1992 (3) TMI 163 - SC - VAT and Sales Tax

Government's Sales Tax Refund Promise Ruled Against Public Policy and Constitution. Promissory Estoppel Not Enforceable.

AMRIT BANASPATI CO. LTD. Versus STATE OF PUNJAB

The court dismissed the appeal, ruling that the promise of refunding sales tax by the Government was against public policy and the Constitution. The court ... Promissory estoppel, its extent and applicability questioned Held that:- Promissory Estoppel being on extension of principle of equity, the basic purpose of which is to promote justice founded on fairness and relieve a promisee of any injustice perpetrated due to promisor’s going back on its promise, is incapable of being enforced in a court of law if the promise which furnishes the cause of action or the agreement, express or implied, giving rise to binding contract is statutorily prohibited or is against public policy. Return or refund of it or its equivalent, irrespective of form is repayment or refund of sales tax. This would be contrary to Constitution. Any agreement for such refund being contrary to public policy was void under Section 23 of the Contract Act. The constitutional requirements of levy of tax being for the welfare of the society and not for a specific individual the agreement or promise made by the government was in contravention of public purpose thus violative of public policy. No legal relationship could have arisen by operation of promissory estoppel as it was contrary both to the Constitution and the law. Realisation of tax through State mechanism for sake of paying it to private person directly or indirectly is impermissible under constitutional scheme. The law does not permit it nor equity can countenance it. The scheme of refund of sales tax was thus incapable of being enforced in a court of law. Fallacy of such constitutionally inhibited policy, sacrificing public interest resulting in illegal private enrichment is exposed by claim of refund for nearly ₹ 2 crores, for a period of three years, only, when total investment in establishing the unit was ₹ 1.5 crores. Levy of tax to raise revenue for promoting economic growth of the State reduced itself in enhancing the profit margin of the manufacturer and the sales tax stood converted into income of the appellant. Such contrivance of law even though bona fide is legally unenforceable. Appeal dismissed. Issues Involved:1. Promissory estoppel and its applicability.2. Government's commitment to refund sales tax.3. Validity of the Government's promise under constitutional and statutory provisions.4. Legal effect of the Government's brochure and subsequent actions.5. Public policy and legality of refunding sales tax to a private manufacturer.Issue-wise Detailed Analysis:1. Promissory Estoppel and Its Applicability:The primary issue revolves around the principle of promissory estoppel, which was elaborated in cases like Union of India v. Indo Afghan Agencies and crystallized in Motilal Padampat Sugar Mills v. State of U.P. Promissory estoppel arises when a promise made by the government or its officials, within their authority, is acted upon by the promisee, altering their position based on the promise. The court examined whether the Government of Punjab made a promise to refund sales tax to the appellant and if the appellant altered its position based on that promise.2. Government's Commitment to Refund Sales Tax:The facts established that the Government of Punjab announced a policy in December 1966 to refund sales tax as an incentive for setting up large-scale industries. The appellant acted on this promise, purchasing land and machinery, and setting up a Vanaspati manufacturing unit. The learned Single Judge found these facts sufficient to direct the government to honor its commitment based on promissory estoppel. However, the Division Bench set aside this order, arguing that the scope of equitable estoppel is limited and cannot bind the government if the promise was made beyond the officials' authority.3. Validity of the Government's Promise Under Constitutional and Statutory Provisions:The court examined whether the promise to refund sales tax was legally enforceable. It was argued that taxation is a sovereign power exercised by the state to raise revenue, and any promise to refund tax realized lawfully would be against public policy and the Constitution. The court held that refunding sales tax to a private manufacturer would be a breach of public trust and contrary to Articles 265 and 266 of the Constitution of India. The promise, therefore, was deemed unenforceable.4. Legal Effect of the Government's Brochure and Subsequent Actions:The brochure issued by the Government of Punjab in December 1966 declared incentives, including sales tax refunds, for setting up industries. The appellant relied on this brochure and subsequent assurances from government officials. The court noted that the government functions through its officials, and their bona fide actions in line with government policy should bind the government unless proven unauthorized. However, the Division Bench found that the brochure and subsequent actions were unauthorized and beyond the officials' scope of authority.5. Public Policy and Legality of Refunding Sales Tax to a Private Manufacturer:The court emphasized that exemption from tax to encourage industrialization is different from refunding tax. Exemptions are allowed for valid reasons and benefit both the manufacturer and the consumer. In contrast, refunding tax realized lawfully would be contrary to public policy and the Constitution. The court concluded that any agreement to refund sales tax realized under the law would be void under Section 23 of the Contract Act and unenforceable in a court of law.Conclusion:The appeal was dismissed, with the court holding that the promise of refunding sales tax was contrary to public policy and the Constitution. The principle of promissory estoppel could not be enforced as it would result in illegal private enrichment at the expense of public interest. The Government's promise to refund sales tax was deemed unenforceable, and the appellant's claim was rejected.