M/S MANUELSONS HOTELS PRIVATE LIMITED vs. STATE OF KERALA .

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2480 OF 2008 M/S MANUELSONS HOTELS PRIVATE LIMITED ....APPELLANT VERSUS STATE OF KERALA & OTHERS ….RESPONDENTS J U D G M E N T R.F. Nariman, J. th 1. On 11 July, 1986, the State Government, by a JUDGMENT Government Order (G.O.), accepted the recommendations of the Government of India suggesting that tourism be declared an “industry”. The fallout of this G.O. was that this would enable those engaged in tourism promotional activities to become automatically eligible for concessions / incentives as applicable to the industrial sector from time to time. Apart from various 1 Page 1 other concessions that were granted, exemption from Building Tax levied by the Revenue Department was one such concession. It was stated in the said G.O. that action to amend

G.O. went on to state that persons eligible for such concessions will, among others, be classified hotels i.e. from 1 to 5 stars. A Committee was set up consisting of three government officers to oversee the aforesaid scheme. th 2. Vide a letter dated 25 March, 1987, the Government of India approved the hotel project of the appellants, being a 55 double room 3 star hotel project to be set up in the city of Calicut. th 3. Pursuant to the aforesaid G.O. dated 11 July, 1986 and JUDGMENT the aforesaid approval, the appellants began constructing the hotel building, which was completed in the year 1991. Notice for filing returns under the Kerala Buildings Tax Act was issued th to the appellants on 5 September, 1988. The appellants th replied that they relied upon the G.O. dated 11 July, 1986 and stated that they were under no obligation to furnish any return 2 Page 2 under the said Act as they were exempt from payment of building tax. th 4. In pursuance of the said G.O. dated 11 July, 1986, the

th effect from 6 November, 1990. The Objects and Reasons for said amendment act read as follows: “STATEMENT OF OBJECTS AND REASONS The Government has declared tourism as an industry with a view to develop tourism in the State and announce various concessions to tourism related activities as per GO (P) 224/86/GAD dated 11.07.1986. One of the concessions declared by Government was to exempt the buildings constructed in relation to tourism from the provisions of the Kerala Building Tax Act, 1975. For achieving the above said purpose the Kerala Building Tax Act, 1975 has to be amended suitably and the Government have decided to amend the Kerala Building Tax Act 1975 for the purpose. JUDGMENT As the above proposal had to be given effect to immediately and as the Legislative assembly was not in session the Kerala Building Tax (Amendment) Ordinance, 1990 (Ordinance No.8 of 1990) was promulgated by the Governor of Kerala on the 2nd day of November, 1990, and published in the Kerala Gazette Extraordinary dated 6th day of November, 1990. The Bill seeks to replace the said ordinance by an Act of Legislature. 3 Page 3 (Published in KG Ex No.1159 dt 7.12.1990)” 5. In pursuance of the said object, Section 3A was added, which reads as under:

Also, to effectuate the said exemption provision, Rule 14A was added in the Kerala Buildings Tax Rules, 1974 as under: “Rule 14A (1) The exemption contemplated in Section 3A of the Kerala Building Tax Act, 1975 shall be applicable to the buildings having the following specifications in such Tourism sector and the construction of which is completed during such period as may be specified in the notifications:- JUDGMENT (i) Classified hotels (1 to 5 stars) (ii) Motels(which conform to the specification of the Department of Tourism of Kerala/ Central Government) (iii) Restaurants (approved by Classification committee of the Government of India) 4 Page 4 (iv) Amusement parks and research centres approved by the Government. (v) Ropeways at tourist centres.

(vii) Institutions teaching surfing, sking, gliding, trekking and similar activities which will promote tourism; (viii) Ayurvedic centres with tourism potential; (ix) Exclusive handicrafts with emporia (approved by the State/Central Department of Tourism) (2) The area so notified shall be approved Tourist Centres and such other locations certified by a Committee consisting of Secretary to Government, Tourism Department, Secretary to Government Taxes Department and Director, Department of Tourism. (3) The period of exemption shall be 10 years or such shorter period in respect of specific areas as may be notified in the Gazette based on the recommendation of the Committee.” JUDGMENT 6. By a Writ Petition filed in 1989, the appellants challenged th the notice dated 5 September, 1988. This resulted in a th judgment of the Kerala High Court dated 30 August, 1995 by which the appellants were relegated to the Committee set up under the 1986 G.O. to pursue their claim. Till final orders were passed by the Committee, the judgment stated that the 5 Page 5 respondents would not take any coercive steps to recover any building tax assessed on the building constructed by the appellants.

promised by the G.O. of 1986 was denied to the appellants st stating that as Section 3A had been omitted w.e.f. 1 March, 1993, the power to grant exemption had itself gone and, therefore, no such exemption could be given to the appellants. th 8. Pursuant to the aforesaid letter dated 6 February, 1997, th a notice dated 28 April, 1997 was issued by the authorities asking the appellants to submit the necessary statutory return under the Kerala Buildings Tax Act. This notice was, in turn, challenged in O.P. No. 9601 of 1997, which culminated in a JUDGMENT th judgment dated 20 July, 1998. Vide this judgment, the High Court allowed the original petition and directed the Committee to consider the matter afresh in the light of the judgment of the Supreme Court in M/S Motilal Padampat Sugar Mills v. State Of Uttar Pradesh & Ors., (1979) 2 SCR 641 and Shrijee Sales Corporation & Anr. v. Union of India, (1997) 3 SCC 398. 6 Page 6 th 9. Vide an order dated 4 February, 1999, the authorities once again rejected the appellant’s application for exemption from property tax. This order was challenged in Writ Petition

th dated 5 December, 2006. The High Court essentially rejected the aforesaid Writ Petition on two grounds. First, it stated that as no exemption Notification had, in fact, been issued under Section 3A when it was in existence in the statute book, no claim for exemption from payment of building tax would be allowed. It further held that the mere promise to amend the law does not hold out a promise of exemption from payment of building tax. And finally, the High Court held that the question of now exempting the appellants from building tax would not JUDGMENT st arise as Section 3A itself had been omitted w.e.f. 1 March, 1993. 10. Shri V. Giri, learned Senior Advocate appearing on behalf of the appellants before us, has argued that the High Court has failed to consider various Supreme Court judgments on promissory estoppel in their true perspective. In his submission, the aforesaid judgment clearly led to the conclusion that when 7 Page 7 the Government holds out a promise which has been acted upon, except in cases of overriding public interest, which has not been claimed in the facts of the present case, the

held to be bound thereby. He added that there was no necessity for the Government to be directed to actually issue a Notification under Section 3A as that would only be a ministerial act which would be regarded as having been performed if Government was to be held to its promise. According to the learned counsel, therefore, a reading of the judgments of this Court would necessarily lead to granting of relief to his client. 11. Shri Radhakrishnan, learned senior counsel appearing on behalf of the respondents, countered these submissions and JUDGMENT supported the impugned judgment of the High Court. According to Shri Radhakrishnan, a mandamus cannot be issued to the executive to frame or amend the law. In any event, according to the learned counsel, Section 3A having been deleted w.e.f. st 1 March, 1993, it is clear that no relief can be granted to the appellants as on date. 8 Page 8 12. Having heard the learned counsel for both the sides, we are of the view that it will first be necessary to examine the doctrine of promissory estoppel as laid down in M/S Motilal

apparently turned around and rescinded its earlier decision of January, 1970 in August 1970, by which time the factory of the appellant had gone into commercial production. A Writ Petition was filed in the High Court of Allahabad asking for a writ directing the State Government to exempt the sales of Vanaspati manufacturer from sales tax for a period of three 9 Page 9

This plea fell upon deaf ears in the High Court, as a result of which the petitioner in that case appealed to the Supreme Court. After discussing the authorities in detail, this Court held:

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necessary for the petitioner to show that it had suffered any detriment, and it was enough that the petitioner had relied upon the promise or representation held out, and altered its position relying upon such assurance. Importantly, the Court held:

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the Government is bound to exempt the appellant from

1970, being the date of commencement of the production of Vanaspati, the appellant would not be liable to pay any sales 14 Page 14 tax, subject only to the State’s claim to retain any part of such amount under any provision of law. In the absence of such claim, the State would have to refund the amount of sales tax

JUDGMENT Notification was, in fact, issued by the Government under Section 3A, the petitioner would have to be denied relief. This judgment has been followed repeatedly and has been applied to give the benefit of sales tax exemption in similar

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JUDGMENT Minister with the Excise and Taxation Commissioner and various Financial a financial notification would be issued “in a

Council of Ministers decided that the decision to abolish purchase tax on milk was not accepted and, consequently, the authorities issued notice to the respondents requiring them to pay purchase tax on milk for the year 1996-1997. 16 Page 16

Government was bound by its promise and representation to abolish purchase tax. According to the High Court, the

the goods mentioned in the Schedule, recapitulated the entire

judgments, and finally held:

17 Page 17 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 1-4-1996 so that the respondents cannot in any event readjust 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 1997 decision of the Cabinet.

not denied on the ground that no exemption notification was, in fact, issued under Section 30 of the Punjab General Sales Tax Act, 1948. In fact, this Court emphasized the discretionary nature of the power to grant exemption. This Court held that the State Government’s refusal to exercise its discretion to 18 Page 18 issue the necessary notification abolishing or exempting tax on milk was not reasonably exercised inasmuch as it was bound by the doctrine of promissory estoppel to do so. And the finding

and which has been adopted by the other party as the basis of JUDGMENT some course of conduct, act or omission, should not be allowed to pass muster. And the relief to be given in cases involving the doctrine of promissory estoppels contains a degree of flexibility which would ultimately render justice to the aggrieved party. The entire basis of this doctrine has been well put in a judgment of the Australian High Court 19 Page 19 reported in The Commonwealth of Australia v. Verwayen, 170 C.L.R. 394, by Deane,J. in the following words:

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estoppel with one difference – under our law, as has been seen hereinabove, promissory estoppel can be the basis of an independent cause of action in which detriment does not need to be proved. It is enough that a party has acted upon the representation made. The importance of the Australian case is only to reiterate two fundamental concepts relating to the doctrine of promissory estoppel – one, that the central principle of the doctrine is that the law will not permit an unconscionable departure by one party from the subject matter of an JUDGMENT assumption which has been adopted by the other party as the basis of a course of conduct which would affect the other party if the assumption be not adhered to. The assumption may be of fact or law, present or future. And two, that the relief that may be given on the facts of a given case is flexible enough to remedy injustice wherever it is found. And this would include the relief of acting on the basis that a future assumption either 23 Page 23 as to fact or law will be deemed to have taken place so as to afford relief to the wronged party.

A.R. Zakki & Ors. 1992 Supp. (1) SCC 548 at paragraphs 10 JUDGMENT and 15, and State of Uttar Pradesh and Ors. v. Mahindra and Mahindra Limited (2011) 13 SCC 77 at 81). This is for the reason that a court would then trespass into forbidden territory, as our Constitution recognizes a broad division of powers between legislative and judicial activity. 25. However, though the power to grant exemption under a statutory provision may amount to subordinate legislation in a 24 Page 24 given case, but being in the domain of exercise of discretionary power, is subject to the same tests in administrative law, as is executive or administrative action, as to its validity – one of

which a court may strike down an abuse of such discretionary power on grounds that irrelevant circumstances have been taken into account or relevant circumstances have not been taken into account (for example). This is clearly exemplified in Indian Express Newspapers (Bombay) Private Limited and others v. Union of India and others , (1985) 1 SCC 641. 26. In that case, by a notification dated 15.7.1977 issued under Section 25(1) of the Customs Act, a total exemption from customs duty was granted on imported newsprint. On JUDGMENT 1.3.1981, the said Notification was superseded by the issue of a fresh notification which exempted customs duty beyond 15%. The second notification was the subject matter of challenge in the aforesaid judgment in this Court. In an instructive passage in the judgment under Heading V entitled “Are the impugned notifications issued under Section 25 of the Customs Act, 1962 beyond the reach of Administrative Law?” this Court proceeded 25 Page 25 by assuming that the power to grant exemption under Section 25 of the Customs Act is a legislative power and a notification issued by the Government thereunder would amount to a piece

“That subordinate legislation cannot be questioned on the ground of violation of principles of natural justice on which administrative action may be questioned has been held by this Court in Tulsipur Sugar Co. Ltd. v. Notified Area Committee, Tulsipur [AIR 1980 SC 882 : (1980) 2 SCR 1111 : (1980) 2 SCC 295] , Rameshchandra Kachardas Porwal v. State of Maharashtra [(1981) 2 SCC 722 : AIR 1981 SC 1127 : (1981) 2 SCR 866] and in Bates v. Lord Hailsham of St. Marylebone [(1972) 1 WLR 1373 : (1972) 1 A11 ER 1019 (Ch D)] . A distinction must be made between delegation of a legislative function in the case of which the question of reasonableness cannot be enquired into and the investment by statute to exercise particular discretionary powers. In the latter case the question may be considered on all grounds on which administrative action may be questioned, such as, non-application of mind, taking irrelevant matters into consideration, failure to take relevant matters into consideration, etc, etc. On the facts and circumstances of a case, a subordinate legislation may be struck down as arbitrary or contrary to statute if it fails to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or, say, the Constitution. This can only be done on the ground that it does not conform to the statutory or constitutional requirements or that it offends Article 14 or Article 19(1)( a ) of the Constitution. It cannot, no doubt, be done merely on JUDGMENT 26 Page 26 the ground that it is not reasonable or that it has not taken into account relevant circumstances which the Court considers relevant." [para 78]

SCC 274. This was a case in which PVC resins were exempted from basic import duty by a notification dated 15.3.1979. The said notification was in force up to and inclusive of 31.3.1981. However, before expiry of the time fixed in the notification, a notification withdrawing such exemption, dated 16.10.1980, was issued. The petitioners in that case invoked the doctrine of promissory estoppel. This Court held that no representation had been made on facts, and that it could not be said that a notification could not be rescinded or JUDGMENT modified before the date of expiry even if the Government is satisfied that it was necessary in the public interest to rescind it. 28. This case is clearly distinguishable in that it was held (see paragraphs 22 and 27) that no incentive to set up any industry to use PVC resins had been made, and secondly, it was found necessary in public interest to rescind or withdraw such 27 Page 27 notification. On the facts of the present case, it is clear that a clear representation/promise had been made pursuant to which the State actually amended the Kerala Building Tax Act, 1975

present case that there is any change in circumstance because of overriding public interest so that the doctrine of promissory estoppel cannot be said to apply. 29. Shri Radhakrishnan also referred to a judgment of this Court in Shree Sidhbali Steels Limited and others v. State of Uttar Pradesh and others, (2011) 3 SCC 193. On the facts in that case, a new industrial policy dated 30.4.1990 was declared by the State Government assuring the grant of 33.33% hill development rebate on the total amount of electricity bills to JUDGMENT new entrepreneurs for a period of 5 years. This period was extended by another period of 5 years to be made available to new industrial units set up till 31.3.1997. Vide notifications dated 18.61998 and 25.1.1999, uniform tariffs of electricity were introduced by which the rebate so given was reduced to 17%. Post 2000, vide a notification dated 7.8.2000, a new tariff was announced which completely withdrew the hill development 28 Page 28 rebate. A challenge to the aforesaid notifications was turned down by this Court. This Court was concerned with an earlier decision reported in U.P. Power Corporation Limited v. Sant

very restrictive view of Section 49 of the Electricity Supply Act of 1948, stating that any notification issued thereunder can only be revoked or modified if express provision was made for such revocation under Section 49 itself. Further, such revocation could take place under the General Clauses Act only if such withdrawal was in larger public interest, or if legislation was enacted by the legislature authorizing the Government to withdraw the benefit granted by the notification. The larger Bench overruled the Sant Steels case stating that its view of JUDGMENT Section 49 of the Electricity Supply Act was plainly incorrect, and that Sections 14 and 21 of the General Clauses Act made it clear that a notification issued under Section 49 could be exercised from time to time, including the power to revoke such notification. 30. However, when it came to the applicability of the doctrine of promissory estoppel, this Court relied upon the observations 29 Page 29 made in State of Rajasthan and another v. J.K. Udaipur Udyog Ltd. and another , (2004) 7 SCC 673, and Arvind Industries and others v. State of Gujarat and others , (1995) 6 SCC 53. 31. From the State of Rajasthan case, para 25 was quoted by this Court in order to arrive at a conclusion that the recipient of an exemption granted by a fiscal statute would have no legally enforceable right against the Government inasmuch as such right is a defeasible one in the sense that it may be taken away in exercise of the very power under which the exemption was granted. What was missed from that case was the very next paragraph which states as follows:- “In this case the Scheme being notified under the power in the State Government to grant exemptions both under Section 15 of the RST Act and Section 8(5) of the CST Act in the public interest, the State Government was competent to modify or revoke the grant for the same reason. Thus what is granted can be withdrawn unless the Government is precluded from doing so on the ground of promissory estoppel, which principle is itself subject to considerations of equity and public interest. (See STO v. Shree Durga Oil Mills). The vesting of a defeasible right is therefore, a contradiction in terms. There being no indefeasible right to the continued grant of an exemption (absent the exception of promissory estoppel), the question of JUDGMENT 30 Page 30 the respondent Companies having an indefeasible right to any facet of such exemption such as the rate, period, etc. does not arise.” (at Para 26)

of Haryana and others , (2006) 3 SCC 620, (see paragraphs 34 and 35). It is clear, therefore, that the reliance by this Court in the Shree Sidhbali Steels Ltd. case upon the aforesaid judgment when it comes to non application of the principle of promissory estoppel to exemptions granted under statute would be wholly inappropriate. 33. Similarly, the Arvind Industries case is again a judgment in which it is clear that the doctrine of promissory estoppel could have no application because the appellant in that case JUDGMENT was not able to show that any definite promise was made by or on behalf of the Government and that the appellant had acted upon such promise. (see paragraph 9) 34. It is clear, therefore, that Shree Sidhbali Steels Limited was a case which was concerned only with whether a benefit given by a statutory notification can be withdrawn by the 31 Page 31 Government by another statutory notification in the public interest if circumstances change - (see paragraphs 30 and 42). Such is not the case before us. On the facts before us, a notification which ought to have been issued under Section 3A after it was introduced pursuant to a promise made was not issued at all. And change in circumstances leading to

19, for the proposition that it is now well settled by a catena of JUDGMENT decisions that there can be no question of estoppel against the Government in the exercise of its legislative, sovereign, or executive powers. 36. This very passage was referred to in M/S Motilal

1 Shree Sidhbali Steels Ltd . has been applied recently in Kothari Industrial Corporation Ltd. v. Tamil Nadu Electricity Board & Ors. , (2016) 4 SCC 134. 32 Page 32

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37. Shri Radhakrishnan then referred us to the judgment in

(2005) 1 SCC 625, at paragraph 20, for the proposition that promissory estoppel must yield to overriding public interest. There can be no quarrel with this proposition except that, as has been pointed out above, this case does not contain any such overriding public interest. 38. Shri Radhakrishnan also referred us to Avinder Singh v. State of Punjab, (1979) 1 SCC 137, at paragraphs 11 and 17, for the proposition that the legislature cannot delegate its JUDGMENT essential legislative functions. We are at a loss to understand how this authority would at all apply to the facts of the present case as it is not the State’s stand that there is any excessive delegation of legislative power in the present case. 39. In the present case, it is clear that no Writ of Mandamus is being issued to the executive to frame a body of rules or 34 Page 34 regulations which would be subordinate legislation in the nature of primary legislation (being general rules of conduct which would apply to those bound by them). On the facts of the

JUDGMENT State of Kerala pursuant to the representation made in the said G.O. True, no mandamus could issue to the legislature to amend the Kerala Buildings Tax Act, 1975, for that would necessarily involve the judiciary in transgressing into a forbidden field under the constitutional scheme of separation of powers. However, on facts, we find that Section 3A was, in fact, enacted by the Kerala legislature by suitably amending the 35 Page 35 Kerala Buildings Tax Act, 1975 on 6.9.1990 in order to give effect to the representation made by the G.O. dated 11.7.1986. We find that the said provision continued on the statute book

JUDGMENT a notification under Section 3A was an arbitrary act of the Government which must be remedied by application of the doctrine of promissory estoppel, as has been held by us hereinabove. The ministerial act of non issue of the notification cannot possibly stand in the way of the appellants getting relief under the said doctrine for it would be unconscionable on the part of Government to get away without fulfilling its promise. It 36 Page 36 is also an admitted fact that no other consideration of overwhelming public interest exists in order that the Government be justified in resiling from its promise. The relief

allow the appeal to the extent indicated above and set aside the

..............................J. (A.K. Sikri) ..............................J. (R.F. Nariman) New Delhi; May 11, 2016. 37 Page 37