Sales tax exemption on raw materials for new industries under Industrial Policy, promissory estoppel claim rejected after policy change

The dominant issue was whether a new industry could claim exemption from sales tax on purchase of raw materials for the period stated in the State's Industrial Policy Resolution, invoking promissory estoppel. The SC held that promissory estoppel cannot compel continuation of a fiscal exemption when the State, acting in public interest, revises policy due to a severe resource crunch and reassesses its economic position; the earlier exemption notifications under the relevant sales tax statute were therefore lawfully withdrawn/limited. Consequently, the claim to exemption based on the earlier policy was rejected and the appeal was allowed.

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Issues: Whether the State Government was precluded by the Industrial Policy Resolution (I.P.R.) and the principle of promissory estoppel from withdrawing or restricting sales-tax exemption granted earlier, notwithstanding the power under Section 6 of the Orissa Sales Tax Act, 1947 to grant, amend or withdraw exemptions.

Analysis: The relevance and effect of the I.P.R. dated 18-7-1979 as a standalone source of tax exemption is examined in light of the statutory scheme for granting exemptions. Section 6 of the Orissa Sales Tax Act, 1947 authorises the State Government to exempt by notification the sale or purchase of goods and to withdraw such exemption at any time; hence any exemption under the sales-tax regime must conform to that statutory procedure. The I.P.R. announced policy intentions and stated that departmental orders would prescribe the mode of administering concessions and incentives; it did not itself constitute a notification under Section 6. The factual record did not establish that the respondent had conclusively relied upon the I.P.R. to the extent necessary to invoke promissory estoppel, and even where reliance exists, a supervening and overriding public interest (including severe resource constraints) can justify withdrawal or modification of exemptions granted under statutory power. Prior administrative notifications granting exemptions had been lawfully amended and withdrawn under Section 6 in response to changed fiscal circumstances; therefore reliance on the I.P.R. cannot bar the exercise of the statutory power to modify or rescind exemption notifications.

Conclusion: The appeal is allowed and the High Court judgment quashing the assessment orders is set aside; the State is entitled to withdraw or restrict the sales-tax exemptions under Section 6, and the respondent's claim based on the I.P.R. and promissory estoppel fails.

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