1986 (3) TMI 77 - SC - VAT and Sales Tax

Writ in the nature of mandamus to the State Government of Kerala to give effect to the Notification issued by the State Government bearing G. 0. Ms. No. 127/7311D, dated October 12, 1973, under section 10 of the Kerala General Sales Tax Act, 1963 by which the State Government had restrospectively granted an exemption in respect of the tax payable under section 5 of the said Act by the cashew manufacturers in that State on the purchase turnover of cashew nuts imported from outside India through the Cashew Corporation of India for the period between September 1, 1970, and September 30, 1973 Held that - In the instant case, on the date on which the notification was issued, the Kerala Government had no such power under section 10 of the Act as it stood then to issue a notification granting exemption with retrospective effect. Hence the impugned notification which granted exemption on October 12, 1973, for the earlier period between September 1, 1970, and September 30, 1973, was ineffective. It was also not shown that relying upon the notification during the period between October 12, 1973 and November 9, 1973, the appellants had done any act which attracted the rule of estoppel. The authority which can issue a notification may cancel it also. Section 10(3) of the Act confers such power of cancellation expressly. The State Government did so and cancelled the earlier notification as there was a public hue and cry that the State Government had shown undue favour to the Kerala cashew nut factory owners at a time when the State was passing through grave and difficult financial position. Moreover the transactions in question related to the past period. Hence the appellants are not entitled to any relief either on the principle of promissory estoppel or on the basis of the earlier notification issued under section 10 of the Act. Appeal dismissed.

Issues Involved:
1. Promissory estoppel against the State Government.
2. Validity of the withdrawal of tax exemption notification.

Detailed Analysis:

1. Promissory Estoppel Against the State Government:

The appellants argued that the State Government was precluded by the rule of promissory estoppel from claiming purchase tax on cashew nuts imported from African countries. They relied on representations allegedly made by the Chief Minister, Industries Minister, and Revenue Minister during a meeting on April 25, 1971, assuring that no tax would be levied on the turnover of African raw nuts. They also claimed that for three years, no assessment proceedings were initiated, leading them to believe no tax would be levied, and they made significant business commitments based on this belief.

The State Government, in its counter-affidavit, denied these allegations, stating that the Cashew Corporation of India had requested tax exemption, but the Government had initially rejected this request due to significant revenue loss concerns. The exemption was later granted temporarily on October 12, 1973, but was withdrawn on November 9, 1973, due to public criticism and the State's financial difficulties.

The Court found that the appellants failed to provide clear and unambiguous evidence of the alleged representations. The allegations lacked specific details, such as who was present at the meeting, what was actually said, and how the appellants acted on these representations. The Court emphasized that statements made by ministers at meetings, such as "we shall consider the question of granting exemption sympathetically," cannot form the basis for a plea of estoppel. The subsequent actions of the Government, including the rejection of exemption requests and the immediate withdrawal of the granted exemption, contradicted the appellants' claims of a definite promise.

The Court concluded that the appellants did not establish the necessary factual foundation for promissory estoppel, including a definite representation, alteration of position based on the representation, and resulting prejudice. Therefore, the plea of promissory estoppel was dismissed.

2. Validity of the Withdrawal of Tax Exemption Notification:

The appellants argued that the exemption granted on October 12, 1973, could not be withdrawn by the subsequent notification issued on November 9, 1973. They relied on Section 10 of the Kerala General Sales Tax Act, 1963, which allowed the Government to grant exemptions.

The Court noted that Section 10(3) of the Act explicitly granted the Government the power to cancel or vary any notification issued under Section 10(1). The High Court upheld the Government's power to withdraw the exemption notification, and the Supreme Court agreed with this view.

The Court further explained that the liability to pay sales tax arose at the time of purchase, and the power to grant exemption retrospectively was not conferred on the Government until an amendment in 1980. The law, as summarized in ITO v. M.C. Ponnoose, stated that subordinate legislation could not have retrospective effect unless expressly authorized by the Legislature. Since the Kerala Government did not have the power to issue a retrospective exemption notification in 1973, the notification granting exemption for the period between September 1, 1970, and September 30, 1973, was ineffective.

The Court also found no evidence that the appellants had acted on the notification during the brief period it was in effect, which would attract the rule of estoppel. The subsequent public criticism and the State's financial difficulties justified the withdrawal of the exemption.

Conclusion:

The appellants were not entitled to any relief based on the principle of promissory estoppel or the earlier notification issued under Section 10 of the Act. The appeal was dismissed, and the Court did not consider the effect of the 1976 amendment to the Central Sales Tax Act, 1956, on the transactions in question, leaving it open for the appellants to raise the point in ongoing assessment proceedings. There was no order as to costs.

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