government can legitimately be held-bound by its promise to exempt the promise from payment of sales tax. (page 387-388).” And has also discussed several other decisions which are illustrative of various aspects of the frame-work set up by the court in the above decision in Motilal Padampat Sugar Mills Company Limited vs. State of Uttar Pradesh, [1979] 2 SCC 409, and has referred to the following decisions:- (i) Century Spinning and Manufacturing Company Limited vs. Ulhasnagar Municipal Council, [1970] 3 SCR 854. (ii) Jit Ram Shiv Kumar vs. State of Haryana, [1980]3 SCR 689. (iii) Union of India vs. Godfrey Philips India Limited, [1985]4 SCC 369. (iv) Bakul Cashew Company vs. Sales Tax Officer [1986]2 SCC 365. (v) Surya Narain Yadav vs. Bihar State Electricity Board, [1985]3 SCC38, and has pointed out that the view expressed by Chandra Shekar Aiyer., J in 1952 in the case of Collector of Bombay vs. Municipal Corporation. [1952] SCR 43, still holds the field. The Court has referred to the judgment in Kasinka Trading Company vs. Union of India, [1995]1 SCC 27, which is an authority for the proposition that mere issuance of an exemption notification under a provision in a fiscal statute such as Section 25 of the Customs Act, 1962, could not create any promissory estoppel because, such an exemption by its very nature, is susceptible to being revoked or modified or subjected to other conditions and that there as no unequivocal representation. The seeds of equivocation are inherent in the power to grant exemption. Therefore, the exemption notification can be revoked without falling foul of the principle of promissory estoppel. The seeds of equivocation are inherent in the power to grant exemption. Therefore, the exemption notification can be revoked without falling foul of the principle of promissory estoppel. While it was also pointed out that the Court also held that the Government of India, had justified the withdrawal of exemption notification on relevant reasons in the public interest. In a more recent decision in the case of Southern Petrochemical Industries Company Limited vs. Electricity Inspector, AIR 2007 SC 1984 , while dealing with the validity of Tamil Nadu Tax on Consumption or Sale of Electricity Act, 2003 (hereinafter referred to as ‘the 2003 Act’ for brevity) and the application thereof in respect of electricity generating companies as also consumers of electrical energy and the Tamil Nadu Electricity Duty Act, 1939 (hereinafter referred to as ‘the 1939 Act’ for brevity), levying a duty on certain sales and consumption of electricity energy by the licensees under the State of Tamil Nadu and the State of Tamil Nadu Electricity (Taxation on Consumption) Act, 1962 (hereinafter referred to as ‘the 1962 Act’ for brevity), which provide for levy of tax on consumption of electrical energy in the State of Madras and the exemption from tax provided under the 1962 Act. Having regard to the 1939 Act and the 1962 Act having been repealed by the 2003 Act, which intended to consolidate and rationalize the levy of tax on consumption or sale of electricity, the provisions of 2003 Act were in question before the court. While applying the doctrine of Promissory Estoppel, the apex Court has held as follows:- “144. We, therefore, are of the opinion that doctrine of promissory estoppel also preserves a right. A right would be preserved when it is not expressly taken away but in fact has expressly been preserved. 145. In view of the application of doctrine of promissory estoppel in the case of the appellants, their right is not destroyed and in that view of the matter although the Scheme under the impugned Act is different from the 1939 Act and the 1962 Act and furthermore in view of the phraseology used in Section 20(1) of the 2003 Act, right of the appellants cannot be said to have been destroyed. The legislature in fact has acknowledged that right to be existing in the appellants. LEGITIMATE EXPECTATION. 146. The legislature in fact has acknowledged that right to be existing in the appellants. LEGITIMATE EXPECTATION. 146. We may also notice the emerging doctrine in this behalf, viz., Legitimate Expectation of Substantive Benefit. Ordinarily, the said principle would not have any application where the legislature has enacted a statute. As, according to us, the legislature in this case allowed the parties to take benefit of their existing rights having regard to the repeal and saving clause contained in Section 20(1) of the 2003 Act, the same would apply. If, thus, principle of promissory estoppel would apply, there may not be any reason as to why the doctrine of legitimate expectation would not. 147. Legitimate expectation is now considered to be a part of principles of natural justice. If by reason of the existing state of affairs, a party is given to understand that the other party shall not take away the benefit without complying with the principles of natural justice, the said doctrine would be applicable. The legislature, indisputably, has the power to legislate but where the law itself recognizes existing right and did not take away the same expressly or by necessary implication, the principles of legitimate expectation of a substantive benefit may be held to be applicable.” 7. In the instant case, the petitioners do not so much seek to question any act on the part of the Government of Karnataka of withdrawing an exemption which is conferred. But, on the other hand, seek the intervention of the State to extend measures, which need not be restricted to the proposals put-forward by the petitioner, not to render the exemption granted as detailed above to be illusory and the reasoning afforded to reject the request of the petitioner proceeds on the footing that the petitioner had availed sales tax concession granted in respect of its investment in Phase-III of its project, pursuant to the Government Order dated 26.4.2000 and corresponding notifications considering the average tax liability of three years prior to September 2006 and the base tax liability having been fixed at Rs.11.21 Crore per annum, which amount was to be paid by the petitioner to the State Government and any tax liability and tax collected exceeding that amount was to be retained by the Company as deferment of tax under the KST. CST and KVAT Acts and while fixing the rate of tax under the CST Act in respect of interstate sales was at 4%. This rate continued till 1.4.2007 after which it was reduced to 3% and then to 2% with effect from 1.6.2008. The reduction in the rate of tax under the CST Act has reduced tax liability of the company under that Act and thereby, the amount of tax deferred and retained by the company also stood reduced. The amount which could be retained by the company and which could be used for its working capital is therefore not available. Having taken note of the plight of the petitioner in considering the request of the petitioner, the State has reasoned that the reduction in rate of tax is only one factor affecting the quantum of deferred tax available to the company for retention. The amount of tax so available for retention also depends upon several other factors, such as, increase in production, volume of business, prices of products and nature of sale, depending on whether it is local or interstate. These factors also depend upon the demand and supply of the product in the market and the efficient functioning of the company. Apart from the rate of tax which the State Government may levy, the State Government has no other role to play. And the circumstance that the rate of under the CST Act having been reduced by virtue of a statutory amendment and the same being in aid of tax reforms introduced by the Central Government commencing during the year 2000, there was no reciprocal promise by the State Government to the effect that if there was any change in the rate of tax under the CST Act, that there would be a corresponding modification of the tax incentives offered by the Government under its order dated 26.4.2000 and as there can be no promissory estoppel against a statute, there is no ground made out to consider the request of the petitioner. It is also stated that the availment of incentives by the petitioner is optional. If it is no longer beneficial to the company, then it is at liberty not to avail the same and pay taxes in accordance with law. It is also stated that the availment of incentives by the petitioner is optional. If it is no longer beneficial to the company, then it is at liberty not to avail the same and pay taxes in accordance with law. Conversely, if the rate of tax under the CST Act were to be increased, the petitioner would have certainly benefited by the increased deferment of tax and in which event, the Government would not have been in a position to re-fix the base tax at a higher level. It is this reasoning of the State Government on the basis of which the request has been turned down. Admittedly, the Government Order dated 26.4.2000 was issued with a view to expand the package of incentives and concessions to the petitioner for modernisation, diversification and expansion of the project in order to encourage industrial development in the State as well as with the objective of development of backward areas and to augment the collection of revenue. It was with these objectives that the petitioner was granted the facility of sales tax deferment for the period 2002-2014 in respect of Phase-III of its expansion project. For the period prior to 1.4.2007 the sale of paper and paper boards effected by the petitioner in accordance with the inter-state trade against declarations in Form-C, to the extent of 62% of its total sales as against its sale exigible to tax under the VAT Act. The rate of tax under Section 8(1) of the CST Act was fixed at 4%. It is however with effect from 1.4.2007 that the rate of tax under the CST Act was reduced to 3% and reduced further in the succeeding assessment years. This was neither on account of any act of the State Government nor on account of any default on the part of the petitioner. The reduction in the rate of tax under the CST Act was a deliberate measure brought about by the Union Legislature to further tax reforms that were sought to be implemented and steps in respect of which, were taken over the years, culminating in the circumstance with which the petitioner was faced after 1.4.2007. The State Government was not unaware of the fact that such a prospect, where the tax imposed under the CST Act would be progressively reduced bringing it to a nil rate of tax by the year 2010. The State Government was not unaware of the fact that such a prospect, where the tax imposed under the CST Act would be progressively reduced bringing it to a nil rate of tax by the year 2010. However, at the time of granting incentive, by way of sales tax deferment by the Government Order dated 26.4.2000, this remained a prospect and it is only with effect from 1.4.2007, the consequence of the tax reforms sought to be implemented were felt. The petitioner in turn, had not foreseen the consequence that would follow. Though the State Government was also aware of the prospect, it is not apparent that it was awake to the consequence that it would have on the incentive that was conferred on the petitioner. The State Government has, all along, intended that the petitioner should have the benefit of the incentive in order that the petitioner be encouraged to make the substantial investments that it has, in Phase-III of its expansion project thereby providing an avenue for large scale employment and to provide a source of revenue to the State Government. The benefit that is conferred on the petitioner is by way of sales tax deferment, meaning thereby that the petitioner is not totally absolved of bearing the burden of tax. The same is only postponed. By virtue of the effect of taxation reforms brought in by the Union Legislature, if the incentive is rendered illusory, it was for the State Government to have evolved a measure to temper the hardship and misfortune that has resulted in the petitioner’s venture being rendered unfruitful and unprofitable, which was prompted largely by the incentive offered. This is evident from the fact that the petitioner who intended the expansion project only in Phase-I and Phase-II, was encouraged to implement Phase-III of the project, thereby requiring substantial additional investment which is duly endorsed by the Department of Industries and Commerce. This is evident from the fact that the petitioner who intended the expansion project only in Phase-I and Phase-II, was encouraged to implement Phase-III of the project, thereby requiring substantial additional investment which is duly endorsed by the Department of Industries and Commerce. The terse reasoning of the authority of the State Government vide Annexure-M, to the effect that the reduction in the rate of tax is only one factor affecting the quantum of deferred taxes available to the company for retention and that there are several other factors which would have effect on the business of the petitioner, is to say the least, an off-handed dismissal of the petitioner’s case for ameliorative measures being requested, if not in the manner suggested by the petitioner, by such other alternative measures which are well within the power of the State Government to afford to the petitioner. The principle as enunciated by this court in Sri Neelakanteshwar Oil Industries, supra, namely that an interpretation which makes the exemption illusory and has the effect of “giving by one hand and taking away by the other” should be avoided, is therefore ignored by the State Government. While it is also to be noticed that the State Government is not averse to step in for industrial houses when the need has arisen. In similar circumstances, as pointed out by the learned Counsel for the petitioner, the Government in exercise of its powers under Section 19C of the KST Act had issued various notifications granting exemption or deferment of taxes payable under the Act in respect of various industrial units prior or 1.4.1965, namely, i) Notification bearing No.FD 187 CSL 2000(1) dated 05.06.2000 in the case of M/s. ACC Ltd., ii) Notification bearing No. F 188 CSL 2000(1) dated 05.06.2000 in the case of M/s. Jindal Vijaynagar Fertilizers Ltd., and iii) Notification bearing No. FD 279 CSL 99(1) dated 05.06.2000 issued in the case of M/s. Wipro Ltd., In the said notifications, the Government was pleased to extend concessions to the said industrial units in the form of exemption from payment of taxes under the Act or deferment of taxes payable. Even though the said notifications were issued under the provisions of the KST Act, the period of exemption spilled over to the period governed by the VAT regime. Even though the said notifications were issued under the provisions of the KST Act, the period of exemption spilled over to the period governed by the VAT regime. Pursuant to the introduction of the provisions of the VAT Act, with effect from 1.4.2005 in order to obviate the difficulties faced by the above said industrial units, which were enjoying exemptions and deferment under the KST Act, the Government of Karnataka issued notifications in exercise of the powers conferred upon it under the VAT Act. In respect of the units eligible for tax exemption on the sale of goods manufactured by them under the KST Act, the Government was pleaded to issue a notification bearing No.FD 56 CSL 2005(1) dated 18.4.2005 with effect from 1.4.2005, under the VAT Act wherein the net tax payable from 1.4.2005, under the VAT Act wherein the net tax payable by the said industrial unit was refunded to it. In respect of those industrial units which were eligible for deferment of payment of taxes on the sale of goods manufactured by them, the Government of Karnataka was pleased to issue a notification bearing no.FD 56 CSL 2005(2) dated 18.4.2005 deferring the output tax payable by the said industrial unit under a scheme whereby the unit claiming deferment of tax would be eligible for input tax rebate which was refunded to the said industrial unit subject to fulfilling the conditions specified in the said Notification. Therefore, the Government in order to continue to give effect to the exemption granted earlier under the Act in respect of the above said industrial units to encourage rapid industrial growth and achieve the twin objective of employment generation and utilization of local resources and having taken into account the scheme of the VAT Act and upon realizing that the units enjoying such exemption and deferment would not be in a position to avail the balance portion of the exemption or deferment, the State Government has thought it fit to issue the said notifications. It is therefore not clear as to how the State Government thinks it fit to put forward the reasoning now assigned to reject the request of the petitioner. It is therefore not clear as to how the State Government thinks it fit to put forward the reasoning now assigned to reject the request of the petitioner. The petitioner therefore, has made out a case to claim that it should be bailed out in the circumstances, in such manner as the State Government may evolve as is thought fit in respect of other industrial units within the State who may be similarly placed as the petitioner. Or it may even be said that the petitioner is better placed to deserve the benefit. As the State Government has not thought it fit to withdraw the benefit that has been conferred on the petitioner. However, it is the play of circumstances as stated hereinabove which has resulted in the present debacle of the petitioner’s state of financial management on account of the upset caused in view of the change in law by the Union Legislature. The measures are warranted in the light of the judgments of the apex Court which are referred to hereinabove which have laid down the principles relating to promissory estoppel, and legitimate expectation. Though there is no promise by the State Government to take any corrective measures, with the reduction in the rate of tax under the CST act resulting in the complete decimation of the incentive granted to the petitioner. The intention of the State Government to continuously provide relief from the burden of tax during the intended period is no longer in existence and to that extent, the principles can be pressed into service. Even the decision in Kasinka Trading, supra, that an exemption notification can be revoked without falling foul of the principle of promissory estoppel, since it was also found that the Government of India had justify the withdrawal of exemption notification on relevant reasons in the public interest, would have no application in the present case as the State Government has not withdrawn exemption nor does it seek to justify the benefit conferred on the petitioner having been rendered illusory, but only assigns a dispassionate reasoning, that it is the misfortune of the petitioner to be faced with the circumstance of the incentive becoming redundant for the reasons stated above. It is therefore necessary for the State Government to reconsider the request made by the petitioner and to evolve measures in order to address the petitioner’s plight and to afford such relief as may be warranted. As already stated, it need not be restricted to the four corners of proposals sought for by the petitioner in the present writ petition. The State Government having approached the issue, with a closed mind is unfortunate and therefore, is directed to reconsider the issue. The writ petition is accordingly allowed. The order at Annexure-M is quashed and the State Government is directed to reconsider the request of the petitioner in the light of the observations made hereinabove.