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PETITIONER:

AMRIT BANASPATI CO.LTD.AND ANR.

Vs.

RESPONDENT:

STATE OF PUNJAB AND ANR.

DATE OF JUDGMENT05/03/1992

BENCH:

SAHAI, R.M. (J)

BENCH:

SAHAI, R.M. (J)

MOHAN, S. (J)

CITATION:

1992 AIR 1075 1992 SCR (2) 13

1992 SCC (2) 411 JT 1992 (2) 217

1992 SCALE (1)540

ACT:

Promissory Estoppel- Nature extent and applicability

of-Promissory estoppel cannot be enforced against Statute or

public policy.

State-Announcement of policy of incentives and

concession including refund of sales tax to persons

establishing large scale industries in focal point-

Establishment of Vanaspati Unit-Authorities assuring

concession and incentive-Claim for refund of sales tax-

Action of authorities held not unauthorised nor beyond the

scope of their authority-Held there was estoppel against the

Government-But scheme of refund of sales tax held contrary

to public policy and void under section 23 of the Contract

Act and not enforceable in law.

Constitution of India, 1950 : Article 265.

Taxation-Nature of power-Taxation is

sovereign power.

Taxation-Refund of tax-Permissibility and legality

of-No law can be made to refund the tax except when the levy

is contrary to law-A promise or agreement to refund tax is a

fraud on Constitution-Exemption from tax and refund of tax -

Distinction between - Exemption is neither illegal nor

against public policy-Refund of tax, unless levied contrary

to law, would be invalid and ultra vires.

HEADNOTE:

The Government of Punjab issued a brochure in December,

1966 announcing its `New Policy' declaring that incentives

and concession, one of the them being refund of sales-tax

would be available to those persons who were willing to set

up selective large scale industries in the focal point.

Attracted by the concessions and incentives the appellant's

Manager wrote a letter in June, 1968 to the Chief Minister

of Punjab expressing his willingness to set up a vanaspati

unit provided the concession was made available to it. By

its letter dated 2nd July, 1968 the Director of Industries

replied the appellant assuring that the concession would be

granted to it.

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Thereafter there had been exchange of correspondence and

various meetings between the appellant's representative and

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officials of the Government. By its letter dated 25th

October, 1968 the appellant requested for confirmation of

the concession. By a letter dated 16th June, 1969 it was

confirmed that the State Government had agreed to give the

concession and incentives. Acting on the assurance the

appellant purchased the land, which by a notification issued

by the Government was included in the focal point, and also

invested substantial amount in setting up the unit.

Subsequently, the appellant claimed refund of sales tax

paid by it to the State Government on sale made by it of its

finished products. On respondents failure to refund the

amount, the appellant filed a writ petition in the High

Court of Punjab and Haryana for a direction to refund the

sales tax to the appellant.

A single judge of the High Court allowed the petition

and directed the Government to honour its commitment of

refunding sales tax to the appellant on principle of

promissory estoppel.

On appeal the order of Single Judge was set aside by the

Division Bench holding that (i) the decision of the

Government to grant concession came in June,1969 but before

that i.e. in May, 1969 the policy had undergone a change;

(ii) in view of the decision of the Cabinet Sub-Committee in

1966 not to give any refund of sales tax the brochure itself

was unauthorised and consequently the actions of the

Government officials could not create any right in favour of

the appellant; and (iii) the refund of amount paid as sales

tax by the appellant would be contrary to Articles 265 and

266 of the Constitution of India.

In appeal to this Court it was contended on behalf on

the State that (i) in the absence of any assurance by a

competent authority on behalf of the State the promise if

any was incapable of giving rise to any equity; and (ii)

that the policy of the Government announced in the brochure

was only an offer and letter of the appellant sent on 25th

October, 1968 was a counter offer which was under

consideration of Government which made another counter offer

on 16th June Which was accepted by the appellant who

thereafter applied for registration and the Government

issued a notification declaring the factory in the focal

point.

Dismissing the appeal this Court,

15

HELD : 1. The finding of the Division Bench, was

factually and legally incorrect. It was not justified in

holding that the Government officials had extended promise,

unauthorisedly and beyond scope of their authority. [26-F]

Vasant Kumar Radhakisan Vora v. Board of Trustees of

the Port of Bombay & Anr., [1991] 1 SCC 761, held

inapplicable.

2. The Government functions through its officials and so

long they are acting bona fide in pursuance of Government

policy the Government cannot be permitted to disown it as a

citizen can have no means to know if what was being done was

with tacit approval of the Government. The Government cannot

be permitted to go back on its promise by producing some

documents lying in its file which was neither known, nor

announced, nor acted upon as it would be unjust and unfair,

therefore, illegal. If it is found that the representation

made by the official concerned was such that any reasonable

person would believe it to have been made on behalf of the

Government then unless such representation is established to

be beyond scope of authority it should be held binding on

the Government. It is another matter that even if it is

binding it may be contrary to law and therefore

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unenforceable. [21F-G, 25-H, 26-A]

Motilal Padampat Sugar Mills v. State of U.P., [1979] 2

S.C.R. 641, referred to.

2.1 In the instant case the record unmistakenly demonstrate

that the authorities were not only assuring the appellant

but were making every effort that the unit be established in

consonance with the policy of Government as it would result

in industrialization and development of the State. Such

painstaking effort of responsible and senior officers of

the State was neither unauthorised nor beyond scope of their

authority. [23b-C]

3. There is no merit in the finding that by the time the

Government agreed, in writing, to grant concession the

policy had undergone a change. Estoppel arose against

Government not by the letter dated 16th June, 1969 but by

the promise made by it in December, 1968, assurance by its

officials both in writing and oral leading appellant to

believe that it was intended to create an agreement that

sales tax paid shall be refunded as a result of which it not

only purchased land, machinery and other parts much before

the policy went into any change but the Government issued

notification as

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well declaring the area where the factory was established

to be in focal point. Rights of parties were therefore

governed by the old and not new policy. [26H, 27A-C]

Purnami Oil MIlls etc. v. State of Kerala, [1987] 1

S.C.R. 654. and Assistant Commissioner of Commercial Taxes

v. Dharnendra Trading Co., [1988] 3 S.C.R. 946, referred to.

4. The entire argument founded on offer and counter

offer is misconceived. There is no merit in the submission

that after considering proposal of appellant the Government

gave a counter offer on 16th June, 1969. It would be too

much to read to letter dated 25th October, 1968 as counter

offer. It was only intimation by the appellant that it had

decided to set up the unit as it has been assured that the

concessions as announced would be available to it. [25A-C,

24-E]

5. Promissory Estoppel being extension of principle of

equity, the basic purpose of which is to promote justice

founded on fairness and relieve a promises of any injustice

perpetrated due to promisor's going back on its promise, is

incapable of being enforced in a court of law if the promise

which furnishes the cause of action or the agreement,

express of implied giving rise to binding contract is

statutorily prohibited or is against public policy. [27E-F]

Union of India v. Indo Afghan Agencies, [1968] 2

S.C.R. 366; Union of India V. Godfrey Philips India Ltd.,

[1985] 4 SCC 370 and Delhi Cloth and General Mills Ltd. v.

Union of India , [1988] 1. S.C.R.383, referred to.

6. Taxation is sovereign power exercised by the State

to realise revenue to enable it to discharge its

obligations. Even a legislature, much less a government,

cannot enact a law or issue an order or agree to refund the

tax realised by it from people in exercise of its sovereign

powers, except when the levy or realisation is contrary to a

law validly enacted. A promise or agreement to refund tax

which is due under the Act and realised in accordance with

law would be fraud on the Constitution and breach of faith

of the people. [27-G, 28A-B]

Halsbury's Laws of England, Vol., 52; para 20.04,

referred to.

7. Exemption from tax to encourage industrialisation

should not be confused with refund of tax. They are two

different legal and distinct

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concepts. An exemption is a concession allowed to a class or

individual from general burden for valid and justifiable

reason. Such provision in an Act or Notification or order

issued by Government are neither illegal nor against public

policy. [28D-F]

7.1 But refund of tax is made in consequence of excess

payment of it or its realisation illegally or contrary to

the provisions of law. A provision or agreement to refund

tax due or realised in accordance with law cannot be

comprehended. No law can be made to refund tax to a

manufacturer realised under a statute. It would be invalid

and ultra vires. An agreement or even a notification or

order permitting refund of sales tax which was due shall be

contrary to the Statute. [28G, 29A]

7.2 Neither section 12 nor section 30 of the Punjab

Sales Tax Act empowers the Government to refund sales tax

realised by a manufacturer on sales of its finished product.

Refund could be allowed if tax paid was in excess of amount

due. Any agreement for such refund being contrary to public

policy was void under Section 23 of the Contract Act. The

constitutional requirements of levy of tax being for the

welfare of the society and not for a specific individual the

agreement or promise made by the government was in

contravention of public purpose thus violative of public

policy. No legal relationship could have arisen by operation

of promissory estoppel as it was contrary both to the

Constitution and the law. Realisation of tax through State

mechanism for sake of paying it to private person directly

or indirectly is impermissible under constitutional scheme.

The law does not permit it nor equity can countenance it.

The scheme of refund of sales tax was thus incapable of

being enforced in a court of law. [28H, 29A-D]

JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2832-

2833 of 1979.

From the Judgment and Order dated 25.1.1977 of the

Punjab and Haryana High Court in Civil Writ No. 5653 of 1975

and Letters Patent Appeal No. 368 of 1975.

Kapil Sibal, U.K. Khaitan, Praveen Kumar and Vivek

Sibal for the Appellants.

D.S. Mehra, Mrs Jayshree Anand, Arun Mehra, Sanjay

Bansal and G.K. Bansal, for the Respondents.

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The Judgment of the Court was delivered by

R.M. SAHAI, J. Promissory estoppel, its extent and

applicability, apart, one of the important issue, that

arises for consideration in this appeal, directed against

the judgment and order of a Division Bench of the Punjab and

Haryana High Court exercising jurisdiction under Letters

Patent and setting aside order of the learned single judge

directing refund of sales tax and inter-State sales tax, is

if the Government of a State could agree expressly or

impliedly to refund sales tax realised by a manufacturer.

Facts, found by the learned single Judge, which were

sufficient to direct the government to honour its

commitments of refunding sales tax to the appellant on

principle of promissory estoppel were announcement of policy

by the Government to refund sales tax, as an incentive to

those who were willing to set up large scale selective

industries in the focal points, letter of the appellant

seeking details of policy as he was willing to set up a

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Vanaspati manufacturing unit, favourable response from the

Director of Industries followed by exchange of letters and

meetings between appellant's representatives and Secretary

of Industries extending assurance that the incentives shall

be available to; the appellant acting on which it purchased

land, machinery etc., laying of foundation stone by the

Governor and issuance of notification declaring the land, on

which unit was established, in focal point. The order was

set aside in appeal and it was held that even though rule of

equitable estoppel should be observed by all government and

public authorities but its scope was restricted and it could

not be extended, too widely so as to bind a government even

where its officials in excess of their authority or against

the interest of the government extended the promise. The

Bench drew inference against the appellant from its letters

seeking written assurance that the concession would be

extended to it which came, as well, in June,1969 but before

that the policy had, already, undergone change in May, 1969.

The Bench further felt mystified that even though there was

a decision of Cabinet Sub-Committee as far back as 1966 not

to give any refund of sales tax yet the Government officials

acting contrary to it issued the brochure and corresponded

with the appellant in, wholly unauthorised manner therefore

their action could not create any right in favour of the

appellant. It also negatived the claim of appellant, as

refund of an amount paid as sales tax by the appellant,

would be raising revenue by the Government not for itself or

for public but for a private person which would be contrary

to Articles 265 and 266 of

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the Constitution of India.

Law of Promissory Estoppel which Found its `most

eloquent exposition' in Union of India v. Indo Afghan

Agencies, [1968] 2 SCR 366, crystallised in Motilal Padampat

Sugar Mills v. State of U.P., [1972] 2 SCR 641 as furnishing

cause of action to a citizen, enforceable in a court of law,

against government if it or its officials in course of their

authority extended any promise which created or was capable

or creating legal relationship, and it was acted upon, by

the promise irrespective of any prejudice. It was reiterated

in Union of India v. Godfrey Philips India Ltd., [1985] 4

SCC 370 and was taken further when it was held that no duty

of excise was assessable on cigarettes manufactured by

assessee by including, cost of corrugated fibreboard

containers, when it was clearly represented by the Central

Board of Excise and Customs in response to the submission

made by the Cigarette Manufacturer's' Association-and this

representation was approved and accepted by the Central

Government - that the cost of corrugated fibreboard

containers would not be includible in the value of the

cigarettes for the purpose of assessment of excise duty. In

Delhi Cloth and General Mills Ltd . v. Union of India,

[1988] 1 SCR 383 it was held.

"All that is now required is that the party

asserting the estoppel must have acted the

assurance given to him. Must have relied upon the

representation made to him. It means, the party has

changed or altered the position by relying on the

assurance or the representation. The alteration of

position by the party is the only indispensable

requirement of the doctrine. It is not necessary to

prove further any damages, detriment or prejudice

to the party asserting the estoppel."

What, therefore , requires to be examined, is if any

promise was made by the Government or its officials to

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the appellant that sales tax shall be refunded to it and

if the appellant acting on it altered its position. For

this it is necessary to narrate few facts even though

both the learned Single Judge and Division Beach have

dealt with it elaborately. Admittedly. a brochure was

issued in December 1966 by the Government of Punjab

announcing its `New Policy' declaring that incentive and

concession, one of them being refund of sales tax, would

be available to those persons who set up selective large

scale industries in the focal point. Whether this

brochure was authorised or not and its legal effect on

rights of parties shall

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be adverted to later. But it is undisputed that acting

on it the appellant's representative met the Chief

Minister of the State personally and found that he was

interested in encouraging Vanaspati Manufacturing unit

in the State,therefore, its Manager wrote a letter in

June, 1968 to the Chief Minister expressing willingness

to set up the unit provided the concessions were made

available to it which was replied by the Director of

Industries on 2nd July, 1968 assuring the appellant that

the concession as announced shall be available and

further informed the appellant that the Government was

willing to consider such additional concession which the

appellant may require for implementation of the scheme.

It was followed by exchange of correspondence and

various meetings between appellant's representative and

officials of the Government. Outcome of it is recorded

in the note submitted by the Secretary of Industries on

1.4.1969 to Finance department, on certain queries made

by it, relevant portion of which reads,

"As Government investment had take place in Rajpura

the Sub-Committee appointed for allotment of

industrial plots was very much concerned to allot

the same but it was finding difficulty in getting

suitable parties. In October, 1968 Shri Khaitan of

Amrit Banaspati Factory of Ghaziabad approached me

and the D.I. for location of their vanaspati plant

of 100 tonnes capacity per day in Punjab. These

people since they were already very much in the

business and since their vegetable ghee was meeting

20 to 25% of Punjab's needs of vanaspati it was

felt that if we encourage these people to come to

Punjab it will give great boost to industrial

growth. These people were attracted mainly to

Punjab on account of the availability of raw

material. i.e., groundnut which are in plenty

around about. They consequently asked for a plot

in Dhandari Kalan. At that stage we had 2-3

application for setting up of vanaspati plants at

Ludhiana and since our Rajpura Estate was very much

neglected it was decided that we persuade this

party to locate its factory at Rajpura as by their

coming there, it was felt that several small and

ancillary units would also get located and our

plots would be sold. In fact Shri Khaitan, during

the course of his discussions with me mentioned

that his project which would be costing nearly

Rs.1.5 crores would necessitate setting up the

other smaller units-tin makers-who would come over

from U.P. and settle up at Rajpura . Taking all

these

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factors into consideration I mentioned this matter

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to Mr.---- and also informally to FS also at that

stage and it was decided that we get this party

located at Rajpura. Unfortunately, the demand of

land by this party was in one place to the tune of

15 to 20 acres and since our plots were only of 1-

1.5 acres of size it was decided that they may be

allowed to locate their plot nearabout our Focal

Point so that it could be integrated finally in our

future expansion of the Industrial Estate at

Rajpura which yet shows no sign of life and

consequently it was felt that by bringing this part

more industries of allies nature would come here.

In plan for 1969-70 the F.D. are aware that we have

very little money set aside for further acquisition

of land. Realising this, we, therefore, suggested

to this party to go in for purchase of land

themselves as we were not sure whether we would be

able to have enough funds to acquire more land at

Rajpura particularly when our earlier plots had not

been sold out. This party was keen to come in as

it wanted to do into production from November,

1969. The party has purchased that piece of land

which has approval of the Town and Country Planning

department, it has also submitted its plan for

construction of buildings etc."

It is, thus, obvious that there was representation

to the appellant that it would be entitled to concession

and incentives announced by the Government if it set up

its unit in the focal point. Whether such

representation resulted in binding agreement is

different issue but the representation coming from

Industries Secretary and Director of Industries in

pursuance of Government policy cannot be held to be

unauthorised or beyond the scope of authority. The

Government functions through its officials and so long

they are acting bona fide in pursuance of Government

policy the Government cannot be permitted to disown it

as a citizen can have no means to know if what was being

done was with tacit approval of the Government. And if

it is found that the representation made by the official

concerned was such that any reasonable person would

believe it to have been made on behalf of the Government

then unless such representation is established to be

beyond scope of authority it should be held binding on

the government. It is another matter that even if it is

binding it may be contrary to law and therefore

unenforceable. In Motilal Padampat Sugar Mills (supra)

the Government was held bound to grant exemption from

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sales tax to the sugar mill even though the manufacturer

had written letter to the Director of Industries on a

news item published for grant of exemption from sales

tax, based on a statement issued by the Secretary of

Industries which was favourably replied first by the

Director of Industries endorsed later by the Chief

Secretary informing the manufacturer that government was

willing to consider the request and necessary from etc.

may be obtained from Secretary Industries. As is clear

from the noting of the Secretary the appellant purchased

the land, privately, on assurance of the Secretary which

by a notification issued by Government was included in

focal point. It was not denied that by January, 1969

the appellant had purchased the land and various other

materials at a cost of 15 lakhs and had placed an order

for purchase of plant and machinery of value of Rs.35

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lakhs which was intimated by a telegram sent on 11th

January, 1969. Even rules were framed in February, 1969

by sanction of the President of India which provided for

refund of sales and purchase tax to new and expanding

industries . All this indicates that the promise was

made on behalf of the Government by its officials in

pursuance of and in line with the declaration of policy

by the Government that a new unit shall be entitled to

concession. Acting on the assurance, both express and

implied, the appellant invested substantial amount in

setting up the unit requesting, in the meanwhile, for

grant of written sanction from the Government which,

too, came. But even if it would not have it would not

have made any difference in law as the equity arose in

favour of appellant not by the letter dated 16th June,

1969 but by altering its position on assurance given by

authorities. In Godfrey Philips (supra) it was observed,

"Now the doctrine of promissory estoppel is well-

established in the administrative law of India, It

represents a principle evolved by equity to avoid

injustice and, though commonly named promissory

estoppel,it is neither in the realm of contract nor

in the realm of estoppel. The basis of this

doctrine is the interposition of equity which has

always, true to its form, stepped into mitigate the

rigour of strict law."

Basic ingredients of promise by the Government, belief

of the appellant that it was true and if acted upon shall,

entitle it to refund of sales tax, and finally altering its

position by investing substantial amount were thus

established to invoke promissory estoppel against

government.

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Vehement argument of the learned counsel, for the State of

Punjab, that in absence of any assurance by a competent

authority on behalf of the State the promise if any was

incapable of giving rise to any equity, cannot be accepted

in absence of any positive material to show that the

Government either disassociated itself from the letter sent

by the Secretary or Director of Industries or acted contrary

to what was alleged to have been represented or assured by

them. On the other hand the notings of the Secretary,

extracted earlier, demonstrate unmistakenly that the

authorities were not only assuring the appellant but were

making every effort that the unit be established in

consonance with the policy of Government as it would result

in industrialisation and development of the State. Such

painstaking effort of responsible and senior officers of the

State was neither unauthorised nor beyond scope of their

authority. In fact the letter dated 16th January, 1969 and

the notification declaring the land where the unit of

appellant was established to be in focal point to enable it

it avail of the concession were only follow up action which

demolish any such conclusion as was canvassed by the learned

counsel.

Effort was, also, made to advanced an innovative

submission of offer, counter offer and recounter offer. It

was submitted that policy of the Government announced in the

brochure was only an offer. And letter of the appellant

sent on 25th October, 1968 was counter offer which was

under consideration of Government which made another counter

offer on 16th June which was accepted by the appellant who

thereafter applied for registration and the Government

issued a notification declaring the factory in the focal

point. All that can be said is that the submission was

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advanced without any foundation, in complete is regard of

facts and misapprehension about the law of offer and counter

offer. Letter dated 25th October, 1968 was written, to the

Secretary of Industries Pursuant to letter dated 2nd

July,1968 and with reference to the interview held between

appellant's representative and the Secretary of Industries

at Chandigarh on 16th October,1 1968 undertaking to set up a

factory at Rajpura, a site approved by the department

within area covered by the layout plan of industrial estate

with assurance that the plot shall be in focal point at

Rajpura and if necessary steps shall be taken to include it

in focal point. The letter mentioned that according to the

policy the concession available to the appellant would be

refund of purchase and sales tax including inter-state sales

tax for a period of five years. In paragraph 6 of the

letter the appellant wanted clarification that the period

of five years shall be counted from the date of production.

24

Paragraph 7 of the letter read,

"7. We would very much like to spend money on

further industrial development, staff and labour

welfare activities, housing for staff and labour,

research and development of agricultural products

for use in industry in the State of Punjab. In

order to enable us to do so, it is requested that

instead of refunding the amount of the purchase and

sales tax including inter-state sales tax as such

an amount equivalent to the amount of purchase and

sales tax including inter-state tax to be paid by

us every quarter is paid to us as Capital grant

quarterly for a period of five years commencing

from the date of production. If our request is

accepted, we on our part undertake to utilise the

same for all or any of the said purposes as we feel

proper in the State of Punjab. You will appreciate

that after all the State will benefit if the

concession are utilised for advancement of industry

and research and staff and welfare in the State and

this will be possible if our request is considered

favourably."

Request for confirmation of the concession mentioned in

the letter dated 25th October, 1968 were reiterated in a

telegram sent on 11th January and letters dated 3rd, 13th

and 23rd January, 1969. It would be too much to read the

letter dated 25 th October, 1968, as counter offer, It was

intimation by the appellant that it had decided to set up

the unit as it has been assured that the concessions as

announced would be available to it. The request that the

period of five years for refund should be calculated from

the date of production, and capital grant may be made every

quarterly equivalent to the amount of sales tax are

impossible to be read as declining of availing the offer

made by the Government. What was requested was that if

instead of refunding of the sales tax or purchase tax an

amount equivalent to it was paid to them every quarter for

a period of five years it would enable them to utilise the

same for the benefit of the State itself. It was this

request which was reiterated in the telegrams and letters

but at no point of time the appellant made any request that

if capital grant was not paid it shall not avail of the

concession in respect of sales tax. The request was to

change the nature of payment and not the refund. It could

no be termed as counter offer, also because the appellant

not only undertook to establish the unit but as agreed went

on to purchase land and

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25

machinery etc. Nor is there any merit in the submission that

after considering proposal of appellant the Government gave

a counter offer on 16th June, 1969 forgetting that issuance

of letter was not an isolated action of the Government but

it was preceded, apart, from earlier notings of the

Secretary extracted earlier, by a meeting which took place

on 2nd May between various officials in which the decision

was taken. `that the concession and incentives applicable to

focal point will be given to M/S Amrit Banaspati Co. Ltd.

only in respect of 12 acres of land to be utilised by them

for setting up the ghee industry'. Letter dated 16th June,

1969 was faithful reproduction of the decision taken on 2nd

May, 1979 informing the appellant that, `the State

Government have agreed to give the concessions and

incentives admissible to a unit in the focal point of

industrial growth to the unit proposed to be set up by you

for the manufacture of Vanaspati Ghee.' The entire argument

founded an offer and counter offer, thus, was misconceived.

Two reasons were given, by Division Bench of the High

Court, to permit the Government to escape from rigour of the

principle of promissory estoppel one that the brochure

itself was unauthorised and other that when the decision of

the Government came the policy had already undergone change.

Neither appear to be well founded. Cabinet Sub-Committee's

decision of 15th December, 1968 which formed the basis for

the finding that the brochure was unauthorised, are minutes

of a decision of a Committee comprising of the Industries

Minister and Secretary Industries which did not see light of

the day till it was filed by way o;f supplementary affidavit

before the Division Bench. As against it, the Chief

Minister and Industries Minister in an inaugural speech of

Conference Of Industries at Chandigarh after five days of

its, that is, on 20th December, 1968, announced that

concession and incentive shall be offered to new units set

up in focal points details of which were mention in the

booklet issued by the Government in December, 1966, which

provided of refund of sales tax as claimed by the appellant.

A citizen of a State can have no means to ascertain

that announcement by the Chief Minister and the Industries

Minister of State that concession made in the booklet would

be available was not the government policy as the Cabinet

Sub-Committee earlier had taken some other decision. The

Government cannot be permitted to go back on its promise by

producing some documents lying in its file which was neither

known,

26

nor announced, nor acted upon as it would be unjust and

unfair, therefore, illegal. Factually the Division Bench

read too much in the minutes of 15th December, 1968 but it

is not necessary to deal with it. Suffice it to say how the

Government understood and wanted others to understand its

policy was mentioned in the brochure. Even the Secretary who

was a member of the Sub-Committee understood it in the manner

in which it was printed in the booklet. In the note

submitted to the Finance Department it was stated,

"...The Entire Matter of giving concessions was

discussed at the Cabinet level and all these

factors (namely exemption from sales tax)* were

taken into consideration when the Government took a

decision to give such attractive concessions to the

industry. I would like this case to be seen by

D.M. also as he had enquired about this case from

me. The Amrit Banaspati people as I.N. and F.S.R

are aware, have already gone for construction of

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their building and according to their plan they

propose to go into product in November 1969. They

are anxious that the Government takes an early

decision granting concession to their unit also.As

it is a big industry we should take an immediate

decision as by so doing the possibility of bringing

in ancillary can be explored thereby ensuring that

our industrial estate gets fully developed at the

earliest..."

*[bracket supplied]

As stated earlier the letter dated 16th June, 1969 was

founded on notings of 27th May, 1969 which was based on

decision arrived on 22nd May, 1969. The finding of the

Division Bench, was thus, factually and legally incorrect.

It was not justified in holding that the Government

officials had extended promise, unauthorisedly and beyond

scope of their authority. Reliance on Vasantkumar Radhakisan

Vora v. Board of Trustees of the Port of Bombay & another,

[1991] 1 SCC 761 was not apposite as the Estate Manager at

whose instance the lessee had deposited the amount for grant

of tenancy after reconstruction was authorised to collect

rent only. Further the letter indicated that if the lessee

complied with conditions he would recommend to the Board for

grant of lease. And recommendation was made. But not

accepted.

Nor there is any merit in the finding that by the time

the Government

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agreed, in writing, to grant concession the policy had

undergone change, therefore, the appellant was entitled to

the concession under the new policy only, Estoppel arose

against Government not by the letter dated 16th June, 1969

but by the promise made by it in December, 1968 to those who

were willing to set up new unit, assurance by its officials

both in writing and oral leading appellant to belief that it

was intended to create an agreement that sales tax paid

shall be refunded as a result of which it not only purchased

land, machinery and other parts much before the policy went

into any change but the Government issued notification as

well declaring the area where the factory was established to

be in focal point. Rights of parties were therefore governed

by the old and not new policy. The appellant was never

intimated that the Government had changed its policy in

respect of refund of sales tax at any point prior to filing

of the counter affidavit in th High Court. Even the letter

dated 16th June, 1969, did not mention that the concession

would be available as provided in the new policy. In

Purnami Oil Mills, etc. V. State of Kerala, [1987] 1 SCR 654

the Government was not permitted to go back on its earlier

promise of wider exemption from sales tax in pursuance of

which the industries had been set up on principle of

promissory estoppel and the Notification issued after one

year curtailing exemption was held to apply to industries

set up thereafter. To same effect is the decision in

Assistant Commissioner of Commercial Taxes v. Dharnendra

Trading Company [1988] 3 SCR 946.

But Promissory Estoppel being on extension of principle

of equity, the basic purpose of which is to promote justice

founded on fairness and relieve a promisee of any injustice

perpetrated due to promisor's going back on its promise, is

incapable of being enforced in a court of law if the promise

which furnishes the cause of action or the agreement,

express of implied, giving rise to binding contract is

statutorily prohibited or is against public policy. What

then was the nature of refund which was promised by the

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govt.? Was such promise contrary to law and against public

policy? Could it be enforced in a court of law? Taxation is

a sovereign power exercised by the State to realise revenue

to enable it to discharge its obligations. Power to do so is

derived from entries in Lists I, II and III of the Seventh

Schedule of the Constitution. Sales tax or purchase tax is

levied in exercise of power derived from an Act passed by a

State under Entry 54 of List II of VIIth Schedule. It is an

indirect tax as even though it is collected by a dealer the

normally permits it to be passed on and the ultimate burden

is borne by the consumer. But 'the fact that the burden of

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a tax may have been passed on the consumer does not alter

the legal nature of the tax' (Halsbury's Laws of England,

Vol. 52, paragraph 20.04). Therefore even a legislature,

much less government, cannot enact a law or issue an order

or agree to refund the tax realised by it from people in

exercise of its sovereign powers, except when the levy or

realisation is contrary to a law validly enacted. A promise

or agreement to refund tax which is due under the Act and

realised in accordance with law would be a fraud on the

Constitution and branch of faith of the people. Taxes like

sales tax are paid even by a poor man irrespective of his

savings with a sense of participation in growth of national

economy and development of the State. Its utilization by way

of refund not to the payer but to a private person, a

manufacturer, as an inducement to set up its unit in the

State would be breach of trust of the people amounting to

deception under law.

Exemption from tax to encourage industrialisation

should not be confused with refund of tax. They are two

different legal and distinct concepts. An exemption is a

concession allowed to a class or individual from general

burden for valid and justifiable reason. For instance tax

holiday or concession to new or expanding industries is well

known to be one of the methods to grant incentive to

encourage industrialisation. Avowed objective is to enable

the industry to stand up and compete in the market. Sales

tax is an indirect tax which is ultimately passed on to the

consumer. If an industry is exempt from tax the ultimate

beneficiary is the consumer. The industry is allowed to

overcome its teething period by selling its products at

comparatively cheaper rate as compared to others.

Therefore, both the manufacture, and consumer gain, one by

concession of non-levy and other by non-payment. Such

provisions in an Act or Notification or orders issued by

Government are neither illegal not against public policy.

But refund of tax is made in consequence of excess

payment of it or its realisation illegally or contrary to

the provisions of law. A provision or agreement to refund

tax due or realised in accordance with law cannot be

comprehended. No law can be made to refund tax to a

manufacturer realised under a statute. It would be invalid

and ultra vires. The Punjab Sales Tax Act provided for

refund of sales tax and grant of exemption in circumstances

specified in Sections 12 and 30 respectively. Neither

empowered the Government to refund sales tax realised by a

manufacturer on sales of its finished product. Refund could

be allowed if tax paid was

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in excess of amount due. An agreement or even a notification

or order permitting refund of sales tax which was due shall

be contrary to the statute. To illustrate it the appellant

claimed refund of sales tax paid by it to the State

Government of sale made by it of its finished products. But

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the tax paid is not an amount spent by the appellant but

realised on sale by it. What is deposited under this head is

tax which is otherwise due under provisions of the Act.

Return of refund of its or its equivalent, irrespective of

from is repayment or refund of sales tax. This would be

contrary to Constitution. Any agreement for such refund

being contrary to public policy was void under Section 23 of

Contract Act. The constitutional requirements of levy of

tax being for the welfare of the society and not for a

specific individual the agreement or promise made by the

government was in contravention of public purpose thus

violative of public policy. No legal relationship could have

arisen by operation of promissory estoppel as it was

contrary both to the Constitution and the law. Realisation

of tax through State mechanism for sake of paying it to

private person directly or indirectly is impermissible under

Constitutional scheme. The law does not permit it nor

equity can countenance it. The scheme of refund of sales

tax was thus incapable of being enforced in a court of law.

Fallacy of such constitutionally inhibited policy,

sacrificing public interest resulting in illegal private

enrichment is exposed by claim of refund for nearly Rs. 2

crores, for a period of three years, only, when total

investment in establishing the unit was Rs. 1.5 crores, Levy

of tax to raise revenue for promoting economic growth of the

State reduced itself in enhancing the profit margin of the

manufacturer and the sales tax stood converted into income

of the appellant. Such contrivance of law even though bona

fide is legally unenforceable.

In the result this appeal fails and is dismissed with

cost.

T.N.A. Appeal dismissed.

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