ASHOK BHAN, J. - (1.) THE writ petitioner in the High Court has filed this appeal against the order passed by the Division Bench of the High Court of Kerala. THE Division Bench by the impugned order has affirmed the decision of the Single Judge in dismissing the writ petition filed by the appellant herein (hereinafter referred to as the "MRF"). MRF is a company incorporated under the Companies Act, 1956 and its registered office is at 124, Greams Road, Chennai. One of its industrial units is located at Vadavathoor near Kottayam in the State of Kerala. MRF is engaged in the manufacture of automotive tyres, tubes, compound rubber, tread rubber, flaps, pre-cured tread rubber etc. at its industrial unit at Vadavathoor.
(2.) THE Government of Kerala has from time to time declared and introduced several incentives to promote industrial growth and expansion in the State of Kerala by granting exemptions, concessions or reduction in sales tax, electricity duty and electricity tariff etc. to new industries as well as to existing industrial units undertaking substantial expansion, diversification or modernization. Accordingly, the Government of Kerala has been issuing notifications from time to time to give effect to its declared policy for industrial promotion. Acting on the incentives, concessions and benefits held out by the Government of Kerala, MRF approached the Government of Kerala with its proposal to make substantial expansion and diversification of its industrial unit at Vadavathoor. A Memorandum of Understanding was entered between MRF and the State of Kerala on 6.10.1993, which provided that the MRF had decided to make substantial investment of Rs.50 crores for expansion/diversification of its existing industrial unit at Kottayam for the manufacture of various products and that the immediate plan of MRF was to expand in the compound rubber manufacture and diversity into new products like tyres, pre-cured tread rubber, flaps etc. The said Memorandum of Understanding expressly provided that MRF shall be entitled to tax exemptions available for existing industries undertaking expansion/diversification. On 3.11.1993 Government of Kerala issued a Notification SRO No. 1729/93 (relevant parts extracted below) in exercise of its powers under Section 10 of Kerala General Sales Tax Act. 1963 (for short "the Act") providing for tax exemption to industrial units going in for expansion/diversification/modernization in the State of Kerala:- "(a) SRO No. 1729/93 - In exercise of the powers conferred by Section 10 of the Kerala General Sales Tax Act, 1968, (Act 15 of 1963) and in super session of the notifications mentioned in the Schedule the Government of Kerala having considered it necessary in public interest so to do hereby make the following tax exemption to industrial units and/or reduction in the rate of tax payable on the sale or purchase, as the case may be, of goods by such industrial units, subject to the conditions and restrictions specified herein namely:- (b)5. In the case of Existing Medium and Large Scale Industrial Units which undertake diversification, expansion or modernization on or after the 1st April, 1993, there shall be an exemption for a period of seven years from the date on which such diversification, expansion or modernization has been completed. (a) In respect of the tax payable under the Kerala General Sales Tax Act, 1963- (i) On the turnover of sale of goods, manufactured in excess of full rated capacity of the unit prevailing immediately prior to such diversification, expansion or modernization, and sold by them within the State; and (ii) On the turnover of goods taxable at the point of last purchase in the State, which are used by such units for manufacturing the goods referred to in sub clause (i) above for sale within the State or inter-State; and (c)10. Conditions and Restrictions - (iv) In the case of Existing, Medium and Large Scale Industrial Units, other than Public Sector undertakings, which undertake expansion, modernization or diversification, the aggregate exemption in respect of sales tax, purchase tax, surcharge and central sales tax shall not exceed 100% of the additional fixed capital investment made for such expansion, modernization or diversification. 10.(b) Eligibility certificate for medium and large scale industries assisted by the Kerala State Industrial Development Corporation or the Kerala Financial Corporation will be issued by the Corporation which render assistance and in other cases by the Director of Industries and Commerce, on application by such units, and orders of exemption will be issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram. (c). Eligibility certificate and orders on exemption will be issued by the authorities mentioned in Sub-clause (b) above, if the unit is eligible for exemption or deferment of taxes and the unit satisfies the conditions for the exemptions or deferment of taxes. (d). The eligibility certificate referred to in Sub-Clause (b) above shall contain the date of commencement of commercial production and the monetary limit of exemption the unit is eligible for. The eligibility certificate issued in respect of existing medium and large-scale industrial units which undertake expansion, modernization or diversification shall also contain the date of commencement as well as the date of completion of such expansion, modernization or diversification. (d) 11. Explanation - For the purposes of this notification, (ix) 'Manufacture' shall mean the use of raw materials and production of goods commercially different from the raw materials used but shall not include mere packing of goods, polishing, cleaning, grading, drying, blending or mixing different varieties of the same goods, sawing, garbling, processing one form of goods into another form of the same goods by mixing with chemicals or gas, fumigation or any other process applied for preserving the goods; in good condition or for easy transportation. The process of producing desiccated coconut out of coconut shall be deemed to be 'manufacture' for the purpose of this notification."
(3.) WITH the object to ensure that the State of Kerala would get the relevant proportion of excise duty, i.e., about 40% of the excise duty paid within the State, amended SRO No. 1729/93 by issuing SRO No. 271/96 dated 13.3.1996 requiring the manufacturer claiming tax exemption under SRO No. 1729/93 to pay central excise duty in the State of Kerala on its manufactured products. On 10.4.1996 an addendum to the Memorandum of Understanding dated 6.10.1993 was executed between MRF and Government of Kerala which specifically confirmed that MRF Limited, a tyre manufacturing company within the State is entitled to tax incentives and exemptions provided under SRO No. 1729/93 dated 3.11.1993 as amended by SRO No. 271/96 dated 13.3.1996 in respect of rubber based goods like tyres, flaps, pre-cured tread rubber etc. manufactured under diversified facilities and rubber based goods manufactured pursuant to the expansion of the existing facility. Pursuant to the Memorandum of Understanding entered into between MRF and the State of Kerala and the SRO No. 1729/93 the MRF invested Rs.80 crores and carried out substantial expansion of its existing industrial unit and set up new unit for manufacture of diversified products.;