Gauhati High Court Holds School Not Eligible for NEIDS 2017 Registration Due to Inapplicability of Industrial Development Criteria: “Educational Institutions Do Not Fall Under Service Sector for Industrial Development Incentives”

Court’s Decision:

The Gauhati High Court dismissed the writ petition challenging the rejection of registration under the North East Industrial Development Scheme (NEIDS) 2017. The court held that educational institutions do not fall under the service sector as defined in the scheme for industrial development. The rejection order dated 25.09.2023 was upheld based on the interpretation of the NEIDS 2017, and the court found no grounds to interfere with the decision-making process of the Empowered Committee.

Facts:

The petitioner, a school operated by a trust, applied for registration under NEIDS 2017, which aims to promote industrial development in the North East region. The school argued that it met the eligibility criteria and was verified by the General Manager, D.I. & C.C., Dibrugarh, who recommended it for registration. However, the Empowered Committee, in its 57th meeting, rejected the application, holding that a school is not permissible for commercial purposes and does not qualify as an industrial unit.

The petitioner had previously filed a writ petition (WP(C)/224/2021), which was disposed of with a direction for reconsideration. Despite this, the registration was again rejected in the second SLC meeting. The petitioner challenged the rejection on the grounds that the school was not listed in the Negative List of the scheme and should therefore be considered eligible for benefits.

Issues:

• Whether the petitioner school qualifies as an eligible service sector unit under NEIDS 2017.
• Whether educational institutions can be classified as “Industrial Units” or entities eligible for incentives under the scheme.

Petitioner’s Arguments:

• The petitioner contended that the school falls under the service sector as defined in the scheme and is not included in the Negative List.
• The petitioner argued that the scheme includes service sector units, and a communication from the Industries & Commerce Department, Assam to the Ministry of Commerce and Industry, Government of India, had indicated that educational institutions could be eligible.
• The petitioner relied on the Supreme Court judgment in Bangalore Water Supply Vs. A. Rajappa (AIR 1978 SC 548), which included schools in the definition of “Industry” under the Industrial Disputes Act, 1947.
• It was also argued that the petitioner is registered under the GST and MSME Acts, which should suffice to qualify it as a service sector unit.

Respondent’s Arguments:

• The respondents submitted that the NEIDS 2017 scheme primarily aims at industrial development, and the service sector mentioned in the scheme does not encompass educational institutions.
• They argued that the scheme is separate from the Champion Sector Scheme and includes only vocational institutions under its purview, not general educational institutions.
• The Cabinet decision dated 05.01.2018, which the petitioner relied upon, was limited to Vocational Education Centres, not schools.
• The Empowered Committee has the exclusive authority to determine eligibility, and the school did not meet the criteria for commercial production or finished goods as defined under the scheme.

Analysis of the Law:

The court analyzed the scope and purpose of NEIDS 2017 and noted that it primarily targets industrial development with specific benefits for eligible units. The scheme defines “Industrial Units” and “Eligible Service Sector Units” with a focus on commercial production and finished goods. Schools and similar educational institutions do not align with the objectives and are not considered commercial entities for the purpose of this scheme.

The court also distinguished between NEIDS 2017 and the Champion Sector Scheme, clarifying that NEIDS 2017 has a separate fund and objective, and vocational institutions alone were considered for inclusion in the service sector. The decision of the Empowered Committee was based on an interpretation of the scheme’s guidelines and a detailed evaluation of the petitioner’s application.

Precedent Analysis:

The court considered the Supreme Court’s judgment in Bangalore Water Supply Vs. A. Rajappa (AIR 1978 SC 548), which broadly defined “Industry” to include educational institutions. However, the court relied on the later decision in Ruth Soren Vs. Managing Committee, East ISSDA (2001) 2 SCC 115, where the earlier ruling was distinguished, and educational institutions were held to fall outside the purview of “industry” for incentive schemes aimed at industrial development.

Court’s Reasoning:

The court emphasized that the scheme is aimed at promoting industrial growth, and while the term “Service Sector” is used, its context is limited to units engaged in commercial activities that contribute to industrial expansion, such as hotels, restaurants, and other services. Schools do not meet these criteria as they are not engaged in the production of goods or commercial services.

The court also noted that the Empowered Committee’s decision was taken after due consideration of the scheme’s objectives, the petitioner’s application, and relevant materials. The Committee is the best judge of eligibility and its decisions should not be interfered with unless there is a clear violation of principles of natural justice or manifest arbitrariness.

Conclusion:

The court concluded that the rejection of the petitioner’s application for registration under NEIDS 2017 was valid and based on cogent reasons. The petitioner failed to establish that the school qualifies as a service sector unit under the scheme. The writ petition was dismissed.

Implications:

This judgment underscores the limited scope of NEIDS 2017 in relation to educational institutions and clarifies that service sector units eligible under the scheme must align with its objectives of industrial development. The decision sets a precedent that schools and similar institutions cannot claim benefits intended for industrial units, even if registered under the GST or MSME Acts.

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