®

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 20TH DAY OF MARCH 2013

PRESENT

THE HON’BLE MR. JUSTICE N.KUMAR AND

THE HON’BLE MR. JUSTICE B.MANOHAR

WRIT APPEAL NO.8413/2012(T-Res) BETWEEN : M/s. Primal Projects Limited, A Company Incorporated Under Companies Act, Having its Office at

97/B, 1st and IInd Floor, 6th Block, Koramangala, Bangalore – 560 095, Represented by its Managing Director and Authorised Representative

Mr.D.Kuppendra Reddy. ...APPELLANT (By Sri.S.P.Shankar, Sr.Adv. for Smt.Mamata G. Kulkarni, Adv.)

AND :

1. Union of India,

Represented by its Secretary, Commerce and Industries Department, Central Secretariat, New Delhi – 110 001.

2. State of Karnataka,

Represented by its Secretary to Government,

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Commerce and Industries Department, M.S.Building, Vidhana Veedhi, Bangalore – 560 001.

3. Karnataka Industrial Area

Development Board, Bangalore, Represented by its CEO, Bangalore – 560 002. …RESPONDENTS

. . . .

This writ appeal is filed under Section 4 of the Karnataka High Court Act praying to set-aside the order passed in the writ petition No.22365/2010 (T-Res) dated 10.10.2012.

This writ appeal coming on for orders, this day, N.Kumar J., delivered the following:

JUDGMENT This appeal is filed challenging the order passed

by the learned Single Judge, who declined to interfere

with the order of the State Government dated

29.10.2009 withdrawing the exemption granted earlier

in respect of 1% of Labour Welfare Cess on construction

cost incurred by a developer/Co-developer under “State

Policy for Special Economic Zones – 2009”.

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2. The petitioner-appellant is a specialized

organization engaged in constructing, developing and

maintaining Technical/IT parks with self-contained

infrastructural facilities in Special Economic Zones

(SEZ), KIADB. The State Authority has allotted the land

to the petitioner for development of Industries in the

State of Karnataka. The project of the appellant-

petitioner has been approved in the State High Level

Committee for establishing comprehensive Information

Technology Park with allied services. The petitioner

directly and indirectly employs labour force and has

availed the benefit extended in the guidelines issued by

State of Karnataka. The petitioner is thus a beneficiary

under the Special Economic Zones Act, 2005 and Rules

2006 for the purpose of serving and promoting the

interest of State of Karnataka as IT Park developer. It

had availed, in particular, the benefit of exemption of

1% labour welfare cess. The said benefit is traceable to

State Policy for SEZ 2009 particularly in Clause 4 under

heading “Labour related issues” and Clause 5 under

heading `Fiscal benefits’. In Clause 5, `fiscal benefits’ –

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sub-para (d) relates to exemption of 1% labour welfare

cess on construction cost incurred by Developer/Co-

developer being a public utility service fictionally.

3. The case of the petitioner is the power to

exempt appears in part III of State Policy under the

heading “Policy Measures”. When the State Government

proclaimed its State Policy, 2009, it held out and

assured all developers and co-developers, including the

appellant herein that certain specific fiscal benefits as

well as benefit in regard to labour related issues are

extended without any outer limit of time and the

developers of IT Parks could act on such representation.

The appellant-petitioner being a developer of such IT

park believed in the said representation, acted on the

same and arranged its affairs by making substantial

progress in implementing State Government’s policy of

SEZ as public utility service. The appellant-petitioner

thus has acquired substantial rights, privileges and

special benefits under State Policy for SEZs 2009

proclaimed and brought into effect by State of

Karnataka. The State Policy is duly authorized by

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Government of India and backed by power under Rules

2006 read with Section 50 of the SEZ Act, 2005. On

29.12.2009, the Government of Karnataka has

withdrawn exemption of 1% Labour Welfare Cess on

construction cost incurred by the developer/Co-

developer with immediate effect making it appear that

this order is issued with concurrence of cabinet from

22.10.2009. Therefore, aggrieved by the same, the

petitioner preferred a writ petition before the learned

Single Judge challenging the validity of the State

Government order. The learned Single Judge, after

considering the contentions raised by the petitioner held

that the State Government and the State Legislature

has no power to exempt levy of Labour Welfare Cess

payable under Section 3 of the Building and Other

Construction Workers’ Welfare Cess Act, 1996 which is

a Central Act. The exemption offered was beyond the

competence of the State Government. Therefore, he did

not find any legal infirmity in the order of the State

Government, withdrawing the exemption offered. Hence,

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the writ petition was dismissed. Aggrieved by the said

order, the present appeal is filed.

4. Sri.S.P.Shankar, learned Senior counsel

appearing for the appellant-petitioner assailing the

impugned orders contend that the Parliament has

enacted the Special Economic Zones Act, 2005 with a

view to providing an internationally competitive and

hassle free environment for production of goods and

services for exports. The Government of India has

announced the Special Economic Zones Scheme.

Section 51 of the said Act has an overriding effect on

other laws for the time being in force. The Government

of Karnataka has announced its policy for Special

Economic Zones in the year 2009 and the said State

Policy was to facilitate and expedite establishment of

SEZs, at the same time safeguarding the environment

and the interests of land owners. It provides for a

package of incentives, supportive measures besides

clarity on procedural guidelines. One such incentive so

offered, is regarding `Labour related issues’ and `Fiscal

benefits’ and once an exemption of 1% Labour Welfare

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Cess on construction cost is incurred by the

developer/co-developer, was exempted from payment.

Acting on the said policy document of the State

Government and taking into consideration the

exemptions offered, the petitioners through the Single

window agency of the State Government approached the

KIADB, for the purpose of developing an IT Park. They

employed 200 workers mostly locals. Now by the

impugned order, the said exemption has been

withdrawn, which is not only illegal but also offends

Principles of Natural Justice because the petitioner has

not been heard in the matter. That apart, it amounts to

the State not hon`ouring its commitment and therefore,

they are estopped from going back on the promise made

by them. Therefore, he submits that the impugned

order requires to be set-aside on the aforesaid grounds.

5. We do not see any merit in any of these

contentions. The Parliament enacted the Building and

Other Construction Workers’ (Regulation of Employment

and Conditions of Service) Act, 1996 to regulate the

employment and conditions of service of building and

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other construction workers and to provide for their

safety, health and welfare measures and for other

matters connected therewith or incidental thereto. The

Statement of Objects and reasons appended to the said

Act sets out that about 8.5 million workers in the

country are engaged in building and other construction

works. Building and other construction workers are

one of the most numerous and vulnerable segments of

the unorganized labour in India. The building and other

construction works are characterized by their inherent

risk to the life and limb of the workers. The work is also

characterized by its casual nature, temporary

relationship between employer and employee, uncertain

working hours, lack of basic amenities and inadequacy

of welfare facilities. In the absence of adequate

statutory provisions, the requisite information regarding

the number and nature of accidents is also not

forthcoming. In the absence of such information, it is

difficult to fix responsibility or to take any correct

actions. Although the provisions of certain Central Acts

are applicable to the building and other construction

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workers yet a need has been felt for a comprehensive

Central Legislation for regulating their safety, health

welfare and other conditions of service. The State

Governments and Union Territory Administrations have

been consulted in the matter and a majority of them

have favoured such a legislation. A general consensus

had emerged on the need for the proposed Central

Legislation. Therefore, it was considered necessary to

constitute Welfare Boards in every State so as to provide

and monitor Social Security Schemes and Welfare

measures for the benefit of building and other

construction workers. Therefore, the aforesaid

comprehensive Legislation was enacted by the

Parliament.

6. As a supplement to the said Act, the Parliament

in order to provide for levy and collection of Cess on the

Construction cost incurred by employers with a view to

augmenting the resource and the Building and Other

Construction Workers’ Welfare Boards enacted the

Building and Other Construction Workers’ Welfare Cess

Act, 1996. The intention was to makeover, after due

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appropriation by Parliament by law, the proceeds of the

Cess, to the State Building and Other Construction

Workers’ Welfare Boards and the cost of collection not

exceeding one per cent of the Cess collected to the State

Governments to whom it is proposed to delegate the

authority to collect the cess. Though initially, an

ordinance came to be passed, thereafter it is replaced by

the aforesaid Act. Under the provisions of the Act, the

`Board’ is defined to mean a Building and Other

Construction Workers’ Welfare Board constituted by a

State Government under Sub-Section (1) of Section 18

of the Building and Other Construction Workers

(Regulation of Employment and Conditions of Service)

Act, 1996. Section 3 of the said Act is the charging

Section. It reads as under:

3. Levy and collection of cess. –

(1) There shall be levied and collected a

cess for the purposes of the Building and

Other Construction Workers (Regulation of

Employment and Conditions of Service) Act,

1996 , at such rate not exceeding two per

cent. but not less than one per cent. of the

cost of construction incurred by an employer,

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as the Central Government may, by

notification in the Official Gazette, from time

to time specify.

(2) The cess levied under sub- section

(1) shall be collected from every employer in

such manner and at such time, including

deduction at source in relation to a building or

other construction work of a Government or of

a public sector undertaking or advance

collection through a local authority where an

approval of such building or other

construction work by such local authority is

required, as may be prescribed.

(3) The proceeds of the cess collected

under sub- section (2) shall be paid by the

local authority or the State Government

collecting the cess to the Board after

deducting the cost of collection of such cess

not exceeding one per cent. of the amount

collected.

(4) Notwithstanding anything contained

in sub- section (1) or sub- section (2), the cess

leviable under this Act including payment of

such cess in advance may, subject to final

assessment to be made, be collected at a

uniform rate or rates as may be prescribed on

the basis of the quantum of the building or

other construction work involved.

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As is clear from the aforesaid provision, the

minimum rate at which the Cess could be levied is 1%

and the maximum is 2% as the Central Government

may, by notification in the Official Gazette, from time to

time specify. The Cess levied under Sub-Section (1) of

Section 3 of the Act shall be collected from every

employer and the proceeds of the Cess collected under

Sub-Section (2) shall be paid by the local authority or

the State Government collecting the Cess to the Board

after deducting the cost of collection of the Cess.

7. The Building and Other Construction Workers’

Welfare Cess Rules, 1998 framed under the Act deals

with exemption. Rule 9 of the Rules, which deals with

exemption, reads as under:

9. Exemption.-

(1) Any employer or class of employers in a

State seeking exemption under section 6 of

the Act may make an application to the

Director General of Labour Welfare, Ministry

of Labour, Government of India, stating the

details of works Undertaken, name of The Act

or corresponding law in force in that State

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under which he is liable to pay cess for the

welfare of the construction workers and

amount of cess actually paid along With the

date of such payment and proof thereof. A

copy of such application shall be endorsed to

each of the Assessing Officer and the board

concerned.

(2) On receipt of such application the

Central Government may, if it feels

necessary, seek a report from the State

Government concerned.

(3) On examining the grounds, facts and

merits of such application the Central

Government may, by notification in the

Official Gazette, issue an order exempting the

employer or class of employers, as the case

may be, from payment of cess payable under

the Act where such cess is already levied and

payable under such corresponding law.

(4) Assessment proceedings shall be

stopped by the Assessing Officer for a period

of thirty days commencing from the date of

the receipt of a copy of the application under

sub-rule (1) to him, or till the order of the

Central Government under sub-rule (3) is

conveyed to an employer or class of

employers who made the application under

sub-rule (1), whichever is earlier.

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8. Therefore, the express provision is made under

the Rules for exemption from payment of the said Cess

and the procedure is also clearly prescribed. Therefore,

the Act and the Rules read together provide for levy and

collection for cess and also for exemption from payment

of the said cess. The Parliament has enacted a Special

Economic Zones Act, 2005 (for short hereinafter referred

to as `SEZ Act’) to provide for establishment,

development and management of the Special Economic

Zones for the promotion of exports and for matters

connected therewith or incidental thereto. Section 8 of

the Act deals with Constitution of Board of Approval and

Section 9 of the SEZ Act deals with power, functions

and duties of the Board. Sub-Section (6) of Section 9 of

SEZ Act declares that the decision of the Central

Government whether a question is one of policy or not

shall be final. Section 50 of the Act deals with the

power of the State Government to grant exemption

which reads as under:

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50. The State Government may, for the

purposes of giving effect to the provisions of

this Act, notify policies for Developers and

Units and take suitable steps for enactment

of any law:-

(a) granting exemption from the State taxes,

levies and duties to the Developer or the

entrepreneur;

(b) delegating the powers conferred upon any

person or authority under any State Act to

the Development Commissioner in relation to

the Developer or the entrepreneur.

9. Section 51 of the Act gives a overriding effect to

this Act. By virtue of the power conferred under Section

55 of the SEZ Act, 2005, the Central Government has

made a Special Economic Zones Rules, 2006. Sub-Rule

(5) of Rule 5 sets out the exemptions that the State

Government made extend for setting up of a Special

Economic Zone which reads as under:

(5) Before recommending any proposal for

setting up of a Special Economic Zone, the

State Government shall endeavour that the

following are made available in the State to

the proposed Special Economic Zone Units

and Developer, namely:—

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(a) exemption from the State and local

taxes, levies and duties, including stamp

duty, and taxes levied by local bodies on

goods required for authorized operations by a

Unit or Developer, and the goods sold by a

Unit in the Domestic Tariff Area except the

goods procured from domestic tariff area and

sold as it is;

(b) exemption from electricity duty or

taxes on sale, of self generated or purchased

electric power for use in the processing area

of a Special Economic Zone;

(c) allow generation, transmission and

distribution of power within a Special

Economic Zone ;

(d) providing water, electricity and such

other services, as may be required by the

developer be provider or caused to be

provided;

(e) delegation of power to the

Development Commissioner under the

Industrial Disputes Act, 1947 (No. 14 of 1947)

and other related Acts in relation to the Unit;

(f) delegation of power to the

Development Commissioner under the

Industrial Disputes Act, 1947 (No. 14 of 1947)

in relation to the workmen employed by the

Developer;

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(g) declaration of the Special Economic

Zone as a Public Utility Service under the

Industrial Disputes Act, 1947 (No. 14 of

1947);

(h) providing single point clearance

system to the Developer and unit under the

State Acts and rules.

It is in pursuance of the aforesaid power conferred

under the Rule, the State Government as per Annexure

`A’ dated 28.02.2009 announced the State Policy for

Special Economic Zones, 2009 as enacted in Annexure

to the State Government Order. The prime objective of

the policy is to facilitate and expedite establishment of

SEZs and at the same time safeguarding the

environment and the interests of land owners. The

Policy provides for a package of incentives, supportive

measures besides clarity on procedural guidelines.

10. Clause 4 deals with Labour related issues and

Clause 5 deals with Fiscal Benefits. Under the heading

of Fiscal benefits, at sub-clause (d) exemption of 1%

Labour Welfare Cess on construction cost incurred by

the developer or co-developer was extended. It is in

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pursuance of the said policy exemption of 1% Labour

Welfare Cess and Unit was offered, the First Monitoring

and Review Committee of SEZ, on 07.07.2009 informed

that exemption of 1% Labour Welfare Cess does not

come under the purview of the State Government and as

per the Central Building and other Construction

Workers’ Welfare Cess Act, 1966, the building/Employer

has to pay cess at the rate of 1% on the cost of

construction. Hence, it was resolved to withdraw 1%

Labour Welfare Cess with the approval of the cabinet.

After obtaining the approval by an order dated

21.09.2009 the Government withdrew the exemption of

1% Labour Welfare Cess on construction cost incurred

by the Developer/Co-developer with minimum effect

under the State Policy for Special Economic Zones,

2009. It is that order, which is under challenge in this

writ appeal.

11. From the aforesaid statutory provisions, it is

clear that the Act of 1996 was enacted to provide for the

safety, health and welfare of the workers who are

engaged in building and other construction works. To

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augment the resources for such welfare measures, the

Act was enacted providing for levy and collection of cess.

The power to exempt from the operation of this Act was

conferred on the Central Government under Section 6 of

the Act. Rule 9 of the Rules provides for the procedure

to be followed for claiming such exemptions. Therefore,

it is a central enactment which expressly provided for

levy, collection and exemption. However, the object of

SEZ Act, 2005 is altogether different. Government of

India announced Special Economic Zone Scheme in

April 2000 with a view to provide an internationally

competitive environment for exports. The objects of

SEZs include making available goods and services free

of taxes and duties supported by integrated

infrastructure for export production, expeditious and

single window approval mechanism and a package of

incentives to attract foreign and domestic investments

for promoting export-led growth. In order to give a long

term and stable policy framework with minimum

regulatory regime and to provide expeditious and single

window clearance mechanism, a Central Act for Special

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Economic Zones has been found to be necessary inline

with international practice. Therefore, the SEZ Act,

2005 came to be enacted for setting up units and the

matters relating to requirement for setting up of off-

shore banking units and units in international financial

service centre in Special Economic Zones, including

fiscal regime governing the operation of such units, the

fiscal regime of developers of Special Economic Zones

and units set up therein, establishment of an authority

for each Special Economic Zone and designation of

Special Courts and single enforcement agency to ensure

speedy trial and investigation of notified offences

committed in special economic zones. The principal

object of this enactment is to promote exports and for

matters connected therewith.

12. Section 7 of the SEZ Act, 2005 provides for

exemption from taxes, duties or cess under all

enactments specified in the first schedule. It stands to

reason. Though the country is in need of earning by

way of Special Economic Zones by promoting exports

and the prime objective of the policy as reflected in the

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SEZ Act, 2005 is to facilitate expeditious establishment

of Special Economic Zones. At the same time, an

attempt is made to safeguard the interest of the

environment and the interest of the landowners, besides

the interest of workforce and in particular persons who

are engaged in construction activities.

13. Article 39 of the Constitution of India lays

down certain principles of policy to be followed by the

State, in particular, the health and strength of workers,

men and women, and the tender age of children are not

abused and that citizens are not forced by economic

necessity to enter avocations unsuited to their age or

strength and the operation of the economic system does

not result in the concentration of wealth and means of

production to the common detriment. The State has an

obligation to promote welfare of the people by securing

and protecting as effectively as it may, a social order in

which justice, social, economic and political, shall

inform all the institutions of the national life.

Therefore, when the aforesaid two Acts were enacted,

keeping in mind the obligation cast on the State by the

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Constitution of India, the safety, health and welfare

measures of workers engaged in the building and other

construction works could not be sacrificed under any

circumstance. They are the most numerous and

vulnerable sections of unorganized labour force in India.

They are exposed to intended risk of their life every day.

The employment itself being temporary in nature.

Therefore, the Parliament advisedly did not include in

the schedule the aforesaid two enactments, though a

power is conferred on the Central Government to

exempt under the SEZ Act from payment of tax, duties

and cess by developers under the Act.

14. Similarly, the provisions are made for

extending exemption and granting incentives to such

entrepreneurs. Section 50 of the SEZ Act, 2005

expressly provides that the State Government may, for

the purpose of giving effect to the provisions of the said

Act, notify policies for developers and units and take

suitable steps for enactment of any law, granting

exemption from the state taxes, levies and duties to a

developer or an entrepreneur and also delegates the

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powers conferred upon any person or authority under

any State Act to the Development Commissioner in

relation to the developer or the entrepreneur.

Therefore, the intention is clear. Though the State

Government is vested with the power to grant

exemption, it is only from the State taxes, levies and

duties. It has no power to grant an exemption in

respect of Central taxes, levies and duties payable by

such developers under the central enactments. When

a power is conferred on the State to enact any law,

Section 51 of the SEZ Act, made it clear that the

provisions of this Act shall have an overriding effect on

such laws passed by the State. Rule 5 of the Rules

framed under the SEZ Act provides for recommendation

of any proposal for setting up of a Special Economic

Zone by the State Governments. While making such a

recommendation, the State should make available

exemptions from the State local taxes, duties etc., and

from all such duties and taxes leviable and recoverable

by the State governments. Therefore, being consistent

with Section 7 of the SEZ Act, this Rule meticulously

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stipulates what is the exemption a State Government

can offer and it expressly states that all such levies,

taxes and duties which are leviable or recoverable by

the State Governments. In other words, the State

Governments have no power to exempt any taxes, levies,

cess and duties leviable and recoverable by the Central

Government. Therefore, the intention of the Parliament

is very clear. Though, in one hand they wanted to

extend benefits and incentives for setting up these

Special Economic Zone Units, they are not prepared to

compromise the interest of the landowners, environment

and workers who are involved in the building and other

construction works. Their interest was not negotiable.

It is consistent with the Constitutional mandate.

15. Unfortunately, the State Government in its

anxiety to promote exports, ignoring this mandatory

provision and prohibition contained therein, in its

exercise of power in the matter of grant of exemptions,

did offer this 1% of the construction cost incurred by

the developer as labour welfare cess. Obviously, it is

a bona fide mistake. Once the first monthly review

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committee brought to the notice this aspect, promptly,

without any further waste of time, they have resolved to

withdraw the exemptions granted and also obtained

approval of the Cabinet for the same. The very grant of

exemption is not authorized. The said grant was void

ab initio. It was a non est in the eye of law. Even

without withdrawing the said exemption, it had no legal,

effect. It was unenforceable. But for the purpose of

clarity, promptly they have withdrawn a void order.

Therefore, the said action cannot be found fault with

any legal infirmity.

16. In so far as the contention that it is opposed

to the principle of natural justice, as the petitioner was

not heard in the matter, is concerned, the said

exemption offered was not confined to the petitioner

alone. The said exemption is contained in the policy

document. The said exemption was offered to all

entrepreneurs who came within the fold of SEZ scheme.

The said offer was without authority of law and contrary

to law and therefore no right as such accrued to any of

the entrepreneurs by virtue of such offer. Now, by

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withdrawing the said exemption, in substance, the

government has amended the policy document. The

benefit is not withdrawn only to the petitioner. Now the

said benefit is not available to any persons. Under

these circumstances, the question of hearing the

persons who fall within the scheme would not arise. It

is not of an act of the State which is made with an

intention to hurt any individual. It is an act where an

error which has crept in the policy document is sought

to be corrected. Therefore, it cannot be said that the

petitioner ought to have been heard before carrying out

the said amendment and therefore we do not find any

substance in the said contention.

17. In so far as the contention that, based on the

aforesaid representation the petitioner opted for the

scheme, invested money and also had the benefit of the

said exemption for a considerable time and withdrawing

the benefit is hit by the doctrine of promissory estoppel

is concerned, it is well settled that there cannot be any

estoppel against a statute. Correction which is

effected, in effect, brings the policy document in

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conformity with the law of the land. In ignorance of the

legal provision and in ignorance of the prohibition

contained in the statutory enactment of the Parliament,

the State has made that exemption. Therefore, there

cannot be any estoppel against a statute and on that

ground, the petitioner is not entitled to any relief.

18. It was contended that the labour cess that is

levied and collected is for the benefit of the State and

the State as such beneficiary was well within its

authority to give up such benefits for the promotion of

export. This submission is misconceived. The State is

an authority which is empowered to levy and collect the

cess and to pay it to the Board. This cess is meant for

those workers. The workers are the beneficiaries.

While making an exemption, the beneficiaries were not

heard, because they form an unorganized workforce and

though the Parliament has passed this Act to protect

their interest. This is how their interest has suffered

over the years. Now, the Parliamentary legislation

provides for levy and collection of a cess and payment of

the cess to the Board, which in turn should utilize the

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said fund for the benefit of these workers. The

contention that the State Government is the beneficiary

and it has the authority to give up such benefit is

without any substance.

19. Lastly, it was contended that liberty should

be reserved to the petitioner to approach the Central

Government, as under the provisions of the Act, power

is conferred with the Central Government to grant such

exemption from payment of cess and that the disposal

of this writ appeal should not come in the way of the

petitioner approaching the Central Government. As the

power to exempt the very operation of the Act is

conferred on the Central Government, it is open to the

petitioner to approach the Central Government and

certainly disposal of this writ appeal will not come in the

way of the Central Government considering the request

of the petitioner on its merits and in accordance with

law.

20. In that view of the matter, we do not find any

ground to interfere with the order passed by the learned

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Single Judge, which is valid and legal. Writ appeal

dismissed.

SD/- JUDGE

SD/- JUDGE

SPS/*pjk