CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 28322833 of 1979.
From the Judgment and Order dated 25.1.1977 of the Punjab and Haryana High Court in Civil Writ No. 5653 of 1975 and Letters Patent Appeal No. 368 of 1975.
Kapil Sibal, U.K. Khaitan, Praveen Kumar and Vivek Sibal for the Appellants.
D.S. Mehra, Mrs Jayshree Anand, Arun Mehra, Sanjay Bansal and G.K. Bansal, for the Respondents.
The Judgment of the Court was delivered by
R.M. SAHAI, J. Promissory estoppel, its extent and applicability, apart, one of the important issue, that arises for consideration in this appeal, directed against the judgment and order of a Division Bench of the Punjab and Haryana High Court exercising jurisdiction under Letters Patent and setting aside order of the learned single judge directing refund of sales tax and inter-State sales tax, is if the Government of a State could agree expressly or impliedly to refund sales tax realised by a manufacturer.
Facts, found by the learned single Judge, which were sufficient to direct the government to honour its commitments of refunding sales tax to the appellant on principle of promissory estoppel were announcement of policy by the Government to refund sales tax, as an incentive to those who were willing to set up large scale selective industries in the focal points, letter of the appellant seeking details of policy as he was willing to set up a Vanaspati manufacturing unit, favourable response from the Director of Industries followed by exchange of letters and meetings between appellant’s representatives and Secretary of Industries extending assurance that the incentives shall be available to; the appellant acting on which it purchased land, machinery etc., laying of foundation stone by the Governor and issuance of notification declaring the land, on which unit was established, in focal point. The order was set aside in appeal and it was held that even though rule of equitable estoppel should be observed by all government and public authorities but its scope was restricted and it could not be extended, too widely so as to bind a government even where its officials in excess of their authority or against the interest of the government extended the promise. The Bench drew inference against the appellant from its letters seeking written assurance that the concession would be extended to it which came, as well, in June,1969 but before that the policy had, already, undergone change in May, 1969. The Bench further felt mystified that even though there was a decision of Cabinet Sub-Committee as far back as 1966 not to give any refund of sales tax yet the Government officials acting contrary to it issued the brochure and corresponded with the appellant in, wholly unauthorised manner therefore their action could not create any right in favour of the appellant. It also negatived the claim of appellant, as refund of an amount paid as sales tax by the appellant, would be raising revenue by the Government not for itself or for public but for a private person which would be contrary to Articles 265 and 266 of the Constitution of India.
Law of Promissory Estoppel which Found its ‘most eloquent exposition’ in Union of India v. Indo Afghan Agencies, [1968] 2 SCR 366, crystallised in Motilal Padampat Sugar Mills v. State of U.P., [1972] 2 SCR 641 as furnishing cause of action to a citizen, enforceable in a court of law, against government if it or its officials in course of their authority extended any promise which created or was capable or creating legal relationship, and it was acted upon, by the promise irrespective of any prejudice. It was reiterated in Union of India v. Godfrey Philips India Ltd., [1985] 4 SCC 370 and was taken further when it was held that no duty of excise was assessable on cigarettes manufactured by assessee by including, cost of corrugated fibreboard containers, when it was clearly represented by the Central Board of Excise and Customs in response to the submission made by the Cigarette Manufacturer’s’ Association-and this representation was approved and accepted by the Central Government - that the cost of corrugated fibreboard containers would not be includible in the value of the cigarettes for the purpose of assessment of excise duty. In Delhi Cloth and General Mills Ltd . v. Union of India, [1988] 1 SCR 383 it was held.
"All that is now required is that the party
asserting the estoppel must have acted the
assurance given to him. Must have relied upon the
representation made to him. It means, the party has
changed or altered the position by relying on the
assurance or the representation. The alteration of
position by the party is the only indispensable
requirement of the doctrine. It is not necessary to
prove further any damages, detriment or prejudice
to the party asserting the estoppel."
What, therefore , requires to be examined, is if any
promise was made by the Government or its officials to
the appellant that sales tax shall be refunded to it and
if the appellant acting on it altered its position. For
this it is necessary to narrate few facts even though
both the learned Single Judge and Division Beach have
dealt with it elaborately. Admittedly. a brochure was
issued in December 1966 by the Government of Punjab
announcing its ‘New Policy’ declaring that incentive and
concession, one of them being refund of sales tax, would
be available to those persons who set up selective large
scale industries in the focal point. Whether this
brochure was authorised or not and its legal effect on
rights of parties shall
be adverted to later. But it is undisputed that acting
on it the appellant’s representative met the Chief
Minister of the State personally and found that he was
interested in encouraging Vanaspati Manufacturing unit
in the State,therefore, its Manager wrote a letter in
June, 1968 to the Chief Minister expressing willingness
to set up the unit provided the concessions were made
available to it which was replied by the Director of
Industries on 2nd July, 1968 assuring the appellant that
the concession as announced shall be available and
further informed the appellant that the Government was
willing to consider such additional concession which the
appellant may require for implementation of the scheme.
It was followed by exchange of correspondence and
various meetings between appellant’s representative and
officials of the Government. Outcome of it is recorded
in the note submitted by the Secretary of Industries on
1.4.1969 to Finance department, on certain queries made
by it, relevant portion of which reads,
"As Government investment had take place in Rajpura
the Sub-Committee appointed for allotment of
industrial plots was very much concerned to allot
the same but it was finding difficulty in getting
suitable parties. In October, 1968 Shri Khaitan of
Amrit Banaspati Factory of Ghaziabad approached me
and the D.I. for location of their vanaspati plant
of 100 tonnes capacity per day in Punjab. These
people since they were already very much in the
business and since their vegetable ghee was meeting
20 to 25% of Punjab’s needs of vanaspati it was
felt that if we encourage these people to come to
Punjab it will give great boost to industrial
growth. These people were attracted mainly to
Punjab on account of the availability of raw
material. i.e., groundnut which are in plenty
around about. They consequently asked for a plot
in Dhandari Kalan. At that stage we had 2-3
application for setting up of vanaspati plants at
Ludhiana and since our Rajpura Estate was very much
neglected it was decided that we persuade this
party to locate its factory at Rajpura as by their
coming there, it was felt that several small and
ancillary units would also get located and our
plots would be sold. In fact Shri Khaitan, during
the course of his discussions with me mentioned
that his project which would be costing nearly
Rs.1.5 crores would necessitate setting up the
other smaller units-tin makers-who would come over
from U.P. and settle up at Rajpura . Taking all
these
factors into consideration I mentioned this matter
to Mr.---- and also informally to FS also at that
stage and it was decided that we get this party
located at Rajpura. Unfortunately, the demand of
land by this party was in one place to the tune of
15 to 20 acres and since our plots were only of 1-
1.5 acres of size it was decided that they may be
allowed to locate their plot nearabout our Focal
Point so that it could be integrated finally in our
future expansion of the Industrial Estate at
Rajpura which yet shows no sign of life and
consequently it was felt that by bringing this part
more industries of allies nature would come here.
In plan for 1969-70 the F.D. are aware that we have
very little money set aside for further acquisition
of land. Realising this, we, therefore, suggested
to this party to go in for purchase of land
themselves as we were not sure whether we would be
able to have enough funds to acquire more land at
Rajpura particularly when our earlier plots had not
been sold out. This party was keen to come in as
it wanted to do into production from November,
1969. The party has purchased that piece of land
which has approval of the Town and Country Planning
department, it has also submitted its plan for
construction of buildings etc."
It is, thus, obvious that there was representation
to the appellant that it would be entitled to concession
and incentives announced by the Government if it set up
its unit in the focal point. Whether such
representation resulted in binding agreement is
different issue but the representation coming from
Industries Secretary and Director of Industries in
pursuance of Government policy cannot be held to be
unauthorised or beyond the scope of authority. The
Government functions through its officials and so long
they are acting bona fide in pursuance of Government
policy the Government cannot be permitted to disown it
as a citizen can have no means to know if what was being
done was with tacit approval of the Government. And if
it is found that the representation made by the official
concerned was such that any reasonable person would
believe it to have been made on behalf of the Government
then unless such representation is established to be
beyond scope of authority it should be held binding on
the government. It is another matter that even if it is
binding it may be contrary to law and therefore
unenforceable. In Motilal Padampat Sugar Mills (supra)
the Government was held bound to grant exemption from
sales tax to the sugar mill even though the manufacturer
had written letter to the Director of Industries on a
news item published for grant of exemption from sales
tax, based on a statement issued by the Secretary of
Industries which was favourably replied first by the
Director of Industries endorsed later by the Chief
Secretary informing the manufacturer that government was
willing to consider the request and necessary from etc.
may be obtained from Secretary Industries. As is clear
from the noting of the Secretary the appellant purchased
the land, privately, on assurance of the Secretary which
by a notification issued by Government was included in
focal point. It was not denied that by January, 1969
the appellant had purchased the land and various other
materials at a cost of 15 lakhs and had placed an order
for purchase of plant and machinery of value of Rs.35
lakhs which was intimated by a telegram sent on 11th
January, 1969. Even rules were framed in February, 1969
by sanction of the President of India which provided for
refund of sales and purchase tax to new and expanding
industries . All this indicates that the promise was
made on behalf of the Government by its officials in
pursuance of and in line with the declaration of policy
by the Government that a new unit shall be entitled to
concession. Acting on the assurance, both express and
implied, the appellant invested substantial amount in
setting up the unit requesting, in the meanwhile, for
grant of written sanction from the Government which,
too, came. But even if it would not have it would not
have made any difference in law as the equity arose in
favour of appellant not by the letter dated 16th June,
1969 but by altering its position on assurance given by
authorities. In Godfrey Philips (supra) it was observed,
"Now the doctrine of promissory estoppel is well-
established in the administrative law of India, It
represents a principle evolved by equity to avoid
injustice and, though commonly named promissory
estoppel,it is neither in the realm of contract nor
in the realm of estoppel. The basis of this
doctrine is the interposition of equity which has
always, true to its form, stepped into mitigate the
rigour of strict law."
Basic ingredients of promise by the Government, belief of the appellant that it was true and if acted upon shall, entitle it to refund of sales tax, and finally altering its position by investing substantial amount were thus established to invoke promissory estoppel against government. Vehement argument of the learned counsel, for the State of Punjab, that in absence of any assurance by a competent authority on behalf of the State the promise if any was incapable of giving rise to any equity, cannot be accepted in absence of any positive material to show that the Government either disassociated itself from the letter sent by the Secretary or Director of Industries or acted contrary to what was alleged to have been represented or assured by them. On the other hand the notings of the Secretary, extracted earlier, demonstrate unmistakenly that the authorities were not only assuring the appellant but were making every effort that the unit be established in consonance with the policy of Government as it would result in industrialisation and development of the State. Such painstaking effort of responsible and senior officers of the State was neither unauthorised nor beyond scope of their authority. In fact the letter dated 16th January, 1969 and the notification declaring the land where the unit of appellant was established to be in focal point to enable it it avail of the concession were only follow up action which demolish any such conclusion as was canvassed by the learned counsel.
Effort was, also, made to advanced an innovative submission of offer, counter offer and recounter offer. It was submitted that policy of the Government announced in the brochure was only an offer. And letter of the appellant sent on 25th October, 1968 was counter offer which was under consideration of Government which made another counter offer on 16th June which was accepted by the appellant who thereafter applied for registration and the Government issued a notification declaring the factory in the focal point. All that can be said is that the submission was advanced without any foundation, in complete is regard of facts and misapprehension about the law of offer and counter offer. Letter dated 25th October, 1968 was written, to the Secretary of Industries Pursuant to letter dated 2nd July,1968 and with reference to the interview held between appellant’s representative and the Secretary of Industries at Chandigarh on 16th October,1 1968 undertaking to set up a factory at Rajpura, a site approved by the department within area covered by the layout plan of industrial estate with assurance that the plot shall be in focal point at Rajpura and if necessary steps shall be taken to include it in focal point. The letter mentioned that according to the policy the concession available to the appellant would be refund of purchase and sales tax including inter-state sales tax for a period of five years. In paragraph 6 of the letter the appellant wanted clarification that the period of five years shall be counted from the date of production. Paragraph 7 of the letter read,
"7. We would very much like to spend money on
further industrial development, staff and labour
welfare activities, housing for staff and labour,
research and development of agricultural products
for use in industry in the State of Punjab. In
order to enable us to do so, it is requested that
instead of refunding the amount of the purchase and
sales tax including inter-state sales tax as such
an amount equivalent to the amount of purchase and
sales tax including inter-state tax to be paid by
us every quarter is paid to us as Capital grant
quarterly for a period of five years commencing
from the date of production. If our request is
accepted, we on our part undertake to utilise the
same for all or any of the said purposes as we feel
proper in the State of Punjab. You will appreciate
that after all the State will benefit if the
concession are utilised for advancement of industry
and research and staff and welfare in the State and
this will be possible if our request is considered
favourably."
Request for confirmation of the concession mentioned in the letter dated 25th October, 1968 were reiterated in a telegram sent on 11th January and letters dated 3rd, 13th and 23rd January, 1969. It would be too much to read the letter dated 25 th October, 1968, as counter offer, It was intimation by the appellant that it had decided to set up the unit as it has been assured that the concessions as announced would be available to it. The request that the period of five years for refund should be calculated from the date of production, and capital grant may be made every quarterly equivalent to the amount of sales tax are impossible to be read as declining of availing the offer made by the Government. What was requested was that if instead of refunding of the sales tax or purchase tax an amount equivalent to it was paid to them every quarter for a period of five years it would enable them to utilise the same for the benefit of the State itself. It was this request which was reiterated in the telegrams and letters but at no point of time the appellant made any request that if capital grant was not paid it shall not avail of the concession in respect of sales tax. The request was to change the nature of payment and not the refund. It could no be termed as counter offer, also because the appellant not only undertook to establish the unit but as agreed went on to purchase land and machinery etc. Nor is there any merit in the submission that after considering proposal of appellant the Government gave a counter offer on 16th June, 1969 forgetting that issuance of letter was not an isolated action of the Government but it was preceded, apart, from earlier notings of the Secretary extracted earlier, by a meeting which took place on 2nd May between various officials in which the decision was taken. ‘that the concession and incentives applicable to focal point will be given to M/S Amrit Banaspati Co. Ltd. only in respect of 12 acres of land to be utilised by them for setting up the ghee industry’. Letter dated 16th June, 1969 was faithful reproduction of the decision taken on 2nd May, 1979 informing the appellant that, ‘the State Government have agreed to give the concessions and incentives admissible to a unit in the focal point of industrial growth to the unit proposed to be set up by you for the manufacture of Vanaspati Ghee.’ The entire argument founded an offer and counter offer, thus, was misconceived.
Two reasons were given, by Division Bench of the High Court, to permit the Government to escape from rigour of the principle of promissory estoppel one that the brochure itself was unauthorised and other that when the decision of the Government came the policy had already undergone change. Neither appear to be well founded. Cabinet Sub-Committee’s decision of 15th December, 1968 which formed the basis for the finding that the brochure was unauthorised, are minutes of a decision of a Committee comprising of the Industries Minister and Secretary Industries which did not see light of the day till it was filed by way o;f supplementary affidavit before the Division Bench. As against it, the Chief Minister and Industries Minister in an inaugural speech of Conference Of Industries at Chandigarh after five days of its, that is, on 20th December, 1968, announced that concession and incentive shall be offered to new units set up in focal points details of which were mention in the booklet issued by the Government in December, 1966, which provided of refund of sales tax as claimed by the appellant.
A citizen of a State can have no means to ascertain that announcement by the Chief Minister and the Industries Minister of State that concession made in the booklet would be available was not the government policy as the Cabinet Sub-Committee earlier had taken some other decision. The Government cannot be permitted to go back on its promise by producing some documents lying in its file which was neither known, nor announced, nor acted upon as it would be unjust and unfair, therefore, illegal. Factually the Division Bench read too much in the minutes of 15th December, 1968 but it is not necessary to deal with it. Suffice it to say how the Government understood and wanted others to understand its policy was mentioned in the brochure. Even the Secretary who was a member of the Sub-Committee understood it in the manner in which it was printed in the booklet. In the note submitted to the Finance Department it was stated,
"...The Entire Matter of giving concessions was
discussed at the Cabinet level and all these
factors (namely exemption from sales tax)* were
taken into consideration when the Government took a
decision to give such attractive concessions to the
industry. I would like this case to be seen by
D.M. also as he had enquired about this case from
me. The Amrit Banaspati people as I.N. and F.S.R
are aware, have already gone for construction of
their building and according to their plan they
propose to go into product in November 1969. They
are anxious that the Government takes an early
decision granting concession to their unit also.As
it is a big industry we should take an immediate
decision as by so doing the possibility of bringing
in ancillary can be explored thereby ensuring that
our industrial estate gets fully developed at the
earliest..."
*[bracket supplied]
As stated earlier the letter dated 16th June, 1969 was founded on notings of 27th May, 1969 which was based on decision arrived on 22nd May, 1969. The finding of the Division Bench, was thus, factually and legally incorrect. It was not justified in holding that the Government officials had extended promise, unauthorisedly and beyond scope of their authority. Reliance on Vasantkumar Radhakisan Vora v. Board of Trustees of the Port of Bombay & another, [1991] 1 SCC 761 was not apposite as the Estate Manager at whose instance the lessee had deposited the amount for grant of tenancy after reconstruction was authorised to collect rent only. Further the letter indicated that if the lessee complied with conditions he would recommend to the Board for grant of lease. And recommendation was made. But not accepted.
Nor there is any merit in the finding that by the time the Government agreed, in writing, to grant concession the policy had undergone change, therefore, the appellant was entitled to the concession under the new policy only, Estoppel arose against Government not by the letter dated 16th June, 1969 but by the promise made by it in December, 1968 to those who were willing to set up new unit, assurance by its officials both in writing and oral leading appellant to belief that it was intended to create an agreement that sales tax paid shall be refunded as a result of which it not only purchased land, machinery and other parts much before the policy went into any change but the Government issued notification as well declaring the area where the factory was established to be in focal point. Rights of parties were therefore governed by the old and not new policy. The appellant was never intimated that the Government had changed its policy in respect of refund of sales tax at any point prior to filing of the counter affidavit in th High Court. Even the letter dated 16th June, 1969, did not mention that the concession would be available as provided in the new policy. In Purnami Oil Mills, etc. V. State of Kerala, [1987] 1 SCR 654 the Government was not permitted to go back on its earlier promise of wider exemption from sales tax in pursuance of which the industries had been set up on principle of promissory estoppel and the Notification issued after one year curtailing exemption was held to apply to industries set up thereafter. To same effect is the decision in Assistant Commissioner of Commercial Taxes v. Dharnendra Trading Company [1988] 3 SCR 946.
But 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 of implied, giving rise to binding contract is statutorily prohibited or is against public policy. What then was the nature of refund which was promised by the govt.? Was such promise contrary to law and against public policy? Could it be enforced in a court of law? Taxation is a sovereign power exercised by the State to realise revenue to enable it to discharge its obligations. Power to do so is derived from entries in Lists I, II and III of the Seventh Schedule of the Constitution. Sales tax or purchase tax is levied in exercise of power derived from an Act passed by a State under Entry 54 of List II of VIIth Schedule. It is an indirect tax as even though it is collected by a dealer the normally permits it to be passed on and the ultimate burden is borne by the consumer. But ’the fact that the burden of a tax may have been passed on the consumer does not alter the legal nature of the tax’ (Halsbury’s Laws of England, Vol. 52, paragraph 20.04). Therefore even a legislature, much less government, cannot enact a law or issue an order or agree to refund the tax realised by it from people in exercise of its sovereign powers, except when the levy or realisation is contrary to a law validly enacted. A promise or agreement to refund tax which is due under the Act and realised in accordance with law would be a fraud on the Constitution and branch of faith of the people. Taxes like sales tax are paid even by a poor man irrespective of his savings with a sense of participation in growth of national economy and development of the State. Its utilization by way of refund not to the payer but to a private person, a manufacturer, as an inducement to set up its unit in the State would be breach of trust of the people amounting to deception under law.
Exemption from tax to encourage industrialisation should not be confused with refund of tax. They are two different legal and distinct concepts. An exemption is a concession allowed to a class or individual from general burden for valid and justifiable reason. For instance tax holiday or concession to new or expanding industries is well known to be one of the methods to grant incentive to encourage industrialisation. Avowed objective is to enable the industry to stand up and compete in the market. Sales tax is an indirect tax which is ultimately passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. Therefore, both the manufacture, and consumer gain, one by concession of non-levy and other by non-payment. Such provisions in an Act or Notification or orders issued by Government are neither illegal not against public policy.
But refund of tax is made in consequence of excess payment of it or its realisation illegally or contrary to the provisions of law. A provision or agreement to refund tax due or realised in accordance with law cannot be comprehended. No law can be made to refund tax to a manufacturer realised under a statute. It would be invalid and ultra vires. The Punjab Sales Tax Act provided for refund of sales tax and grant of exemption in circumstances specified in Sections 12 and 30 respectively. Neither empowered the Government to refund sales tax realised by a manufacturer on sales of its finished product. Refund could be allowed if tax paid was in excess of amount due. An agreement or even a notification or order permitting refund of sales tax which was due shall be contrary to the statute. To illustrate it the appellant claimed refund of sales tax paid by it to the State Government of sale made by it of its finished products. But the tax paid is not an amount spent by the appellant but realised on sale by it. What is deposited under this head is tax which is otherwise due under provisions of the Act. Return of refund of its or its equivalent, irrespective of from 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 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 Rs. 2 crores, for a period of three years, only, when total investment in establishing the unit was Rs. 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.
In the result this appeal fails and is dismissed with cost.
T.N.A. Appeal dismissed.