2004 (11) TMI 320 - SC - VAT / Sales Tax

Fresh hearing ordered on retrospective withdrawal of tax-exemption benefits and claims of promissory estoppel and natural justice

Bannari Amman Sugars Ltd. Versus Commercial Tax Officer and others

SC set aside the High Court's reliance on government file materials and directed a fresh hearing on whether retrospective withdrawal of tax-exemption ... Retrospective withdrawal of benefits - Legality of the G.O. Ms. No. 989 dated September 1, 1988, directing discontinuance of purchase tax exemption in case of mills which exceeded the ceiling of Rs. 300 lakhs during the period of five years, and Government letter dated December 28, 1988, which made the aforesaid G.O. Ms. No. 989 of September 1, 1988, operative retrospectively from April 1, 1988 - doctrines of promissory estoppel - Violation of principles of natural justice. Held that:- Decision of the High Court by placing reliance on the files to hold that the withdrawal was justified, is not tenable in law and in the fitness of things, the High Court should hear the matter afresh and take a decision on those two is- sues. It is made clear that we have not expressed any opinion on those issues on the facts of the present case. It is to be noted that no privilege was claimed from production of the file as the files were produced before the High Court and in fact the High Court referred to the materials on the files to affirm State's action. We direct that the State Government, if it so chooses, shall file its further counter-affidavits before the High Court within six weeks from today indicating the reasons which warranted the withdrawal of the benefits extended. The plea of the appellants regarding legitimate expectation shall be considered by the High Court in the light of the materials to be placed by the respondents by affidavits as directed above. Another point which was specifically raised before the High Court but has not been dealt by it is the legality of the action in directing retrospective withdrawal of the benefit by a letter of the Government. Whether the same is permissible in law has to be decided by the High Court. Issues Involved:1. Application of the doctrines of promissory estoppel and legitimate expectation.2. Retrospective withdrawal of benefits.3. Violation of principles of natural justice.4. Compliance with Article 166 of the Constitution of India.5. Validity of the State Government's action in withdrawing the benefits.Issue-wise Detailed Analysis:1. Application of the Doctrines of Promissory Estoppel and Legitimate Expectation:The appellants argued that the doctrines of promissory estoppel and legitimate expectation were applicable. They contended that there was no material showing an overriding public interest that would negate the application of these doctrines. The High Court found that the respondents had established their units prior to the Government orders granting the subsidy and had no vested right to claim exemption. The court held that no inducement was made in the Government orders to establish the units, and the respondents had not acted based on these orders. The grant of subsidy was deemed a concession that could be modified in public interest. The Supreme Court emphasized that promissory estoppel is a principle evolved by equity to avoid injustice and that it can be invoked only if the industry was established based on a government representation. Additionally, the doctrine of legitimate expectation allows for judicial review if a decision negates a promise or undertaking, provided there is no overriding public interest.2. Retrospective Withdrawal of Benefits:The appellants challenged the retrospective withdrawal of benefits, arguing that it was impermissible. The High Court did not specifically address this issue. The Supreme Court noted that the legality of retrospective withdrawal by an executive order needs examination and directed the High Court to consider this aspect.3. Violation of Principles of Natural Justice:The appellants claimed that there was a violation of natural justice as they were not given an opportunity to be heard before the benefits were withdrawn. They argued that the materials used by the High Court to decide the case were not disclosed to them. The Supreme Court held that while beneficiaries are not entitled to a hearing before policy changes, when the High Court relies on undisclosed files to justify withdrawal, principles of natural justice require that the appellants be given a chance to present their case. The High Court's reliance on files without specific grounds or reasons being indicated in affidavits was deemed unfair.4. Compliance with Article 166 of the Constitution of India:The appellants argued that the Government's letter dated December 28, 1988, lacked authentication as required under Article 166 of the Constitution, making it ineffective. Article 166 mandates that all executive actions of the State Government be expressed in the name of the Governor and authenticated as specified by rules. The Supreme Court noted that whether there was compliance with Article 166 must be adjudicated based on the factual background of each case.5. Validity of the State Government's Action in Withdrawing the Benefits:The High Court upheld the State Government's action, finding that the withdrawal of benefits was justified in public interest. The Supreme Court, however, found that the High Court's decision was based on files not disclosed to the appellants, which violated natural justice principles. The Supreme Court directed the High Court to re-examine the validity of the withdrawal, considering the reasons for the withdrawal and the appellants' plea of legitimate expectation.Conclusion:The Supreme Court remanded the matter to the High Court for fresh consideration on the issues of retrospective withdrawal of benefits and the validity of the State Government's action. The High Court was directed to allow the State Government to file further counter-affidavits indicating the reasons for the withdrawal of benefits and to consider the appellants' plea of legitimate expectation. The appeals were disposed of without any order as to costs.