2006 (3) TMI 234 - SC - VAT and Sales Tax

Principal of promissory estopple retrospective amendment - It is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication - A retrospective effect to an amendment by way of a delegated legislation could be given, thus, only after coming into force of sub-section (2A) of Section 64 of the Act and not prior thereto. By reason of Note 2, certain rights were conferred. Although there lies a distinction between vested rights and accrued rights as by reason of a delegated legislation, a right cannot be taken away. The amendments carried out in 1996 as also the subsequent amendments made prior to 2001, could not, thus, have taken away the rights of the appellant with retrospective effect. - Haryana General Sales Tax Act, 1973

Issues Involved:
1. Applicability and extent of promissory estoppel.
2. Retrospective effect of amendments to the Haryana General Sales Tax Act and Rules.
3. Validity of the State's withdrawal of sales tax exemption benefits.
4. Rights of the appellants under the Industrial Policy of Haryana.

Issue-wise Detailed Analysis:

1. Applicability and Extent of Promissory Estoppel:
The judgment primarily revolves around the applicability of promissory estoppel. It was argued that the appellants made significant investments based on the representation made by the State through Rule 28A, which initially did not include solvent extraction plants in the negative list. The Supreme Court emphasized that the doctrine of promissory estoppel operates even in the legislative field and cited several precedents, including *M/s. Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh* and *Pournami Oil Mills and Others v. State of Kerala*, to support the appellants' contention. The Court held that the State cannot withdraw the promised exemption retrospectively, especially when the appellants had altered their position based on the State's representation.

2. Retrospective Effect of Amendments:
The Court analyzed whether the State had the competence to amend the rules with retrospective effect. It was noted that sub-section (2A) of Section 64, which allowed retrospective effect, came into force only in 2001. Therefore, amendments made prior to 2001, such as the deletion of Note 2 in 1997, could not have retrospective effect. The Court reiterated that a fundamental rule of law is that no statute shall be construed to have retrospective operation unless clearly stated.

3. Validity of the State's Withdrawal of Sales Tax Exemption Benefits:
The State's withdrawal of sales tax exemption benefits was scrutinized. The Court found that the State acted arbitrarily by amending the rules at the end of the operative period without providing a valid reason. The High Court's dismissal of the writ petition filed by Mahabir Vegetable Oils Pvt. Ltd. was based on the premise that no right to exemption existed before commercial production started. However, the Supreme Court held that the appellants had substantially complied with Rule 28A and had reached an irretrievable position by investing a significant amount before the amendment.

4. Rights of the Appellants under the Industrial Policy of Haryana:
The Industrial Policy of Haryana aimed to incentivize industries in backward areas through sales tax exemptions. The Court observed that the appellants, having made investments based on the policy, were entitled to the promised benefits. The judgment highlighted that the State's actions, including the issuance of Note 2, recognized equity and did not deviate from the original intent of Rule 28A. The Court concluded that the appellants' rights could not be taken away by subsequent amendments made prior to 2001.

Conclusion:
The Supreme Court set aside the impugned judgment, allowing the appeals and remitting the matter to the Director of Industries for fresh consideration. The Court emphasized that the doctrine of promissory estoppel applies and that the State's amendments could not have retrospective effect prior to 2001. The writ petition filed by the appellants was disposed of accordingly.

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