Promissory estoppel cannot defeat statutory power to vary tax exemptions, but selective classification must still satisfy Article 14.

A statutory sales tax exemption for khadi and village industries remained subject to the Government's express power to cancel or vary the notification, so promissory estoppel could not prevent withdrawal or modification of the concession. However, limiting full exemption to only 21 identified industries was held arbitrary because the classification rested on historical declaration dates rather than any intelligible differentia linked to the taxation policy, and the concessional rate for the remaining industries did not cure the defect. The discussion also notes that courts may not create a new exemption policy, though limited transitional protection may be granted where a selective exemption is withdrawn.

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Issues: (i) whether withdrawal of sales tax exemption available to khadi and village industries could be sustained in view of promissory estoppel and the Government's statutory power to cancel or vary exemption notifications; (ii) whether limiting full exemption to 21 identified industries while subjecting the remaining khadi and village industries to tax was discriminatory and violative of Article 14; and (iii) what consequential relief, if any, could be granted.

Issue (i): whether withdrawal of sales tax exemption available to khadi and village industries could be sustained in view of promissory estoppel and the Government's statutory power to cancel or vary exemption notifications.

Analysis: The exemption notifications were not shown to have promised perpetual exemption or exemption for a fixed period on which any enforceable equity could be founded. The governing provision empowered the Government to grant exemption in public interest and also to cancel or vary any notification. A dealer claiming the benefit of an exemption notification must take notice that the concession remains liable to modification or withdrawal in exercise of that statutory power. A plea of promissory estoppel cannot prevail against an express statutory power to revoke or alter the exemption.

Conclusion: The challenge based on promissory estoppel failed; withdrawal or modification of exemption was legally permissible.

Issue (ii): whether limiting full exemption to 21 identified industries while subjecting the remaining khadi and village industries to tax was discriminatory and violative of Article 14.

Analysis: The relevant class of industries covered by the khadi and village industries regime was not shown to possess any rational basis for singling out only the first 21 industries for total exemption. The distinction rested essentially on the date of their original declaration and not on any intelligible differentia having nexus with the object of the taxation policy. The Government had itself treated khadi and village industries as a broader class for several incentives, and the classification adopted for exemption was found to be arbitrary and lacking reasonable nexus. The availability of a concessional rate for the remaining industries did not cure the constitutional defect in the selective grant of total exemption.

Conclusion: The notification granting full exemption only to 21 industries was held arbitrary, discriminatory, and violative of Article 14.

Issue (iii): what consequential relief, if any, could be granted.

Analysis: Although the selective exemption was invalid, the Court declined to extend full exemption to all khadi and village industries because exemption under the taxing statute was a matter for governmental policy in public interest and not a relief the Court could itself create. The existing concessional-rate notification was left undisturbed for the non-exempt industries, while the affected exempted industries were protected for a limited period so that tax collection could commence prospectively after reasonable notice. Limited protection was also granted against penal interest for timely compliance within the period fixed by the Court.

Conclusion: Full exemption was not directed for all khadi and village industries, but limited transitional relief was granted and the Government was left free to reconsider the exemption policy prospectively or retrospectively on a proper basis.

Final Conclusion: The exemption regime was struck down only to the extent it conferred total exemption on a selective basis, while the broader claim to perpetual exemption for all khadi and village industries was rejected and only transitional and consequential reliefs were allowed.

Ratio Decidendi: A statutory exemption notification may be withdrawn or varied in public interest where the enabling provision expressly authorises such cancellation, but a selective exemption scheme must still satisfy the constitutional test of reasonable classification under Article 14.

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