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CASE NO.:

Appeal (civil) 6449 of 1998

PETITIONER:

State of Punjab

RESPONDENT:

M/s Nestle India Ltd. & Anr.

DATE OF JUDGMENT: 05/05/2004

BENCH:

Ruma Pal & P.Venkatarama Reddi.

JUDGMENT:

J U D G M E N T

With

Civil Appeal Nos.5826/98, 6451/98 and 6450/98

RUMA PAL, J.

All the respondents before us have factories in the State

of Punjab where they produce various milk products. For the

purpose of their business, they purchase milk from villages,

each respondent from a particular "milk shed area" which

covers several hundred villages in and around such

respondent's factory. As registered dealers under the Punjab

General Sales Tax Act, 1948, the respondents had been and

are at present paying purchase tax on milk in terms o f Section

4(B) of the State Act. However, for one year i.e. for the period

1.4.96 to 4.6.97, none of the respondents paid the purchase

tax. They did not do so because they say that the Government

had decided to abolish purchase tax on milk for the period in

question and was estopped from contending to the contrary.

On the basis that the State had wrongly raised demands

for purchase tax on milk on the respondents for the period

1996-97, the respondents filed separate writ petitions before

the High Court. The High Court allowed the writ petitions and

quashed the demands raised. Aggrieved by the decision of the

High Court, these appeals have been preferred by the State

Government.

The circumstances under which the respondents had

approached the Court chronologically commenced with an

announcement made by the then Chief Minister of Punjab on

26th February 1996 while addressing dairy farmers at a state

level function, that the State Government had abolished

purchase tax on milk and milk products in the State. This

announcement was given wide publicity in several newspapers

in the State.

The second circumstance was the speech given by the

Finance Minister of the State while presenting the budget for

the year 1996-97. Like all other budget speeches, it consisted

of a review of achievements and a delineation of future

economic measures proposed to be taken for the development

of the State. It was said:

"In a package of measures, special relief

was given to the farming community

which is the backbone of the State's

economy \005..\005\005\005\005.. Furthermore,

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last month the Chief Minister has

abolished the purchase tax on milk.

While this would reduce the inflow of tax

revenue to the extent of Rs.6.93 crores,

it will assist the milk 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 26.4.96 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 26.2.1996, while

addressing a public function organised

by the Milk-fed 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 w.e.f. 1.4.1996.

You are requested to send proposal

along with the financial implication

involved therein, immediately.

\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005.

On the basis of the above decision, you

are also requested to issue necessary

instructions to the field officers."

In response to this memo, a circular dated 26th April 1996

was issued by the Excise and Taxation Commissioner, Punjab

to all the Deputy and Assistant Excise and Taxation

Commissioners and the Deputy Directors (Enforcement) in the

State. The circular requires quotation:

"The Government have decided to abolish

purchase tax on milk and to exempt dhoop-

agerbati, kumkun, kirpan, pens and ball-pens

from the levy of sales tax. It has also decided

to reduce rate of tax on stainless steel utensils

from 10% to 4% on tractor parts from 8% to

2% and on bullion from 2% to 0.5% all these

exceptions/reductions will be effective from

1.4.1996.

2. To implement these decisions,

necessary notifications are under process and

likely to be issued shortly

3. This position may be brought to the

notice of all the officers/officials for information

and necessary action.

4. The receipt of this communication may

please be acknowledged".

It is averred in the writ petitions and not disputed by the

appellants that the representatives of the respondents

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companies were informed about the instructions contained in

the above circular dated 18th May 1996 by the concerned

officials of the Department. The fact of exempting milk and

milk products from purchase tax was also recorded in a letter

written by the Excise and Taxation Commissioner to the

Financial Commissioner in which it is also said that in

compliance with the directions of the Government, instructions

had been circulated to the field officers to charge the tax as per

the decision of the Government. The issuance of the

necessary notification to implement the decision of the

Government was urged, to avoid any "legal complications or

audit objection". That such instruction has been issued is also

recorded in a series of letters between the Financial

Commissioners which are not referred to in detail here.

On 27th June 1996, a meeting was held under the

chairmanship of the Chief Minister which was attended by the

Finance Minister, the Excise and Taxation Minister and various

Financial Commissioners. At the meeting, the decision to

abolish purchase tax on milk was reiterated and it was decided

to issue a formal notification "in a day or two".

On 18th July 1996/24th July 1996 the Finance Minister

made an announcement that with a view to encourage milk

producers and for granting relief 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 21st August 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 w.e.f. 1st April 1996 and the Sales

Tax Authorities have taken the 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 1.4.96 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 were not rejected by the tax authorities.

According to the respondents, the benefit which arose

from the exemption of purchase tax was passed on by them to

the farmers and milk producers. Details of this expenditure

have been mentioned in the writ petitions filed.

None of the facts which we have narrated earlier have

been denied by the respondents. In fact even after the end of

the financial year 1996-97, the Government published

advertisements claiming credit for having abolished purchase

tax on milk.

For the first time, on 4th June 1997, the Council of

Ministers held a meeting to consider various items on the

agenda. One of the items related to the abolishing of purchase

tax on milk. The minutes cryptically record that the decision to

abolish purchase tax on milk was not accepted. Consequently

on 3rd July 1977 the Excise and Taxation Officer issued notices

to the respondents requiring them to pay the amount of

purchase tax for the whole of the year 1996-97.

In this background, the High Court held that the State

Government was bound by its promise/representation made to

the respondents to abolish purchase tax. According to the

High Court, "the absence of a formal notification was no more

than a ministerial act" which remained to be performed. The

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respondents had acted on the representation made and could

not be asked to pay the purchase tax w.e.f. 1.4.96 but would be

liable after the decision of the Government for the subsequent

period i.e. from 4.6.97.

The appellants have not seriously questioned the fact that

the Government had by a series of actions on its part, in effect,

made representations regarding the non-levy of purchase tax

w.e.f. 1.4.1996 nor is it denied that the respondents had acted

on the representations so made. The only question raised by

the appellant is that the principle of promissory estoppel would

not arise when the relevant statute prescribes a particular mode

for the grant of relief in respect of which the representation has

been made. The relevant statute is the Punjab General Sales

Tax Act, 1948. It is said by the appellants that there can be no

estoppel against the statute and since no notification had been

issued as required by the statute, the respondents could not

refuse to pay the tax on any principle of promissory estoppel.

According to the appellants the decision not to abolish

purchase tax on milk was taken in the public interest.

The Punjab General Sales Tax Act, 1948 (hereafter

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 (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 free

under Section 6 and whose gross turnover exceeds the taxable

quantum is liable to pay tax on the sales effected or the

purchases made. Certain goods have been made tax free

under Section 6(1) read with Schedule 'B' to the Act. Section

6(2) at the material time provided that the State Government

"after giving by notification not less than twenty days notice of

its intention so to do may by like notification add to or delete

from Schedule B and thereupon Schedule B shall be deemed to

be amended accordingly".

The respondents are admittedly dealers within the

meaning of the definition of the word under Section 2(d) of the

Act. Every dealer is required to pay tax in the manner

prescribed under Section 10 which requires furnishing of

returns/declarations by the dealer together with the receipt

showing that the full amount of tax due from the dealer under

the Act according to such returns had been paid in the

prescribed manner. If there is failure to pay the tax in the

manner prescribed, the dealer may be liable to pay penalty of a

sum upto one and a half times of the tax payable under sub-

section (6) of Section 10. The substance of section 10 has

been detailed in Rules 20 to 25 of the Rules. Rule 20

provides for the furnishing of returns either quarterly or monthly.

Rule 24 provides for the form in which such returns are to be

filed. Rule 25 provides that all returns which are required to be

furnished under the Rules "shall be signed by the registered

dealer or the agent, and shall be sent to the appropriate

assessing authority\005\005\005\005\005 together with the treasury or

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bank receipt in proof of payment of the tax due". The

Assessing Authority then passes an order of assessment on

such return under Section 11 unless he is satisfied that the

returns are not correct and complete.

Apart from the power to treat goods otherwise leviable to

tax under the Act as tax free under Section 6(2), the State

Government has the power under Section 31 to amend

Schedule ''C' itself and thereby remove goods from imposition

of tax altogether. It provides:

"The State Government after giving by

notification not less than twenty days

notice of its intention so to do, may by

notification add to, or delete from,

schedule C any goods, and thereupon

Schedule C shall be deemed to be

amended accordingly."

(emphasis added)

In addition, the State Government has the power to

exempt the payment of tax under Section 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.

(2) ***********

(3) Every notification made under sub-section

(1) shall as soon as may be after it is

made, be laid before the State

Legislature."

(emphasis added)

Section 30-A 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\005\005..

\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005.."

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 background of these statutory

provisions.

But first a recapitulation of the law on the subject of

promissory estoppel. The foundation of the doctrine was laid in

the decision of Chandrasekhar Aiyar, J. in Collector of

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Bombay V. Municipal Corporation of the City of Bombay

(1952 SCR 42). There, in 1865, the Government of Bombay

had passed a resolution authorising the grant of an area to the

municipality rent free for the purpose of setting up a market.

Although possession of the site was made over to the then

Municipal Commissioner no formal grant was in fact executed

as required by the applicable statute. Acting on the resolution,

the Corporation spent considerable sums of money in building

and improving the market and was in possession for 70 years

during which period no revenue had been paid to or

claimed by the Government. At this stage, a demand was

sought to be raised on account of rent under the Bombay City

Land Revenue Act, 1876. The Corporation impugned the

demand by filing a suit. The suit was dismissed. An appeal

was preferred before the High Court. The High Court reversed

the decision of the Trial Court and held that the Corporation

was entitled to hold the land for ever without payment of any

rent and the Government had no right to assess the premises.

The Collector preferred an appeal before this Court. There was

no dispute that by reason of non-compliance with the statutory

formalities, the Government resolution of 1865 was not a

factual grant passing title in the land to the Corporation. There

was also no dispute that there was no enforceable contract

between the State Government and the Municipal Corporation.

Of the three Judges, Das, J. held that the possession of the

Corporation not being referrable to any legal title was adverse

to the legal title of the Government and the right acquired by the

Corporation to hold the land in perpetuity included an immunity

from payment of rent. Patanjali Sastry, J differed.

Chandrasekhara Aiyar, J., concurred with the conclusion of

Das, J but based his reasoning on the fact that by the

resolution, representations had been made to the Corporation

by the Government and the accident that the grant was invalid

did not wipe out the existence of the representation nor the fact

that it was acted upon by the Corporation. What has since

been recognised as a signal exposition of the principle of

promissory estoppel, Chandrasekhara Aiyar, J. said:

"\005.The invalidity of the grant does not

lead to the obliteration of the

representation. \005\005\005\005\005\005\005\005\005\005\005.

\005\005\005\005\005\005.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\005\005\005\005\005.. 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

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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 in conformity with the procedure prescribed by statute.

This principle was built upon in M/s Union of India &

Ors. V. M/s Indo-Afghan Agencies Ltd. (1968 (2) SCR 366)

where it was said (at p. 385):

"Under our jurisprudence the Government is

not exempt from liability to carry out the

representation made by it as to its future

conduct and it cannot on some undefined and

undisclosed ground of necessity or

expediency fail to carry out the promise

solemnly made by it, nor claim to be the judge

of its own obligation to the citizen on an

ex parte appraisement of the circumstances in

which the obligation has arisen:.

However, the superstructure of the doctrine with its pre-

conditions, strengths and limitations has been outlined in the

decision of M/s Motilal Padampat Sugar Mills Co. Ltd. V.

State of Uttar Pradesh and Others 1979 (2) SCC 409. Briefly

stated \026 the case related to a representation made by the State

Government that the petitioners factory would be exempted from

payment of sales tax for a period of three years from the date of

commencement of production. It was proved that the petitioners

had, as a consequence of the representation, set up the factory

in the State. But the State Government refused to honour its

representation. It claimed sales tax for the period it had said

that it would not. When the petitioners went to Court, the State

Government took the pleas :

(1) In the absence of notification under Section 4-A, the

State Government could not be prevented from

enforcing the liability to Sales Tax imposed on the

petitioners under the provisions of the Sales Tax Act;

(2) That the petitioners had waived its right to claim

exemption and;

(3) That there could be no promissory estoppel against

the State Government so as to inhibit it from

formulating and implementing its policies in public

interest.

This Court rejected all the three pleas of the Government. It

reiterated the well-known preconditions for the operation of the

doctrine.

(1) a clear and unequivocal promise knowing and intending

that it would be acted upon by the promisee;

(2) such acting upon the promise by the promisee so that it

would be inequitable to allow the promisor to go back on

the promise.

As for its strengths it was said: that the doctrine was not limited

only to cases where there was some contractual relationship or other

pre-existing legal relationship between 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

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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. (p.442)\005\005\005\005.

\005\005\005\005. 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.(p.424) \005\005\005Whatever be the

nature of the function which the Government is

discharging, the Government is subject to the rule of

promissory estoppel and if the essential ingredients

of this rule are satisfied, the Government can be

compelled to carry out the promise made by it. "

(p. 453)

(emphasis added)

So much for the strengths. Then come the limitations. These

are:

(1) since the doctrine of promissory estoppel is an equitable

doctrine, it must yield when the equity so requires. But it

is only if the Court is satisfied, on proper and adequate

material placed by the Government, that overriding public

interest requires that the Government should not be held

bound by the promise but should be free to act unfettered

by it, that the Court would refuse to enforce the promise

against the Government.( p.443)

(2) No representation can be enforced which is prohibited by

law in the sense that the person or authority making the

representation or promise must have the power to carry

out the promise. If the power is there, then subject to the

preconditions and limitations noted earlier, it must be

exercised. Thus, if the statute does not contain a

provision enabling the Government to grant exemption, it

would not be possible to enforce the representation

against the Government, because the Government cannot

be compelled to act contrary to the statute. But if the

statute confers power on the Government to grant the

exemption, the Government can legitimately be held

bound by its promise to exempt the promisee from

payment of sales tax. (p.387-388)

The remaining decisions are illustrative of various aspects of

the framework set up by the Court in the decision in M.P. Sugar

Mills. For example Century Spinning & Manufacturing Company

Ltd. & Anr. v. The Ulhasnagar Municipal Council & Anr. [1970] 3

SCR 854 emphasised the strengths defined earlier:

" If the representation is acted upon by

another person it may, unless the statute

governing the person making the

representation provides otherwise, result in

an agreement enforceable at law ; if the

statute requires that the agreement shall be

in a certain form, no contract may result from

the representation and acting thereupon but

the law is not powerless to raise in

appropriate cases an equity against him to

compel performance of the obligation arising

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out of his representation". (p.859)

An apparently aberrant note was struck in Jit Ram Shiv Kumar

& Ors. etc. v. State of Haryana and Anr. etc.( 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". (P.699)

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 Jitram's case was firmly

disapproved by a bench of three Judges in Union of India & Ors. v.

Godfrey Philips India Ltd.etc.etc. (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". (p.387)

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 knowing and intending that the

promisee would act on such promise and the promisee has done so:

" We think that the Central Government had power

under Rule 8 sub-rule (1) of the Rules to issue a

notification excluding the cost of corrugated

fibreboard containers from the value of the

cigarettes and thereby exempting the cigarettes

from the part of the excise duty which would be

attributable to the cost of corrugated fibreboard

containers. So also the Central Board of Excise

and Customs had power under Rule 8 sub-rule (2)

to make a special order in the case of each of

respondents granting the same exemption, because

it could legitimately be said that, having regard to

the representation made by the Cigarette

Manufactures' Association, there were

circumstances of an exceptional nature which

required the exercise of the power under sub-rule

(2) of Rule 8. The Central Government and the

Central Board of Excise and Customs were

therefore clearly bound by promissory estoppel to

exclude the cost of corrugated fibreboard containers

from the value of the goods for the purpose of

assessment of excise duty for the period May 24,

1976 to November 2, 1982". (p.389)

(emphasis added)

The limitations to the doctrine delineated in M.P. Sugar Mills

(supra), however, were also reaffirmed when it was said:

"\005\005.. that there can be no promissory estoppel

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against the Legislature in the exercise of its

legislative functions nor can the Government or

public authority be debarred by promissory estoppel

from enforcing a statutory prohibition. It is equally

true that promissory estoppel cannot be used to

compel the Government or a public authority to

carry out a representation or promise which is

contrary to law or which was outside the authority or

power of the officer of the Government or of the

public authority to make. We may also point out

that the doctrine of promissory estoppel being an

equitable doctrine, it must yield when the equity so

requires; if it can be shown by the Government or

public authority that having regard to the facts as

they have transpired, it would be inequitable to hold

the Government or public authority to the promise or

representation made by it, the Court would not raise

an equity in favour of the person to whom the

promise or representation is made and enforce the

promise or representation against the Government

or public authority". (pp.387-388)

In all these decisions, Chandrasekhar 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,

Quilon Q1986 (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 upon such representation must also be

pleaded with particularity and sufficiently supported with material. The

Court found that it had not been established that any prejudice had

been suffered by the petitioner. As we have noted earlier, each of

the respondents in these appeals has given a detailed account of

how the monies which were otherwise payable on account of

purchase tax have been expended on the milk shed areas and

producers of milk. No dispute has been raised by the appellants to

this.

The doctrine of promissory estoppel has also been extended to

service law. In Surya Narain Yadav and Others V. Bihar State

Electricity Board 1985 (3) SCC 38, It was found as a fact that the

Bihar State Electricity Board had made representations that

graduates who would be taken as training engineers would be

regularised against appropriate posts and the submission that such

appointments would be contrary to statutory rules of the Board was

brushed aside and the Court directed the Board, following

Chandrasekhara Aiyar, J's opinion in Collector of Bombay V.

Municipal Corporation (supra) as well as the decisions Union of

India V. Indo-Afghan Agencies (supra) and Century Spinning &

Manufacturing Co. Ltd. V. Ulhasnagar Municipal Council (supra)

and Motilal Padampat Sugar Mill Co. Ltd. v. State of U.P. (supra),

to act in terms of the representation made. Indeed the principles of

promissory estoppel have been applied time and again by this Court

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and it is unnecessary to burden our decision by referring to all the

cases except to note that the view expressed by Chandrasekhara

Aiyar, J in 1952 still holds good. [See: State of Madhya Pradesh

vs. Orient Paper Mills (1990) 1 SCC 161; Delhi Cloth and General

Mills v. Union of India 1998 1 SCR 383; Sharma Transport v.

Govt. of A.P. (2002) 2 SCC 188; State of Orissa v. Mangalam

Timber Products (2004) 1 SCC 139]

The case of Kasinka Trading V. Union of India 1995 (1) SCC

274, cited by the appellants is an authority for the proposition that the

mere issuance of an exemption notification under a provision in a

fiscal statute such as Section 25 of the Customs Act, 1962, could not

create any promissory estoppel because such an exemption by its

very nature is susceptible to being revoked or modified or subjected

to other conditions. In other words there is no unequivocal

representation. The seeds of equivocation are inherent in the power

to grant exemption. Therefore, an exemption notification can be

revoked without falling foul of the principle of promissory estoppel. It

would not, in the circumstances, be necessary for the Government to

establish an over-riding 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 promises

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".

[See also Shrijee Sales Corporation v. Union of India 1997 (3)

SCC 398 ; Sales Tax Officer v. Shree Durga Oil Mills 1998 (1)

SCC 572] . 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 (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 statute. What is being sought is a

direction on the Government to grant the necessary exemption. The

grant of exemption cannot be said to be contrary to the statute. The

statute does not debar the grant. It envisages it.

Although the view expressed by two Judges in Jitram's case

(supra) has been disapproved in Godfrey Phillips (supra), it was

ostensibly resuscitated in ITC Bhadrachalam Paperboards V.

Mandal Revenue Officer, A.P. 1996 (6) SCC 634. In that case the

State Government had the power to remit assessment under section

7 of the Andhra Pradesh Non-Agricultural Lands Assessment Act,

1963. Section 11 of that Act provided for exemption to be made by

an order of the State Government which was required to be

published in the Andhra Pradesh Gazette prior to which the order

had to be laid on the table of the Legislative Assembly. The Court

construed the provisions of the State Act and came to the conclusion

that the nature of the power under Section 11 did not amount to

delegated legislation but conditional legislation. It was held that

"If the statute requires that a particular act

should be done in a particular manner and if it

is found, as we have found hereinbefore, that

the act done by the Government is invalid and

ineffective for non-compliance with the

mandatory requirements of law, it would be

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rather curious if it is held that notwithstanding

such non-purpose of invoking the rule of

promissory/equitable estoppel. Accepting

such a plea would amount to nullifying the

mandatory requirements of law besides

providing a licence to the Government or other

body to act ignoring the binding provisions of

law. Such a course would render the

mandatory provisions of the enactment

meaningless and superfluous. Where the field

is occupied by an enactment, the executive

has to act in accordance therewith, particularly

where the provisions are mandatory in nature.

There is no room for any administrative action

or for doing the thing ordained by the statute

otherwise than in accordance therewith.

Where, of course, the matter is not governed

by a law made by a competent legislature, the

executive can act in its executive capacity

since the executive power of the State

extends to matters with respect to which the

legislature of a State 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

where 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".

(p.657-658)

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 contrary to statute.

M.P. Sugar Mills (supra) had said that the promise was

enforceable against the Government despite the requirement

of Article 299 of the Constitution. Similarly, Century Spinning

(supra) held that despite the requirement of the statute

prescribing the manner and form to grant exemption from

payment of octroi, a promise not made in that manner or form

could be enforced in equity. Then again in Godfrey Philips

(supra), the Court directed an exemption to be granted on the

basis of the principles of promissory estoppel even though

Rule 8 of the Central Excise Rules 1944 required exemption to

be granted by notification.

Of course, the Government cannot rely on a

representation made without complying with the procedure

prescribed by the relevant statute, but a citizen may and can

compel the Government to do so if the factors necessary for

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founding a plea of promissory estoppel are established. Such a

proposition would not "fall foul of our constitutional scheme and

public interest". On the other hand, as was observed in Motilal

Sugar Mills. case and approved in the subsequent decisions:

"It is indeed the pride of constitutional

democracy and rule of law that the

Government stands on the same

footing as a private individual so far as

the obligation of the law is concerned :

the former is equally bound as the

latter. It is indeed difficult to see on

what principle can a Government,

committed to the rule of law, claim

immunity from the doctrine of

promissory estoppel."

None of these decisions have been considered in ITC

Bhadrachalam Paperboards V. Mandal Revenue Officer

(supra) except for a brief reference to Chandrasekhara Aiyar,

J's judgment which was explained away as not being an

authority for the proposition that even where the Government

has to and can act only under and in accordance with a statute

\026 an act done by the Government in violation thereof can be

treated as a presentation to found a plea of promissory

estoppel. But that is exactly what the learned Judge had said.

In any event judicial discipline requires us to follow the

decision of the larger Bench. The facts in the present case are

similar to those of prevailing in Godfrey Philips (supra). 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 pre-requisites 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 1st April

1996 so that the respondents cannot in any event re-adjust 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.

In the case before us, the power in the State

Government to grant exemption under the Act is coupled with

the word "may" \026 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.

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