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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION No 758 of 1987
For Approval and Signature:
Hon'ble MR.JUSTICE R.K.ABICHANDANI
and
Hon'ble MR.JUSTICE K.A.PUJ
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1. Whether Reporters of Local Papers may be allowed : YES
to see the judgements?
2. To be referred to the Reporter or not? : YES
3. Whether Their Lordships wish to see the fair copy : NO
of the judgement?
4. Whether this case involves a substantial question : NO
of law as to the interpretation of the Constitution
of India, 1950 of any Order made thereunder?
5. Whether it is to be circulated to the Civil Judge? : NO
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LUCKY STEEL INDUSTRIES
Versus
STATE OF GUJARAT
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Appearance:
1. Special Civil Application No. 758 of 1987
MR PC KAVINA for Petitioner
MR SUDHIR MEHTA, AGP for Respondents No. 1-5
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CORAM : MR.JUSTICE R.K.ABICHANDANI
and
MR.JUSTICE K.A.PUJ
Date of decision: 07/03/2002
ORAL JUDGEMENT
(Per : MR.JUSTICE R.K.ABICHANDANI for the Court)
1. The petitioner firm seeks a declaration that it
is entitled to get the sales tax incentive benefits as
per the resolution dated 27th August 1980, at Annexure
`A' to the petition, and a direction on the respondents
to grant the incentive benefits forthwith to the
petitioner. The petitioner also seeks a declaration that
the impugned resolution dated 15th January 1987, at
Annexure `H' to the petition, is unconstitutional to the
extent that it gives effect to the resolution from 15th
January 1985, and a direction is sought that the impugned
resolution dated 15th January 1987 should be made
applicable with effect from 18th March 1982.
2. The grievance of the petitioner is that the
respondents have not granted the benefit of deferment of
sales tax incentive though promised under the resolution
dated 27th August 1980. According to the petitioner, it
set up an industry in the backward area of Vartej,
relying on the promises held out by the respondent
government under various resolutions offering package
benefits like cash subsidy, sales tax exemption and sales
tax deferment with a view to attract new entrepreneurs
for setting up new projects in the notified backward
areas. According to the petitioner, it had acted upon
such promises and altered its position with a hope and
temptation to get the package incentive benefits. The
petitioner has invoked doctrine of promissory estoppel
against denial of the benefits to the petitioner.
2.1 It is stated that, relying upon the promises held
out by the respondents government in their resolution
dated 27th August 1980, the partners of the petitioner
firm entered into a partnership agreement and formed a
partnership with effect from 30th March 1984.
Thereafter, the firm obtained a plot of land on rent and
started constructing a building thereon. An application
was made to the respondent No.4 for getting the
petitioner provisionally registered and a provisional
registration was granted by the respondent No.4 on 15th
December 1983. The petitioner was granted a licence to
set up a factory for manufacturing mild steel round bars
and CTD bars. It spent a total sum of Rs.15,24,490=00 on
the building, plant and machinery and in about 10 months'
time, it commenced commercial production with effect from
21-9-1984. Later on, a new partnership deed was executed
with changes in the firm with effect from 4th May 1985.
On the basis of the resolution, at Annexure `A' to the
petition, dated 27th August 1980, the petitioner
approached the respondent No.4 with an application to
issue eligibility certificate to the petitioner for
getting the benefit of deferment of sales tax dues. The
respondent No.4, however, by the communication dated 6th
February 1985, rejected that application on the ground
that the petitioner was not entitled to get the benefit
of deferment of sales tax dues since it's industry was
covered in the list of industries not eligible to get the
benefits under the scheme. According to the petitioner,
they approached the respondent No.4 personally to
convince him that the petitioner was not a re-rolling
mill of steel and steel scrap, but it was a rolling mill
manufacturing its products from steel scrap. Since the
respondent No.4 did not favourably respond, the present
petition was filed on 27th February 1987.
2.2 It is also the case of the petitioner that, in
consonance with the resolution of 27th August 1980, the
government issued the resolution dated 18th March 1982,
at Annexure `C' to the petition, under which the
petitioner was entitled to get the benefit of deferment
of sales tax. According to the petitioner, the District
of Bhavnagar was declared as a growth centre for the
purpose of various benefits, including the benefit of
deferment of sales tax and Vartej was 12 to 15 KMs from
Bhavnagar city. The Port of Alang, near Bhavnagar, was
declared to be a Port for ship breaking purposes and
foreign vessels are imported for breaking. At that port,
scrap received from the breaking of ship is rolled out at
various rolling / re-rolling mills, which results in
saving huge amounts of foreign exchange that would
otherwise have been spent on importing steel to meet the
shortfall of steel products in the country. Since the
steel scrap was available at Alang, many rolling mills
were established at Vartej so that they can get the
incentive benefits offered by the State Government. It
is stated that, prior to 2nd July 1983, rolling /
re-rolling mills were not permitted to be registered as
Small Scale Industries by the Central Government. The
Development Commissioner, Small Scale Industries,
Government of India, however, by letter dated 2nd July
1983 issued necessary instructions to all the States to
consider the rolling / re-rolling mills to be eligible
for being enrolled under small scale industries in
backward areas of the State. Thereafter, the Government
started enrolling such rolling mills as small scale
industries. The petitioner in this background started to
set up a rolling mill industry for manufacture of mild
steel round bars and CTD. bars from steel scrap at
Vartej.
3. When the resolution dated 27th August 1980
announcing policy of incentive was issued by the
Government, rolling or re-rolling mills were not
enumerated in the list of industries not eligible to get
the benefits. However, by a subsequent resolution dated
7/12th January 1982, the list of ineligible industries
came to be amended, as per which, `re-rolling of steel
including stainless steel' was added at item 24 of the
list. The case of the petitioner is that it was running
a rolling mill manufacturing products from steel scrap
only and did not fall in entry 24 which referred to
re-rolling mill, and not a rolling mill. In the
alternative, the petitioner's case is that, since the
petitioner was rolling or re-rolling only steel scrap and
not `steel' or `stainless steel', it's industry was
outside the purview of entry 24 of the ineligibility
list. It is pointed out that whenever steel scrap is to
be included, it is specifically mentioned, as was done in
entry 21 `re-rolling of steel and steel scraps including
stainless steel' of the list of ineligible industries
annexed to the resolution of 19th August 1983 under which
capital investment subsidy scheme was declared. Thus,
according to the petitioner, it's industry was not
included in the list of industries which were not
eligible to get the sales tax incentive benefits.
3.1 According to the petitioner, by the resolution of
15th January 1987, at Annexure `H' to the petition, the
industry of `re-rolling of steel including stainless
steel' alongwith four other industries were deleted from
the list of ineligible industries and those of them which
had commenced their commercial production on or after
15th January 1985 were given the benefit of the deferment
of sales tax dues. According to the petitioner, since it
had commenced production prior to 15th January 1985, the
benefit was denied to the petitioner and this amounted to
a hostile discrimination against the petitioner based on
unreasonable and arbitrary classification for the purpose
of giving benefits. According to the petitioner, the
resolution at Annexure `H' dated 15-1-1987 does not give
any reason or background or object for prescribing
cut-off date of 15-1-1985 and the classification between
the industries that had commenced production prior to
15-1-1985 and those that were established after 15-1-1985
was not founded on any intelligible differentia. The
said resolution is, therefore, challenged to the extent
that it fixed 15th January 1985 as the cut-off date.
4. The respondents have not filed any affidavit in
reply and have relied upon the material which is already
on record.
5. The learned counsel appearing for the petitioner
has contended before us that the resolution dated 27th
August 1980 held out promises to the entrepreneurs at
large to establish new industrial projects in the areas
notified and since the petitioner firm established its
new industry, it had altered its position to its
disadvantage. The industry of the petitioner of rolling
steel scrap was not included in the list of ineligible
industries till 12th January 1982 and there was no
justification forthcoming from the side of the Government
to show as to for what reason the said industry was
included in the list of ineligible industries. According
to the learned counsel, the action of including the
industry of re-rolling steel including stainless steel in
the list of ineligible industries by the resolution dated
12th January 1982, was arbitrary. It was submitted that
a pre-existing benefit can be withdrawn and then restored
only if the Government pleads and proves public interest
to justify such action. It was submitted that, during
the currency of the period of the resolution dated 27th
August 1980, the entrepreneurs were lured to establish
new industrial projects and the formation of the
industry, though occurring at a subsequent point of time,
would have its genesis in the offer made under the
resolution dated 27th August 1980. The learned counsel
referred to the averments made in the petition to show
that the petitioner had set up the new industrial project
in view of the promises held out by the Government under
the said resolution and submitted that since the facts
were not controverted by filing any affidavit in reply,
there was no reason to doubt the correctness of the
averments made in the petition. The learned counsel
further argued that the cut-off date of 15th January 1985
fixed under the resolution at Annexure `H' to the
petition, had no nexus to the object of rapid
industrialization which was sought to be achieved and the
fixing of the said date amounted to punishing the
efficient industrial management which resulted into
quicker production and to reward the tardy and
inefficient entrepreneurs who took longer time in
commencing their commercial production and yet reaped the
benefit of resolution of 15th January 1987. The counsel
contended that, in the matter of manufacture of the
articles by rolling or re-rolling process, those who will
commence production prior to 15th January 1985 and others
who have done so after that date, constituted a single
class and were equals who were by virtue of specifying
the cut-off date of 15th January 1985 being treated
unequally. The cut-off date was, therefore, arbitrary
and violative of Article 14 of the Constitution.
According to him, there was no rationale in fixing
15-1-1985 as the date when production should have
commenced. He submitted that the petitioner should not
be penalized for being more efficient in commencing the
production before others who could commence only after
15th January 1985. It was then argued that the
petitioner's industry did not fall in entry 24 of the
list of ineligible industries published under the
resolution dated 12th January 1982 or similar entry
occurring in context of the resolution dated 18th March
1982 by virtue of the list of ineligible industries
contained in Table 1 of that resolution, as amended by
the resolution dated 15th September 1982 which added more
industries to that Table, including `re-rolling of steel
including stainless steel' appearing at entry 10 of
paragraph 2 of the resolution dated 15th September 1982.
This he argued on the basis that the petitioner was not a
rolling mill but was a re-rolling mill. Further, that
there was no mention of `steel scrap' either in entry 24
of the list of ineligible industries contained in the
resolution dated 12-1-1982 or even in entry 10 of the
resolution dated 15th September 1982, by which the list
of ineligible industries contained in the Table under the
resolution dated 18th March 1982, was enlarged.
5.1 In support of his contentions, the learned
counsel relied upon the following decisions :
[a] The decision of a Division Bench of this Court in
M/s Kothari Oil Products Co. v. State of
Gujarat, reported in XXIII (1) GLR 20 was cited
for the proposition that, if the Government or
any authority on behalf of the Government has
made a representation and acting on that
representation a party has altered its situation,
then, it is not open to the Government to resile
from that position and at the instance of the
party who has altered its situation to its
disadvantage, the Court is entitled to direct the
Government or the authority to carry out its
promises or its scheme. This decision was
rendered in context of the benefits of the scheme
announced under the notification dated 22nd
December 1977. It was held that since the
petitioner had shown that they had spent nearly
Rs. 43 lakhs in the setting up of the cotton
delinting plant after February 1978 relying on
the scheme set out in the two notification of
December 22, 1977, it was not permissible to the
State authorities to back out of the schemes and
to say that the petitioners will not be entitled
to the benefits thereof. It was held that the
resolution dated 26th September 1979, in so far
as it purports to take away the benefits of
interest free sales tax loan from the
petitioners, was not applicable in their case.
[b] The decision of the Supreme Court in commissioner
of Income Tax v. M/s Krishna Copper Steel
Rolling Mills, reported in AIR 1992 SC 422 was
cited for the proposition that the question
whether the article produced is the raw material
or an article made of iron and steel has to be
decided on the basis of the nature of the article
and not the kind of mill which turns it out. It
was held that if machinery and plant installed in
steel mills where the process includes not merely
the production of ingots, billets and the like
but also the production of bars and rods are
eligible for the higher development rebate, it
cannot be said the same plant and machinery, when
installed in rolling mills which proceed, from
the stage of ingots or billets, to manufacture
bars and rods, cannot be said to be not eligible
for higher rate of development rebate. What is
to be examined is not the nature of the mill
which yields the article but the nature of the
article or thing that is manufactured and to ask
the question whether such article or thing can be
considered as raw material for manufacture of
other article made of the metal or is it itself
an article made of the metal. It was held that
the mild steel rods, bars or rounds which are
manufactured by the assesses are only finished
forms of the metal and not articles made of iron
and steel, and that they only constitute raw
material for putting up articles of iron and
steel such as grills or windows by applying to
them processes such as cutting or turning. The
rod or the wire rods are likewise not products of
iron and steel but only certain finished or
refined forms of the metal itself. It was noted
that pig iron and iron scrap are fed into
furnaces to produce ingots, billets and blooms.
But both are iron and steel in different form,
the letter being referred to as `semi-finished
steel'. Likewise, the bars, rods, rounds, wire
rods and the like constitute the second stage in
which one gets only `finished' forms of iron and
steel.
[c] The decision of the Supreme Court in State of
Madhya Bharat (now the State of Madhya Pradesh)
v. Hiralal Ji, reported in AIR 1966 SC 1546 was
cited to point out that the Supreme Court held
that the bars, flats and plates sold by the
assessee were iron and steel exempted under the
Notification issued under section 5 of the Madhya
Bharat Sales Tax Act, which exempted iron and
steel from sales tax. The question that arose
before the Supreme Court was whether iron bars,
flats and plates converted from scrap iron by
re-rolling fell under the exemption or whether
they could be taxed as goods prepared from any
metal other than gold. The Supreme Court held
that, so long as iron and steel continued to be
raw materials, they enjoyed the exemption. Scrap
iron purchased by respondent was merely re-rolled
into bars, flats and plates. The raw material
was only re-rolled to give it attractive and
acceptable form. Such raw material did not in
the process lose their character as iron and
steel and the dealer sold `iron and steel' in the
shape of bars, flats and plates and the customer
purchased `iron and steel' in that shape. The
Court, therefore, upheld the conclusion reached
by the High Court that the iron and steel was
exempted under the Notification.
[d] The decision of the Supreme Court in M/s Devi Das
Gopal v. State of Punjab, reported in AIR 1967
SC 1895 was cited for the proposition that it is
a duty of the Court to strike down without any
hesitation any arbitrary power conferred upon the
executive by the legislation.
[e] The decision of the Supreme Court in Shri
Digvijay Cement Co. v. State of Rajasthan,
reported in AIR 1997 SC 2609 was cited to point
out that the notifications issued by the State of
Rajasthan reducing the rate of tax on inter-State
sale of cement and making differentiation between
the rate of tax of the intra-State sales and
inter-State sales of cement, had the effect of
creating a preference for cement manufactured and
sold in Rajasthan and disadvantage for the sale
of cement manufactured and sold in other State
i.e. Gujarat, and thus, had the direct and
immediate adverse effect on the free flow of
trade and were, therefore, void being contrary to
the scheme of the constitutional provisions
contained in Chapter XIII of the Constitution.
[f] The decision of the Supreme Court in State of
Bihar v. M/s Suprabhat Steel Ltd., reported in
AIR 1999 SC 303 was cited to point out that, in a
case where the State Government had introduced
the new industrial policy dealing with the
facility of sales tax exemption on purchase of
raw materials, it was held that in view of the
clear and unambiguous language of sub-clause (b)
of clause 10.4 of the policy which provided that
the old industrial units whose investment on
plant and machinery did not exceed Rs.15 crores
on 1-4-1993 would be entitled to the said
facility of sales tax exemption on the purchase
of raw material for a period of seven years from
1-4-1993, it could not be accepted that even said
sub-clause (b) would be applicable only to those
industrial units which would come into production
from 1-4-1993 to 31-3-1998.
[g] Reliance on decision of the Supreme Court in
Commissioner of Sales Tax v. Industrial Coal
Enterprises, reported in AIR 1999 SC 1324 was
placed for the proposition that the provisions of
exemption clause should not be, so strictly
construed, as would defeat the very purpose and
object of grant of exemption. It was observed by
the Supreme Court that the object of granting
exemption from payment of sales tax has always
been for encouraging capital investment and
establishment of industrial units for the purpose
of increasing production of goods and promoting
the development of industry in the State. The
industrial unit fulfilled the relevant conditions
at the time when it applied for exemption as its
capital investment did not exceed Rs.3 lakhs. It
was observed that neither the section nor the
notification contained any condition that if the
capital investment of the unit exceeds Rs.3 lakhs
after the grant of exemption, such exemption
would cease to operate. The respondent had
shifted the unit to its own premises which made
it much more convenient and easy for it to carry
on the production, and the bonafides of the
respondent had never been questioned.
[h] The decision of the Supreme Court in State of
Rajasthan v. M/s Mahaveer Oil Industries,
reported in AIR 1999 SC 2302 on which heavy
reliance was placed on behalf of the petitioner
was referred in context of Notifications issued
by the State of Rajasthan withdrawing the benefit
of incentive scheme from oil extracting and
manufacturing industries on 7-5-1990 and then
restoring the benefit of exemption from central
sales tax on 26-7-1991, as a result of which the
new industrial units established after 7-5-1990
and before 26-7-1991 alone were not entitled to
the benefits of the incentive scheme of the
Central Sales Tax Act in respect of inter-State
sale of their goods. Of the two, notification
dated 7th May 1990, one was issued under the
Rajasthan Sales Tax Act, 1954 and the other under
the Central Sales Tax, and they amended
notification dated 23rd May 1987 by which
incentive scheme was notified, and as a result of
such amendment, oil extracting or manufacturing
industry was added in the list of ineligible
industries, thus withdrawing the benefits of
incentive scheme from oil extracting and
manufacturing industries both in respect of
Rajasthan Sales Tax, as also the Central Sales
Tax. The Supreme Court noted that the
notification of 7-5-1990 issued by the Central
Sales Tax Act withdrawing the benefit of the
scheme from oil extraction and manufacturing
industries in respect of inter-State sales
effected by them was already quashed by the
Supreme Court by its judgement dated 23rd
February 1995 in State of Rajasthan and another
v. Gopal Oil Mills (Civil Appeal No. 5738 of
1994) and in view thereof since the respondent
had started commercial production on 17th
February 1991, during the subsistence of the said
scheme, they were entitled to the benefit of the
said scheme pertaining to exemption from Central
Sales Tax from the date of starting of commercial
production. It was contended before the Supreme
Court that the judgement in Gopal Oil Mills
(supra) should not be applied to them in so far
as it upheld the validity of notification of
7-5-1990 withdrawing the benefit of incentive
scheme under the Central Sales Tax Act, and that
the Court did not consider the validity or
otherwise of the notification of 7-5-1990 issued
under the Rajasthan Sales Tax Act, on merits. In
context of the notification of 7-5-1990 under the
Rajasthan Sales Tax Act, no subsequent
notification had been issued to restore the
benefit of the scheme to oil extraction
industries. It was therefore held that the ratio
in Gopal Mills's case on the basis of which the
notification of 7-5-1990 under the Central Sales
Tax Act was set aside, was was not available
while considering the notification of 7-5-1990
under the Rajasthan Sales Tax Act. After
reviewing the precedents on the issue, the
Supreme Court held that : "Public interest
requires that the State be held bound by the
promise held out by it in such a situation. But
this does not preclude the State from withdrawing
the benefit prospectively even during the period
of the scheme, if public interest so requires.
Even in a case where a party has acted on the
promise, if there is any supervening public
interest which requires that the benefit be
withdrawn or the scheme be modified, that
supervening public interest would prevail over
any promissory estoppel". On facts, it was noted
that the respondents could commence commercial
production only in February 1991 long after the
benefit of the Incentive Scheme had been
withdrawn. Their application for eligibility
certificate under the said scheme was made only
on 2-4-1991 long after the benefit of the scheme
had been withdrawn in respect of oil industry.
It was held that, in these circumstances, even if
it were to be held that the doctrine of
promissory estoppel can be invoked, the same
cannot be invoked in the case of the respondents.
[i] The decision of the Supreme Court in Motilal
Padampat Sugar Mills Co. Ltd. v. The State of
Uttar Pradesh, reported in AIR 1979 SC 621 was
cited for the proposition 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 promisee, 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.
[j] Reliance was placed on the decision of the
Supreme Court in M/s Pawan Alloys and Casting
Pvt. Ltd. v. U.P. State Electricity Board,
reported in AIR 1997 SC 3910 for the proposition
that premature withdrawal of the incentive
development rebate made available to the
industries was not permissible. The Electricity
Board had, by issuing notification, held out to
the consumers a representation that, on the total
bill of electricity consumed by them during the
period of first three years of their taking
supply, they will be getting a rebate of 10% and
it was assured that such rebate would be
available not only to new industrial units which
may get established and take electric supply from
the Board on and from the date on which the last
notification came into force, but rebate would be
permissible even to those new industries who had
earlier established and taken electricity supply
from the Board and whose three years' period
earlier granted remained unexpired on 1st
September 1986. The Supreme Court held that, on
the facts of the case, the impugned withdrawal
notification was not shown to be backed up by any
demands of public interest which would outweigh
the individual interests of the promisees who had
acted upon the same.
[k] The decision of the Supreme Court in Kasinka
Trading v. Union of India, reported in (1995) 1
SCC 274 was cited for the proposition that the
doctrine of promissory estoppel was applicable
against the Government also particularly where it
is necessary to prevent fraud or manifest
injustice. The Supreme Court held that, from the
nature of power of exemption granted to the
Government under section 25 of the Customs Act,
it flows that the same is granted with a view to
enabling the Government to regulate, control and
promote the industries and industrial productions
in the country. Where the Government on the
basis of the material available before it, bona
fide, is satisfied that the `public interest'
would be served by either granting exemption or
by withdrawing, modifying or rescinding an
exemption already granted, it should be allowed a
free hand to do so.
This decision was followed in Shrijee Sales
Corporation v. Union of India, reported in
(1997) 3 SCC 398, in which, while holding that
the principle of promissory estoppel is
applicable against the Government, it was also
held that the Government is competent to resile
from a promise even if there is no manifest
public interest involved, provided, of course, no
one is put in any adverse situation which cannot
be rectified.
6. The learned counsel appearing for the respondents
contended that the petitioner was not entitled to invoke
the doctrine of promissory estoppel since it had not
altered its position on the basis of any promise. It was
argued that the petitioner's industry `re-rolling of
steel including stainless steel' was included in the list
of ineligible industries, both in the resolution dated
12th January 1982, which was applicable in context of the
incentives announced under the resolution of 27th August
1980 as well as in the list contained in the Table 1 of
the resolution of 18th March 1982, as amended by the
resolution of 15-9-1982, by which that Table was expanded
by including the said industry in the list of ineligible
industries. It was argued that the said industry was
made eligible for the first time by the resolution dated
15-1-1987 and it was open for the Government to impose
the eligibility condition on the industry that it should
have commenced production on or before 15th January 1985.
It was submitted that imposition of such cut-off date was
not an arbitrary act and was within the province of the
powers of the State Government.
6.1 In support of his contention, the learned counsel
relied upon the decision of the Alhabad High Court in
Creative Handicrafts v. Chairman, Noida, reported in 116
Sales Tax Cases 475, in which, it was held that strict
construction must be given to the provisions in an
exception / exemption, because, it increases the tax
burden on other members of the community, and that, if
two views of an exemption are possible, it should be
construed in favour of the State and not in favour of the
citizen.
7. The petitioner firm has sought a declaration that
it is entitled to sales tax benefit incentive of
deferment of sales tax dues under the resolution dated
22nd August 1980, at Annexure `A' to the petition. It is
also prayed that the resolution dated 15th January 1987,
at Annexure `H' to the petition, by which the industry of
`re-rolling of steel including stainless steel' was,
inter alia, made eligible for sales tax deferment
embodied in the government resolution dated 18th March
1982, should be set aside as unconstitutional to the
limited extent to which it is made effective from
15-1-1985 by making only the industries commencing
production from that date as eligible.
8. The Government, by resolution dated 27th August
1980, had announced the new sales tax incentive scheme
with effect from 1st June 1980 for a period of 5 years
i.e. upto 31st May 1985. This scheme declared that the
new industrial project including expansion /
diversification of existing units `commissioned' (i.e.
which have started commercial production on or after
1-6-1980) were eligible to opt for the benefits under
this Scheme.
8.1 The list of industries excluded from the purview
of this scheme was the same as per the old scheme, which
was declared under the resolution of 22-12-1977. It was
then made clear in para 3 of the resolution dated
27-8-1980 that, "Government may review this list from
time to time .............. In short, these incentives
are given under the discretionary power of the State
Government and hence, they do not create any claims
against the government enforceable in a court of law".
8.2 The industrial unit eligible as per paragraph 2
and 3 of the said resolution, had to opt for one of the
two sales tax incentives namely, (1) sales tax exemption
incentive, and (2) sales tax deferment incentive. Under
the sales tax deferment incentive which the petitioner
claims, the scheme envisage that, within the prescribed
availability limits "recovery of sales tax payable by the
unit on sale of its production will be recovered in six
annual installments by Sales Tax Department after 12
years of the respective due dates. No interest will be
charged on amounts so deferred". The competent
authority, on receiving option was to issue eligibility
certificate to enable the unit to obtain either exemption
or deferment.
9. The list of industries excluded from the purview
of the scheme did not include `re-rolling of steel
including stainless steel' when the new scheme was
announced under the resolution of 27th August 1980.
However, by resolution dated 7/12 th January 1982, the
existing list which was contained in paragraph 6 of the
resolution dated 22-12-1977 came to be revised. It was
provided in the last paragraph of the said resolution
dated 12-1-1982 that the Government had reviewed the
position and had "prepared a comprehensive list of
industries which will not be eligible for any incentives
contained in government resolutions / circulars cited at
(i), (ii), (iii), (v), (vii), (viii) and (ix) above".
These included the government resolutions dated
22-12-1977 at Srl. No. (i) and (ii) and the aforesaid
resolution dated 27th August 1980 at Srl. No. (vii).
In the comprehensive list of ineligible industries, at
Annexure 1 of the resolution dated 12-1-1982, at Srl.
No. 24, figured the industry of `re-rolling of steel
including stainless steel'. Thus, this industry was not
eligible to any incentives declared under the resolution
of 27-8-1980 from 12th January 1982.
9.1 In context of the resolution dated 27-8-1980, the
scheme relating to sales tax deferment incentive was
ordered under the resolution dated 18th March 1982, the
benefit of which is being claimed by the petitioner,
Table 1 of that resolution listed industries which were
not included in the expression `new industrial unit'.
Originally, this list contained 15 industries, but by the
resolution of 15th September 1982, it was expanded by
adding 31 more industries which included `re-rolling of
steel including stainless steel' at Srl. No.10 of the
resolution of 15th September 1982, to be read with Table
1 of the resolution of 18th March 1982 in which all these
items were added.
9.2 Admittedly, the petitioner firm did not even
exist when the resolution dated 18-3-1982 was made or
even thereafter when the list of ineligible industries
for the purpose of that resolution came to be expanded on
15-9-1982 adding the industry of `re-rolling of steel
including stainless steel' in the Table of ineligible
industries contained in the resolution of 18th March
1982. The petitioner firm came to be constituted only
from 30th March 1984 which fact emerges from the para 5.2
of the petition, in which it is stated; ".... the
petitioner firm entered into a partnership agreement and
formed a partnership with effect from 30-3-1984.
Thereafter, the petitioner firm obtained requisite plot
of land ............... and started construction of
building on the said plot and at the same time ..........
also made an application to the respondent No.4 for
getting it registered provisionally .......". In
paragraph 5.3 of the petition, it is admitted that the
petitioner commenced its commercial production with
effect from 21-9-1984.
9.3 It is, thus, abundantly clear that the petitioner
firm was constituted and its business activities were
commenced much after the industry of `re-rolling of steel
including stainless steel' was declared to be ineligible
from the date of the resolution dated 7/12 th January
1982, and thereafter, again by the resolution dated
15-9-1982 enlarging the list of ineligible industries in
Table 1 of the resolution of 18th March 1982. The
petitioner's case that, relying upon the promises held
out by the respondent government vide resolution dated
27-8-1980, at Annexure `A', the partners of the
petitioner firm undertook venture, is, therefore, wholly
incorrect. At all material times when the petitioner
firm was formed and thereafter, when its commercial
production started with effect from 21-9-1984, as
mentioned in paragraphs 5.4 and 19(b) of the petition,
the industry of `re-rolling of steel including stainless
steel' was in the list of industries declared as
ineligible for the purpose of sales tax exemption and
deferment incentives declared under the resolutions of
27th August 1980 and 18th March 1982. The petitioner
knowing full well that the said industry was in the list
of ineligible industries, started its venture and
therefore, there arises no question of enforcing any
promise made by the government. The doctrine of
promissory estoppel cannot, therefore, come to the rescue
of the petitioner.
10. After the policy announcement of exemption and
deferment scheme was made under the resolution of
27-8-1980, the sales tax exemption incentives came to be
embodied in the two notifications dated 5-2-1981 issued
under section 49(2) of the Gujarat Sales Tax Act, 1969
and the Central Sales Tax Act, 1956.
10.1 As regards the scheme relating to sales tax
deferment incentive, the Government issued orders under
the resolution dated 18th March 1982, at Annexure `C' to
the petition, by which, it is provided that, "The new
industrial units including expansion / diversification by
existing units commissioned (i.e. which have started
commercial production of goods) on or after 1st June 1980
shall be eligible for the benefits under this scheme".
The availability of such benefit was made subject, inter
alia, to the condition that, within 180 days from the
date of the resolution or commissioning of the new
industry, as the case may be applied, for an eligibility
certificate to the Industries Commissioner ..........".
The eligibility certificate was required to state, inter
alia, that new industry had been commissioned on the date
specified therein during the period of commencement and
ending of the scheme i.e. 1-6-1983 and 31-5-1985. The
words `new industrial unit' were defined in the said
resolution dated 18-3-1982 and as noted above, the
industries named in Table 1 thereof, were not included
within the expression `new industrial unit', meaning
thereby, this resolution provided its own list of
ineligible industries in Table 1, which came to be
amended by the resolution dated 15-9-1982, adding 31 more
industries including the industry of `re-rolling of steel
including stainless steel', which appeared at Srl. No.
10 of the resolution of 15-9-1982, by which the Table 1
of the resolution of 18th March 1982 came to be expanded.
11. The petitioner had applied for the eligibility
certificate for getting the benefit of deferment of sales
tax, and that the application came to be rejected on
6-2-1985 by the Deputy Industries Commissioner, as per
the order at Annexure `B' to the petition, on the ground
that the said industry was included in the list of
industries which were ineligible for sales tax exemption
/ deferment scheme and therefore, no eligibility
certificate could be issued to the petitioner. This
order was never challenged by the petitioner, and rightly
so, because, the industry of `re-rolling of steel
including stainless steel' was included in the list of
ineligible industries under the resolution of 12-1-1982
for the incentives announced under the resolution dated
27-8-1980 and also in the Table of ineligible industries
contained in the resolution dated 18-3-1982, as expanded
by the resolution dated 15-9-1982.
12. Exemption is provided from payment of whole of
the tax payable under the said Act in respect of sales or
purchases falling in the categories enumerated under
sub-section (1) of section 49, while sub-section (2)
empowers the State Government, if it considers it
necessary so to do in the public interest, by
notification in the official gazette to `exempt any
specified class of sales or of specified sales or
purchases from payment of the whole or any part of the
tax payable under the provisions of this Act'. Such
notification is to laid before the State legislature as
provided by sub-section (3) of section 49. The exemption
order could be issued only under section 49(2) after the
policy announcement was made under the resolution dated
27-8-1980. It has been held by the Supreme Court in
Sales Tax Officer v. Shree Durga Oil Mills, reported
1998(1) SCC 572, in context of section 6 of the Orissa
Sales Tax Act, 1947, that such exemption order could be
amended or withdrawn altogether as provided in section 6,
and that the Court will not interfere with any action
taken by the Government in public interest. Thus, the
plea of change of trade policy on the basis of resources
crunch was considered to be sufficient for dismissing the
respondent's case based on the doctrine of promissory
estoppel.
12.1 Incentive scheme of deferment of payment of sales
tax dues is different from the incentive of exemption
falling under section 49(2) of the Act. In deferment
scheme, sales tax becomes due on sales, due to the
implementation of the incentive scheme of deferred
payment declared by the Government. In fact, the second
proviso to section 47(4) of the said Act, inserted with
effect from 24-4-1988, now explicitly recognises the
power of the government in relation to incentives by way
of deferment.
12.2 The State Government is empowered by general or
special order to specify conditions on which the
incentive by way of deferment of sales tax or purchase
tax or both are to be granted. The State Government can,
therefore, specify industries which would not be eligible
for the incentive by way of deferment of sales tax or
purchase tax or both. The Court will not be justified in
interfering with the power of the State Government to
decide as to the conditions subject to which it may offer
sales tax deferment incentive, to which industries, from
which date and from what period. It will be impinging on
the statutory power of the State Government to seek
justification from it for its policy decision in the
matter of grant of incentives by way of exemption under
section 49(2) or deferment incentives. The argument
raised for the petitioner that the State Government
should justify the exclusion of the `re-rolling of steel
including stainless steel' industry from the benefit of
this incentive by placing it in the list of ineligible
industries is, therefore, misconceived and cannot be
sustained.
12.3 In the policy that was announced under the
resolution dated 27-8-1980, it was made clear that the
list of industries excluded from the benefit of
incentives offered may be reviewed by the government from
time to time, and that these incentives were given under
the discretionary powers of the State Government and did
not create any enforceable claim against the government.
From this, any entrepreneur should have known that such
list was liable to be amended at any point of time, if
the government decides in exercise its discretionary
powers that it was necessary so to do. The inclusion of
`re-rolling of steel including stainless steel' in the
list of ineligible industries cannot, therefore, be
termed as arbitrary. The State Government was under no
obligation to grant a concession of this nature and a
concession by way of such incentives can be withdrawn at
any time by means of a subsequent order. As held by the
Supreme Court in Shri Bakul Oil Industries v. State of
Gujarat, reported in (1987) 1 SCC 31 in context of
section 49(2) of the said Act, a concession by way of tax
exemption granted for encouraging entrepreneurs to start
industries in rural and undeveloped areas can be
withdrawn at any time, and that it was fully within the
powers of the Government to withdraw or revoke the
exemption by means of a subsequent notification, if such
withdrawal could be done without offending rule of
promissory estoppel.
13. In the present case, the petitioner has not made
out any case of promissory estoppel even on the averments
made in the petition itself. The resolution announcing
policy of incentives for new industries was issued on
27-8-1980 and orders regarding deferment of sales tax
under the resolution dated 18th March 1982 when the
petitioner firm was not even born. When the petitioner
firm was constituted on 30th March 1984 and commenced
production on 21-9-1984, the industry of `re-rolling of
steel including stainless steel' was already in the list
of ineligible industries, specifically excluded from the
benefits of these incentives. There was, therefore, no
question of the industry being established by the
petitioner due to any inducement of the government. The
petitioner although set up its unit and went into
commercial production from 21-9-1984, was not eligible to
get the incentive in form of sales tax exemption or
deferred payment of sales tax under the policy announced
by the resolution dated 27-8-1980 read with the orders
made pursuant thereto under the resolution of 18th march
1982. All throughout from 12th January 1982 upto 15th
January 1987, when the industry of `re-rolling of steel
including stainless steel' was made eligible for sales
tax deferment incentive scheme embodied in the resolution
dated 18th March 1982 on certain conditions, the said
industry remained in the comprehensive list of ineligible
industries published under the resolution of 12-1-1982 as
well as in the Table of ineligible industries contained
in the resolution dated 18th March 1982 as expanded by
the resolution dated 15-9-1982. By the resolution dated
15-1-1987, at Annexure `H', the Government made five
industries over which the ban was lifted for the purpose
of subsidy benefit earlier by resolution dated 15-1-1985,
now eligible for the deferred payment of sales tax
incentive provided for under the resolution of 18-3-1982.
The resolution of 5/15-1-1985 was made in context of the
capital investment subsidy scheme which had its own list
of ineligible industries attached to the resolution dated
19-8-1983, by which that subsidy scheme was introduced
and the item No.21 of the list at Annexure `C' thereto
specified `re-rolling of steel and steel scrap including
stainless steel', which came to be removed by the
resolution of 5/15th January 1985 making that industry
eligible for the purpose of capital investment subsidy
scheme. That resolution, however, did not affect the
list of ineligible industries, which separately existed
by virtue of the resolution of 12-1-1982 for the purpose
of the exemption and deferment incentive announced by the
resolution of 27-8-1980 as well as the ineligible
industries list contained in the Table 1 of the
resolution of 18-3-1982, as expanded by the resolution of
15-9-1982. Thus, for the purpose of the resolutions of
27-8-1980 and 18th March 1982, `re-rolling of steel
including stainless steel' continued to remain as
ineligible, and that industry was not entitled to any of
the benefits offered under the said resolutions. The
Government, however, removed this industry from the
`banned list' and made it eligible in the context of the
deferred payment scheme implemented by the resolution of
18-3-1982 by the resolution of 15-1-1987, which lifted
the embargo from the five industries on certain
conditions, including the condition that the industries
should have commenced production on or from 15-1-1985
being the date from which these industries were
considered eligible for the subsidy benefit under the
resolution of 19-8-1983 by virtue of the revision of the
`banned list' attached to that resolution.
14. It is contended for the petitioner that the date
15-8-1985 was arbitrarily fixed as a cut-off line,
because, efficient units like the petitioner who had
commenced production prior to that date were left out and
thereby, arbitrarily discriminated against and that the
fixing of the date 15-1-1985 had no nexus with the object
of granting incentives which was to achieve rapid
industrialization in the rural areas. There is a basic
fallacy in this contention. The industry which the
petitioner had started was not at all eligible for the
incentives from 12-2-1987 to 15-1-1987 and when it was
made eligible on 15-1-1987, the condition of commencement
of production date, which the State Government was
empowered to impose as a part of the scheme, was imposed
by providing that the industry should have commenced
production from 15-1-1985, being the date from which the
embargo on that industry was already lifted in a
different context of subsidy scheme of 19-8-1983.
Moreover, by its very nature, a condition fixing the date
of commercial production, which is a rationale criteria
that can be fixed for offering such incentives, will
necessarily demarcate the units that have already come
into existence and have started production prior to that
date, and those which commenced production after the
dates so fixed. This situation obtained even under the
basic policy announcement resolution of 17-8-1980 under
which the eligibility criteria of starting of commercial
production for the eligible industries was fixed by
providing the cut-off date of 1-6-1980, making the
industries, which though not in `banned list', eligible
to the benefits only if the new industrial projects had
`started commercial production or or after 1-6-1980'. It
was wholly immaterial in context of the ineligible
industries as to from which the date they commenced their
production, because, the incentives were never offered to
the industries listed in the comprehensive list of
ineligible industries published by the resolution of
12-1-1982 or to the industries which were included in the
Table 1 of the resolution of 18th March 1982, as expanded
by the resolution of 15-9-1982 which included the
industry of `re-rolling of steel including stainless
steel'. The need for new industrial growth in an
undeveloped area is to be weighed, by its very nature, in
relation to future growth by establishment of new
projects over and above the projects which already have
come into existence in that area prior to the date from
which the incentives are offered. The incentives for
establishing new industries in the area cannot be
converted into rewards for earlier establishment of some
projects in that area. The matter of fixing a cut-off
date from which incentives should be offered for new
projects to be established is entirely within the domain
of the executive which has been statutorily entrusted the
task of providing exemption or other incentives under the
provisions of the Sales Tax Act. The condition that the
five industries made eligible under the resolution of
15-1-1987 should have commenced commercial production
from 15-1-1985 to earn the benefit, is in our view a
rational criteria for giving incentives and does not
create any discrimination amongst the equals. The giving
of incentives, whether of exemption or deferred payment,
has fiscal implications and necessarily, therefore, the
State Government can regulate the incentives in tune with
its resources and the need for development in a given
area. This would postulate fixing of a date for grant of
such incentives and the extent to which they may be
offered to the new projects. The requirement of starting
commercial production as an eligibility criteria is
germane to the object of attracting new industrial
projects. Not providing fiscal benefits / assistance to
existing projects cannot be a hurdle in the way of
offering incentives to the new projects. The
classification of the existing and the new projects has a
reasonable nexus with the object of offering incentives
for the establishment of new projects and thereby,
achieving industrial growth. There may also be
considerations like amelioration of the regional backward
conditions for achieving balanced social development and
improved economic standards of the inhabitants of the
earmarked area. All these are better left to the State
Government for making its policy decisions of fixing the
date from which and the conditions on which the
incentives should be offered. The Government has to be
left free to determine the priorities in the matter of
utilization of its finances and to act in the public
interest while issuing, modifying or withdrawing an
exemption or other incentives. The challenge against the
resolution of 15-1-1987 on the ground that the condition
of fixing the cut-off date of 15-1-1985 is arbitrary or
unconstitutional, therefore, fails.
15. The contention that the removal of the industry
of `re-rolling of steel including stainless steel' from
the list of ineligible industries by the resolution of
15-1-1987 should relate back to the resolution of
12-1-1982 or at least from 18-3-1982 when the deferred
payment scheme was implemented and ineligibility of the
petitioner's unit became relevant and that the industry
should be treated as never to have been made ineligible
from the very beginning, is canvassed on the footing that
this industry was removed from the list Annexure `C' to
the resolution of 19-8-1983 pertaining to cash subsidy,
by the resolution of 5/15-1-1985, and the new list was
attached as Annexure `C' `to the resolution dated
19-8-1983' thereby substituting the original list. In
other words, the change made in the list of ineligible
industries should be given retrospective effect making it
eligible. This is erroneous approach and can be so
demonstrated from the fact that it would lead to absurd
result when an industry which was eligible is now
included in the list and made ineligible, which on the
basis of the argument made, will have to return all the
benefits, for, now it has become ineligible from the
inception of the scheme. In short, there is no warrant
for attributing any retrospective effect to any change in
the list of ineligible industries and the industries
would become ineligible from the date of their entry in
such `banned list' signifying that the incentives are not
meant for the industries included in that list. If an
industry mentioned in the list of ineligible industries
is removed, it can only mean that it was to be treated
from the date of such removal from the list, as eligible
for the benefits. Obviously, therefore, it cannot claim
benefits for the period when it remained ineligible.
16. This brings us to the alternative stand taken by
the petitioner that the petitioner did not fall in the
category of `re-rolling of steel including stainless
steel' at item 24 of the comprehensive list of industries
excluded from the benefit of the exemption or deferment
incentives, under the resolution of 12-1-1982 or the same
item appearing in the Table 1 of the resolution of
18-3-1982, as expanded by the resolution of 15-9-1982.
16.1 The nature of the petitioner's industry was
described as mild steel re-rolling mill in the
application form for provisional registration as small
scale industry submitted to the Directorate of
Industries, (prior to the formation of the firm) on
14-12-1983, a copy of which was produced on record.
Under item of `Brief description of process of
manufacture and of raw materials', the raw material was
described as `from ship breaking plate, m.s. scrap,
belts, ingots, etc. In paragraph 5 and 8 of the
petition, it is stated that the petitioner decided to set
up a rolling mill industry for the manufacture of m.s.
round bars and CTD. bars etc. `from steel scraps' at
Vartej. In paragraph 8 of the petition, it is stated
that, "The raw material for the petitioner firm is only
steel scrap at present and such raw material is being
received by the petitioner from the local sources only.
Steel scrap is in the form of casted heavy machinery
parts, plates, rounds etc.".
17. Ferrous products (i.e. iron and steel) can be
recycled by both internal and external methods. Some
internal-recycling methods are obvious. Metal cuttings
or imperfect products are recycled by remelting,
recasting, and redrawing entirely within the steel mill.
In the ferrous-metals industry there are also many
applications of external recycling. Scrap steel makes up
a significant percentage of the feed to electric-arc and
basic-oxygen furnaces. The scrap comes from a variety of
manufacturing operations that use steel as a basic
material and from discarded or obsolete goods made from
iron and steel. (See Encyclopaedia Britannica under
"Ferous Metals").
17.1 Rolling is the most common metalworking process.
More than 90 percent of the aluminium, steel, and copper
produced is rolled at least once in the course of
production - usually to take the metal from a cast ingot
down to a sheet or bar. The most common rolled product
is sheet. With high-speed computer control, it is common
for several stands of rolls to be combined in series,
with thick sheet entering the first stand and thin sheet
being coiled from the last stand at linear speeds of more
than 100 kilometers (60 miles) per hour. Similar
multistand mills are used to form coils of wire rod from
bars. Other rolling mills can press large bars from
several sides to form I-beams or railroad rails.
Rolling can be done either hot or cold. If the
rolling is finished cold, the surface will be smoother
and the product stronger. (See Encyclopaedia Britannica
under "Rolling").
17.2 The major iron-bearing raw materials for
steelmaking are blast-furnace iron, steel scrap, and
direct-reduced iron (DRI). Steel scrap is metallic iron
containing residuals, such as copper, tin, and chromium,
that vary with its origin. Of the three major
steelmaking processes-basic oxygen, open hearth, and
electric arc-the first two, with few exceptions, use
liquid blast-furnace iron and scrap as raw material and
the latter uses a solid charge of scrap and DRI. (See
Encyclopaedia Britannica under "Primary Steelmaking - Raw
materials").
17.3 There are a number of steel-forming processes
including forging, pressing, piercing, drawing, and
extruding but by far the most important one is rolling.
In this process, the rolls, working always in pairs, are
driven in opposite directions with the same peripheral
velocity and are held at a specific distance from each
other by heavy bearings and mill housings. The steel
workpiece is pulled by friction into the roll gap, which
is smaller than the cross section of the workpiece, so
that both rolls exert a pressure and continuously form
the piece until it leaves the roll gap with a smaller
section and increased length. (See Encyclopaedia
Britannica under "Forming of Steel").
18. A contention is raised that the petitioner is a
rolling mill manufacturing articles like m.s. rods,
rounds, squares, flats etc. from steel scrap and is not
re-rolling mill. In the alternative, it is argued that,
assuming that it is a re-rolling mill, even then it is
not covered under the aforesaid item 24 inasmuch as the
process rolling or re-rolling was done from `steel scrap'
and not from `steel or stainless steel'. This stand is
sheer exercise in desperation. Prefix `re' is attachable
to almost any verb or its derivative and means `once
more' or `afresh'. `Re-rolling' would, therefore, mean
rolling again. A re-rolling mill would, therefore, be
involved in the process of rolling the material which has
already been rolled in the past. This explains the use
of `steel scrap' by the re-rolling mills. The expression
`re-rolling' in the entry 24 of `re-rolling of steel
including stainless steel' has to be understood in the
context of the nature of process involved and not as a
nomenclature of a particular entity. The word
`Re-rolling' in the said entry is by itself capable of
conveying that the raw material `steel scrap' is to be
used for manufacturing articles like m.s. bars, rounds,
squares, flats etc. Therefore, absence of the words
`steel scrap' in the said entry of `re-rolling of steel
including stainless steel' is of no consequence, when
admittedly the petitioner was a re-rolling mill using
steel scrap as its raw material. The fact that the entry
21 in the `banned list' of cash subsidy scheme under the
resolution of 19-8-1983 referred the industry as
`re-rolling of steel and steel scrap including stainless
steel' and expressly thereby included `steel scrap', is
of no consequence, because, the concept of `re-rolling'
itself involves use of `steel scrap' for the
manufacturing activity of a rolling mill.
19. For the above reasons, we find no substance in
the contention that the petitioner industry would fall
outside the ambit of the entry `re-rolling of steel
including stainless steel' in the list of industries
which are excluded from the benefit of the resolutions
dated 27/8/1980 and 18-3-1982. The contentions raised on
behalf of the petitioner cannot, therefore, be accepted.
The petition, therefore, fails and is rejected. Rule is
discharged with no order as to costs. Interim relief
stands vacated.
20. At this stage, the learned counsel for the
petitioner states that the operation of this judgement be
stayed for a period of eight weeks so that recovery may
not be effected in view of the undertaking of the
petitioner recorded in the order dated 29th October 1990,
by which interim relief was confirmed subject to the
condition that the petitioner shall pay the amount in
dispute with interest at the rate of 12% per annum in
case the petitioner loses in this petition. There is no
justification for staying the operation of this judgement
for such purpose. The request cannot, therefore, be
acceded to.
MARCH 7, 2002 [R.K.ABICHANDANI, J.]
[K.A.PUJ, J.]
parmar*
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