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PETITIONER:

SALES TAX OFFICER & ANR.

Vs.

RESPONDENT:

M/S. SHREE DURGA OIL MILLS & ANR.

DATE OF JUDGMENT: 15/12/1997

BENCH:

SUHAS C. SEN, SUJATA V. MANOHAR

ACT:

HEADNOTE:

JUDGMENT:

(WITH C.A. NOS. 3785-86 OF 1988)

J U D G M E N T

SEN, J.

M/s. Shree Durga Oil Mills, respondent herein, was

assessed to tax by the Sales Tax officer for the assessment

years 1979-80, 1980-81 and 1981-82 for purchase of groundnut

from unregistered dealers. There is no dispute that

groundnut from unregistered dealers. There is no dispute

that groundnut was purchased from time to time by the

respondents and utilised for manufacturing oil. The

assessment orders were challenged by a writ petition on the

ground that in view of the Industrial policy Resolution

(I.P.R) dated 18.7.1979 issued by the Industries Department

of the Government of Orissa, sales tax was not payable by a

new industry on the purchase of raw material for the period

prescribed in the I.P.R.

It was contended on behalf of the writ petitioner that

it had applied for a license setting up an industry at

Betnoti in the district of Mayurbhanj and obtained a

provisional registration certificate on 28.11.1979. A

permanent registration certificate as a small scale

industrial unit was granted by the Director of Industries,

Orissa on 10.4.1980. The industrial unit also obtained a

production certificate certifying that it had started

production on 19.3.1980. The certificate of registration was

renewed from time to time. clause (8) of the I.P.R.

effective for the period 1979-83 provided that village

cottage and tiny industries certified as such by the State

Government and small scale industries shall be exempt from

purchase/sales tax for five years on construction material,

raw material, machinery and packaging materials. Small scale

industrial units in non-backward areas would be entitled to

this exemption only for four years. The case of the writ

petitioner before the High Court was that it set up its

industry in the district of Mayurbhanj pursuant to this

I.P.R. It had obtained a huge loan from the united Bank of

India. In term of the I.P.R., it was entitled to tax

exemption on purchase of groundnut, mustard seeds etc. which

were used as raw material for production of oil.

The Sales Tax Officer took the stand that there was no

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notification in force under Section 6 of the Orissa Sales

Tax Act, 1947 granting exemption to purchase or sale of

groundnut, mustard seeds etc. during the relevant period. In

the absence of such a notification, the assessee could not

gain immunity from payment of tax on its purchases.

Section 6 of the Orissa Sales Tax Act Provides that the

State may be notification, subject to such conditions and

exceptions, if any, exempt from tax the sale or purchase of

any goods or class of goods and likewise withdraw any such

exemption. A notification dated 11.11.1969 had been issued

under Section 6 by the State Government by which raw

materials which went into manufacture of the finished goods

were exempted from sale purchase tax when such goods were

sold to a registered dealer who was a manufacturer inside

the State and who had started production after 1.4.1969.

This exemption had been given for a period of five years

from the date on which such registered dealer had started

production. A similar notification dated 23.4.1976 was

issued granting exemption to raw materials purchased by a

manufacturer for a further period of five years from the

date on which production had commenced. Both these

notifications require that in order to avail this exemption

the manufacturer should furnish declarations in Form 'D'.

The exemptions granted by the two earlier notifications

were abrogated by notification dated 20.5.1977. The State

Government again restored the earlier two notifications by

another notification dated 9.9.1977. However, in that

notification dated 9.9.77, the exemption was limited only to

the industries which had started production prior to

1.4.1977. Since the industry set up by the writ petitioner

had commenced production on 19.3.1980, it was not eligible

for the exemption given by the notification dated 9.91977.

The case of the respondent in the writ petition was that the

I.P.R. was effective for the period 1979-83. The petitioner

had set up its industry pursuant to and in terms of this

Resolution. Exemption from tax had been granted by the two

notifications issued on 11.11. 1969 and 23.4.1976. The State

Government could not change these notifications to the

detriment of the assessee after the assessee had set up its

plant and had taken a huge loan from the bank for carrying

on its business. A prayer was mad to declare the

notification dated 9.9.1977 as ultra vires Article 19(1) (g)

of the Constitution of India.

The High Court allowed the writ petition on the ground

that in the I.P.R., a clear and unequivocal promise had

been made by which a legal relationship was sought to be

created between the State and the persons who had acted on

the basis of the I.P.R. M/s. Shree Durga Oil Mills, the writ

petitioner, had set up its industry on the basis of the

declaration made in the I.P.R. and the promise held out

therein. There was no way the State Government could back

out from the commitments made by it in the I.P.R. after the

petitioner had actually set up its industry pursuant to that

Resolution which was effective for the period 1977-83. On

the strength of this reasoning, the Orissa High Court

quashed the assessment orders passed by the Sales Tax

Officer. The State has now come up in appeal.

One of the points raised in this Court on behalf of the

respondent is that the High Court had merely followed its

judgments in the case of Jagannath Roller Flour Mills and

Ors. V. State of Orissa (1987) 65 STC 384 and also in M/s.

Industrial Packaging. No appeal was preferred against these

two judgments. Therefore, it is not open to the state now to

contend in this case that the decision of the High Court was

erroneous. Since the Sales Tax Department had accepted the

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aforesaid two decisions as final and binding, it could not

be permitted to challenge the settled law.

On behalf of the appellant, it has been pointed out

that although the earlier two decisions were not challenged

in this Court, the High Court's view needs reconsideration

in view of the decision of this Court in the case of

Commissioner of Sales Tax, Orissa and Anr. v. M/S. Jagannath

Cotton Mill 99 STC 83 where it was pointed out:

"The High Court seems to have

proceeded on the assumption that

the I.P.R. by itself is enough to

provide the exemption from the

sales tax. But where the provisions

of the Sales Tax Act are also

amended providing for exemption,

then the Court has to see whether

they are the same as the I.P.R. or

are they different-and if

different, what is the effect of

such difference. It is, therefore,

necessary to ascertain the relevant

provisions in the Sales Tax Act,

Rules and notifications, if any,

issued thereunder before expressing

a final opinion in the matter.:

In our view, this appeal cannot be shut out on the

preliminary ground that no appeal was preferred against the

two earlier two decisions of the High Court which were

followed in the instant case. It is for the Court to decide

whether to entertain an appeal or not. In our view, the

point of law raised in this case is of general public

importance and this appeal cannot be dismissed in limine on

the preliminary issue of maintainability. On behalf of the

appellant, it has been pointed out that in the High Court

itself, there has been a change in the perception of law in

this regard.

On the merit of the case, it has been contended on

behalf of the respondent that the State cannot be allowed to

first grant exemption and induce industries to be set up on

the basis of the promise held out in its I.P.R. and

thereafter back out from the promise after it had been acted

upon. reliance was placed on a decision of this Court in

Pournami Oil Mills v. State of Kerala & Anr. (1987) 1 SCR

654 for granting exemption from sales tax an I.P.R. was

sufficient by itself. A Statutory notification was not

necessary to implement that policy. Persons who had acted on

the basis of the I.P.R. were entitled to get benefit

thereunder. It has been contended that this Court has

emphasised this rule once again in the case of Pine

Chemicals ltd. v. Assessing Authority, (1992) 2 SCC 683.

Pine Chemicals case dealt with the exemption from sales

tax granted under the J & K General sales Tax Act. 1962. It

was held in that case that if the exemption was claimed on

the basis of a Minister's speech or a brochure published by

the Government then the claim of promissory estoppel could

not be entertained on behalf of any person who claimed that

they had changed their position on the basis of the speech

or the brochure. It was, however, held that if the

Government in exercise of powers under a statute granted

exemption then if appropriate conditions existed a case of

promissory estoppel could arise. The Court in that case

found that the Government had not made any general

declaration of its intention but had actually passed an

order granting exemption to new industries from Sales Tax.

The order was half to new industries from Sales Tax. The

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order was held to have been issued under Section 5 of the

General Sales Tax Act. Relying on these representations each

of the appellant had set up their industries. This Court was

of the view that since the appellants on the representation

of the State had set up their industries, they were entitled

to the benefit of tax exemption for the entire period of

five years as promised by the Government. Section 5 of the

General Sales Tax Act as set out in the judgment was:

"5. Exemption from tax- The

Government may, subject to such

restrictions and conditions as may

be prescribed, including conditions

as to licence and licence fee, by

order exempt in whole or in part

from payment of tax any class of

dealers or any goods in class or

description of goods."

It will be seen that unlike Section 6 of the Orissa

Sales Tax it does not specifically say that any exemption

from tax could be granted by the Government by a

notification and such exemption could be withdrawn at any

point of time by the Government. Moreover, in that case no

argument was advanced nor was the Court called upon to

consider the necessity of overriding public interest in

situations like this. If the Government after granting tax

exemption to various industries finds itself in a tremendous

financial crunch and seeks to raise finance by doing away

with the exemptions, it cannot be argued that because the

Government had promised to give tax exemption, which was

revocable under the statute, the Government cannot resile

from its stand however disastrous it may turn out to be for

the State's economy.

The crux of the matter in this case is whether the

Government had made any promise to the respondent and if so,

can it depart from the promise made by it in the I.P.R.

which was stated to be effective from 1977-1983.

There are several reasons why we are unable to uphold

the contention based on the principle of promissory estoppel

raised by the respondents in this case. No particulars have

been given by the respondents as to when the decision was

taken to set up the industry, the date when the loan was

obtained from the bank, and exactly when land was purchased

or the plant and machinery were acquired for setting

up of the small scale industrial unit. the I.P.R. on which

reliance has been placed by the respondent was issued on

18.7.1979. A provisional registration certificate in respect

of the respondent's industry was issued on 28.11.1979. The

respondent has not given factual details of how in the

short; span of about four months, it set up its industry on

the basis of the I.P.R.

Moreover, the Government may change its industrial

policy if the situation so warrants. merely because, the

I.P.R. as announced for the period 1979-1983, it does not

mean that the Government cannot amend or change the policy

under any circumstance. As a matter of fact, in this case

the Government had published another I.P.R. on 31.7.1980

modifying the earlier I.P.R. The vires of the Second I.P.R.

has not been challenged. The two I.P.Rs. have not been

issued under any particular statute. A general announcement

was made by the Government that certain economic policy

would be pursued for the acceleration of the growth of the

industrial sector in the State of Orissa. For that purpose,

a package of measures for stimulating the growth of

industries were announced. It was specifically made clear in

the I.P.R. dated 18.7.1979 that:

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" Government orders will issue

laying down the mode of

administering the concessions and

incentives by concerned

departments."

In other words, the I.P.R. dated 18.7.79 by itself did

not grant any exemption to the persons who set up industries

pursuant to that I.P.R. The I.P.R. merely promised that

orders will be issued laying down the mode of administering

the concessions and incentives by concerned departments.

Exemption of sales tax can only he granted in the manner

laid down by the Sales Tax Act. The Government by an

executive order cannot override the requirement of the

statute. The method and manner of granting exemption has

been laid down in Section 6 of the Orissa Sales Tax Act.

This Section specifically says that exemption have to be

granted by a notification issued under Section 6 can be

modified or withdrawn by the State Government at any point

of time. The State Government in the instant case, initially

issued the exemption notifications under Section 6. The

State Government subsequently decided to withdraw the

exemption notification in respect of some the industries

which had commenced production after 1.4.1977. The state

Government was fully competent to do so under the Provisions

of Section 6 of the Act. The respondent must have been aware

of this when its industry was set up. Every body is presumed

to know the law. section 6 of the Orissa Sales Tax Act which

empowers the State Government to issue a notification

granting exemption from sales tax, also empowers the State

Government to withdraw, amend or modify any such

notification as and when it thinks necessary to do so.

Section 6 of the Orissa Sales Tax Act is as under:

"6. Tax-free Goods-

The State Government may, by

notification, subject to such

conditions and exceptions, if any,

exempt from tax the sale or

purchase of any goods, or class of

goods and likewise withdraw any

such exemption."

When the respondent set up its oil mill and was granted

exemption from sales tax, it should have known that the

notification granting exemption of tax under Section 6 could

be withdrawn at any point of time. Therefore, the case of

promissory estoppel is without any basis. There cannot be

any estoppel against statute.

Moreover, it is well settled that any I.P.R. can be

changed if there is an overriding public interest involved.

it has been stated on affidavit by the State of Orissa that

after a package of incentives was given to the industries,

the Government was faced with severe resource crunch. On a

review of its financial position, it was felt that for the

sake of the economy of the State, it was necessary to limit

the scope of exemption granted to various industries.

Accordingly, further notifications were issued under Section

6 of the Orissa Sales Tax Act from time to time. Because of

this new perception of the economic scenario, the scope of

the earlier notifications was restricted by subsequent

notifications issued under Section 6. This also led to

issuance of the second I.P.R. dated 31.7.1980.

The question of applicability of the doctrine of

promissory estoppel against the Government has been

considered in a number of cases by this Court.

In the case of Kasinka Trading and Another v. Union of

India and Another, (1995) 1 SCC 274, a notification was

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issued by the Customs Department under Section 25(1) of the

Customs Act in public interest exempting certain goods from

basic import duty and specified the date upto which it will

remain in force. prior to expiry of that date another

notification was issued withdrawing the exception and

imposing customs duty on import of such goods. A challenge

was made to withdrawal of the notification by some importers

who claimed that they had entered into agreements on the

basis of the earlier notifications. It was held by this

Court that the Government had issued the first notification

in public interest for a certain period. But it was felt

later that in public interest. exemption should not be

continued even though that period had not expired. Therefore

the Government withdrew it. it was held that when exemption

was granted under statutory power, it was implicit that it

could also be rescinded or modified in exercise of the same

power.

In the instant case, Section 6 of the Orissa Sales Tax

Act specifically lays down that the exemption notification

issued under that Section can be withdrawn at any point of

time.

Moreover withdrawal of notification was done in public

interest. The Court will not interfere with any action taken

by the Government in public interest. Public interest must

override any consideration of private loss or gain.

The view taken by its Court in Kasinka's case was

reiterated by a Bench of three-judges in the case of Shrijee

Sales Corporation & Anr. Vs. Union of India (1997) 3 SCC

398. It was laid down in that case that the determination of

applicability of promissory estoppel against the Government

hinges upon balance of equity or public interest. In case

there is a supervening public equity, the Government would

be allowed to change its stand; it would then be able to

withdraw from representation made by it which induced

persons to take certain steps which may have gone adverse to

the interest of such persons on account of such withdrawal.

Once public interest was accepted as the superior equity

which can override individual equity, the aforesaid

principle should be applicable even in cases where a period

had been indicated for operation of the promise. In that

case, a notification was issued exempting customs duty on

PVC. By a second notification the exemption was withdrawn.

The Court held that the facts of the case revealed that

there was a supervening public interest and the Government

was competent to withdraw the first notification without

giving any prior notice to the respondent.

In the instant case, it has been stated on behalf of

the State that Various notifications granting sales tax

exemptions to the dealers resulted in severe resource

crunch. On reconsideration of the financial position, it was

decided to limit the scope of the earlier exemption

notifications issued under Section 6 of the Orissa Sales Tax

Act. because of this new perception of the economic scenario

of the State, the scope of the earlier notifications had to

be restricted. They were first abrogated altogether on

20.5.1977. Thereafter, it was decide to grant exemption at a

limited scale.

In our opinion, the plea of change of policy trade on

the basis of resource crunch should have been sufficient for

dismissing the respondent's case based on the doctrine of

promissory estoppel. Public interest demanded modification

of the earlier I.P.R.

Moreover, as it has been noted earlier that the I.P.R.

itself had not granted any exemption but had indicated that

orders will be issued by various departments for granting

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the exemptions. The exemption order under sales tax could

only be issued under Section 6 which could be amended or

withdrawn altogether. This is expressly provided by Section

6. If the respondent acted on the basis of a notification

issued under Section 6 it should have known that such

notification was liable to be amended or rescinded at any

point of time, if the Government felt that it was necessary

to do so in public interest. That is exactly what has

happened in this case.

In view of the above, we are of the opinion that this

appeal must succeed and is allowed. The judgment under

appeal is set aside. There will be no order as to costs.

C.A. Nos. 3785-86 of 1988

In view of the above decision in C.A. No. 3784/88,

these appeals are also allowed.