2010 (9) TMI 967 - HC - VAT and Sales Tax

Whether the State of Haryana is denying to comply with the commitments made in the Empowered Committee of the State Finance Ministers regarding input of tax credit in excess of four per cent for stock transfers of goods out of the State by virtue of section 8 read with entry No. 5 (ii) of Schedule E of the Haryana Value Added Tax Act, 2003 ? Held that - No doubt, when the principle of promissory estoppel, applies even the State is not exempted from liability to carry out a representation made.However, as already mentioned, in absence of law permitting carrying out of a promise, the State cannot be compelled to act contrary to the existing law. In view of above settled legal position, we are unable to entertain this petition.

Summary

Issues:
Challenge to order under section 56(3) of Haryana VAT Act and section 8(1) restricting input-tax credit on goods transfer within State.

Analysis:
The petitioner challenged an order under section 56(3) of the Haryana Value Added Tax Act, 2003, and section 8(1) of the Act restricting input-tax credit on transfer of goods within the State. The petitioner, engaged in trading soft drinks, bought VISI coolers in Haryana and transferred them to branches in Rajasthan, being denied input-tax credit under the VAT Act. The petitioner argued that the denial contradicted the promise in the white paper by the Empowered Committee of State Finance Ministers, which stated that input-tax credit would be provided if local taxes exceeded four percent. Despite this policy declaration, Haryana did not amend the VAT Act, maintaining a tax rate of 12.5 percent and restricting input tax on goods transferred outside the State under section 8 of the Act. The petitioner sought clarification on this matter under section 56 of the Act, questioning compliance with the commitments made in the Empowered Committee's declaration.

The impugned order clarified that no input-tax credit could be allowed on goods purchased and transferred outside the State under the provisions of the VAT Act. The petitioner contended that this denial was contrary to the policy declaration in the white paper, citing the principle of promissory estoppel as established in the Supreme Court case of State of Punjab v. Nestle India Ltd. The court, however, rejected this submission, emphasizing that the petitioner was not entitled to input-tax credit under the existing legal framework. The court held that directing action against the law or enacting new laws based on a policy declaration was not permissible, as the executive must act within the existing legal framework.

The court distinguished the Nestle India Ltd. case, where the State's promise to abolish purchase tax on milk products was upheld due to statutory provisions enabling the government to grant exemptions. The court reiterated the limitations of promissory estoppel, emphasizing public interest and legality of representations made. The court confirmed that the State cannot be compelled to act against existing laws unless empowered by statute to fulfill promises. Despite the application of promissory estoppel, the State cannot be forced to act contrary to the law in the absence of enabling provisions. The court cited subsequent judgments reinforcing these principles and concluded that in the absence of a law permitting the fulfillment of a promise, the State cannot be compelled to act against existing laws. Consequently, the court dismissed the petition based on the settled legal position regarding promissory estoppel and State's obligations under the law.