2016 (5) TMI 1296 - SC - VAT and Sales Tax

Supreme Court Applies Promissory Estoppel in Building Tax Exemption Case

M/s Manuelsons Hotels Private Limited Versus State of Kerala & Others

The Supreme Court allowed the appeal in a case concerning the exemption from building tax under the Kerala Buildings Tax Act, 1975. The Court held that ... Levy of tax - building tax - tourism be declared an “industry” - Kerala Building Tax Act, 1975 - Held that: - The ministerial act of non issue of the notification cannot possibly stand in the way of the appellants getting relief under the said doctrine for it would be unconscionable on the part of Government to get away without fulfilling its promise. It is also an admitted fact that no other consideration of overwhelming public interest exists in order that the Government be justified in resiling from its promise. The relief that must therefore be moulded on the facts of the present case is that for the period that Section 3A was in force, no building tax is payable by the appellants. However, for the period post 1.3.1993, no statutory provision for the grant of exemption being available, it is clear that no relief can be given to the appellants as the doctrine of promissory estoppel must yield when it is found that it would be contrary to statute to grant such relief. To the extent indicated above, therefore, we are of the view that no building tax can be levied or collected from the appellants in the facts of the present case - appeal allowed - decided in favor of appellant-assessee. Issues Involved:1. Declaration of tourism as an industry and its implications.2. Exemption from building tax under the Kerala Buildings Tax Act, 1975.3. Application of the doctrine of promissory estoppel.4. Validity of non-issuance of exemption notification under Section 3A.5. Judicial review of discretionary powers and subordinate legislation.Issue-wise Detailed Analysis:1. Declaration of Tourism as an Industry and Its Implications:On 11th July 1986, the State Government issued a Government Order (G.O.) accepting the Government of India's recommendation to declare tourism as an 'industry.' This declaration enabled entities engaged in tourism to become eligible for various concessions and incentives applicable to the industrial sector, including an exemption from the Building Tax levied by the Revenue Department. The G.O. indicated that action to amend the Kerala Building Tax Act, 1975, would be taken separately and classified hotels from 1 to 5 stars as eligible for such concessions.2. Exemption from Building Tax under the Kerala Buildings Tax Act, 1975:Following the G.O., the appellants began constructing a hotel building, completed in 1991, and claimed exemption from building tax based on the G.O. The Kerala Buildings Tax Amendment Act of 1990 introduced Section 3A, which empowered the Government to exempt buildings constructed for tourism from building tax. Rule 14A was added to the Kerala Buildings Tax Rules, 1974, specifying the types of buildings eligible for exemption, including classified hotels and other tourism-related structures.3. Application of the Doctrine of Promissory Estoppel:The appellants relied on the G.O. and the subsequent legislative amendments to claim exemption from building tax. The High Court initially relegated the appellants to the Committee set up under the 1986 G.O. to pursue their claim. However, the Committee denied the exemption, citing the omission of Section 3A from 1st March 1993. The appellants argued that the Government's promise, which they acted upon, bound the Government under the doctrine of promissory estoppel, as established in M/S Motilal Padampat Sugar Mills v. State of Uttar Pradesh and other cases.4. Validity of Non-Issuance of Exemption Notification under Section 3A:The High Court rejected the appellants' claim on the ground that no exemption notification had been issued under Section 3A when it was in force. The Supreme Court, however, held that the non-issuance of the notification was an arbitrary act and that the doctrine of promissory estoppel applied. The Court emphasized that promissory estoppel could be enforced even if the exemption notification was not issued, as the Government's promise had induced the appellants to alter their position.5. Judicial Review of Discretionary Powers and Subordinate Legislation:The Supreme Court noted that while a Writ of Mandamus could not be issued to compel the executive to frame rules or regulations, the discretionary power to grant exemptions under Section 3A was subject to judicial review. The non-exercise of this discretionary power, in this case, was arbitrary and vitiated by non-application of mind to relevant facts. The Court held that the Government's failure to issue the notification under Section 3A was an unconscionable departure from its promise, warranting relief under the doctrine of promissory estoppel.Conclusion:The Supreme Court allowed the appeal to the extent that no building tax could be levied or collected from the appellants for the period during which Section 3A was in force (from 6th September 1990 to 1st March 1993). Post 1st March 1993, no statutory provision for exemption existed, and thus, no relief could be granted for that period. The judgment of the High Court was set aside accordingly.