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TMI Blog2004 (5) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents 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. - Civil Appeal No. 6449 of 1998, 5826, 6451, 6450 of 1998, C.W.P. No. 9974 of 1997 - - - Dated:- 5-5-2004 - Judge(s) : MRS. RUMA PAL., P. VENKATARAMA REDDI JJ. Other Advocates: Bimal Roy Jad, Ajay Bansal, Ms. Sunita Pandit, R.M. Patnaik, R. S. Suri, Ms. Sonu Bhatnagar, Ms. Sushma Sharma, Sanjiv Dahiya, Ms. Meghalee Barthakur, Rajan Narain, B.K. Sood, Ms. Indra Sawhney, H. K. Puri, Ujjwal Banerjee, S.K. Puri and Shiv Gupta, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... producers, and also the milk co-operatives." The budget speech also noted that despite the fact that the State Government had given a large number of tax concessions during the year which reduced the inflow of revenue, the collections under the sales tax, excise and other taxes had increased by about 100 crores for the current year. The next circumstance was a memo of the Financial Commissioner dated April 26, 1996, addressed to the Excise and Taxation Commissioner, the relevant extract of which reads as follows: "Pursuant to the announcements made by the Finance Minister, Punjab, on the floor of the House and the announcement made by the Chief Minister, Punjab, on February 26, 1996, while addressing a public function organised by the Milkfed in connection with Milk Day at milk Plant, Ludhiana, relating to exemption of purchase tax on milk, it has been decided in principle, to abolish the purchase tax on milk with effect from April 1, 1996. You are requested to send proposal along with the financial implication involved therein, immediately . . . On the basis of the above decision, you are also requested to issue necessary instructions to the field officers." In response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief to the common people, traders and industrialists, the Government had abolished tax on milk. The Finance Department formally approved the proposal of the Administrative Department to abolish purchase tax on milk and the Council of Ministers gave its formal approval to the decision at its meeting on August 21, 1996 Therefore, it appears that the Chief Minister, the Council of Ministers and the Finance Department had all decided to abolish purchase tax on milk with effect from April 1,1996, and the sales tax authorities have taken consequential action by issuing circulars. Consequently, the respondents-milk producers did not pay the purchase tax along with their returns for the year 1996-97 as required under the Rules framed under the Act. Along with each return, it was expressly stated that "purchase tax on milk is not being deposited from April 1, 1996 due to various press statements/letters/circulars issued by Department and the issue has been discussed with the Excise and Taxation Commissioner, Patiala, and Assistant Commissioner, Moga, wherein we were informed that sales tax return will be accepted on the basis of tax exemption on ground of purchase of milk". The returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bolish purchase tax on milk was taken in the public interest. The Punjab General Sales Tax Act, 1948 (hereinafter referred to as "the Act"), provides for the levy of tax on the sale and purchase of certain goods in the State of Punjab. Rules have been framed under section 27 of the Act known as the Punjab General Sales Tax Rules, 1949 (hereinafter referred to as "the Rules"). We are concerned with the purchase tax which is payable under section 4 read with section 2(ff) on the acquisition of goods mentioned in Schedule C to the Act, milk when purchased for use in the manufacture of goods (other than tax-free goods) for sale is one of the items in Schedule C. The Excise and Taxation Commissioner (who has featured in the various statements and correspondence referred to earlier) is appointed under section 3(1) as the taxing authority. The Excise and Taxation Commissioner has overall superintendence and control over the administration and the collection of tax leviable under the Act as well as control on all officers empowered under the Act (rule 69). The incidence of taxation has been provided for under section 4 of the Act under which every dealer dealing in goods not declared tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 30 which reads: "Power to exempt. - (1) The State Government, if satisfied that it is necessary or expedient so to do in the interest of cottage industries, may by notification exempt any class of co-operative societies, or persons from the payment of tax under this Act on the purchase or sale of any goods subject to such conditions as may be specified in such notification . . .. (3) Every notification made under sub-section (1) shall, as soon as may be after it is made, be laid before the State Legislature." Section 30A also gives the State Government the power to exempt certain industries from payment of tax. It provides: "The State Government may, if satisfied that it is necessary or expedient so to do in the interest of industrial development of the State, exempt such class of industries from the payment of tax, for such period and subject to such conditions, as may be prescribed . . ." The authority of the State Government to exempt in exercise of the powers conferred on it by statute has not been disputed before us. The pleas raised by the parties for and against the operation of the doctrine of promissory estoppel are to be considered against the backgroun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ekhara Aiyar J. said: "... The invalidity of the grant does not lead to the obliteration of the representation . . . Can the Government be now allowed to go back on the representation, and if we do so, would it not amount to our countenancing the perpetration of what can be compendiously described as legal fraud which a court of equity must prevent being committed. If the resolution can be read as meaning that the grant was of rent-free land, the case would come strictly within the doctrine of estoppel enunciated in section 115 of the Indian Evidence Act. But even otherwise, that is if there was merely the holding out of a promise that no rent will be charged in the future, the Government must be deemed in the circumstances of this case to have bound themselves to fulfil it... Courts must do justice by the promotion of honesty and good faith, as far as it lies in their power." In other words, promissory estoppel long recognised as a legitimate defence in equity was held to found a cause of action against the Government, even when, and this needs to be emphasised, the representation sought to be enforced was legally invalid in the sense that it was made in a manner which was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the parties. The principle would be applied even when the promise is intended to create legal relations or affect a legal relationship which would arise in future. The Government was held to be equally susceptible to the operation of the doctrine in whatever area or field the promise is made, contractual, administrative or statutory. To put it in the words of the court: "The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by article 299 of the Constitution,. . . equity will, in a given case where justice and fairness demand, prevent a person from insisting on strict legal rights even where they arise, not under any contract, but on his own title deeds or under statute,. . . Whatever be the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar v. State of Haryana [1980] 3 SCR 689 where despite all the factors of promissory estoppel being established, the court held: "The plea of estoppel is not available against the State in the exercise of its legislative or statutory functions." Of course, it was also found that the representator had no authority to make the representation it had. To that extent the decision could not be said to have deviated from the earlier pronouncements of the law. The discordant note struck by Jit Ram's case [1980] 3 SCR 689 was firmly disapproved by a Bench of three judges in Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574; [1985] 4 SCC 369. It was affirmed that: "There can, therefore, be no doubt that the doctrine of promissory estoppel is applicable against the Government in the exercise of its governmental, public or executive functions and the doctrine of executive necessity or freedom of future executive action cannot be invoked to defeat the applicability of the doctrine of promissory estoppel." It was held that irrespective of the nature of power wielded the Government is bound to wield that power provided it possessed such power and has promised to do so knowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or public authority." In all these decisions, Chandrasekhara Aiyar J.'s judgment was quoted with approval. In the case before us, the State Government had the power to exempt or abolish milk as a taxable commodity. There was nothing in law which prohibited it from doing so. The representation to exempt milk was made by persons who had the power to implement the representation. Can it not be said that there are such circumstances in this case which required the State Government to exercise its powers to exempt milk from the burden of purchase tax, a power which it undoubtedly had? Before we determine the answer to this question, we may consider the remaining decisions cited to determine whether the principles relating to promissory estoppel as culled out from these earlier cases still hold the field. The decision in Bakul Cashew Co. v. Sales Tax Officer [1986] 159 ITR 565 (SC); [1986] 62 STC 122 (SC); [1986] 2 SCC 365 was a case dealing with the preconditions on the fulfilment of which a plea of promissory estoppel can be raised, viz., that the representation must not only be definite but must be satisfactorily established. The alteration of the petitioner's position acting up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, be necessary for the Government to establish an overriding equity in its favour to defeat the petitioner's plea of promissory estoppel. The court also held that the Government of India had justified the withdrawal of exemption notification on relevant reasons in the public interest. Incidentally, the court also noticed the lack of established prejudice to the promisees when it said: "The burden of customs duty, etc., is passed on to the consumer and therefore the question of the appellants being put to a huge loss is not understandable." We do not see the relevance of this decision to the facts of this case. Here the representations are clear and unequivocal. Amrit Banaspati Co. Ltd. v. State of Punjab [1992] 85 STC 493 (SC); [1992] 2 SCC 411 is an example of where despite the petitioner having established the ingredients of promissory estoppel, the representation could not be enforced against the Government because the court found that the Government's assurance was incompetent and illegal and "a fraud on the Constitution and a breach of faith of the people". This principle would also not be applicable in these appeals. No one is being asked to act contrary to the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate has the power to make laws (article 162 of the Constitution). The proposition urged by the learned counsel for the appellant falls foul of our constitutional scheme and public interest. It would virtually mean that the rule of promissory estoppel can be pleaded to defeat the provisions of law whereas the said rule, it is well-settled, is not available against a statutory provision. The sanctity of law and the sanctity of the mandatory requirement of the law cannot be allowed to be defeated by resort to rules of estoppel. None of the decisions cited by the learned counsel say that where an act is done in violation of a mandatory provision of a statute, such act can still be made a foundation for invoking the rule of promissory/equitable estoppel. Moreover, when the Government acts outside its authority, as in this case, it is difficult to say that it is acting within its ostensible authority." It would appear that these observations are in conflict with the earlier and subsequent pronouncements of the law on promissory estoppel. Chandrasekhara Aiyar J. had held that the representation was enforceable despite the "accident" that the grant was invalid inasmuch as it was contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Godfrey Philips [1986] 158 ITR 574 (SC); [1985] 4 SCC 369. There too, as we have noted earlier, the statutory provisions require exemption to be granted by notification. Nevertheless, the court having found that the essential prerequisites for the operation of promissory estoppel had been established, directed the issuance of the exemption notification. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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