2025 (8) TMI 1549 - HC - VAT / Sales Tax

Retrospective government withdrawal of sugarcane purchase subsidy without notice or reason invalid; beneficiaries entitled under prior government orders

HC held that the retrospective executive withdrawal of a state subsidy on sugarcane purchases lacked legal sanction and procedural justification. The ... Doctrine of promissory estoppel - legitimate expectation of an assessee - challenge to a retrospective withdrawal of benefit by way of an executive order - grant of annual subsidy equivalent to the quantum of purchase tax on sugarcane for a period of two years commencing from the date of going into production. Applicability of promissory estoppel when at the time when the manufacturing units had been set up and commercial production started, the State has not extended any assurance or promise to which they could be held - HELD THAT:- The impugned communication making the withdrawal of the subsidy retrospectively has no sanction in law. The grant of the subsidy is a substantive benefit that has its base in a Government Order issued by the Industries Department. Even if the Government Orders have not been gazetted, this assessee, and several more, have had the benefit of the subsidy. While the withdrawal of the subsidy is itself challenged, there are no doubt that the method by which it has been retrospectively withdrawn, that too by way of a letter, cannot be accepted. Legitimate expectation of an assessee - HELD THAT:- The Notifications granting the benefit had been issued under the provisions of the Central Excise Act, 1944, the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and other enactments, but was withdrawn in respect of some products, being tobacco and tobacco substitutes, including cigarettes, chewing tobacco etc - The withdrawal of the benefit of exemption Notification was challenged on several grounds, including the violation of principles of natural justice. The Court noted that the withdrawal of the benefit was to designated products, such as tobacco, cigarettes, etc., and had been done in pursuance of the judgment of the Supreme Court in the case of R.C.Tobacco (P) Ltd. V. Union of India [2005 (9) TMI 80 - SUPREME COURT] - The Court thus held that since the withdrawal had its basis in the pronouncement of the Supreme Court that becomes law of the land in terms of Article 141 of the Constitution of India, even if there had been an infraction in the principles of natural justice, the grant of an opportunity would not have changed the matters in any material sense. Hence the exercise of grant of opportunity would be an exercise in futility. Challenge to a retrospective withdrawal of benefit by way of an executive order - HELD THAT:- There are absolutely no justification in the withdrawal, as the State has not put forth any legitimate explanation for the same, save stating that there would be ‘revenue loss’. The withdrawal has been peremptory and there has been no warning that the subsidy granted would be terminated. There are no factors that would justify such an abrupt and unprovoked move on the part of the State. Unpredictability in financial regime is a red flag on the conduct of business, both domestically and internationally, and hence, such an approach of the State cannot be countenanced or accepted. While the State is fully entitled to frame policy for its initiatives, and as a consequence, terminate, modify, rescind or reverse such policy, there be placed in public domain proper justification for such amendment, rescinding, reversal or termination in the absence of which, abrupt termination of the same is not proper. The assessee is entitled to the full benefit of subsidy as set out in the Government Orders issued in 1984. Incidentally, post 1990, the State has revived the subsidy scheme partially in preference to continuing solely the deferral scheme. Two such schemes are G.O.Ms.No.500 Dated: 14.5.1990 issued by the INDUSTRIES (MIG-II) DEPARTMENT which states that the Government directed that 30 taluks, from among the 105 industrially backward taluks, be declared as industrially most backward taluks, holding them eligible, apart from other existing concessions, for full waiver of sales tax dues for a period of five years upto a ceiling of the total investment made in fixed assets - Additionally, G.O.Ms.No.43 dated 13.12.1992 also introduces an Incentive Scheme for large industries by way of State capital subsidy and S.T.waiver/deferral and several revised concessions have been issued by the Industries (MIG-II) Department on 13.12.1992. Petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the claimant can rely on promissory estoppel in respect of a State grant of purchase-tax subsidy that was earlier considered by a higher court and rejected. 2. Whether the doctrine of legitimate expectation applies to a State-issued subsidy for a fixed period and, if so, whether retrospective modification/withdrawal of that subsidy by administrative communication is permissible. 3. Whether a Government Order (G.O.) issued by the Industries Department conferring a tax-related benefit is vitiated because it was not issued by the Commercial Taxes Department or did not expressly invoke the statutory provision under the sales-tax enactment. 4. Whether matters of economic/fiscal policy (grant, modification or withdrawal of tax incentives) are outside the scope of judicial review or are justiciable when challenged on grounds of arbitrariness, unfairness or violation of legitimate expectation/Article 14. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Promissory Estoppel Legal framework: Promissory estoppel requires a clear promise/assurance by the State, reliance by the claimant, and resultant prejudice; estoppel cannot be invoked against a statutory provision or where there is no promise. Precedent treatment: The Court records that a higher court (on appeal) has already considered and rejected the promissory-estoppel plea in analogous proceedings; that line of authority holds that no promise was made when production commenced and therefore promissory estoppel is inapplicable. Interpretation and reasoning: Given the higher court's determination denying applicability of promissory estoppel on the facts, the Tribunal's earlier reliance on the doctrine is no longer available to the claimant; the present Court therefore does not rest its decision on promissory estoppel. Ratio vs. Obiter: Ratio - promissory estoppel is inapplicable under the recorded facts because no contemporaneous assurance was given; this is binding for the present controversy. (Reference to promissory-estoppel arguments is treated as conclusively resolved against the claimant.) Conclusion: Promissory estoppel does not avail the claimant in this matter. Issue 2 - Legitimate Expectation and Validity of Retrospective Withdrawal by Administrative Letter Legal framework: Doctrine of legitimate expectation arises where a public authority's representation or established practice gives rise to an expectation; it does not create a freestanding right but, if frustrated without adequate justification, may render an executive decision arbitrary and violative of Article 14. Public authorities may resile from a promise if there is a compelling public interest, legal duty, or a proportionate justification. Precedent treatment (followed/distinguished): The Court examines and applies established principles from decisions recognizing legitimate expectation (including tests of reasonableness, consistency and non-arbitrariness), and recent authority requiring the State to demonstrate objective, public-interest justification to displace a substantive legitimate expectation. Authorities stressing judicial restraint in economic policy are also considered but held not to be absolute bar to review. Interpretation and reasoning: The Court finds that the subsidy was granted by detailed G.O.s issued after committee recommendations and was extended from two to five years - creating an expectation that the benefit would run for the stipulated period. The claimant altered commercial conduct and invested on the footing of those G.O.s. The State's switch from subsidy to a deferral scheme and subsequent attempt to make that change retrospective by a simple administrative letter (not accompanied by cogent public-interest justification disclosed to the Court) amounts to abrupt termination without prior warning or adequate explanation. Though fiscal and policy choices attract judicial restraint, they remain justiciable where the action is arbitrary, lacks justification and undermines legitimate expectations. The State's asserted rationale of revenue protection/ceiling fixing, as presented in affidavit material, did not provide contemporaneous, adequate justification for the retrospective curtailment applied to beneficiaries who had relied on the earlier orders. Ratio vs. Obiter: Ratio - a substantive legitimate expectation created by detailed G.O.s that confer a time-bound subsidy cannot be retrospectively withdrawn by an administrative communication in the absence of compelling, demonstrable public-interest justification; failure to provide such justification renders the withdrawal arbitrary and unsustainable. Obiter - general observations on the scope of judicial deference in economic policy, reaffirming limits where arbitrariness is shown. Conclusion: The claimant is entitled to the full benefit of the subsidy as set out in the 1984 Government Orders; the retrospective withdrawal by letter is without lawful sanction and cannot be upheld. Issue 3 - Validity of G.O.s Issued by the Industries Department (vs. Competent Tax Authority) Legal framework: An order made by an authority with power conferred by statute will be treated as made under the enabling provision even if the order text does not expressly cite the statutory power; administrative departments may exercise delegated executive functions where within competence and not inconsistent with statutory scheme. Precedent treatment: The Court relies on precedent holding that an order made by a competent authority may be treated as valid under the relevant statutory provision even if the statute is not expressly referenced in the order; such omissions do not automatically vitiate the order where power to grant the benefit can be inferred. Interpretation and reasoning: The subsidy-conferring G.O.s, though issued by the Industries Department rather than the Commercial Taxes Department, were valid and not vitiated for that reason; beneficiaries in fact availed the subsidy, and the absence of explicit reference to the sales-tax provision does not negate the operative effect of the G.O.s. Ratio vs. Obiter: Ratio - G.O.s issued by the Industries Department conferring purchase-tax subsidy are not invalid merely because they were not issued by the Commercial Taxes Department or did not recite the specific statutory head, where the power to grant the benefit can be inferred and the orders were acted upon. Conclusion: The claimant's entitlement under the Industries Department G.O.s is not defeated by the departmental origin of those orders. Issue 4 - Justiciability of Economic/Fiscal Policy and Standard of Review Legal framework: Courts apply restraint in reviewing economic and fiscal policy decisions; however, where a decision is shown to be arbitrary, discriminatory, unfair, a gross abuse of power, or violative of legitimate expectations/Article 14, judicial intervention is permissible. Precedent treatment: The Court acknowledges authorities that counsel caution and deference in economic policy matters but emphasizes that deference does not extend to condoning arbitrariness or unexplained, retrospective deprivation of vested legitimate expectations. Interpretation and reasoning: The State's broad competence to change policy does not absolve it from providing justification when it displaces a specific, relied-upon benefit; judicial review can examine whether the change is accompanied by reasons and is proportionate to the public interest asserted. In the present facts the State failed to justify a retrospective curtailment of the subsidy, and thus the policy change is susceptible to judicial invalidation notwithstanding its fiscal nature. Ratio vs. Obiter: Ratio - policy decisions are reviewable where they are arbitrary, lack adequate justification, or infringe legitimate expectations; judicial restraint does not preclude review on established grounds of arbitrariness and Article 14 violation. Conclusion: The fiscal/policy character of the subject did not preclude judicial interference; absence of adequate justification for retrospective termination rendered the State's action unsustainable. Final Disposition (legal conclusion tied to issues) The Court concludes that promissory estoppel is unavailable; the Industries Department G.O.s conferring a time-bound subsidy were valid and created a legitimate expectation which the State could not retrospectively abrogate by an administrative letter without compelling, demonstrable public-interest justification; the attempted retrospective withdrawal is without lawful sanction and the claimant is entitled to the full subsidy as per the 1984 G.O.s. Judicial deference to economic policy does not protect arbitrary or unjustified retrospective deprivation of vested legitimate expectations.