Full Judgment Text
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CASE NO.:
Appeal (civil) 6449 of 1998
PETITIONER:
State of Punjab
RESPONDENT:
M/s Nestle India Ltd. & Anr.
DATE OF JUDGMENT: 05/05/2004
BENCH:
Ruma Pal & P.Venkatarama Reddi.
JUDGMENT:
J U D G M E N T
With
Civil Appeal Nos.5826/98, 6451/98 and 6450/98
RUMA PAL, J.
All the respondents before us have factories in the State
of Punjab where they produce various milk products. For the
purpose of their business, they purchase milk from villages,
each respondent from a particular "milk shed area" which
covers several hundred villages in and around such
respondent’s factory. As registered dealers under the Punjab
General Sales Tax Act, 1948, the respondents had been and
are at present paying purchase tax on milk in terms o f Section
4(B) of the State Act. However, for one year i.e. for the period
1.4.96 to 4.6.97, none of the respondents paid the purchase
tax. They did not do so because they say that the Government
had decided to abolish purchase tax on milk for the period in
question and was estopped from contending to the contrary.
On the basis that the State had wrongly raised demands
for purchase tax on milk on the respondents for the period
1996-97, the respondents filed separate writ petitions before
the High Court. The High Court allowed the writ petitions and
quashed the demands raised. Aggrieved by the decision of the
High Court, these appeals have been preferred by the State
Government.
The circumstances under which the respondents had
approached the Court chronologically commenced with an
announcement made by the then Chief Minister of Punjab on
26th February 1996 while addressing dairy farmers at a state
level function, that the State Government had abolished
purchase tax on milk and milk products in the State. This
announcement was given wide publicity in several newspapers
in the State.
The second circumstance was the speech given by the
Finance Minister of the State while presenting the budget for
the year 1996-97. Like all other budget speeches, it consisted
of a review of achievements and a delineation of future
economic measures proposed to be taken for the development
of the State. It was said:
"In a package of measures, special relief
was given to the farming community
which is the backbone of the State’s
economy \005..\005\005\005\005.. Furthermore,
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last month the Chief Minister has
abolished the purchase tax on milk.
While this would reduce the inflow of tax
revenue to the extent of Rs.6.93 crores,
it will assist the milk producers, and also
the milk co-operatives."
The budget speech also noted that despite the fact that
the State Government had given a large number of tax
concessions during the year which reduced the inflow of
revenue, the collections under the sales tax, excise and other
taxes had increased by about 100 crores for the current year.
The next circumstance was a memo of the Financial
Commissioner dated 26.4.96 addressed to the Excise and
Taxation Commissioner, the relevant extract of which reads as
follows:
"Pursuant to the announcements made
by the Finance Minister, Punjab, on the
floor of the House and the
announcement made by the Chief
Minister, Punjab on 26.2.1996, while
addressing a public function organised
by the Milk-fed in connection with Milk
Day at Milk Plant, Ludhiana relating to
exemption of purchase tax on milk, it
has been decided in principle, to abolish
the purchase tax on Milk w.e.f. 1.4.1996.
You are requested to send proposal
along with the financial implication
involved therein, immediately.
\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005.
On the basis of the above decision, you
are also requested to issue necessary
instructions to the field officers."
In response to this memo, a circular dated 26th April 1996
was issued by the Excise and Taxation Commissioner, Punjab
to all the Deputy and Assistant Excise and Taxation
Commissioners and the Deputy Directors (Enforcement) in the
State. The circular requires quotation:
"The Government have decided to abolish
purchase tax on milk and to exempt dhoop-
agerbati, kumkun, kirpan, pens and ball-pens
from the levy of sales tax. It has also decided
to reduce rate of tax on stainless steel utensils
from 10% to 4% on tractor parts from 8% to
2% and on bullion from 2% to 0.5% all these
exceptions/reductions will be effective from
1.4.1996.
2. To implement these decisions,
necessary notifications are under process and
likely to be issued shortly
3. This position may be brought to the
notice of all the officers/officials for information
and necessary action.
4. The receipt of this communication may
please be acknowledged".
It is averred in the writ petitions and not disputed by the
appellants that the representatives of the respondents
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companies were informed about the instructions contained in
the above circular dated 18th May 1996 by the concerned
officials of the Department. The fact of exempting milk and
milk products from purchase tax was also recorded in a letter
written by the Excise and Taxation Commissioner to the
Financial Commissioner in which it is also said that in
compliance with the directions of the Government, instructions
had been circulated to the field officers to charge the tax as per
the decision of the Government. The issuance of the
necessary notification to implement the decision of the
Government was urged, to avoid any "legal complications or
audit objection". That such instruction has been issued is also
recorded in a series of letters between the Financial
Commissioners which are not referred to in detail here.
On 27th June 1996, a meeting was held under the
chairmanship of the Chief Minister which was attended by the
Finance Minister, the Excise and Taxation Minister and various
Financial Commissioners. At the meeting, the decision to
abolish purchase tax on milk was reiterated and it was decided
to issue a formal notification "in a day or two".
On 18th July 1996/24th July 1996 the Finance Minister
made an announcement that with a view to encourage milk
producers and for granting relief to the common people, traders
and industrialists, the Government had abolished tax on milk.
The Finance Department formally approved the proposal of the
Administrative Department to abolish purchase tax on milk and
the Council of Ministers gave its formal approval to the decision
at its meeting on 21st August 1996.
Therefore, it appears that the Chief Minister, the Council
of Ministers and the Finance Department had all decided to
abolish purchase tax on milk w.e.f. 1st April 1996 and the Sales
Tax Authorities have taken the consequential action by issuing
circulars. Consequently, the respondents-milk producers did
not pay the purchase tax along with their returns for the year
1996-97 as required under the Rules framed under the Act.
Along with each return, it was expressly stated that "purchase
tax on milk is not being deposited from 1.4.96 due to various
Press statements/letters/circulars issued by Department and
the issue has been discussed with the Excise and Taxation
Commissioner, Patiala and Assistant Commissioner, Moga
wherein we were informed that sales tax return will be accepted
on the basis of tax exemption on ground of purchase of milk".
The returns were not rejected by the tax authorities.
According to the respondents, the benefit which arose
from the exemption of purchase tax was passed on by them to
the farmers and milk producers. Details of this expenditure
have been mentioned in the writ petitions filed.
None of the facts which we have narrated earlier have
been denied by the respondents. In fact even after the end of
the financial year 1996-97, the Government published
advertisements claiming credit for having abolished purchase
tax on milk.
For the first time, on 4th June 1997, the Council of
Ministers held a meeting to consider various items on the
agenda. One of the items related to the abolishing of purchase
tax on milk. The minutes cryptically record that the decision to
abolish purchase tax on milk was not accepted. Consequently
on 3rd July 1977 the Excise and Taxation Officer issued notices
to the respondents requiring them to pay the amount of
purchase tax for the whole of the year 1996-97.
In this background, the High Court held that the State
Government was bound by its promise/representation made to
the respondents to abolish purchase tax. According to the
High Court, "the absence of a formal notification was no more
than a ministerial act" which remained to be performed. The
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respondents had acted on the representation made and could
not be asked to pay the purchase tax w.e.f. 1.4.96 but would be
liable after the decision of the Government for the subsequent
period i.e. from 4.6.97.
The appellants have not seriously questioned the fact that
the Government had by a series of actions on its part, in effect,
made representations regarding the non-levy of purchase tax
w.e.f. 1.4.1996 nor is it denied that the respondents had acted
on the representations so made. The only question raised by
the appellant is that the principle of promissory estoppel would
not arise when the relevant statute prescribes a particular mode
for the grant of relief in respect of which the representation has
been made. The relevant statute is the Punjab General Sales
Tax Act, 1948. It is said by the appellants that there can be no
estoppel against the statute and since no notification had been
issued as required by the statute, the respondents could not
refuse to pay the tax on any principle of promissory estoppel.
According to the appellants the decision not to abolish
purchase tax on milk was taken in the public interest.
The Punjab General Sales Tax Act, 1948 (hereafter
referred to as ’the Act’) provides for the levy of tax on the sale
and purchase of certain goods in the State of Punjab. Rules
have been framed under Section 27 of the Act known as the
Punjab General Sales Tax Rules, 1949 (referred to as "the
Rules"). We are concerned with the purchase tax which is
payable under Section 4 read with Section 2(ff) on the
acquisition of goods mentioned in Schedule ’C’ to the Act, milk
when purchased for use in the manufacture of goods (other
than tax free goods) for sale is one of the items in Schedule
’C’. The Excise and Taxation Commissioner (who has featured
in the various statements and correspondence referred to
earlier) is appointed under Section 3(1) as the Taxing Authority.
The Excise and Taxation Commissioner has overall
superintendence and control over the administration and the
collection of tax leviable under the Act as well as control on all
officers empowered under the Act(Rule 69). The incidence of
taxation has been provided for under Section 4 of the Act
under which every dealer dealing in goods not declared tax free
under Section 6 and whose gross turnover exceeds the taxable
quantum is liable to pay tax on the sales effected or the
purchases made. Certain goods have been made tax free
under Section 6(1) read with Schedule ’B’ to the Act. Section
6(2) at the material time provided that the State Government
"after giving by notification not less than twenty days notice of
its intention so to do may by like notification add to or delete
from Schedule B and thereupon Schedule B shall be deemed to
be amended accordingly".
The respondents are admittedly dealers within the
meaning of the definition of the word under Section 2(d) of the
Act. Every dealer is required to pay tax in the manner
prescribed under Section 10 which requires furnishing of
returns/declarations by the dealer together with the receipt
showing that the full amount of tax due from the dealer under
the Act according to such returns had been paid in the
prescribed manner. If there is failure to pay the tax in the
manner prescribed, the dealer may be liable to pay penalty of a
sum upto one and a half times of the tax payable under sub-
section (6) of Section 10. The substance of section 10 has
been detailed in Rules 20 to 25 of the Rules. Rule 20
provides for the furnishing of returns either quarterly or monthly.
Rule 24 provides for the form in which such returns are to be
filed. Rule 25 provides that all returns which are required to be
furnished under the Rules "shall be signed by the registered
dealer or the agent, and shall be sent to the appropriate
assessing authority\005\005\005\005\005 together with the treasury or
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bank receipt in proof of payment of the tax due". The
Assessing Authority then passes an order of assessment on
such return under Section 11 unless he is satisfied that the
returns are not correct and complete.
Apart from the power to treat goods otherwise leviable to
tax under the Act as tax free under Section 6(2), the State
Government has the power under Section 31 to amend
Schedule ’’C’ itself and thereby remove goods from imposition
of tax altogether. It provides:
"The State Government after giving by
notification not less than twenty days
notice of its intention so to do, may by
notification add to, or delete from,
schedule C any goods, and thereupon
Schedule C shall be deemed to be
amended accordingly."
(emphasis added)
In addition, the State Government has the power to
exempt the payment of tax under Section 30 which reads:
"Power to exempt
(1) The State Government, if satisfied that it
is necessary or expedient so to do in the
interest of cottage industries, may by
notification exempt any class of co-
operative societies, or persons from the
payment of tax under this Act on the
purchase or sale of any goods subject to
such conditions as may be specified in
such notification.
(2) *
(3) Every notification made under sub-section
(1) shall as soon as may be after it is
made, be laid before the State
Legislature."
(emphasis added)
Section 30-A also gives the State Government the power to
exempt certain industries from payment of tax. It provides:
"The State Government may, if satisfied
that it is necessary or expedient so to do
in the interest of industrial development
of the State, exempt such class of
industries from the payment of tax, for
such period and subject to such
conditions, as may be prescribed\005\005..
\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005.."
The authority of the State Government to exempt in
exercise of the powers conferred on it by statute has not been
disputed before us.
The pleas raised by the parties for and against the
operation of the doctrine of promissory estoppel are to be
considered against the background of these statutory
provisions.
But first a recapitulation of the law on the subject of
promissory estoppel. The foundation of the doctrine was laid in
the decision of Chandrasekhar Aiyar, J. in Collector of
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Bombay V. Municipal Corporation of the City of Bombay
(1952 SCR 42). There, in 1865, the Government of Bombay
had passed a resolution authorising the grant of an area to the
municipality rent free for the purpose of setting up a market.
Although possession of the site was made over to the then
Municipal Commissioner no formal grant was in fact executed
as required by the applicable statute. Acting on the resolution,
the Corporation spent considerable sums of money in building
and improving the market and was in possession for 70 years
during which period no revenue had been paid to or
claimed by the Government. At this stage, a demand was
sought to be raised on account of rent under the Bombay City
Land Revenue Act, 1876. The Corporation impugned the
demand by filing a suit. The suit was dismissed. An appeal
was preferred before the High Court. The High Court reversed
the decision of the Trial Court and held that the Corporation
was entitled to hold the land for ever without payment of any
rent and the Government had no right to assess the premises.
The Collector preferred an appeal before this Court. There was
no dispute that by reason of non-compliance with the statutory
formalities, the Government resolution of 1865 was not a
factual grant passing title in the land to the Corporation. There
was also no dispute that there was no enforceable contract
between the State Government and the Municipal Corporation.
Of the three Judges, Das, J. held that the possession of the
Corporation not being referrable to any legal title was adverse
to the legal title of the Government and the right acquired by the
Corporation to hold the land in perpetuity included an immunity
from payment of rent. Patanjali Sastry, J differed.
Chandrasekhara Aiyar, J., concurred with the conclusion of
Das, J but based his reasoning on the fact that by the
resolution, representations had been made to the Corporation
by the Government and the accident that the grant was invalid
did not wipe out the existence of the representation nor the fact
that it was acted upon by the Corporation. What has since
been recognised as a signal exposition of the principle of
promissory estoppel, Chandrasekhara Aiyar, J. said:
"\005.The invalidity of the grant does not
lead to the obliteration of the
representation. \005\005\005\005\005\005\005\005\005\005\005.
\005\005\005\005\005\005.Can the Government be
now allowed to go back on the
representation, and if we do so, would it
not amount to our countenancing the
perpetration of what can be
compendiously described as legal fraud
which a court of equity must prevent
being committed. If the resolution can be
read as meaning that the grant was of
rent-free land, the case would come
strictly within the doctrine of estoppel
enunciated in section 115 of the Indian
Evidence Act. But even otherwise, that
is if there was merely the holding out of
a promise that no rent will be charged in
the future, the Government must be
deemed in the circumstances of this
case to have bound themselves to fulfil
it\005\005\005\005\005.. Courts must do justice by
the promotion of honesty and good faith,
as far as it lies in their power".
In other words, promissory estoppel long recognised as a
legitimate defence in equity was held to found a cause of
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action against the Government, even when, and this needs to
be emphasised, the representation sought to be enforced was
legally invalid in the sense that it was made in a manner which
was not in conformity with the procedure prescribed by statute.
This principle was built upon in M/s Union of India &
Ors. V. M/s Indo-Afghan Agencies Ltd. (1968 (2) SCR 366)
where it was said (at p. 385):
"Under our jurisprudence the Government is
not exempt from liability to carry out the
representation made by it as to its future
conduct and it cannot on some undefined and
undisclosed ground of necessity or
expediency fail to carry out the promise
solemnly made by it, nor claim to be the judge
of its own obligation to the citizen on an
ex parte appraisement of the circumstances in
which the obligation has arisen:.
However, the superstructure of the doctrine with its pre-
conditions, strengths and limitations has been outlined in the
decision of M/s Motilal Padampat Sugar Mills Co. Ltd. V.
State of Uttar Pradesh and Others 1979 (2) SCC 409. Briefly
stated \026 the case related to a representation made by the State
Government that the petitioners factory would be exempted from
payment of sales tax for a period of three years from the date of
commencement of production. It was proved that the petitioners
had, as a consequence of the representation, set up the factory
in the State. But the State Government refused to honour its
representation. It claimed sales tax for the period it had said
that it would not. When the petitioners went to Court, the State
Government took the pleas :
(1) In the absence of notification under Section 4-A, the
State Government could not be prevented from
enforcing the liability to Sales Tax imposed on the
petitioners under the provisions of the Sales Tax Act;
(2) That the petitioners had waived its right to claim
exemption and;
(3) That there could be no promissory estoppel against
the State Government so as to inhibit it from
formulating and implementing its policies in public
interest.
This Court rejected all the three pleas of the Government. It
reiterated the well-known preconditions for the operation of the
doctrine.
(1) a clear and unequivocal promise knowing and intending
that it would be acted upon by the promisee;
(2) such acting upon the promise by the promisee so that it
would be inequitable to allow the promisor to go back on
the promise.
As for its strengths it was said: that the doctrine was not limited
only to cases where there was some contractual relationship or other
pre-existing legal relationship between the parties. The principle
would be applied even when the promise is intended to create legal
relations or affect a legal relationship which would arise in future.
The Government was held to be equally susceptible to the operation
of the doctrine in whatever area or field the promise is made,
contractual, administrative or statutory. To put it in the words of the
Court:
"The law may, therefore, now be taken to be settled
as a result of this decision, that where the
Government makes a promise knowing or intending
that it would be acted on by the promisee and, in
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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. (p.442)\005\005\005\005.
\005\005\005\005. Equity will, in a given case where justice
and fairness demand, prevent a person from
insisting on strict legal rights, even where they arise,
not under any contract, but on his own title deeds or
under statute.(p.424) \005\005\005Whatever be the
nature of the function which the Government is
discharging, the Government is subject to the rule of
promissory estoppel and if the essential ingredients
of this rule are satisfied, the Government can be
compelled to carry out the promise made by it. "
(p. 453)
(emphasis added)
So much for the strengths. Then come the limitations. These
are:
(1) since the doctrine of promissory estoppel is an equitable
doctrine, it must yield when the equity so requires. But it
is only if the Court is satisfied, on proper and adequate
material placed by the Government, that overriding public
interest requires that the Government should not be held
bound by the promise but should be free to act unfettered
by it, that the Court would refuse to enforce the promise
against the Government.( p.443)
(2) No representation can be enforced which is prohibited by
law in the sense that the person or authority making the
representation or promise must have the power to carry
out the promise. If the power is there, then subject to the
preconditions and limitations noted earlier, it must be
exercised. Thus, if the statute does not contain a
provision enabling the Government to grant exemption, it
would not be possible to enforce the representation
against the Government, because the Government cannot
be compelled to act contrary to the statute. But if the
statute confers power on the Government to grant the
exemption, the Government can legitimately be held
bound by its promise to exempt the promisee from
payment of sales tax. (p.387-388)
The remaining decisions are illustrative of various aspects of
the framework set up by the Court in the decision in M.P. Sugar
Mills. For example Century Spinning & Manufacturing Company
Ltd. & Anr. v. The Ulhasnagar Municipal Council & Anr. [1970] 3
SCR 854 emphasised the strengths defined earlier:
" If the representation is acted upon by
another person it may, unless the statute
governing the person making the
representation provides otherwise, result in
an agreement enforceable at law ; if the
statute requires that the agreement shall be
in a certain form, no contract may result from
the representation and acting thereupon but
the law is not powerless to raise in
appropriate cases an equity against him to
compel performance of the obligation arising
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out of his representation". (p.859)
An apparently aberrant note was struck in Jit Ram Shiv Kumar
& Ors. etc. v. State of Haryana and Anr. etc.( 1980(3) SCR 689
where despite all the factors of promissory estoppel being
established, the Court held:
"The plea of estoppel is not available against
the State in the exercise of its legislative or
statutory functions". (P.699)
Of course, it was also found that the representator had no
authority to make the representation it had. To that extent the
decision could not be said to have deviated from the earlier
pronouncements of the law.
The discordant note struck by Jitram’s case was firmly
disapproved by a bench of three Judges in Union of India & Ors. v.
Godfrey Philips India Ltd.etc.etc. (1985) 4 SCC 369. It was
affirmed that:
" There can therefore be no doubt that the
doctrine of promissory estoppel is applicable
against the Government in the exercise of its
governmental, public or executive functions
and the doctrine of executive necessity or
freedom of future executive action cannot be
invoked to defeat the applicability of the
doctrine of promissory estoppel". (p.387)
It was held that irrespective of the nature of power wielded the
Government is bound to wield that power provided it possessed such
power and has promised to do so knowing and intending that the
promisee would act on such promise and the promisee has done so:
" We think that the Central Government had power
under Rule 8 sub-rule (1) of the Rules to issue a
notification excluding the cost of corrugated
fibreboard containers from the value of the
cigarettes and thereby exempting the cigarettes
from the part of the excise duty which would be
attributable to the cost of corrugated fibreboard
containers. So also the Central Board of Excise
and Customs had power under Rule 8 sub-rule (2)
to make a special order in the case of each of
respondents granting the same exemption, because
it could legitimately be said that, having regard to
the representation made by the Cigarette
Manufactures’ Association, there were
circumstances of an exceptional nature which
required the exercise of the power under sub-rule
(2) of Rule 8. The Central Government and the
Central Board of Excise and Customs were
therefore clearly bound by promissory estoppel to
exclude the cost of corrugated fibreboard containers
from the value of the goods for the purpose of
assessment of excise duty for the period May 24,
1976 to November 2, 1982". (p.389)
(emphasis added)
The limitations to the doctrine delineated in M.P. Sugar Mills
(supra), however, were also reaffirmed when it was said:
"\005\005.. that there can be no promissory estoppel
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against the Legislature in the exercise of its
legislative functions nor can the Government or
public authority be debarred by promissory estoppel
from enforcing a statutory prohibition. It is equally
true that promissory estoppel cannot be used to
compel the Government or a public authority to
carry out a representation or promise which is
contrary to law or which was outside the authority or
power of the officer of the Government or of the
public authority to make. We may also point out
that the doctrine of promissory estoppel being an
equitable doctrine, it must yield when the equity so
requires; if it can be shown by the Government or
public authority that having regard to the facts as
they have transpired, it would be inequitable to hold
the Government or public authority to the promise or
representation made by it, the Court would not raise
an equity in favour of the person to whom the
promise or representation is made and enforce the
promise or representation against the Government
or public authority". (pp.387-388)
In all these decisions, Chandrasekhar Aiyar, J.’s judgment
was quoted with approval. In the case before us, the State
Government had the power to exempt or abolish milk as a taxable
commodity. There was nothing in law which prohibited it from doing
so. The representation to exempt milk was made by persons who
had the power to implement the representation. Can it not be said
that there are such circumstances in this case which required the
State Government to exercise its powers to exempt milk from the
burden of purchase tax, a power which it undoubtedly had? Before
we determine the answer to this question, we may consider the
remaining decisions cited to determine whether the principles relating
to promissory estoppel as culled out from these earlier cases still hold
the field.
The decision in Bakul Cashew Co. V. Sales Tax Officer,
Quilon Q1986 (2) SCC 365 was a case dealing with the
preconditions on the fulfilment of which a plea of promissory estoppel
can be raised viz., that the representation must not only be definite
but must be satisfactorily established. The alteration of the
petitioner’s position acting upon such representation must also be
pleaded with particularity and sufficiently supported with material. The
Court found that it had not been established that any prejudice had
been suffered by the petitioner. As we have noted earlier, each of
the respondents in these appeals has given a detailed account of
how the monies which were otherwise payable on account of
purchase tax have been expended on the milk shed areas and
producers of milk. No dispute has been raised by the appellants to
this.
The doctrine of promissory estoppel has also been extended to
service law. In Surya Narain Yadav and Others V. Bihar State
Electricity Board 1985 (3) SCC 38, It was found as a fact that the
Bihar State Electricity Board had made representations that
graduates who would be taken as training engineers would be
regularised against appropriate posts and the submission that such
appointments would be contrary to statutory rules of the Board was
brushed aside and the Court directed the Board, following
Chandrasekhara Aiyar, J’s opinion in Collector of Bombay V.
Municipal Corporation (supra) as well as the decisions Union of
India V. Indo-Afghan Agencies (supra) and Century Spinning &
Manufacturing Co. Ltd. V. Ulhasnagar Municipal Council (supra)
and Motilal Padampat Sugar Mill Co. Ltd. v. State of U.P. (supra),
to act in terms of the representation made. Indeed the principles of
promissory estoppel have been applied time and again by this Court
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and it is unnecessary to burden our decision by referring to all the
cases except to note that the view expressed by Chandrasekhara
Aiyar, J in 1952 still holds good. [See: State of Madhya Pradesh
vs. Orient Paper Mills (1990) 1 SCC 161; Delhi Cloth and General
Mills v. Union of India 1998 1 SCR 383; Sharma Transport v.
Govt. of A.P. (2002) 2 SCC 188; State of Orissa v. Mangalam
Timber Products (2004) 1 SCC 139]
The case of Kasinka Trading V. Union of India 1995 (1) SCC
274, cited by the appellants is an authority for the proposition that the
mere issuance of an exemption notification under a provision in a
fiscal statute such as Section 25 of the Customs Act, 1962, could not
create any promissory estoppel because such an exemption by its
very nature is susceptible to being revoked or modified or subjected
to other conditions. In other words there is no unequivocal
representation. The seeds of equivocation are inherent in the power
to grant exemption. Therefore, an exemption notification can be
revoked without falling foul of the principle of promissory estoppel. It
would not, in the circumstances, be necessary for the Government to
establish an over-riding equity in its favour to defeat the petitioner’s
plea of promissory estoppel. The Court also held that the
Government of India had justified the withdrawal of exemption
notification on relevant reasons in the public interest. Incidentally, the
Court also noticed the lack of established prejudice to the promises
when it said:
"The burden of customs duty etc. is
passed on to the consumer and
therefore the question of the appellants
being put to a huge loss is not
understandable".
[See also Shrijee Sales Corporation v. Union of India 1997 (3)
SCC 398 ; Sales Tax Officer v. Shree Durga Oil Mills 1998 (1)
SCC 572] . We do not see the relevance of this decision to the facts
of this case. Here the representations are clear and unequivocal.
Amrit Banaspati Co. Ltd. V. State of Punjab 1992 (2) SCC
411 is an example of where despite the petitioner having established
the ingredients of promissory estoppel, the representation could not
be enforced against the Government because the Court found that
the Government’s assurance was incompetent and illegal and "a
fraud on the Constitution and a breach of faith of the people". This
principle would also not be applicable in these appeals. No one is
being asked to act contrary to the statute. What is being sought is a
direction on the Government to grant the necessary exemption. The
grant of exemption cannot be said to be contrary to the statute. The
statute does not debar the grant. It envisages it.
Although the view expressed by two Judges in Jitram’s case
(supra) has been disapproved in Godfrey Phillips (supra), it was
ostensibly resuscitated in ITC Bhadrachalam Paperboards V.
Mandal Revenue Officer, A.P. 1996 (6) SCC 634. In that case the
State Government had the power to remit assessment under section
7 of the Andhra Pradesh Non-Agricultural Lands Assessment Act,
1963. Section 11 of that Act provided for exemption to be made by
an order of the State Government which was required to be
published in the Andhra Pradesh Gazette prior to which the order
had to be laid on the table of the Legislative Assembly. The Court
construed the provisions of the State Act and came to the conclusion
that the nature of the power under Section 11 did not amount to
delegated legislation but conditional legislation. It was held that
"If the statute requires that a particular act
should be done in a particular manner and if it
is found, as we have found hereinbefore, that
the act done by the Government is invalid and
ineffective for non-compliance with the
mandatory requirements of law, it would be
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rather curious if it is held that notwithstanding
such non-purpose of invoking the rule of
promissory/equitable estoppel. Accepting
such a plea would amount to nullifying the
mandatory requirements of law besides
providing a licence to the Government or other
body to act ignoring the binding provisions of
law. Such a course would render the
mandatory provisions of the enactment
meaningless and superfluous. Where the field
is occupied by an enactment, the executive
has to act in accordance therewith, particularly
where the provisions are mandatory in nature.
There is no room for any administrative action
or for doing the thing ordained by the statute
otherwise than in accordance therewith.
Where, of course, the matter is not governed
by a law made by a competent legislature, the
executive can act in its executive capacity
since the executive power of the State
extends to matters with respect to which the
legislature of a State has the power to make
laws (Article 162 of the Constitution). The
proposition urged by the learned counsel for
the appellant falls foul of our constitutional
scheme and public interest. It would virtually
mean that the rule of promissory estoppel can
be pleaded to defeat the provisions of law
where the said rule, it is well settled, is not
available against a statutory provision. The
sanctity of law and the sanctity of the
mandatory requirement of the law cannot be
allowed to be defeated by resort to rules of
estoppel. None of the decisions cited by the
learned counsel say that where an act is done
in violation of a mandatory provision of a
statute, such act can still be made a
foundation for invoking the rule of
promissory/equitable estoppel. Moreover,
when the Government acts outside its
authority, as in this case, it is difficult to say
that it is acting within its ostensible authority".
(p.657-658)
It would appear that these observations are in conflict
with the earlier and subsequent pronouncements of the law on
promissory estoppel. Chandrasekhara Aiyar, J. had held that
the representation was enforceable despite the "accident" that
the grant was invalid inasmuch as it was contrary to statute.
M.P. Sugar Mills (supra) had said that the promise was
enforceable against the Government despite the requirement
of Article 299 of the Constitution. Similarly, Century Spinning
(supra) held that despite the requirement of the statute
prescribing the manner and form to grant exemption from
payment of octroi, a promise not made in that manner or form
could be enforced in equity. Then again in Godfrey Philips
(supra), the Court directed an exemption to be granted on the
basis of the principles of promissory estoppel even though
Rule 8 of the Central Excise Rules 1944 required exemption to
be granted by notification.
Of course, the Government cannot rely on a
representation made without complying with the procedure
prescribed by the relevant statute, but a citizen may and can
compel the Government to do so if the factors necessary for
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founding a plea of promissory estoppel are established. Such a
proposition would not "fall foul of our constitutional scheme and
public interest". On the other hand, as was observed in Motilal
Sugar Mills. case and approved in the subsequent decisions:
"It is indeed the pride of constitutional
democracy and rule of law that the
Government stands on the same
footing as a private individual so far as
the obligation of the law is concerned :
the former is equally bound as the
latter. It is indeed difficult to see on
what principle can a Government,
committed to the rule of law, claim
immunity from the doctrine of
promissory estoppel."
None of these decisions have been considered in ITC
Bhadrachalam Paperboards V. Mandal Revenue Officer
(supra) except for a brief reference to Chandrasekhara Aiyar,
J’s judgment which was explained away as not being an
authority for the proposition that even where the Government
has to and can act only under and in accordance with a statute
\026 an act done by the Government in violation thereof can be
treated as a presentation to found a plea of promissory
estoppel. But that is exactly what the learned Judge had said.
In any event judicial discipline requires us to follow the
decision of the larger Bench. The facts in the present case are
similar to those of prevailing in Godfrey Philips (supra). There
too, as we have noted earlier, the statutory provisions require
exemption to be granted by notification. Nevertheless, the
Court having found that the essential pre-requisites for the
operation of promissory estoppel had been established,
directed the issuance of the exemption notification.
The appellants have been unable to establish any
overriding public interest which would make it inequitable to
enforce the estoppel against the State Government. The
representation was made by the highest authorities including
the Finance Minister in his Budget Speech after considering
the financial implications of the grant of the exemption to milk.
It was found that the overall benefit to the state’s economy and
the public would be greater if the exemption were allowed.
The respondents have passed on the benefit of that exemption
by providing various facilities and concessions for the
upliftment of the milk producers. This has not been denied. It
would, in the circumstances, be inequitable to allow the State
Government now to resile from its decision to exempt milk and
demand the purchase tax with retrospective effect from 1st April
1996 so that the respondents cannot in any event re-adjust the
expenditure already made. The High Court was also right
when it held that the operation of the estoppel would come to
an end with the 1987 decision of the Cabinet.
In the case before us, the power in the State
Government to grant exemption under the Act is coupled with
the word "may" \026 signifying the discretionary nature of the
power. We are of the view that the State Government’s
refusal to exercise its discretion to issue the necessary
notification "abolishing" or exempting the tax on milk was not
reasonably exercised for the same reasons that we have
upheld the plea of promissory estoppel raised by the
respondents. We, therefore, have no hesitation in affirming
the decision of the High Court and dismissing the appeals
without costs.
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