2017 (8) TMI 678 - SC - VAT and Sales Tax

Principle of Promissory Estoppel - grant of refund on CST paid - Validity of Notification dated 01.10.1993 - it was the case of respondent that having held forth a promise for grant of exemption from CST on raw materials purchased from outside the State for five years from the date of production, the appellant could not have withdrawn or modified the benefit before that time period - Held that - The grant of refund on CST paid, to boost entrepreneur investment was primarily an executive economic policy decision. The scope for judicial scrutiny and interference with the same, has to be restricted to arbitrariness and unreasonableness as observed in Ugar Sugar Works Ltd. vs. Delhi Admn. 2001 (3) TMI 1008 - SUPREME COURT . The respondents had no legal or indefeasible right to claim refund of CST paid by them. The policy rested on an executive decision to encourage entrepreneur investment. It naturally includes the power of the State to review the policy from time to time, including on considerations for the manner in which the policy was proving beneficial or detrimental to the larger public interest, and the State exchequer. The policy could therefore well be withdrawn or modified at any time for just, valid and cogent reasons. Judicial review of a policy decision, especially an economic policy decision, shall have to be restricted to the presence of just and valid reasons eschewing arbitrariness, so as not to fall foul of Article 14 of the Constitution. But, in the garb of judicial review, the Court will not examine the sufficiency or adequacy of the reasons or materials, in the manner of an appellate authority, to substitute its own wisdom for that of the government. That would tantamount to taking over of the executive decision making process. There has been much passage of time since the issue originated and the litigation that followed. The mere fact that ample documentary evidence may not be available with the State today, for valid reasons as mentioned in the additional affidavit, it cannot be held that what was valid when done, must be pronounced as illegal today, merely because the evidence may have been lost with passage of time for unavoidable reasons. Undoubtedly, fraudulent refund claims obtained, would be contrary to the financial interests of the State, thereby affecting the larger public interest. The policy wisdom of the State that the grant of refund was eroding non-plan resources is a matter exclusively in the executive domain. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Challenge to the notification dated 01.10.1993 on principles of promissory estoppel.
2. Judicial review of the policy decision dated 01.10.1993.
3. Validity of restricting refund of CST paid by SSI units.
4. Consideration of fraudulent claims and misuse of concessions.
5. Executive power to modify economic policies for public interest.

Issue 1: Challenge to Notification on Promissory Estoppel
The State government issued notifications providing for refund of CST paid by SSI units on raw materials. The challenge to the notification dated 01.10.1993 was based on promissory estoppel. The High Court rejected the plea of promissory estoppel but held that the restriction introduced had no nexus with the intended objective. The appellant was required to provide refund for 5 years from the date of production.

Issue 2: Judicial Review of Policy Decision
The appellant argued that the policy decision was based on detecting false claims for refund of CST, affecting the State exchequer. It was contended that judicial review should be limited to arbitrariness and unreasonableness. The Court emphasized that judicial interference in economic policy decisions should be restricted to grounds like arbitrariness, unreasonableness, or unfairness, as observed in Ugar Sugar Works Ltd. vs. Delhi Admn.

Issue 3: Restriction on Refund of CST
The respondents contended that capping the refund limit had no nexus with curbing false and bogus claims. The Court held that misuse of exemptions and fraudulent claims affecting the State's financial health could be valid reasons for restricting or revoking benefits, as observed in Commissioner of Commercial Taxes (Asstt.) vs. Dharmendra Trading Co. The State's decision to cap reimbursement was deemed reasonable.

Issue 4: Consideration of Fraudulent Claims
The appellants provided evidence of fraudulent refund claims by SSI units, causing revenue loss. Enquiries revealed non-existent suppliers and connivance with dealers in other states. The State's concerns about eroding resources and unavoidable curtailment were considered valid reasons for modifying the policy.

Issue 5: Executive Power to Modify Policies
The Court upheld the State's executive power to modify economic policies for public interest, emphasizing that the State could withdraw or modify policies for just and valid reasons. The Court clarified that the grant of refund eroding non-plan resources was within the executive domain.

In conclusion, the Court set aside the High Court's order, stating that granted claims should not be reopened or withdrawn. The appeals were allowed with directions, emphasizing the State's authority to modify policies for public interest while ensuring valid reasons and avoiding arbitrariness.