Promissory estoppel and fiscal classification limits govern withdrawal of sales tax exemptions for khadi industries.

A statutory sales tax exemption for khadi and village industries may be withdrawn or varied where the enabling provision expressly reserves that power, and promissory estoppel will not apply absent a clear and unequivocal promise of perpetual exemption. In fiscal classification, the State has wide discretion, and a challenge under Article 14 fails unless the distinction is shown to be palpably arbitrary or hostilely discriminatory. On that basis, the differential treatment granting full exemption to 21 identified industries and concessional tax to the remaining industries was upheld as a valid policy choice.

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Issues: (i) Whether the notifications withdrawing or restricting sales tax exemption for khadi and village industries could be invalidated on the basis of promissory estoppel. (ii) Whether the classification granting full exemption to 21 khadi and village industries and concessional tax to the remaining industries violated Article 14 of the Constitution of India.

Issue (i): Whether the notifications withdrawing or restricting sales tax exemption for khadi and village industries could be invalidated on the basis of promissory estoppel.

Analysis: Section 10 of the Kerala General Sales Tax Act, 1963 empowered the Government to grant exemption or reduction in tax and also to cancel or vary any such notification. The exemption was a statutory concession and there was no unequivocal governmental promise of perpetual exemption to all khadi and village industries. In the absence of a promise capable of founding an enforceable equity, and in view of the statutory power to modify the exemption, the doctrine of promissory estoppel could not prevent withdrawal or restriction of the concession.

Conclusion: The challenge based on promissory estoppel failed and the exemption notifications could not be struck down on that ground.

Issue (ii): Whether the classification granting full exemption to 21 khadi and village industries and concessional tax to the remaining industries violated Article 14 of the Constitution of India.

Analysis: In fiscal matters the State enjoys wide discretion to classify for taxation, and the burden on the challenger is heavy. The 21 industries covered by the impugned notification formed a distinct class in the policy context, while the remaining village industries were differently placed. The notifications reflected a policy choice to grant full exemption to the 21 industries and a concessional rate to the others, and no palpable arbitrariness or hostile discrimination was established. The classification was held to be within permissible limits of fiscal legislation.

Conclusion: The impugned classification did not offend Article 14 and was upheld as valid.

Final Conclusion: The constitutional challenge to the sales tax notifications failed, and the notifications granting full exemption to the specified 21 industries while extending only concessional tax treatment to the others were sustained.

Ratio Decidendi: A statutory tax exemption may be withdrawn or varied under the enabling provision unless the Government has made a clear promise attracting promissory estoppel, and fiscal classification will be upheld unless it is shown to be palpably arbitrary or hostilely discriminatory.

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