1980 (7) TMI 251 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the notifications dated 5th July 1978 and 28th July 1978.
2. Application of the doctrine of promissory estoppel against the State Government.
3. Public interest and the Government's right to revise policy.

Issue-Wise Detailed Analysis:

1. Validity of the Notifications Dated 5th July 1978 and 28th July 1978:
The petitioners challenged the notifications dated 5th July 1978 and 28th July 1978, which altered the tax exemptions previously granted under the notification dated 27th May 1974. These notifications imposed sales tax on small-scale industries that were initially promised a tax holiday. The court observed that the sales tax holiday granted by the notification dated 27th May 1974 was taken away by these subsequent notifications, requiring the petitioners to pay tax for the remaining period of the tax holiday. The Government's return did not provide a valid reason for this change, and the court found no justification in the records for the policy shift.

2. Application of the Doctrine of Promissory Estoppel Against the State Government:
The court extensively discussed the doctrine of promissory estoppel, citing several landmark cases, including Union of India v. Anglo Afghan Agencies and Motilal Padampat Sugar Mills v. State of Uttar Pradesh. The principle established is that when the Government makes a promise, knowing that it will be acted upon, and the promisee alters their position based on that promise, the Government is bound by it. The court held that the petitioners had acted on the Government's promise of a tax holiday, investing substantial sums of money and establishing their factories. Therefore, the Government was estopped from reneging on its promise. The court emphasized that the Government cannot escape its obligation on vague grounds of necessity or expediency.

3. Public Interest and the Government's Right to Revise Policy:
The Government argued that it had the right to revise its policy and levy taxes as needed. However, the court noted that this right is limited by the doctrine of promissory estoppel. The Government failed to demonstrate any overriding public interest that necessitated the withdrawal of the tax exemption. The court stated that mere claims of policy change are insufficient; the Government must provide concrete reasons and justifications. The court also highlighted that the burden of proof lies with the Government to show that public interest overwhelmingly requires a deviation from the promise, which the Government failed to do.

Conclusion:
Applying the principles of promissory estoppel, the court held that the petitioners could not be denied the sales tax holiday initially promised in the notification dated 27th May 1974. The Government's failure to show an overriding public interest for its policy shift rendered the impugned notifications invalid. Consequently, the court allowed all the petitions and directed the respondents not to levy the sales tax on the petitioners under the impugned notifications, awarding costs to the petitioners. The petitions were allowed.