Full Judgment Text
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PETITIONER:
AMRIT BANASPATI CO.LTD.AND ANR.
Vs.
RESPONDENT:
STATE OF PUNJAB AND ANR.
DATE OF JUDGMENT05/03/1992
BENCH:
SAHAI, R.M. (J)
BENCH:
SAHAI, R.M. (J)
MOHAN, S. (J)
CITATION:
1992 AIR 1075 1992 SCR (2) 13
1992 SCC (2) 411 JT 1992 (2) 217
1992 SCALE (1)540
ACT:
Promissory Estoppel- Nature extent and applicability
of-Promissory estoppel cannot be enforced against Statute or
public policy.
State-Announcement of policy of incentives and
concession including refund of sales tax to persons
establishing large scale industries in focal point-
Establishment of Vanaspati Unit-Authorities assuring
concession and incentive-Claim for refund of sales tax-
Action of authorities held not unauthorised nor beyond the
scope of their authority-Held there was estoppel against the
Government-But scheme of refund of sales tax held contrary
to public policy and void under section 23 of the Contract
Act and not enforceable in law.
Constitution of India, 1950 : Article 265.
Taxation-Nature of power-Taxation is
sovereign power.
Taxation-Refund of tax-Permissibility and legality
of-No law can be made to refund the tax except when the levy
is contrary to law-A promise or agreement to refund tax is a
fraud on Constitution-Exemption from tax and refund of tax -
Distinction between - Exemption is neither illegal nor
against public policy-Refund of tax, unless levied contrary
to law, would be invalid and ultra vires.
HEADNOTE:
The Government of Punjab issued a brochure in December,
1966 announcing its ‘New Policy’ declaring that incentives
and concession, one of the them being refund of sales-tax
would be available to those persons who were willing to set
up selective large scale industries in the focal point.
Attracted by the concessions and incentives the appellant’s
Manager wrote a letter in June, 1968 to the Chief Minister
of Punjab expressing his willingness to set up a vanaspati
unit provided the concession was made available to it. By
its letter dated 2nd July, 1968 the Director of Industries
replied the appellant assuring that the concession would be
granted to it.
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Thereafter there had been exchange of correspondence and
various meetings between the appellant’s representative and
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officials of the Government. By its letter dated 25th
October, 1968 the appellant requested for confirmation of
the concession. By a letter dated 16th June, 1969 it was
confirmed that the State Government had agreed to give the
concession and incentives. Acting on the assurance the
appellant purchased the land, which by a notification issued
by the Government was included in the focal point, and also
invested substantial amount in setting up the unit.
Subsequently, the appellant claimed refund of sales tax
paid by it to the State Government on sale made by it of its
finished products. On respondents failure to refund the
amount, the appellant filed a writ petition in the High
Court of Punjab and Haryana for a direction to refund the
sales tax to the appellant.
A single judge of the High Court allowed the petition
and directed the Government to honour its commitment of
refunding sales tax to the appellant on principle of
promissory estoppel.
On appeal the order of Single Judge was set aside by the
Division Bench holding that (i) the decision of the
Government to grant concession came in June,1969 but before
that i.e. in May, 1969 the policy had undergone a change;
(ii) in view of the decision of the Cabinet Sub-Committee in
1966 not to give any refund of sales tax the brochure itself
was unauthorised and consequently the actions of the
Government officials could not create any right in favour of
the appellant; and (iii) the refund of amount paid as sales
tax by the appellant would be contrary to Articles 265 and
266 of the Constitution of India.
In appeal to this Court it was contended on behalf on
the State that (i) in the absence of any assurance by a
competent authority on behalf of the State the promise if
any was incapable of giving rise to any equity; and (ii)
that the policy of the Government announced in the brochure
was only an offer and letter of the appellant sent on 25th
October, 1968 was a counter offer which was under
consideration of Government which made another counter offer
on 16th June Which was accepted by the appellant who
thereafter applied for registration and the Government
issued a notification declaring the factory in the focal
point.
Dismissing the appeal this Court,
15
HELD : 1. The finding of the Division Bench, was
factually and legally incorrect. It was not justified in
holding that the Government officials had extended promise,
unauthorisedly and beyond scope of their authority. [26-F]
Vasant Kumar Radhakisan Vora v. Board of Trustees of
the Port of Bombay & Anr., [1991] 1 SCC 761, held
inapplicable.
2. The Government functions through its officials and so
long they are acting bona fide in pursuance of Government
policy the Government cannot be permitted to disown it as a
citizen can have no means to know if what was being done was
with tacit approval of the Government. The Government cannot
be permitted to go back on its promise by producing some
documents lying in its file which was neither known, nor
announced, nor acted upon as it would be unjust and unfair,
therefore, illegal. If it is found that the representation
made by the official concerned was such that any reasonable
person would believe it to have been made on behalf of the
Government then unless such representation is established to
be beyond scope of authority it should be held binding on
the Government. It is another matter that even if it is
binding it may be contrary to law and therefore
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unenforceable. [21F-G, 25-H, 26-A]
Motilal Padampat Sugar Mills v. State of U.P., [1979] 2
S.C.R. 641, referred to.
2.1 In the instant case the record unmistakenly demonstrate
that the authorities were not only assuring the appellant
but were making every effort that the unit be established in
consonance with the policy of Government as it would result
in industrialization and development of the State. Such
painstaking effort of responsible and senior officers of
the State was neither unauthorised nor beyond scope of their
authority. [23b-C]
3. There is no merit in the finding that by the time the
Government agreed, in writing, to grant concession the
policy had undergone a change. Estoppel arose against
Government not by the letter dated 16th June, 1969 but by
the promise made by it in December, 1968, assurance by its
officials both in writing and oral leading appellant to
believe that it was intended to create an agreement that
sales tax paid shall be refunded as a result of which it not
only purchased land, machinery and other parts much before
the policy went into any change but the Government issued
notification as
16
well declaring the area where the factory was established
to be in focal point. Rights of parties were therefore
governed by the old and not new policy. [26H, 27A-C]
Purnami Oil MIlls etc. v. State of Kerala, [1987] 1
S.C.R. 654. and Assistant Commissioner of Commercial Taxes
v. Dharnendra Trading Co., [1988] 3 S.C.R. 946, referred to.
4. The entire argument founded on offer and counter
offer is misconceived. There is no merit in the submission
that after considering proposal of appellant the Government
gave a counter offer on 16th June, 1969. It would be too
much to read to letter dated 25th October, 1968 as counter
offer. It was only intimation by the appellant that it had
decided to set up the unit as it has been assured that the
concessions as announced would be available to it. [25A-C,
24-E]
5. Promissory Estoppel being extension of principle of
equity, the basic purpose of which is to promote justice
founded on fairness and relieve a promises of any injustice
perpetrated due to promisor’s going back on its promise, is
incapable of being enforced in a court of law if the promise
which furnishes the cause of action or the agreement,
express of implied giving rise to binding contract is
statutorily prohibited or is against public policy. [27E-F]
Union of India v. Indo Afghan Agencies, [1968] 2
S.C.R. 366; Union of India V. Godfrey Philips India Ltd.,
[1985] 4 SCC 370 and Delhi Cloth and General Mills Ltd. v.
Union of India , [1988] 1. S.C.R.383, referred to.
6. Taxation is sovereign power exercised by the State
to realise revenue to enable it to discharge its
obligations. Even a legislature, much less a government,
cannot enact a law or issue an order or agree to refund the
tax realised by it from people in exercise of its sovereign
powers, except when the levy or realisation is contrary to a
law validly enacted. A promise or agreement to refund tax
which is due under the Act and realised in accordance with
law would be fraud on the Constitution and breach of faith
of the people. [27-G, 28A-B]
Halsbury’s Laws of England, Vol., 52; para 20.04,
referred to.
7. Exemption from tax to encourage industrialisation
should not be confused with refund of tax. They are two
different legal and distinct
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concepts. An exemption is a concession allowed to a class or
individual from general burden for valid and justifiable
reason. Such provision in an Act or Notification or order
issued by Government are neither illegal nor against public
policy. [28D-F]
7.1 But refund of tax is made in consequence of excess
payment of it or its realisation illegally or contrary to
the provisions of law. A provision or agreement to refund
tax due or realised in accordance with law cannot be
comprehended. No law can be made to refund tax to a
manufacturer realised under a statute. It would be invalid
and ultra vires. An agreement or even a notification or
order permitting refund of sales tax which was due shall be
contrary to the Statute. [28G, 29A]
7.2 Neither section 12 nor section 30 of the Punjab
Sales Tax Act empowers the Government to refund sales tax
realised by a manufacturer on sales of its finished product.
Refund could be allowed if tax paid was in excess of amount
due. Any agreement for such refund being contrary to public
policy was void under Section 23 of the Contract Act. The
constitutional requirements of levy of tax being for the
welfare of the society and not for a specific individual the
agreement or promise made by the government was in
contravention of public purpose thus violative of public
policy. No legal relationship could have arisen by operation
of promissory estoppel as it was contrary both to the
Constitution and the law. Realisation of tax through State
mechanism for sake of paying it to private person directly
or indirectly is impermissible under constitutional scheme.
The law does not permit it nor equity can countenance it.
The scheme of refund of sales tax was thus incapable of
being enforced in a court of law. [28H, 29A-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2832-
2833 of 1979.
From the Judgment and Order dated 25.1.1977 of the
Punjab and Haryana High Court in Civil Writ No. 5653 of 1975
and Letters Patent Appeal No. 368 of 1975.
Kapil Sibal, U.K. Khaitan, Praveen Kumar and Vivek
Sibal for the Appellants.
D.S. Mehra, Mrs Jayshree Anand, Arun Mehra, Sanjay
Bansal and G.K. Bansal, for the Respondents.
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The Judgment of the Court was delivered by
R.M. SAHAI, J. Promissory estoppel, its extent and
applicability, apart, one of the important issue, that
arises for consideration in this appeal, directed against
the judgment and order of a Division Bench of the Punjab and
Haryana High Court exercising jurisdiction under Letters
Patent and setting aside order of the learned single judge
directing refund of sales tax and inter-State sales tax, is
if the Government of a State could agree expressly or
impliedly to refund sales tax realised by a manufacturer.
Facts, found by the learned single Judge, which were
sufficient to direct the government to honour its
commitments of refunding sales tax to the appellant on
principle of promissory estoppel were announcement of policy
by the Government to refund sales tax, as an incentive to
those who were willing to set up large scale selective
industries in the focal points, letter of the appellant
seeking details of policy as he was willing to set up a
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Vanaspati manufacturing unit, favourable response from the
Director of Industries followed by exchange of letters and
meetings between appellant’s representatives and Secretary
of Industries extending assurance that the incentives shall
be available to; the appellant acting on which it purchased
land, machinery etc., laying of foundation stone by the
Governor and issuance of notification declaring the land, on
which unit was established, in focal point. The order was
set aside in appeal and it was held that even though rule of
equitable estoppel should be observed by all government and
public authorities but its scope was restricted and it could
not be extended, too widely so as to bind a government even
where its officials in excess of their authority or against
the interest of the government extended the promise. The
Bench drew inference against the appellant from its letters
seeking written assurance that the concession would be
extended to it which came, as well, in June,1969 but before
that the policy had, already, undergone change in May, 1969.
The Bench further felt mystified that even though there was
a decision of Cabinet Sub-Committee as far back as 1966 not
to give any refund of sales tax yet the Government officials
acting contrary to it issued the brochure and corresponded
with the appellant in, wholly unauthorised manner therefore
their action could not create any right in favour of the
appellant. It also negatived the claim of appellant, as
refund of an amount paid as sales tax by the appellant,
would be raising revenue by the Government not for itself or
for public but for a private person which would be contrary
to Articles 265 and 266 of
19
the Constitution of India.
Law of Promissory Estoppel which Found its ‘most
eloquent exposition’ in Union of India v. Indo Afghan
Agencies, [1968] 2 SCR 366, crystallised in Motilal Padampat
Sugar Mills v. State of U.P., [1972] 2 SCR 641 as furnishing
cause of action to a citizen, enforceable in a court of law,
against government if it or its officials in course of their
authority extended any promise which created or was capable
or creating legal relationship, and it was acted upon, by
the promise irrespective of any prejudice. It was reiterated
in Union of India v. Godfrey Philips India Ltd., [1985] 4
SCC 370 and was taken further when it was held that no duty
of excise was assessable on cigarettes manufactured by
assessee by including, cost of corrugated fibreboard
containers, when it was clearly represented by the Central
Board of Excise and Customs in response to the submission
made by the Cigarette Manufacturer’s’ Association-and this
representation was approved and accepted by the Central
Government - that the cost of corrugated fibreboard
containers would not be includible in the value of the
cigarettes for the purpose of assessment of excise duty. In
Delhi Cloth and General Mills Ltd . v. Union of India,
[1988] 1 SCR 383 it was held.
"All that is now required is that the party
asserting the estoppel must have acted the
assurance given to him. Must have relied upon the
representation made to him. It means, the party has
changed or altered the position by relying on the
assurance or the representation. The alteration of
position by the party is the only indispensable
requirement of the doctrine. It is not necessary to
prove further any damages, detriment or prejudice
to the party asserting the estoppel."
What, therefore , requires to be examined, is if any
promise was made by the Government or its officials to
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the appellant that sales tax shall be refunded to it and
if the appellant acting on it altered its position. For
this it is necessary to narrate few facts even though
both the learned Single Judge and Division Beach have
dealt with it elaborately. Admittedly. a brochure was
issued in December 1966 by the Government of Punjab
announcing its ‘New Policy’ declaring that incentive and
concession, one of them being refund of sales tax, would
be available to those persons who set up selective large
scale industries in the focal point. Whether this
brochure was authorised or not and its legal effect on
rights of parties shall
20
be adverted to later. But it is undisputed that acting
on it the appellant’s representative met the Chief
Minister of the State personally and found that he was
interested in encouraging Vanaspati Manufacturing unit
in the State,therefore, its Manager wrote a letter in
June, 1968 to the Chief Minister expressing willingness
to set up the unit provided the concessions were made
available to it which was replied by the Director of
Industries on 2nd July, 1968 assuring the appellant that
the concession as announced shall be available and
further informed the appellant that the Government was
willing to consider such additional concession which the
appellant may require for implementation of the scheme.
It was followed by exchange of correspondence and
various meetings between appellant’s representative and
officials of the Government. Outcome of it is recorded
in the note submitted by the Secretary of Industries on
1.4.1969 to Finance department, on certain queries made
by it, relevant portion of which reads,
"As Government investment had take place in Rajpura
the Sub-Committee appointed for allotment of
industrial plots was very much concerned to allot
the same but it was finding difficulty in getting
suitable parties. In October, 1968 Shri Khaitan of
Amrit Banaspati Factory of Ghaziabad approached me
and the D.I. for location of their vanaspati plant
of 100 tonnes capacity per day in Punjab. These
people since they were already very much in the
business and since their vegetable ghee was meeting
20 to 25% of Punjab’s needs of vanaspati it was
felt that if we encourage these people to come to
Punjab it will give great boost to industrial
growth. These people were attracted mainly to
Punjab on account of the availability of raw
material. i.e., groundnut which are in plenty
around about. They consequently asked for a plot
in Dhandari Kalan. At that stage we had 2-3
application for setting up of vanaspati plants at
Ludhiana and since our Rajpura Estate was very much
neglected it was decided that we persuade this
party to locate its factory at Rajpura as by their
coming there, it was felt that several small and
ancillary units would also get located and our
plots would be sold. In fact Shri Khaitan, during
the course of his discussions with me mentioned
that his project which would be costing nearly
Rs.1.5 crores would necessitate setting up the
other smaller units-tin makers-who would come over
from U.P. and settle up at Rajpura . Taking all
these
21
factors into consideration I mentioned this matter
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to Mr.---- and also informally to FS also at that
stage and it was decided that we get this party
located at Rajpura. Unfortunately, the demand of
land by this party was in one place to the tune of
15 to 20 acres and since our plots were only of 1-
1.5 acres of size it was decided that they may be
allowed to locate their plot nearabout our Focal
Point so that it could be integrated finally in our
future expansion of the Industrial Estate at
Rajpura which yet shows no sign of life and
consequently it was felt that by bringing this part
more industries of allies nature would come here.
In plan for 1969-70 the F.D. are aware that we have
very little money set aside for further acquisition
of land. Realising this, we, therefore, suggested
to this party to go in for purchase of land
themselves as we were not sure whether we would be
able to have enough funds to acquire more land at
Rajpura particularly when our earlier plots had not
been sold out. This party was keen to come in as
it wanted to do into production from November,
1969. The party has purchased that piece of land
which has approval of the Town and Country Planning
department, it has also submitted its plan for
construction of buildings etc."
It is, thus, obvious that there was representation
to the appellant that it would be entitled to concession
and incentives announced by the Government if it set up
its unit in the focal point. Whether such
representation resulted in binding agreement is
different issue but the representation coming from
Industries Secretary and Director of Industries in
pursuance of Government policy cannot be held to be
unauthorised or beyond the scope of authority. The
Government functions through its officials and so long
they are acting bona fide in pursuance of Government
policy the Government cannot be permitted to disown it
as a citizen can have no means to know if what was being
done was with tacit approval of the Government. And if
it is found that the representation made by the official
concerned was such that any reasonable person would
believe it to have been made on behalf of the Government
then unless such representation is established to be
beyond scope of authority it should be held binding on
the government. It is another matter that even if it is
binding it may be contrary to law and therefore
unenforceable. In Motilal Padampat Sugar Mills (supra)
the Government was held bound to grant exemption from
22
sales tax to the sugar mill even though the manufacturer
had written letter to the Director of Industries on a
news item published for grant of exemption from sales
tax, based on a statement issued by the Secretary of
Industries which was favourably replied first by the
Director of Industries endorsed later by the Chief
Secretary informing the manufacturer that government was
willing to consider the request and necessary from etc.
may be obtained from Secretary Industries. As is clear
from the noting of the Secretary the appellant purchased
the land, privately, on assurance of the Secretary which
by a notification issued by Government was included in
focal point. It was not denied that by January, 1969
the appellant had purchased the land and various other
materials at a cost of 15 lakhs and had placed an order
for purchase of plant and machinery of value of Rs.35
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lakhs which was intimated by a telegram sent on 11th
January, 1969. Even rules were framed in February, 1969
by sanction of the President of India which provided for
refund of sales and purchase tax to new and expanding
industries . All this indicates that the promise was
made on behalf of the Government by its officials in
pursuance of and in line with the declaration of policy
by the Government that a new unit shall be entitled to
concession. Acting on the assurance, both express and
implied, the appellant invested substantial amount in
setting up the unit requesting, in the meanwhile, for
grant of written sanction from the Government which,
too, came. But even if it would not have it would not
have made any difference in law as the equity arose in
favour of appellant not by the letter dated 16th June,
1969 but by altering its position on assurance given by
authorities. In Godfrey Philips (supra) it was observed,
"Now the doctrine of promissory estoppel is well-
established in the administrative law of India, It
represents a principle evolved by equity to avoid
injustice and, though commonly named promissory
estoppel,it is neither in the realm of contract nor
in the realm of estoppel. The basis of this
doctrine is the interposition of equity which has
always, true to its form, stepped into mitigate the
rigour of strict law."
Basic ingredients of promise by the Government, belief
of the appellant that it was true and if acted upon shall,
entitle it to refund of sales tax, and finally altering its
position by investing substantial amount were thus
established to invoke promissory estoppel against
government.
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Vehement argument of the learned counsel, for the State of
Punjab, that in absence of any assurance by a competent
authority on behalf of the State the promise if any was
incapable of giving rise to any equity, cannot be accepted
in absence of any positive material to show that the
Government either disassociated itself from the letter sent
by the Secretary or Director of Industries or acted contrary
to what was alleged to have been represented or assured by
them. On the other hand the notings of the Secretary,
extracted earlier, demonstrate unmistakenly that the
authorities were not only assuring the appellant but were
making every effort that the unit be established in
consonance with the policy of Government as it would result
in industrialisation and development of the State. Such
painstaking effort of responsible and senior officers of the
State was neither unauthorised nor beyond scope of their
authority. In fact the letter dated 16th January, 1969 and
the notification declaring the land where the unit of
appellant was established to be in focal point to enable it
it avail of the concession were only follow up action which
demolish any such conclusion as was canvassed by the learned
counsel.
Effort was, also, made to advanced an innovative
submission of offer, counter offer and recounter offer. It
was submitted that policy of the Government announced in the
brochure was only an offer. And letter of the appellant
sent on 25th October, 1968 was counter offer which was
under consideration of Government which made another counter
offer on 16th June which was accepted by the appellant who
thereafter applied for registration and the Government
issued a notification declaring the factory in the focal
point. All that can be said is that the submission was
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advanced without any foundation, in complete is regard of
facts and misapprehension about the law of offer and counter
offer. Letter dated 25th October, 1968 was written, to the
Secretary of Industries Pursuant to letter dated 2nd
July,1968 and with reference to the interview held between
appellant’s representative and the Secretary of Industries
at Chandigarh on 16th October,1 1968 undertaking to set up a
factory at Rajpura, a site approved by the department
within area covered by the layout plan of industrial estate
with assurance that the plot shall be in focal point at
Rajpura and if necessary steps shall be taken to include it
in focal point. The letter mentioned that according to the
policy the concession available to the appellant would be
refund of purchase and sales tax including inter-state sales
tax for a period of five years. In paragraph 6 of the
letter the appellant wanted clarification that the period
of five years shall be counted from the date of production.
24
Paragraph 7 of the letter read,
"7. We would very much like to spend money on
further industrial development, staff and labour
welfare activities, housing for staff and labour,
research and development of agricultural products
for use in industry in the State of Punjab. In
order to enable us to do so, it is requested that
instead of refunding the amount of the purchase and
sales tax including inter-state sales tax as such
an amount equivalent to the amount of purchase and
sales tax including inter-state tax to be paid by
us every quarter is paid to us as Capital grant
quarterly for a period of five years commencing
from the date of production. If our request is
accepted, we on our part undertake to utilise the
same for all or any of the said purposes as we feel
proper in the State of Punjab. You will appreciate
that after all the State will benefit if the
concession are utilised for advancement of industry
and research and staff and welfare in the State and
this will be possible if our request is considered
favourably."
Request for confirmation of the concession mentioned in
the letter dated 25th October, 1968 were reiterated in a
telegram sent on 11th January and letters dated 3rd, 13th
and 23rd January, 1969. It would be too much to read the
letter dated 25 th October, 1968, as counter offer, It was
intimation by the appellant that it had decided to set up
the unit as it has been assured that the concessions as
announced would be available to it. The request that the
period of five years for refund should be calculated from
the date of production, and capital grant may be made every
quarterly equivalent to the amount of sales tax are
impossible to be read as declining of availing the offer
made by the Government. What was requested was that if
instead of refunding of the sales tax or purchase tax an
amount equivalent to it was paid to them every quarter for
a period of five years it would enable them to utilise the
same for the benefit of the State itself. It was this
request which was reiterated in the telegrams and letters
but at no point of time the appellant made any request that
if capital grant was not paid it shall not avail of the
concession in respect of sales tax. The request was to
change the nature of payment and not the refund. It could
no be termed as counter offer, also because the appellant
not only undertook to establish the unit but as agreed went
on to purchase land and
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25
machinery etc. Nor is there any merit in the submission that
after considering proposal of appellant the Government gave
a counter offer on 16th June, 1969 forgetting that issuance
of letter was not an isolated action of the Government but
it was preceded, apart, from earlier notings of the
Secretary extracted earlier, by a meeting which took place
on 2nd May between various officials in which the decision
was taken. ‘that the concession and incentives applicable to
focal point will be given to M/S Amrit Banaspati Co. Ltd.
only in respect of 12 acres of land to be utilised by them
for setting up the ghee industry’. Letter dated 16th June,
1969 was faithful reproduction of the decision taken on 2nd
May, 1979 informing the appellant that, ‘the State
Government have agreed to give the concessions and
incentives admissible to a unit in the focal point of
industrial growth to the unit proposed to be set up by you
for the manufacture of Vanaspati Ghee.’ The entire argument
founded an offer and counter offer, thus, was misconceived.
Two reasons were given, by Division Bench of the High
Court, to permit the Government to escape from rigour of the
principle of promissory estoppel one that the brochure
itself was unauthorised and other that when the decision of
the Government came the policy had already undergone change.
Neither appear to be well founded. Cabinet Sub-Committee’s
decision of 15th December, 1968 which formed the basis for
the finding that the brochure was unauthorised, are minutes
of a decision of a Committee comprising of the Industries
Minister and Secretary Industries which did not see light of
the day till it was filed by way o;f supplementary affidavit
before the Division Bench. As against it, the Chief
Minister and Industries Minister in an inaugural speech of
Conference Of Industries at Chandigarh after five days of
its, that is, on 20th December, 1968, announced that
concession and incentive shall be offered to new units set
up in focal points details of which were mention in the
booklet issued by the Government in December, 1966, which
provided of refund of sales tax as claimed by the appellant.
A citizen of a State can have no means to ascertain
that announcement by the Chief Minister and the Industries
Minister of State that concession made in the booklet would
be available was not the government policy as the Cabinet
Sub-Committee earlier had taken some other decision. The
Government cannot be permitted to go back on its promise by
producing some documents lying in its file which was neither
known,
26
nor announced, nor acted upon as it would be unjust and
unfair, therefore, illegal. Factually the Division Bench
read too much in the minutes of 15th December, 1968 but it
is not necessary to deal with it. Suffice it to say how the
Government understood and wanted others to understand its
policy was mentioned in the brochure. Even the Secretary who
was a member of the Sub-Committee understood it in the manner
in which it was printed in the booklet. In the note
submitted to the Finance Department it was stated,
"...The Entire Matter of giving concessions was
discussed at the Cabinet level and all these
factors (namely exemption from sales tax)* were
taken into consideration when the Government took a
decision to give such attractive concessions to the
industry. I would like this case to be seen by
D.M. also as he had enquired about this case from
me. The Amrit Banaspati people as I.N. and F.S.R
are aware, have already gone for construction of
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their building and according to their plan they
propose to go into product in November 1969. They
are anxious that the Government takes an early
decision granting concession to their unit also.As
it is a big industry we should take an immediate
decision as by so doing the possibility of bringing
in ancillary can be explored thereby ensuring that
our industrial estate gets fully developed at the
earliest..."
*[bracket supplied]
As stated earlier the letter dated 16th June, 1969 was
founded on notings of 27th May, 1969 which was based on
decision arrived on 22nd May, 1969. The finding of the
Division Bench, was thus, factually and legally incorrect.
It was not justified in holding that the Government
officials had extended promise, unauthorisedly and beyond
scope of their authority. Reliance on Vasantkumar Radhakisan
Vora v. Board of Trustees of the Port of Bombay & another,
[1991] 1 SCC 761 was not apposite as the Estate Manager at
whose instance the lessee had deposited the amount for grant
of tenancy after reconstruction was authorised to collect
rent only. Further the letter indicated that if the lessee
complied with conditions he would recommend to the Board for
grant of lease. And recommendation was made. But not
accepted.
Nor there is any merit in the finding that by the time
the Government
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agreed, in writing, to grant concession the policy had
undergone change, therefore, the appellant was entitled to
the concession under the new policy only, Estoppel arose
against Government not by the letter dated 16th June, 1969
but by the promise made by it in December, 1968 to those who
were willing to set up new unit, assurance by its officials
both in writing and oral leading appellant to belief that it
was intended to create an agreement that sales tax paid
shall be refunded as a result of which it not only purchased
land, machinery and other parts much before the policy went
into any change but the Government issued notification as
well declaring the area where the factory was established to
be in focal point. Rights of parties were therefore governed
by the old and not new policy. The appellant was never
intimated that the Government had changed its policy in
respect of refund of sales tax at any point prior to filing
of the counter affidavit in th High Court. Even the letter
dated 16th June, 1969, did not mention that the concession
would be available as provided in the new policy. In
Purnami Oil Mills, etc. V. State of Kerala, [1987] 1 SCR 654
the Government was not permitted to go back on its earlier
promise of wider exemption from sales tax in pursuance of
which the industries had been set up on principle of
promissory estoppel and the Notification issued after one
year curtailing exemption was held to apply to industries
set up thereafter. To same effect is the decision in
Assistant Commissioner of Commercial Taxes v. Dharnendra
Trading Company [1988] 3 SCR 946.
But Promissory Estoppel being on extension of principle
of equity, the basic purpose of which is to promote justice
founded on fairness and relieve a promisee of any injustice
perpetrated due to promisor’s going back on its promise, is
incapable of being enforced in a court of law if the promise
which furnishes the cause of action or the agreement,
express of implied, giving rise to binding contract is
statutorily prohibited or is against public policy. What
then was the nature of refund which was promised by the
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govt.? Was such promise contrary to law and against public
policy? Could it be enforced in a court of law? Taxation is
a sovereign power exercised by the State to realise revenue
to enable it to discharge its obligations. Power to do so is
derived from entries in Lists I, II and III of the Seventh
Schedule of the Constitution. Sales tax or purchase tax is
levied in exercise of power derived from an Act passed by a
State under Entry 54 of List II of VIIth Schedule. It is an
indirect tax as even though it is collected by a dealer the
normally permits it to be passed on and the ultimate burden
is borne by the consumer. But ’the fact that the burden of
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a tax may have been passed on the consumer does not alter
the legal nature of the tax’ (Halsbury’s Laws of England,
Vol. 52, paragraph 20.04). Therefore even a legislature,
much less government, cannot enact a law or issue an order
or agree to refund the tax realised by it from people in
exercise of its sovereign powers, except when the levy or
realisation is contrary to a law validly enacted. A promise
or agreement to refund tax which is due under the Act and
realised in accordance with law would be a fraud on the
Constitution and branch of faith of the people. Taxes like
sales tax are paid even by a poor man irrespective of his
savings with a sense of participation in growth of national
economy and development of the State. Its utilization by way
of refund not to the payer but to a private person, a
manufacturer, as an inducement to set up its unit in the
State would be breach of trust of the people amounting to
deception under law.
Exemption from tax to encourage industrialisation
should not be confused with refund of tax. They are two
different legal and distinct concepts. An exemption is a
concession allowed to a class or individual from general
burden for valid and justifiable reason. For instance tax
holiday or concession to new or expanding industries is well
known to be one of the methods to grant incentive to
encourage industrialisation. Avowed objective is to enable
the industry to stand up and compete in the market. Sales
tax is an indirect tax which is ultimately passed on to the
consumer. If an industry is exempt from tax the ultimate
beneficiary is the consumer. The industry is allowed to
overcome its teething period by selling its products at
comparatively cheaper rate as compared to others.
Therefore, both the manufacture, and consumer gain, one by
concession of non-levy and other by non-payment. Such
provisions in an Act or Notification or orders issued by
Government are neither illegal not against public policy.
But refund of tax is made in consequence of excess
payment of it or its realisation illegally or contrary to
the provisions of law. A provision or agreement to refund
tax due or realised in accordance with law cannot be
comprehended. No law can be made to refund tax to a
manufacturer realised under a statute. It would be invalid
and ultra vires. The Punjab Sales Tax Act provided for
refund of sales tax and grant of exemption in circumstances
specified in Sections 12 and 30 respectively. Neither
empowered the Government to refund sales tax realised by a
manufacturer on sales of its finished product. Refund could
be allowed if tax paid was
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in excess of amount due. An agreement or even a notification
or order permitting refund of sales tax which was due shall
be contrary to the statute. To illustrate it the appellant
claimed refund of sales tax paid by it to the State
Government of sale made by it of its finished products. But
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the tax paid is not an amount spent by the appellant but
realised on sale by it. What is deposited under this head is
tax which is otherwise due under provisions of the Act.
Return of refund of its or its equivalent, irrespective of
from is repayment or refund of sales tax. This would be
contrary to Constitution. Any agreement for such refund
being contrary to public policy was void under Section 23 of
Contract Act. The constitutional requirements of levy of
tax being for the welfare of the society and not for a
specific individual the agreement or promise made by the
government was in contravention of public purpose thus
violative of public policy. No legal relationship could have
arisen by operation of promissory estoppel as it was
contrary both to the Constitution and the law. Realisation
of tax through State mechanism for sake of paying it to
private person directly or indirectly is impermissible under
Constitutional scheme. The law does not permit it nor
equity can countenance it. The scheme of refund of sales
tax was thus incapable of being enforced in a court of law.
Fallacy of such constitutionally inhibited policy,
sacrificing public interest resulting in illegal private
enrichment is exposed by claim of refund for nearly Rs. 2
crores, for a period of three years, only, when total
investment in establishing the unit was Rs. 1.5 crores, Levy
of tax to raise revenue for promoting economic growth of the
State reduced itself in enhancing the profit margin of the
manufacturer and the sales tax stood converted into income
of the appellant. Such contrivance of law even though bona
fide is legally unenforceable.
In the result this appeal fails and is dismissed with
cost.
T.N.A. Appeal dismissed.
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