1978 (12) TMI 45 - SC - VAT / Sales Tax

State bound by tax exemption promise under promissory estoppel doctrine despite governmental function

Motilal Padampat Sugar Mills Co. Limited Versus State Of Uttar Pradesh And Others

SC held that promissory estoppel doctrine applies against the State regarding tax exemption promises. The Court ruled that detriment for invoking ... Applicability of the Doctrine of Promissory Estoppel against the State - entitlement to exemption from payment of sales tax for a period of three years from the date of commencement of the production - Held that:- We do not think that in order to invoke the doctrine of promissory estoppel it is necessary for the promisee to show that he suffered detriment as a result of acting in reliance on the promise. But we may make it clear that if by detriment we mean injustice to the promisee which would result if the promisor were to recede from his promise, then detriment would certainly come in as a necessary ingredient. The detriment in such a case is not some prejudice suffered by the promisee by acting on the promise, but the prejudice which would be caused to the promisee, if the promisor were allowed to go back on the promise. It is true that taxation is a sovereign or governmental function, but, for reasons which we have already discussed, no distinction can be made between the exercise of a sovereign or governmental function and a trading or business activity of the Government so far as the doctrine of promissory estoppel is concerned. Whatever be the nature of the function which the Government is discharging, the Government is subject to the rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it. We are, therefore, of the view that in the present case the Government was bound to exempt the appellant from payment of sales tax in respect of sales of vanaspati effected by it in the State of Uttar Pradesh for a period of three years from the date of commencement of the production and was not entitled to recover such sales tax from the appellant. Appeal allowed. Issues Involved:1. Applicability of the Doctrine of Promissory Estoppel against the State.2. Waiver of Rights by the Appellant.3. Binding Nature of Assurances Given by Government Officials.4. Impact of Subsequent Policy Changes on Promissory Estoppel.5. Requirement of Detriment for Promissory Estoppel.Issue-Wise Detailed Analysis:1. Applicability of the Doctrine of Promissory Estoppel against the State:The central issue was whether the State is bound by the doctrine of promissory estoppel. The doctrine, though of recent origin, has been the subject of considerable debate and development. The Court held that the Government is not exempt from the doctrine of promissory estoppel. The Court emphasized that the Government cannot claim immunity from the doctrine of promissory estoppel and repudiate a promise on the ground that it may fetter its future executive action. The Court cited the case of Union of India v. Anglo-Afghan Union Agencies, where it was established that the Government cannot escape its obligations under the doctrine of promissory estoppel by invoking executive necessity. The Court also referred to several cases, including Ganges Manufacturing Co. v. Sourujmull and Municipal Corporation of Bombay v. Secretary of State for India, to support its position.2. Waiver of Rights by the Appellant:The High Court had held that the appellant had waived its right to claim exemption by accepting concessional rates of sales tax. However, the Supreme Court rejected this view, stating that waiver is a question of fact that must be properly pleaded and proved. The Court noted that the plea of waiver was not taken by the State Government in its affidavit and was raised for the first time during the hearing, which was impermissible. The Court further stated that there was no material to show that the appellant had full knowledge of its right to exemption when it addressed the letter dated 25th June, 1970, and hence, there was no waiver.3. Binding Nature of Assurances Given by Government Officials:The Court found that the representation made by the Chief Secretary of the Government that the appellant would be exempt from sales tax for three years was binding on the Government. The Court held that the representation was made within the scope of the Chief Secretary's authority and was intended to be acted upon by the appellant. The appellant, relying on this representation, altered its position by borrowing money and setting up a vanaspati factory. Therefore, the Government was bound to honor the representation.4. Impact of Subsequent Policy Changes on Promissory Estoppel:The State contended that subsequent policy changes justified its decision to rescind the sales tax exemption. However, the Court held that the Government cannot be allowed to go back on its promise on vague grounds of public interest or policy changes. The Court stated that if the Government wants to resile from its promise, it must disclose the subsequent events and provide adequate material to show that overriding public interest requires such action. The Court emphasized that the burden is on the Government to prove that public interest would be prejudiced if the promise were enforced.5. Requirement of Detriment for Promissory Estoppel:The State argued that the appellant did not suffer any detriment by acting on the Government's representation. The Court rejected this contention, stating that it is not necessary for the promisee to suffer detriment to invoke the doctrine of promissory estoppel. What is required is that the promisee should have altered his position in reliance on the promise. The Court cited several cases, including Central London Property Trust Ltd. v. High Trees House Ltd., to support its position that alteration of position is sufficient for promissory estoppel.Conclusion:The Supreme Court allowed the appeal, set aside the judgment of the High Court, and issued a writ directing the State to exempt the appellant from payment of sales tax for three years from the date of commencement of production. The Court also directed the State to refund the sales tax amounts paid by the appellant, subject to any lawful claims by the State. The State was ordered to pay the costs of the appellant.