2004 (5) TMI 65 - SC - VAT and Sales Tax

Whether the principles relating to promissory estoppel as culled out from these earlier cases still hold the field? Held that - The appellants have been unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against the State Government. The representation was made by the highest authorities including the Finance Minister in his Budget Speech after considering the financial implications of the grant of the exemption to milk. It 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 April 1, 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 1987 decision of the Cabinet. The power in the State Government to grant exemption under the Act is coupled with the word may -signifying the discretionary nature of the power. We are of the view that the State Government s refusal to exercise its discretion to issue the necessary notification abolishing or exempting the tax on milk was not reasonably exercised for the same reasons that we have upheld the plea of promissory estoppel raised by the respondents. We, therefore, have no hesitation in affirming the decision of the High Court and dismissing the appeals without costs.

Issues Involved:
1. Validity of the State Government's demand for purchase tax on milk for the period April 1, 1996, to June 4, 1997.
2. Application of the doctrine of promissory estoppel against the State Government.
3. Legal requirements for exemption notifications under the Punjab General Sales Tax Act, 1948.
4. Impact of public interest on the enforcement of promissory estoppel.

Issue-Wise Detailed Analysis:

1. Validity of the State Government's demand for purchase tax on milk for the period April 1, 1996, to June 4, 1997:
The respondents, who are milk producers in Punjab, did not pay purchase tax on milk for the period April 1, 1996, to June 4, 1997, based on the belief that the State Government had abolished the tax. This belief stemmed from public announcements by the Chief Minister and Finance Minister, as well as circulars issued by the Excise and Taxation Commissioner. However, on June 4, 1997, the Council of Ministers decided not to abolish the tax, leading to the issuance of tax demand notices. The High Court quashed these demands, holding that the State Government was bound by its promise to abolish the tax.

2. Application of the doctrine of promissory estoppel against the State Government:
The High Court applied the doctrine of promissory estoppel, which prevents a party from going back on a promise that another party has relied upon to their detriment. The Supreme Court upheld this application, noting that the State Government had made clear and unequivocal representations through public announcements and official circulars. The respondents had acted upon these representations by not paying the tax and passing on the benefits to milk producers. The Court cited several precedents, including *Collector of Bombay v. Municipal Corporation of the City of Bombay* and *Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh*, to affirm that the doctrine of promissory estoppel applies to the government when it makes representations that induce reliance.

3. Legal requirements for exemption notifications under the Punjab General Sales Tax Act, 1948:
The Act provides for the levy of tax on the sale and purchase of goods, including milk, and outlines the procedure for granting exemptions. The State Government has the power to exempt goods from tax under sections 30 and 30A, which require the issuance of a notification. The appellants argued that since no formal notification was issued, the respondents could not claim exemption based on promissory estoppel. However, the Court held that the absence of a formal notification was a ministerial act and did not negate the State Government's representations.

4. Impact of public interest on the enforcement of promissory estoppel:
The appellants contended that the decision to not abolish the tax was taken in public interest. The Court acknowledged that promissory estoppel is an equitable doctrine that must yield to overriding public interest. However, it found no evidence of such an overriding public interest in this case. The representations were made after considering the financial implications and were intended to benefit the State's economy and the public. The respondents had already passed on the benefits to milk producers, making it inequitable for the State Government to resile from its promise.

Conclusion:
The Supreme Court affirmed the High Court's decision, holding that the State Government was bound by its promise to abolish the purchase tax on milk for the period in question. The doctrine of promissory estoppel was applicable, and the absence of a formal notification did not invalidate the representations made by the State Government. The appeals were dismissed without costs.

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