1986 (12) TMI 358 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the vires of a notification under the Orissa Sales Tax Act, 1947 regarding retrospective amendments and conditions for exemption. Interpretation of notifications affecting taxation on purchase of raw materials for manufacturing. Application of promissory estoppel in tax exemption promises and restrictions on sale of finished products.

Analysis:
The petitioner challenged the vires of a notification issued by the State Government under the Orissa Sales Tax Act, 1947, making retrospective amendments and imposing conditions for exemption on the purchase of raw materials for manufacturing. The petitioner, a registered dealer operating a jute twine industry, contended that the amended notification should not apply retroactively to their case, as they started production before the new notification came into effect. The petitioner asserted entitlement to exemption for the entire 5-year period on raw material purchases for manufacturing the finished product. The petitioner argued that the conditions and limitations in the amended notification were not present in the earlier notification under which they commenced manufacturing activities.

The petitioner's counsel highlighted that the amended notification's effective date and publication date discrepancy could impact its enforceability. The counsel also argued that the imposition of restrictions on the sale of finished products by the State Government, beyond the legislative mandate, was impermissible until authorized by the legislature. The petitioner relied on legal precedents to support their claim, emphasizing the lack of statutory authority for the retrospective operation of the notification affecting taxation on raw material purchases and sale of finished goods.

The court noted that the tax imposition provisions did not initially contain restrictions on the situs of sale of finished products when the assessment order was passed. The court considered the petitioner's reliance on the doctrine of promissory estoppel, emphasizing the petitioner's legitimate expectations based on the initial tax exemption promise without restrictions on selling finished products outside the state. Referring to established legal principles and prior court decisions, the court upheld the application of promissory estoppel to protect the petitioner's rights and business expectations.

In conclusion, the court allowed the writ application, quashing the additional tax demand raised against the petitioner. The court recognized the petitioner's legitimate expectations based on the initial tax exemption promise and the detrimental impact of policy changes on business operations. The court applied the doctrine of promissory estoppel to safeguard the petitioner's rights and business interests, emphasizing the importance of upholding commitments made by the government to promote industrial development and investment.