Promissory estoppel limits withdrawal of industrial tax incentives, while transitional VAT rules preserve remaining exemption as deferment.

Promissory estoppel protects industrial units that altered their position and made investments on the strength of a State tax incentive promise, limiting withdrawal of the promised exemption by delegated or policy change. Any attempted resiling must be supported by genuine overriding public interest; fiscal burden or the VAT regime alone is not enough on the stated facts. The transitional VAT framework is also discussed as preserving the remaining exemption period by converting it into tax deferment, rather than extinguishing the benefit.

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Issues: (i) Whether the notifications withdrawing the sales tax exemption could be sustained when the industrial units had been set up and investments made on the strength of the Industrial Policy and consequential exemption notifications. (ii) Whether the State could justify the withdrawal on the ground of supervening public interest, the coming into force of the VAT regime, or the power to alter conditions under the enabling provisions. (iii) Whether the provisions of the VAT Act and the earlier Supreme Court judgment prevented the petitioners from obtaining deferment of tax for the unexpired period of exemption.

Issue (i): Whether the notifications withdrawing the sales tax exemption could be sustained when the industrial units had been set up and investments made on the strength of the Industrial Policy and consequential exemption notifications.

Analysis: The Industrial Policy of 1995 held out a clear promise of sales tax incentive, which was implemented through follow-up notifications and exemption certificates. The petitioners altered their position by setting up or diversifying industrial units and making substantial investments. The State and its successor were bound by the promise already acted upon, and the withdrawal could not be treated as a mere administrative choice divorced from the earlier representation. The court treated the promise as enforceable under the doctrine of promissory estoppel.

Conclusion: The withdrawal notifications could not validly defeat the accrued exemption-related rights of the petitioners.

Issue (ii): Whether the State could justify the withdrawal on the ground of supervening public interest, the coming into force of the VAT regime, or the power to alter conditions under the enabling provisions.

Analysis: The enabling clauses in the policy and notifications were construed as permitting regulation of procedure, conditions, or terms, not abolition of the promised incentive itself. The State's plea of financial burden and budget deficit was not supported by sufficient material to show an overriding public interest. The VAT regime did not, by itself, supply a lawful basis to repudiate the promise, especially when exemption had been continued and the petitioners had no real opportunity to restore their position. The court also held that the doctrine of promissory estoppel can operate against subordinate legislative action where the State's executive representation induced detrimental reliance.

Conclusion: The State failed to establish a supervening public interest sufficient to justify resiling from the promise.

Issue (iii): Whether the provisions of the VAT Act and the earlier Supreme Court judgment prevented the petitioners from obtaining deferment of tax for the unexpired period of exemption.

Analysis: The VAT Act was read as preserving a transitional benefit of conversion from exemption to deferment for dealers who were enjoying exemption immediately before the appointed day. The court declined to strike down the VAT provisions, but held that the impugned withdrawal notifications were aimed at depriving the petitioners of that statutory transition benefit. The earlier Supreme Court judgment recognising the petitioners' exemption rights supported their entitlement to the remaining period in the form of deferment under the VAT framework.

Conclusion: The petitioners were entitled to conversion of the remaining exemption period into deferment of tax under the VAT Act.

Final Conclusion: The impugned withdrawal notifications and the rejection of deferment were quashed, and the petitioners' transitional entitlement to tax deferment for the unexpired period was upheld.

Ratio Decidendi: A State that has induced industrial investment by a definite tax incentive promise cannot withdraw that benefit, through delegated legislative action or policy change, unless it establishes a genuine overriding public interest and the promisee can be restored to its former position; transitional tax statutes must be construed to preserve the promised relief in the form enacted by law.

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