JUDGMENT
Permod Kohli, J.
Page 1155
1. Common challenge is made to Notification No. S.O.201 dated 30th March, 2006, issued under Section 7(3)(b) of’ the Bihar Finance Act, 1981, whereby and whereunder, Notification Nos. S.O.478 dated 22nd December, 1995, S.O.57 dated 2nd March, 2000, S.O.479 dated 22nd December, 1995 and S.O.58 dated 2ndMarch, 2000 have been withdrawn. A further, challenge is to another Notification No. S.O.202 dated 30th March, 2006, issued under Section 8(5)(a) of the Central Sales Tax Act, 1956, whereby, Notification No. S.O.481 dated 22nd December, 2005 has been withdrawn. Apart from challenging the aforementioned notifications, constitutional validity of the provisions of Section 95(3)(ii) and Section 96(3) of the Jharkhand Value Added Tax Act, 2005 is also questioned. In view of the commonality of the grounds of challenge, all these writ petitions were heard together and are being disposed of by this common judgment.
2. All the petitioners herein have established their industrial units in the unified State of Bihar before its bifurcation. The factual background leading to filing of these writ petitions is almost similar. Additionally in W.P. (T) No. 2664 of 2006 (Tata Steel Ltd. v. State of Jharkhand and Ors.) and W.P. (T) No. 5130 of 2006 (Ram Krishna Industries v. State of Jharkhand and Ors.) there are concluded judgments in favour of the petitioners. In the case of Tata Steel Ltd. the final judgment is by the Apex Court whereas in the later case the final judgment is by the High Court of Jharkhand. It is useful to refer to factual background emerging from the pleadings of the parties. In the year, 1995 the State Government formulated and notified its Industrial Policy, 1995. The salient features of this policy are enumerated in paragraph No. 4, which are reproduced hereunder:
Create an environment for optimal utilization of State’s agro climatic, mineral and human resources;
provide quality infrastructure for accelerated industrialization of the State;
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attract investment to generate economic activities employment, incomes and growth;
revive potentially viable and closed industries;
boost exports of goods in production of which the State enjoys comparative advantages; and simplify procedures to expedite and impart transparency in decision making.
3. Besides providing various facilities like allotment or government land, power, water, export promotion and various other infrastructural and other allied facilities for the development of industries in the State of Bihar, with a view to achieve its economic growth, the policy also provided for thrust industries for accelerated development in the State. The identification of thrust industries was with a view to utilize the resources and advantages of the State.
4. Clause 16 of the Industrial Policy provides for sales tax incentives. Clause 16.1 and 16.2 allow exemption for the new industries whereas Clause 16.3 provides sales tax exemption for the existing industries, undertaking expansion/diversification. Relevant extract of Clause 16 of the policy is reproduced hereunder:
16. SALES TAX INCENTIVES
Sales Tax benefits play an important role in attracting and directing investment and in sustaining industrial development in a State.
16.1 Sales Tax on purchase of raw materials:
New Units will be allowed the facility of either “Set Off” or “Exemption” at their choice, on purchase of raw materials within the State. New units opting for deferment of Sales Tax on sale of finished goods (vide para 16.2) will, however, be eligible for “Set Off” only on purchase of raw materials. The period of exemption for new units will be limited to 10 years for category ‘A’ and 8 years for Category ‘B’ District from the date of commencement of production of the Unit.
16.2 Sales Tax on sale of finished goods for new unite:
New Units, in addition to the benefit of “Exemption”/ “Set Off” of Sales Tax on purchases, will also have the option to choose deferment of exemption of Sales Tax (both bihar Sales Tax (BST) & Central Sales Tax (CST) on sale of finished goods for a period of 10 years for category ‘A’ and 8 years for category ‘B’ Districts from the date of production of the unit with a ceiling of 100% of the fixed investment made by the unit. However, those industries which are considered ‘Thrust Industries’ as listed earlier in Para 15 (excluding Telecommunication, Computers, Software/ Hardware & Electronics Industries) as also industries located in ‘A’ category Backward district’s the ceiling for deferment would be 150% of the fixed investment. The ceiling for deferment linked to the fixed investment in regard to Telecommunication, Computer, Software/ Hardware & electronics Industries would be 300% of the fixed investment made by the unit.
The amount of sales tax collected under Sales Tax deferment option would require to be returned in equal six monthly installments in such manner so that the entire amount is returned by the 13th year from the commencement of deferment option.
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16.3 Units undertaking expansion/diversification
Such units should be given identical treatment as new units for their expanded/diversified capacity and incremental production both in purchase of raw materials and for sales tax on finished goods. All such incentives will be admissible to such units which are covered by the definition of expansion/diversification as given in the Annexure.
Incremental production means:
The incremental production shall mean the excess of actual production over 2/3 of the originally installed capacity or the highest production in 3 years immediately preceding the year in which such expansion/diversification commenced, whichever of the two is higher.
5. Clause 24 of the aforesaid Industrial Policy provides for issuance of follow up notifications to give effect to the provisions of the policy. As a sequence to the aforesaid conditions, the State Government issued statutory Notification No. S.O.478 dated 22ndDecember, 1995 under Section 7(3)(b) of the Bihar Finance Act, 1981, granting exemption from payment of sale tax on purchase of raw material, utilized by the industrial units whereas S.O. 479 dated 22nd December, 1995 was issued under the same provision for grant of exemption from payment of sale tax on the finished goods, produced by the industries. These exemptions were, however, subject to fulfillment of certain conditions, stipulated in these notifications.
6. Exemption for units in category ‘B’ districts was for a period of eight years whereas in respect to category ‘A’ districts it was ten years from the date of production. Most of the units established by the petitioners fall in category ‘B’ districts and some in category ‘A’ districts and were, thus, entitled to exemption for a period of eight and ten years respectively.
7. We may briefly notice the profile of each petitioner:
W.P. (T) No. 2664/06: (Tata Steel Ltd., East Singhbhum v. State of Jharkhand and Ors.)
Petitioner in this case is a limited company and had already established a hot-roll products round unit at Jamshedpur. It is alleged that the petitioner-company intended to establish another industrial unit for manufacture of cold-roll products and had identified Gopalpur in the State of Orissa for establishing such a unit with a capital investment of Rs. 1800 Crores. However, the management decided to relocate the said unit in Jamshedpur within the State of Bihar provided benefits of exemption are made available in respect to the manufacture of cold-roll products by way of diversification. The petitioner-company, accordingly, wrote a letter dated 30th April, 1997 to the then Chief Minister of Bihar, conveying its intention to establish Cold-Rolling Mill at Jamshedpur by way of diversification by investing about an amount of Rs. 2000 Crores and asked for an assurance for exemption of sales tax up to eight years for diversification under its Industrial Policy. Some other industries also approached the Government with similar request of assurance for exemption from sale tax. It is stated that a meeting was held on 21st July, 1997 under the Chairmanship of the then Chief Minister, wherein, a number of high officials of the State Government were also present and it was decided to grant exemption within the purview of the industrial policy for diversification involving investment of Rs. 500 Crores or more and an amendment was proposed to the Industrial Policy. Page 1158 Consequently, a resolution was adopted for amendment of the Industrial Policy. The extract, relevant for the purposes of this petition, is reproduced hereunder:
(III) “Definitions” chapter in Industrial Policy, 1995-Para 7-Expansion/ Modernisation/Diversification
The policy reads as follows: “Expansion/ Modernization/ Diversification of an existing industrial unit would mean additional fixed capital investment in plant and machinery of 50% or more of the undepreciated value of fixed capital investment in the existing unit leading to incremental production capacity which would not be less than 50% of the initial installed capacity.
The following will be added after the above:
Provided all investment proposals of Rs. 500 Crores or above in diversification shall be treated as a new unit for the purpose of this policy.
Petitioner was informed by the Commissioner & Secretary, Department of Industries, vide letter dated 11th November, 1997 that the State Government has taken a decision that an investment of Rs. 500 Crores or more for expansion, modernization and diversification of existing unit would be taken as a new unit. It was further stated that the company will be entitled to all the reliefs under the Bihar Industrial Policy and the petitioner was advised to take necessary steps to set up a new unit in the State of Bihar as soon as possible. This was followed by amendment of S.O.478 dated 22nd December, 1995 and S.O.479 dated 22nd December, 1995 by issuing S.O.57 dated 2nd March, 2000 and S.O.58 dated 2ndMarch, 2000. By both, these S.Os. the following amendment was introduced:
1(a) ‘New Industrial Unit’ means such a new unit where production has been started between 1st September, 1995 and 31st August, 2000 and which has obtained a letter of permission/memo of acceptance, Registration Certificate from the Dept. of Industries/Authority of Industrial Development Area/Director of Industries of from a competent authority of the Govt. of India.
Provided that all such units where Rs. 500 Crores or more has been invested in diversification shall also be treated as New Unit under this notification.
The petitioner-company formally applied for approval for diversification, which was assured vide letter dated 10th January, 1998 (Annexure 6 to the writ petition). Vide communication dated 16th April, 1999 certain clarifications were made as desired by the petitioner and it was also conveyed that the benefit of exemption will be available both on the State and Central sales tax under 1995 Industrial Policy. It was further clarified that the benefit will be available for a period of eight years i.e. up to 2005 from the date of production i.e. by the end of 1997. A further clarification was made that even if production is not commenced within the time limit but the investment is made, the benefit of exemption will be available. A formal approval was also granted to the petitioner vide letter dated 20th May, 2000 for establishment of the Cold-rolling mills with production capacity of 1.20 million tons having total investment of Rs. 1874.04 Crores. In the meeting dated 26th April, 2000 the Commissioner & Secretary, Commercial taxes, Govt. of Bihar, Patna, accorded approval to as many as seven units, including this petitioner.
Following the formal approval, petitioner applied for grant or exemption certificate and it was granted exemption certificate dated 21st December, 2000, allowing exemption from payment of sale tax on the sale of goods produced from 1st August, 2000 to Page 1159 31st July, 2008 in terms of Section 7(2)(b) of the Bihar Finance Act, 1981. It is stated that on the basis of the exemption certificate petitioner altered its position and started conducting transactions by investing huge amount of approximately Rs. 2000 Crores.
In the meantime, petitioner received an order dated 22ndFebruary, 2000, issued under Sub-section (4) of Section 46 of the Bihar Finance Act, staying exemption certificate dated 21stDecember, 2000. This order became subject matter of challenge before this Court in C.W.J.C.No. 788 of 2000. During pendency of this writ petition, Commissioner of Commercial Taxes rejected the claim of the petitioner-company for grant of exemption vide order dated 3rd April, 2001. This subsequent order also came to be challenged in C.W.J.C.No. 1426 of 2001. A Division Bench of this Court while allowing the writ petition remanded the case to the Commissioner for passing a fresh speaking and reasoned order. Being not satisfied with the order of remand, petitioner approached Hon’ble Supreme Court by filing Special Leave Petition. The Hon’ble Apex Court after granting leave allowed the appeal vide its judgment dated 25th August, 2004; (Tata Iron & Steel Ltd. v. State of Jharkhand and Ors.) and issued the following directions:
23. For the reasons stated above”, this appeal succeeds; the impugned order of the High Court is set aside. We restore the proposal made by the Joint Commissioner for grant of exemption certificate to the appellant as also the exemption certificates granted consequently.
Pursuant to the aforesaid direction of the Apex Court and restoration of the exemption certificate, the exemption certificate of the petitioner was revived vide letter dated 13th September, 2004, whereunder, petitioner was allowed exemption from payment of sale tax with effect from 1st August, 2000 for a period of eight years or 150% of the investment amount, whichever is less.
W.P. (T) No. 2829 of 2006: (A.C.M. Fuels Pvt. Ltd. v. State of Jharkhand and Ors.)
Petitioner in this case is a private limited company, established at Kashitand, G.T. Road, Govindpur (Dhanbad) for manufacturing slurry based washed coke/coal. The unit was duly registered with the District Industries Center; Dhanbad and a temporary registration certificate was issued on 30th August, 2000. After establishing the factory, petitioner started its commercial production from 7th March, 2005 and was granted a certificate or registration on 11th March, 2005. It was also issued an exemption certificate dated 24th May, 2005 with stipulation that on imposition of VAT this benefit would come to an end. Petitioner preferred an appeal against this condition before the Joint Commissioner, Commercial Taxes, Dhanbad Division, who declared the above condition as bad vide its order dated 1st June, 2005. Petitioner was issued two more exemption certificates both dated 11th November, 2005, granting exemption from payment of sales tax on purchase of raw material and sale of finished products for the period from 7thMarch, 2005 to 6th March, 2013.
W.P. (T) No. 2845 of 2006: (Krishna Coke Pvt. Ltd. v. State of Jharkhand and Ors.)
Petitioner in this petition is a private limited company, engaged in manufacture of Beehive Hard Coke, having its industrial unit at Ratanpura, G.T. Road, Govindpur, Dhanbad. It’s unit was issued temporary registration certificate on 5th July, 2000 and the unit started commercial production from 4th March, 2005 and was granted permanent registration certificate on 22nd March, 2005. The unit was also given exemptions under S.Os. 478 and 479 on 22nd June, 2005 valid up to 3rd March, 2013.
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W.P. (T) No. 3744 of 2006: (Ashirwad Steel and Industries Pvt. Ltd. v. State of Jharkhand and Ors.)
Petitioner in this case is a limited company, engaged in manufacture of sponge iron, having its industrial unit at Phase-V, Adityapur Industrial Area, Gamharia Jamshedpur. Petitioner was issued exemption certificates dated 29th April, 2002 under S.Os. 478 and 479, valid for the period from 30th August, 2000 to 29thAugust, 2008.
W.P. (T) No. 3912 o 2006: (Bisco Sponge Iron Pvt. Ltd. v. State of Jharkhand and Ors.)
Petitioner in this case is a private limited company, engaged in manufacture of sponge iron, lumps and fines etc., having its industrial unit at Phase-6, Adityapur Industrial Area, Gamharia Jamshedpur. The unit was granted exemption certificates dated 22nd January, 2002 under S.Os. 478 and 479, valid for the period from 14th August, 2000 to 13th August, 2008.
W.P. (T) No. 3617 of 2006: (Bihar Raffia Industries Ltd. v. State of Jharkhand and Ors.)
Petitioner in this cage is a limited company engaged in manufacture of HDPE/PP Woven, Sacks Fabric, Cut Bits and Tapes on circular Looms and packing products of plastics, having its industrial unit at Phase-V, Adityapur Industrial Area, Gamharia, Jamshedpur. The unit was granted exemption certificates dated 22nd December, 1999 under S.Os. 478 and 479, valid for the period from 10th May, 1999 to 9th May, 2007.
W.P.(T) No. 3416 of 2006: (Dayal Ferro Alloys v. State of Jharkhand and Ors.)
Petitioner in this case is a limited company, engaged in manufacture of Silico Magnese, having its industrial unit at Chaha, Ramgarh Cantt., District- Hazaribagh. The unit was granted exemption certificates dated 17th July, 2002 under S.Os. 478 and 479, valid for the period from 19thMarch, 2001 to 18th March 2009.
W.P. (T) No. 3420 of 2006: (Dayal Alloy & Steel Castings v. State of Jharkhand and Ors.)
Petitioner in this case is a limited company engaged in manufacture of M.S. Ingots, and its unit is located at Chaha, Ramgarh Cantt., District- Hazaribagh. The unit was granted exemption certificates dated 17th July, 2002 under S.Os. 478 and 479, valid for the period from 1st February, 2001 to 31st January, 2009.
W.P. (T) No. 3733 of 2006: (Chandil Industries Ltd. v. State of Jharkhand and Ors.)
Petitioner in this case is a limited company, engaged in manufacture of sponge iron, having its industrial unit at Village Kurli, Post Office- Chandil, Police Station Chowka, District-Seraikella-Kharswan, Jharkhand. Its unit was granted exemption certificates dated 29th April, 2002 under S.Os. 478 and 479, valid for the period from 2nd March, 2001 to 1st March, 2009.
W.P. (T) No. 5747 of 2006: (Shivam Iron and Steel Co. (P) Ltd. v. State of Jharkhand and Ors.)
Petitioner in this case is a private limited company and has set up three units, namely, Induction Furnace Unit, polling Mill Unit and Ferro Alloy Unit, at Jambad, Udnabad, District- Giridih, Petitioner was granted exemption certificates in respect of its all the three units, situated within the same premises, under S.Os. 478 and 479 with validity periods from 4th November, 1999 to 3rdNovember, 2007, 4th July, 2000 to 3rd July, 2008 and 1st February, 2001 to 31st January, 2009 in for each unit respectively.
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W.P. (T) No. 5600 of 2006: ( J.C.I. Cement Pvt. Limited v. State of Jharkhand and Ors.)
Petitioner in this case is a private limited company, engaged in manufacture of Portland slag cement, having its industrial unit at Post Office- Morangi, Demotand, District-Hazaribagh. The unit was granted exemption certificates dated 10th August, 2000 under S.Os. 478 and 479, valid for the period from 6th May, 1999 to 5th May, 2007.
W.P. (T) No. 5603 of 2006: (Goyal Construction Cement v. State of Jharkhand and Ors.)
Petitioner in this case is a proprietorship firm, engaged in manufacture of Portland slag cement, having its industrial unit at Village-Rajgoda, P.O.-Morangi, District- Hazaribagh. The unit was granted exemption certificates dated 10th August, 2000 under S.Os. 478 and 479, valid for the period from 6th May, 1999 to 5th May, 2007.
W.P. (T) No. 5130 of 2006: (Ram Krishna Industries v. State of Jharkhand and Ors.)
Petitioner in this case is a partnership firm, engaged in manufacture of biscuits, having its industrial unit at Dumka Road, Jamtara. The unit was granted exemption certificates dated 16th August, 2002 under S.Os. 478 and 479, valid for the period of ten years i.e. from 28th April, 1998 to 27th April, 2008. Earlier petitioner having been denied the exemption approached this Court vide W.P.(T) No. 5536 of 2001, which came to be decided by judgment dated 23rd April, 2002 by a Division Bench of this Court, whereby, order of refusal of exemption was quashed and the Commissioner, Commercial Taxes, Jharkhand, was directed to reconsider the request for exemption in the light of the observations made, Exemption certificates, valid for the period from 28th April, 1998 to 27th April, 2008, granted pursuant to the aforesaid judgment.
8. In the meanwhile on 15th November, 2000 a separate State of Jharkhand was created under the Bihar Re-organization Act, 2000 and a part of the territory of the State of Bihar, including Jamshedpur, became part of the newly created State of Jharkhand. On 15th December, 2000 by a notification issued by the Governor of Jharkhand, Bihar Finance Act, 1981, the Central Sales Tax (Bihar) Rules, 1956 and the notifications, made thereunder, as also various other Acts, Rules and Regulations were made applicable in the State of Jharkhand with effect from the date of its creation i.e. 15th November, 2000.
9. While petitioners were enjoying the exemption under the aforesaid circumstances, the State Government issued the impugned. Notification S.O.201 dated 30th March, 2006, withdrawing S.Os. 478 and 479 both dated 22nd December, 1995 as also S.Os. 57 and 58 both dated 2nd March, 2000 with immediate effect and vide another Notification S.O.202 dated 30th March, 2006 under Section 8(5)(a) of the Central Sales Tax Act earlier Notification No. 481 dated 22nd December, 2005 was withdrawn with immediate effect. Thus, exemption granted to the petitioners from payment of sales tax both on raw material and finished products has been withdrawn by the impugned notifications.
10. In the meantime the State Legislature adopted Jharkhand Value Added Tax Act, 2005 (hereinafter to be referred as “VAT Act”), which became operative with effect from 1st April, 2006. Sub-section (3) of Section 95 of the VAT Act converted the tax exemption into deferment of the tax for the balance unexpired period of exemption in respect of all the registered dealers, who were enjoying the facility of exemption of tax before the appointed day. Section 96 of the VAT Act further repealed the orders, notifications and certificates granted for availing the facilities by way of exemption Page 1162 for the new industrial units or the units which have undertaken expansion, modernization or diversification. The impact of Section 96 of the VAT Act was that all exemption notifications and exemption certificates allowed to various industrial units and in force as on 31st March, 2006 are deemed to be cancelled. Since by virtue of the impugned Notifications No. S.O. 201 dated 30th March, 2006 and S.O. 202 dated 30th March, 2006 earlier exemption notifications whereunder petitioners were enjoying the exemption benefits had already been withdrawn, petitioner also lost the right of claiming deferment of tax under Section 95(3) of the VAT Act. Petitioner in W.P.(T) No. 2664 of 2006, however, made an application for deferment of tax under the 1995 Industrial Policy in view of Notification Nos. 478 and 479 both dated 22nd December, 1995 as also the certificate of exemption dated 21st December, 2005 in the light of the judgment of the Apex Court upholding its right of exemption. This application is said to be made under protest within the specified time in the prescribed format. It is alleged that the petitioner was asked to appear on 22nd April, 2006. Petitioner did appear on the notified date. However, hearing was deferred to 28th April, 2006 when the petitioner again appeared before respondent No. 5 but no final order was passed. During pendency of this petition, the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur Region, passed an order dated 5th May, 2006, rejecting the claim of the petitioner for converting the sale tax exemption into deferment. Accordingly, petitioner made an amendment application (I.A.No. 1535 of 2006) challenging the order of rejection and vide interlocutory order dated 29th June, 2006 amendment was allowed. Accordingly, the order dated 5th May, 2006 is also under challenge. Challenge to the aforementioned notifications and the provisions of the VAT Act is many fold. To sum up:
(i) Impugned notification Nos. SO. 201 and S.O.202 both dated 30th March, 2006 withdrawing exemption allowed under S.O. 478 and S.O. 479 both dated 22nd December, 1995 read with notification Nos. S.O.57 and S.O. 58 both dated 2nd March, 2000 are illegal, invalid and without authority of law, as these notifications do not disclose the object and the reasons for withdrawing the earlier exemption notifications.
(ii) Respondent-State is bound by the principles of promissory estoppel to continue exemption to the petitioners for the period of eight years or any other period envisaged under S.O. 478 and S.O. 479 both dated 22nd December, 1995 and S.O. 57 and S.O. 58 both dated 2nd March, 2000 issued in implementation of the Bihar Industrial Policy, 1995, notwithstanding any contrary provision under the Jharkhand VAT Act.
(iii) Impugned notifications tend to nullify the concluded judgment of the Apex Court, reported in (2004)7 SCC 242 and, thus, amounts to interference with the judicial decision and violates the basic structure of the Constitution of India.
(iv) Section 95(3)(ii) and Section 96(3) of the Jharkhand VAT Act, 2005 is a colourable legislation and can not take away the vested right of the petitioners to enjoy the benefits of exemption for the period, provided under S.O. 478 and S.O. 479 read with S.O. 57 and S.O. 58.
(v) Issuance of impugned notifications is a motivated device to deprive the petitioners from even enjoying the facility of deferment of tax under Section 95(3)(ii) of the Jharkhand VAT Act, 2005.
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11. Resisting the relief claimed by the petitioners, the State has justified and defended its action of withdrawing the notification by the impugned notifications primarily on the following grounds:
(a) The State has absolute power to withdraw the exemption under larger public interest.
(b) Promissory estoppel cannot be invoked in so far the legislative field is concerned.
(c) Promise under the Industrial Policy, 1995 was a conditional one. Conditions were imposed under Clause 16(4) of 1995 Industrial Policy and under Clause 19 of S.O. 478 and Clause 20 of S.O. 479. The State has authority to revoke, alter and modify the notifications and, thus, to withdraw the exemption.
(d) With the introduction of VAT the facility of exemption cannot continue as it breaks the VAT chain and thereby interferes in the implementation of the VAT Act.
(e) The exemption has been withdrawn on account of supervening public interest.
12. We have examined the respective contentions of the parties. There is absolutely no dispute that under the 1995 Industrial Policy the then State of Bihar had extended assurance and promise to grant exemption from payment of sales tax on the purchase of raw materials under the Bihar Finance Act, 1981 as also on the sale of the finished products both under the Bihar Sales Tax Act, 1981 and the Central Sales Tax Act. We will consider the contention of the respondent-State in the later part of this judgment whether the promise was a conditional one. It is also indisputed that the petitioners have acted on the promise and assurance envisaged under 1995 Industrial Policy, which was reiterated in subsequent follow up statutory notification Nos. S.O. 478 and S.O. 479 both dated 22nd December, 1995 and S.O. 57 and S.O. 58 both dated 2nd March, 2000 and invested huge amounts for setting up their industrial units in various parts of the State. The eligibility of the petitioners to avail the exemption is also evident from exemption certificates, issued by the Commissioner of Commercial Taxes in their favour for the relevant period in each case. Right to enjoy exemption has been acknowledged and its enforceability certified by the final judgment of the Apex Court dated 25th August, 2004. reported in the case of Tata Iron & Steel Ltd.(supra). A similar judgment of Division Bench of this Court has been passed in favour of the petitioner in W.P. (T) No. 5130 of 2006 [Ram Krishna Industries v. State of Jharkhand and Ors.). By virtue of Government’s notification dated 15th December, 2000 issued by the Governor of Jharkhand, the Bihar Finance Act, 1981, the Central Sales Tax (Bihar) Act, 1956 and all notifications made thereunder and other various Acts, Rules and Regulations having been enforced and applied in the State of Jharkhand after its creation, the present State of Jharkhand is bound by all such statutory provisions and notifications, issued during the period prior to bifurcation, which, inter alia, includes the exemption notifications being S.O. 478 and S.O. 479 both dated 22nd December, 1995 and S.O. 57 and S.O. 58 both dated 2nd March, 2000 as also S.O. 431 dated 22nd December, 1995. It is also relevant to note that Industrial Policy, 1995 issued by the unified State of Bihar was duly adopted by the State of Jharkhand on 1st of June, 2002 vide Notification No. 1259 dated 1st June, 2002. From this notification it is also evident that all statutory notifications S.O. 478, 479, 480 and 481 all dated 22nd December, 1995 and S.O. 57, 58, 59 and 60 all dated 2nd March, 2000 were adopted by the State of Jharkhand.
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13. It is urged on behalf of the petitioners that the impugned notifications S.O. 201 and S.O.202 simply, revoke the earlier exemption, granted vide S.O. 478 and S.O. 479 both dated 22nd December, 1995 and S.O. 57 and S.O. 58 both dated 2nd March, 2000 as also S.O. 481 dated 22nd December, 1995 without recording any reasons for withdrawing the exemption earlier granted to the petitioners on the basis of a well thought of notified Industrial Policy of 1995. It is contended that the exemption notifications were issued in implementation of the Industrial Policy, wherein, promise was extended to the entrepreneurs for grant of exemption from payment of sales tax on the raw materials utilized in the industries and on finished products produced by such industries. This promise was extended in public interest i.e. for the promotion of industries in the State for its economic growth. However, vide the impugned notifications no reason whatsoever has been indicated for withdrawing the exemption and, thus, these notifications cannot be said to be in public interest, much less the supervening public interest, which alone is a determinative factor for judging the validity of the notifications. From a perusal of the impugned notifications it is evident that no reason much less a valid reason has been indicated therein to enable this Court to examine what is the persuasive reason for the Government for withdrawing the exemption notifications, earlier granted and continued for years together. We have noticed hereinabove the salient features of the exemption notification read with the preamble of the Industrial Policy, 1995. It is abundantly clear that the State formulated its Industrial Policy of 1995 for the economic growth of the State by inviting investments in the then State of Bihar from private investors. The Industrial Policy of 1995 and consequential notifications, granting exemption for the industrial development of the State were issued in public interest i.e. the development and economic growth of the State. Therefore, its withdrawal has to be for any supervening public interest i.e. imperative compulsion of the State to sacrifice the public interest earlier notified and duly implemented for a number of years. Hence, it would have been an ideal situation if reasons for withdrawal had been indicated in the impugned notifications. But the fact remains that the impugned notifications do not disclose any reason for withdrawal of the earlier notifications. It is cardinal principle of law that every State’s action must satisfy the rule of non-arbitrariness and, thus, recording of reasons in writing for either granting or taking away a right, particularly when it results in civil consequence, is must. The question arises whether the impugned notifications should be quashed merely for non-disclosure of the reasons. Hon’ble Supreme Court in the case of Srilekha Vidyarthi v. State of U.P. reported in (1993)1 SCC 212, has held that even where reasons are not required to be communicated, the reasons must exist. Therefore, mere non-disclosure of the reasons in the impugned order/notification may not be sufficient to quash the same, if reasons are otherwise recorded in the official records. Thus, it is necessary to examine the reasons for issuing the impugned notifications on the basis of the counter affidavits filed by the respondents and the records produced to judge the validity or otherwise of the impugned notifications. We have briefly noticed the grounds on which the impugned notifications have been defended by the respondent-State.
14. We may also notice the relevant pleadings to find out the grounds in defence of the impugned notifications. It has been mentioned that the Government of India in consultation with the States decided to introduce Value Added Tax. In most of the States of India it was introduced with effect from 1st April, 2005 and the State of Jharkhand also enacted Value Added Tax Act, 2005 and enforced the same Page 1165 with effect from 1st April, 2006 and with a view to apply uniform tax structure through the Value Added Tax all exemptions were withdrawn by virtue of Section 96(3) of the VAT Act, 2005.
15. Mr. Modi, learned Counsel appearing for the respondent State has also referred to the minutes of the Empowered-Committee to submit that it was considered by the Empowered Committee of Finance Ministers to introduce system of Value Added Tax in all the States of the country with a view to introduce uniform floor rate. It is further stated that it was decided to discontinue tax related exemptions with effect from 1st January, 2000. It is, accordingly, urged that in view of this decision provision has been made in VAT Act to withdraw the exemptions. It has also been urged that there are other valid reasons indicated in the counter affidavit and reference is made to paragraph Nos. 23 and 24 of the counter affidavit to show that the newly created State of Jharkhand had financial burden of exemptions and with a view to ease out from the financial crisis, the impugned notifications have been issued. We will deal with the details of this submission while dealing with the issue relating to supervening public interest Suffice it to say that some reasons have been disclosed in the counter affidavit. It is a different question whether the reasons so disclosed and available on records are adequate enough to save the impugned notifications.
16. The fundamental issue in these cases is the existence and enforceability of the doctrine of equitable or promissory estoppel. We have already observed hereinabove on the basis of the factual background that the State did extend assurance and promise to the entrepreneurs to grant exemption from payment of sales tax both Central and State under Central Sales Tax Act and the Bihar Finance Act, 1981 through the medium of its Industrial Policy of 1995, duly implemented through various statutory notifications. The existence of promise is also established in earlier litigations between at least two of the petitioners in W.P.(T) No. 2664 of 2006 and W.P.(T) No. 5130 of 2006. In so far other petitioners in other writ petitions are concerned, we have noticed hereinabove that exemption certificates have been issued in favour of all the petitioners in accordance with law and all of them had established their industrial units pursuant to and under the Industrial Policy of 1995 as also after the issuance of S.O. 478, S.O. 479 and S.O. 481 all dated 22nd December, 1995. All these petitioners being similarly circumstanced, there was a promise extended to all of them. From the facts on records it is also amply clear that all the petitioners established their industrial units in response to the abovementioned Industrial Policy and statutory notifications. Therefore, the existence of promise cannot be denied and as a matter of fact has not been denied. The next question, which falls for determination is whether the assurance and promise extended by the State of Jharkhand to writ petitioners is enforceable for the tenure it was extended or can it be curtailed through the intervention of the impugned notifications or even by the statutory provisions, contained under the VAT Act, 2005. First of all we would like to deal with the enforceability of the promise, independent of the provisions of the VAT Act and, thus, examine the validity of the impugned notifications. A promise invites the application of rule or estoppel only if it is based upon equity. That is why it is also called an equitable estoppel. The other important rule for application of this doctrine is acting on the promise or assurance and changing the position. We have already opined that the petitioners acting on the assurance have altered their position and invested huge amounts in setting up industrial units and/or diversifying their Page 1166 manufacturing activities. The rule of promissory/ equitable estoppel has developed in this country in last four/five decades. Both the sides have relied upon various judgments of the Apex Court. We may briefly notice some of the judgments referred to and relied upon by the petitioners.
In the case of Union of India v. Anglo Afgan Agencies reported in A.I.R. 1968 SC 718, an order was passed by the Textile Commissioner providing for import license equal to 100% of the value of the exports to the exporters of woollen goods. On the denial of the right writ petition was filed before the High Court of Punjab and the same was allowed and direction issued for enforcement of the scheme, wherein, promise was made for grant of import license. In an appeal before Hon’ble Supreme Court, while dealing with the question, the Apex Court observed as follows:
(10)…We are unable to accede to the contention that the executive necessity releases the Government from honouring its solemn promises relying on which citizens have acted to their detriment….
In the case of M.P. Sugar Mills v. State of U.P. reported in A.I.R. 1979 621, Bhagwati, J. speaking for the Bench, held as under:
24. xx xx xx
…The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Govt. would be held bound by the promise and the promise would be enforceable against the Govt. at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution….
xx xx xx
…Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. If the Government does not want its freedom of executive action to he hampered or restricted, the Government need not make a promise knowing or intending that it would be acted on by the promisee and the promisee would alter his position relying upon it. But if the Government makes such a promise and the promisee acts in reliance upon it and alters his position, there is no reason why the Government should not be compelled to make good such promise like any other private individual….
xx xx xx
…The Government cannot, as Shah. J., pointed out in the Indo-Afghan Agencies case, claim to be exempt from the liability to carry out the promise “on some indefinite and undisclosed ground of necessity or expediency”, not can the Government claim to be the sole judge of its liability and repudiate it “on an ex parte appraisement of the circumstances”. If the Government wants to resist the liability, it will have to disclose to the Court what are the subsequent events on account of which the Government claims to be exempt from the liability and it would be for the Court to decide whether those events are such as to render it inequitable to enforce the liability against the Government. Mere claim of Page 1167 change of policy would not he sufficient to exonerate the Government from the liability, the Government would have to show what precisely is the changed policy and also its reason and justification so the Court can judge for itself which way the public interest lies and what the equity of the case demands….
In the case of Union of India v. Godfrey Philips India Ltd. , Hon’ble Supreme Court while reiterating the view in M.P. Sugar Mills (supra) and disagreeing with the later view in the case of Jit Ram v. State of Haryana, , observed as under:
11. …Suffice it to say at this stage that if a statutory authority or an executive authority of the State functioning on behalf of the State in exercise of its legally permissible powers has held out any promise to a party, who relying on the same has changed its position not necessarily to its detriment, and if this promise does not offend any provision of law or does not fetter any legislative or quasi-legislative power inhering in the promisor, then on the principle of promissory estoppel the promisor can be pinned down to the promise offered by it by way of representation containing such promise for the benefit of the promisee.
In the case of Pawan Alloys and Casting Pvt. Ltd. v. U.P.S.E.B. reported in (1997)7 SCC 351, the Hon’ble Supreme Court after noticing various judgments, including referred to hereinabove, held as follows:
28…The said decision is not an authority for the proposition that even if a claim of exemption from import duty was resorted to in public interest by way of an incentive for a class of importers and even though such public interest continued to subsist during the currency of such an exemption notification and that promises for whose benefit such exemption was granted had changed their position relying on the said exemption notification, it could still be withdrawn before the time mentioned therein even though public interest did not require the said exercise to be undertaken and even though there were subsisting equities in favour of the promisee-importers. As such a situation had not arisen in that case it was not adjudicated upon.
In the case of State of Punjab v. Nestle India Ltd. , the Supreme Court following the view expressed earlier in the case of Union of India v. Anglo Afgan Agencies (supra), M.P. Mills (supra) and Union of India v. Godfrey Philips India Ltd. (supra), held as follows:
46. In any event judicial discipline requires us to follow the decision of the larger Bench. The facts in the present case are similar to those prevailing in Godfrey Philips. There too, as we have noted earlier, the statutory provisions required exemption to be granted by notification. Nevertheless, the Court having found that the essential prerequisites for the operation of promissory estoppel had been established, directed the issuance of the exemption notification.
A later Full Bench judgment, presided over by one of us (M. Karpaga Vinayagam, C.J. -the then Judge of Madras High Court.) in the case of Vairavikulam Lime Products Private Limited v. Government of India , examined the applicability of the doctrine of promissory estoppel in depth by taking note of all the relevant judgments of the Apex Court, including referred to hereinabove, and laid down following guidelines:
Page 1168
21. From the above decisions, the following guidelines would emerge, with regard to promissory estoppel:
1) If a statutory authority functioning on behalf of the State, in exercise of its legally permissible powers has held out any promise to a party, who relying on the same, has changed its position, then, on the principle of promissory estoppel, the promisor can be pinned down to the promise offered by it, by way of representation, containing such promise for the benefit of the promisee.
2) The doctrine of promissory estoppel cannot be pressed into service, to compel the Government, to carry out representation or promise, which is contrary to law or which is outside the authority.
3) The doctrine of promissory estoppel would apply to the Government also. The Government cannot claim immunity from the doctrine of promissory estoppel.
4) The principle of promissory estoppel would be applicable to the Government as well, where it makes a promise knowing or intending that it would be acted upon by the promisee, and the promisee in fact acting on the promise alters his position, then the Government will be held bound by the promise and such a promise would be enforceable against the Government, at the instance of the promise.
17. On the basis of the guidelines formulated by the Full Bench of Madras High Court, which we consider to be the sum and substance of the principles enunciated by the Apex Court in its various judgments rendered from time to time, we may examine the enforceability of the promise/assurance in the present set of circumstances.
(i) The unified State of Bihar invited entrepreneurs for setting up of industrial units in the then State of Bihar (including the territories, now in the State of Jharkhand) by promulgating Industrial Policy, 1995. Some of the petitioners approached the State to seek further assurance for grant of incentives for establishing the new units as also for diversifying the manufacturing activities. A meeting was held on 21st July, 1997 under the Chairmanship of the then Chief Minister and a number of officials of the State Government and a resolution was adopted for amendment of the Industrial Policy and on the basis of the resolution the Industrial Policy and statutory notifications S.O. 478 and S.O. 479 came to be amended vide S.O. 57 and S.O. 58 both dated 2nd March, 2000.
(ii) Petitioners made investments by either establishing the new units or diversifying the activities. In case of petitioners in W.P.(T) No. 2664 of 2006 investment of about Rs. 2000 Crores was made. Similarly other petitioners also invested huge amount, depending upon the nature of activities and the level of industrial units and altered their position.
(iii) All the industrial units were granted exemption certificates on verification of their investment in setting up of the industrial units.
(iv) Petitioners were enjoying the benefit of exemption till 29th of March, 2006.
(v) The benefit of exemption was available for a period of eight years in ‘B’ districts and ten years in ‘A’ districts from the date of production and in all the present cases it extends beyond the date of issuance of impugned notifications S.O. 201 and S.O. 202 both dated 30th March, 2006.
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(vi) Jharkhand Value Added Tax Act, 2005 came into operation with effect from 1st April, 2006.
(vii) After creation of the State of Jharkhand on 15th November, 2000, the State Government issued order dated 15th December, 2000 and applied Bihar Finance Act, 1981, Central Sales Tax (Bihar) Rules, 1956 and various other Acts, Rules and Regulations to the newly created State of Jharkhand.
(viii) The State of Jharkhand vide Notification No. 1259 dated 1st June, 2002 adopted the Industrial Policy of 1995 issued by the erstwhile State of Bihar and Notifications S.O. 478, S.O. 479, S.O. 480 and S.O. 481 all dated 22nd December, 1995 and S.O. 57, S.O. 58, S.O.59 and S.O.60 all dated 2nd March, 2000 and acknowledged the right and entitlement of various industries, established in the unified State of Bihar, falling in the territory of the newly created State of Jharkhand for the benefit of exemption under the Industrial Policy and consequential statutory notifications.
18. From the above facts it emerges that the successor State of Jharkhand is bound by the promise extended by the unified State of Bihar Hon’ble Supreme Court in the case of Commissioner of Commercial Taxes, Ranchi and Ors. v. Swarn Rekha Cokes and Coals Ltd. , while considering the liability of the successor State to honour the promise of the erstwhile State of Bihar held as under:
We therefore, find ourselves in agreement with the view of the Patna High Court in CA No. 7798 02. We hold that the benefit of exemption from payment of sales lax on purchase of raw material in respect of new unit or the benefit envisaged for units which have undertaken diversification or expansion are available to those units if eligible under S.O. 478 dated 22.12.95, notwithstanding the fact that erstwhile State of Bihar has been divided into two States by creation of the new State of Jharkhand. We are also satisfied that the said S.O. has not been either modified, amended or altered by the State of Jharkhand and, therefore, it must continue to operate in the State of Jharkhand till such times as it is modified, repealed or altered in the manner prescribed by Section 85 of the Bihar Reorganization Act, 2000.
19. It is, thus, established that there has been a valid promise for grant of exemption to the petitioners. It is also not in dispute that the successor State of Jharkhand is obliged to honour such promise and can not claim immunity from the doctrine of promissory estoppel if the promise is unconditional. The question now needs to be examined is whether the State can be compelled to honour the promise and whether there is any supervening public interest involved in issuance of the impugned notifications so as to relieve the State of its obligation to obey the promise.
20. It has been strenuously argued by Mr. P. Modi and Mr. K.K. Jhunjhunwala, appearing on behalf of the State, that the State is not bound to honour the promise because of the supervening public interest i.e. financial burden and on account of the fact that the promise extended was subject to conditions, incorporated in Clause 16.4 of Industrial Policy, 1995, S.O. 478 and S.O. 479 being condition Nos. 19 and 20, which empower the State to withdraw such exemption. We may like to examine these two aspects.
21. One of the grounds urged in the counter affidavit filed is that on account of specific stipulations under Clause 16.4 of 1995 Industrial Policy and Clause 19 and Page 1170 Clause 20 of S.O. 478 and S.O. 479 respectively, the State can always withdraw and revoke the incentives granted to the petitioners with respect to the exemption from payment of sales tax. Clause 16.4 of Industrial Police, Clause 19 of S.O. 478 and Clause 20 of S.O. 479 read as under:
16.4 The Commercial Taxes authorities will prescribe the required procedure and condition for extending aforesaid sales tax incentives to industrial units.
xx xx xx ljdkj dks ;g vf/kdkj gksxk fd og bl vf/klwpuk }kjk nh xbZ foeqfDr ij dHkh Hkh iqufoZpkj djsa vkSj & ;Fkkvko;d blesa fofgr krksZa@fuca/kuksa ;k izfdz;k dks fkfFky djsa vFkok mlesa ifjorZu djsA (Translated English Version): The Government reserves its right to reconsider the exemption given under this notification at any time and as necessitated the terms/restrictions or procedure in it be relaxed or changed.
22. Based upon the above clauses in both the exemption notifications it is argued by Mr. Modi that the exemption granted was conditional and equivocal and could have been withdrawn by the Government any time. According to him, petitioners knew that the exemption was precarious and, thus, there being no absolute promise, it could be withdrawn and has been rightly revoked. With a view to support his contention, he has referred to a case (Sales-Tax Officer v. Shree Durga Oil Mills). In this case the Government of Orissa announced Industrial Policy vide resolution dated 18th July, 1979 by the Industries Department specifying therein that the Government will grant exemption on new industries for the period prescribed therein. It also provided for issuance of statutory notifications under the Orissa Sales Tax Act for granting exemption. Section 6 of the Orissa Sales Tax Act provided for issuance of exemption notifications. It further laid down that the exemption granted by notification issued under Section 6 can be modified or withdrawn by the State Government at any point of time. Exemption notification issued by the Government under Section 6 was later withdrawn. It is in this context that the Hon’ble Supreme Court held that the Industrial Policy Resolution of 1979 itself did not grant exemption and, thus, the Government was entitled to change its policy. The Court further held as under:
16. When the respondent set up its Oil Mill and was granted exemption from sales tax, it should have blown that the notification granting exemption of tax under Section 6 could be withdrawn at any point of time. Therefore, the case of promissory estoppel is without any basis. There cannot be any estoppel against statute.
In the case of Rom Industries Ltd. v. State of. J. and K. reported in (2005)7 SCC 348, the State Government issued exemption notification S.R.O. 93 dated 27th March, 1991 for grant of exemption to Small-scale Industrial Units. The petitioner in the case of M/s Rom Industries Ltd. (supra) established its unit for edible oils. The exemption was up to 31st March, 2000. It was also stipulated in the exemption notification that the industries in the negative list to be notified by the Government will not be entitled for exemption. The policy also stated that the negative list may be altered by the Government from time to time. After establishment of the industry, edible oil was brought on the negative list by amending S.R.O. 93. This was in view of the judgment of the Hon’ble Supreme Court in another case where exemption to local industries was held to be violative, being contrary to Article 301 and 304 of the Constitution of India. The Government, accordingly, brought the edible oils on the negative list in Page 1171 compliance to the judgment of the Supreme Court. It was under these circumstances the Apex Court held as under:
8. We are not prepared to hold that the government policy by itself could give rise to any promissory estoppel in favour of the appellants against the respondents since the policy itself made if absolutely clear that it would come into effect only on appropriate notification being issued. The notification was issued in exercise of the admitted powers of the State Government under the State General Sales Tax Act. The State Government having power and competence to grant the exemption was equally empowered to withdraw it. As we have also noticed there was nothing either in the notification or in the policy which provided that the Negative List would not be amended or altered. On the contrary Clause (vii) of para 7 to GO No. 10 of 1995 expressly reserved the Government’s right to amend the Negative List. The right if any of the appellants was a precarious one and could not found a claim for promissory estoppel.
9. As far as the second submission of the appellants is concerned, Shree Mahavir Oil Mills set aside Notification No. SRO-93 of 1991. It did so on the basis that the State was incompetent to grant relief in respect of edible oils industries (vide para 23 of the judgment). It was said that the action of the State Government in granting total exemption in favour of small-scale industries in Jammu and Kashmir producing edible oil was unconstitutional, particularly being contrary to Articles 301 and 304 thereof and was unsustainable in law. There can be no manner of doubt that this Court in Shree Mahavir Oil Mills had expressly and in no uncertain terms set aside Notification No. SRO-93. The benefit which was granted to the appellants was also under this very notification. As we have observed, the edible oil industries were entitled to the benefit of Notification No. SRO-93 since edible oil was not an industry mentioned in the Negative List. The State Government, in view of the decision of this Court had no other option but to place edible oils in the Negative List. The questions whether Shree Mahavir Oil Mills has been rightly decided or not and whether it is in conflict with the principles enunciated in Video Electronics are moot. But while the decision stands, the State Government is bound to comply with it.
23. The application of the aforesaid judgments to the present case would depend upon the true and correct interpretation of Clause 16.4 of the Industrial Police, 1995 and Clauses 19 and 20 of S.O. 478 and S.O. 479 respectively. Clause 19 of S.O. 478 is perimateria of Clause 20 of S.O. 479.
24. In so far Clause 16.4 is concerned, it merely authorizes the Commercial Taxes authorities to prescribe the procedure and condition for extending sales tax incentives to the industrial units. This clause does not even remotely suggest amendment or revocation of the Industrial Policy at any stage. On the contrary this clause tends to facilitate the grant of incentives. The procedure and conditions to be prescribed by the Commercial Tax authorities can only be for granting incentives and not for withdrawing or curtailing the same in any manner. The contention of Mr. Modi regarding this clause cannot be acceded to. This takes us to examine Clause 19 of S.O. 478 and Clause 20 of S.O. 479.
25. Mr. Debi Prasad Pal, learned Senior counsel appearing on behalf of some of the petitioners has vehemently argued that Clauses 19 and 20 of S.O. 478 and S.O. 479 Page 1172 do not convey any intention to withdraw the exemption granted under the Industrial Policy, 1995. His submission is two fold: (i) That the Industrial Policy of 1995, which is the basic policy decision of the State Government to grant exemption, does not provide for revocation of the incentives and, thus, the consequential notifications cannot override the Industrial Policy; and (ii) Clause 19/20 also does not empower the State Government to withdraw the exemption so as to negate the very purpose of the Industrial Policy whereunder exemption has been granted. We have carefully perused the Industrial Policy. Even Mr. Modi has only relied upon Clause 16.4 or the 1995 Industrial Policy Resolution to argue that the Government is empowered to withdraw the exemption. We have already expressed our view regarding Clause 16.4, which does not in any manner provide for withdrawing the exemption. It is the common stand of the petitioners as also the State that S.Os. 478 and 479 are consequential statutory notifications issued to implement the Industrial Policy of 1995. Admittedly, in 1995 Industrial Policy there is no stipulation for withdrawing the incentives granted thereunder. These notifications have been issued pursuant to stipulation under Clause 24 of the Industrial Policy Resolution of 1995. Clause 24 of Industrial Policy Resolution of 1995 is reproduced hereunder:
24. Monitoring & Review
All concerned departments and organizations will issue follow up notifications to give effect to the provisions of the Policy within a month. This will be appropriately monitored by the Govt.
The State Government may carry out Mid Term Review of this Policy.
26. Clause 24, noticed hereinabove, clearly provides for issuance of follow up notifications to give effect to the Policy. Whenever sales tax is imposed whether local or central under any local or central law upon taxable goods, it is statutory obligation of a dealer to pay the tax. Exemption from payment of tax can only be granted in accordance with the procedure, prescribed under law. Section 7(3) of the Bihar Finance Act, 1981 provides for grant of exemption from payment of local tax whereas Section 8(5)(k) provides for grant of exemption from payment of central sales tax in accordance with the conditions, prescribed therein. Hence the statutory notifications were required to be issued as per the requirement of laws in force i.e. Bihar Finance Act, 1981 and Central Sales Tax Act to grant exemption. Therefore, the notifications S.Os. 478 and 479 have to be read as a sequence to the basic Industrial Policy, which alone conveys the intention of the State and cannot be read in isolation of the Industrial Policy to understand the meaning and purport of any of its conditions. It is in this context we have to read and interpret Clause 19/20 of S.O. 478/479. This clause is couched in such a language that it does leave some scope for argument what is being contended by Mr. Modi. However, in our view, these follow up notifications have to be read and construed as a sequence to Clause 24 of the Industrial Policy Resolution, 1995 so as to give the purposeful meaning intended under Clause 16 of the Government’s own policy. The statutory notifications, which were required to be issued as a follow up action cannot supplant, nullify or frustrate the very object for which the Industrial Policy was formulated. Therefore, to understand its true import and purport we are of the considered opinion that this clause has to be read along with Clause 16.4 of the Industrial Policy, 1995, which means that the Government may reconsider the exemption and, if necessary, relax or change the terms, restrictions or procedure. This we are saying so because S.Os. 478 and 479 Page 1173 provide for various formalities and procedure for grant of exemption and subsequently if the Government finds that any stipulation, condition or procedure is not working, sufficient or flawed for the purposes of implementation of Industrial Policy, it reserves to itself the right to modify and change the same. This clause does not provide for revocation or the annulment as is evident from the expressions used in the Policy i.e. “reconsider” and if “necessary” “relax” or “change” the “terms”/ “restrictions” or “procedure”. The word “reconsider” has to be read in the context of relaxation or change of the terms, restrictions or procedure. Admittedly S.Os. 478 and 479 have been issued in exercise of power, vested in the State Government under Section 7(3) of the Bihar Finance Act, 1981 Section 7 of the Bihar Finance Act reads as under:
7. Exemption.- (1) No tax shall be payable under this part on sales or purchases of goods which have taken place-
(a) in the course of inter-State trade or commerce;
(b) outside the State;
(c) in the course of import of goods into, or export of the goods out of the territory of India
(2) The provisions of Central Sales Tax Act, 1956 (LXXIV of 1956) shall apply for determining when a sale or purchase of goods shall be deemed to have taken place in any of the ways mentioned in Clause (a), (b) or (c) of Sub-section (1).
(3) The State Government may, by notification and subject to such conditions or restrictions as it may impose, exempt from the sales tax or purchase tax-
(a) sales of any goods or class or description of goods:
(b) sales of any goods or class or description of goods to or by any class of dealers;
(c) any sale or category or description of sales; and
(d) purchase of any goods by any class or dealers or any purchase or category or description of purchases of such goods.
27. Section 7(3) speaks of conditions or restrictions to be imposed for grant of exemption. Therefore, Clause 19/20 of S.O. 478/479 is to be read in consonance to the provisions of Sub-section (3) of Section 7 of the Bihar Finance Act, 1981 and Clause 16.4 of the Industrial Policy Resolution. There is no provision in the Bihar Finance Act conferring power of revocation unlike Section 6 of the Orissa Sales Tax Act. The Apex Court has interpreted the provisions of Sub-section (3) of Section 7 of the Bihar Finance Act, 1981 in relation to Industrial Policy Resolution of 1993 of the State of Bihar and while interpreting this provision, the Apex Court in the case of State of Bihar v. Suprabhat Steel Ltd. , observed that it was not open to the State Government to issue a notification under Section 7 of the Act overriding the Industrial Incentive Policy itself. It also observed that the expression “such conditions and restrictions as it may impose” appearing in Section 7(3) did not authorize the State to negate the incentives and benefits, which any industrial unit would be otherwise entitled to under the General Policy Resolution itself. This decision was followed by a Division Bench of Patna High Court in the case of IRIS Electronics India. Pvt. Ltd. v. State of Bihar reported in 132 S.T.C. 185, wherein the following has been observed:
52. … Sub-section (3) of Section 7 of the Act, which we have already considered in detail authorizes the State Government rather gives a discretion to the Page 1174 State Government that the State Government may not notification and subject to such conditions or restrictions, as it may impose, exempt from the sales tax or purchase tax particular sales, etc. The words “subject to such conditions or restrictions as it may impose have been considered by the Supreme Court in the matter of Suprabhat Steel Ltd. [1999] 112 STC 258. According to the apex Court this phrase will not authorize the State Government to negate the incentives and benefits which any industrial unit would be otherwise entitled to under the General Policy Resolution itself….
28. Dictum of the aforesaid judgments also support our view regarding the true construction and purpose of Clause 19/20 of S.O.478/479.
29. It is next contended by Mr. Modi that under Section 21 of the General Clauses Act the State has the power to rescind, modify or alter its orders and, thus, the State cannot be prevented from withdrawing the exemption notifications. No doubt the State has the power and authority to modify and rescind its orders and decisions but it has to pass the test of reasonableness and is also subject to other restrictions of law. Mere existence of power does not justify the action. In the present case exercise of such a power is subject to the rule of estoppel in equity as has been propounded in various judgments, referred to above. Additionally a welfare and democratic State has to stand to the test of legitimate expectation i.e. to be fair.
30. Now we come to the most important and relevant aspect on which Mr. Modi has laid great emphasis during the course of argument i.e. the existence of “supervening public interest” to enable the State to resile from its promise. It is now settled law that doctrine of promissory estoppel is applicable against the State. However, State can resile from promise in supervening public interest. The principle has been laid down by the Apex Court in this regard in the case of Shrijee Sales Corporation v. Union of India , wherein, the following is observed:
3. …Suffice it to say that the principle of promissory estoppel is applicable against the Government but in case there is a supervening public equity; the Government would be allowed to change its stand; it would then be able to withdraw from representation made by it which induced persons to take certain steps which may have gone adverse to the interest of such persons on account of such withdrawal. However, the Court must satisfy itself that such a public interest exists….
xx xx xx xx
7. …Once public interest is accepted as the superior equity which can override individual equity, the principle should be applicable even in cases where a period has been indicated. The Government is competent to resile from a promise even if there is no manifest public interest involved, provided, of course, no one is put in any adverse situation which cannot be rectified. To adopt the line of reasoning in Emmanuel Ayodeji v. Briscoe quoted in M.P. Sugar Mills even where there is no such overriding public interest, ii may still be within the competence of the Government to resile from the promise oil giving reasonable notice which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position, provided, of course, it is possible for the promisee to restore the status quo ante. If, however, the promisee cannot resume his position, the promise would become final and irrevocable.
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31. It is also equally settled that mere ipse dixit of the State cannot be a ground for resiling from the solemn promise made by it, inducing the opposite party to alter its position to his/its detriment.
32. With a view to establish that there was larger and supervening public interest, the State is required to plead and place on record necessary material to justify its action. It is in this context the plea of the respondents needs to be considered.
33. It has been pleaded in paragraph Nos. 23 and 24 of the counter affidavit filed by the State that after creation of the State of Jharkhand on 15th November, 2000 and adoption of the Bihar Finance Act, 1981 and other laws and rules vide Notification S.O. 117 dated 15th December, 2000 by the State of Jharkhand, several industries located in the erstwhile State of Bihar were enjoying exemption on the purchase of raw materials, for example; Coal and Coke from B.C.C.L. etc. Such industries claimed benefit of exemption in accordance with S.Os. 478, 479 and 481 all dated 22nd December, 1995 and S.Os. 57, 58, 59 and 60 all dated 2nd March, 2000 on the basis of Industrial Policy of 1995. Patna High Court held entitlement of such industries for the benefit of such incentives in view of the provisions of Sections 84 and 85 of the Bihar Re-organization Act, 2000. Hon’ble Supreme Court also upheld the decision of the Patna High Court vide its judgment, reported in the case of CCT v. Swarn Rekha Cokes and Coals Pvt. Ltd. (supra). It was observed by the Hon’ble Supreme Court that the notification issued by the erstwhile State of Bihar granting exemption must continue to operate in the State of Jharkhand till such time, as it is modified, repealed or altered in the manner prescribed by Section 85 of the Bihar Re-organization Act, 2000. It is, accordingly, pleaded that while issuing the impugned notifications, the State of Jharkhand has taken into consideration the decision of the Patna High Court/Supreme Court (supra). Again in paragraph Nos. 13, 18, 21, 30, 31 and 38 of the counter affidavit reference is made to the VAT Act, 2005 and it is stated that in view of major shift in the policy decision of the Government, the exemptions are to be discontinued. It is also stated that under the VAT Act petitioners are better placed. During the course of arguments Mr. Modi has referred to various provisions of the VAT Act to bring home his points that after the enforcement of VAT Act, exemption cannot be continued. Except this, nothing has been stated in the counter affidavit. However, in the written submissions filed on conclusion of the arguments Mr. Modi has referred to continued fiscal deficit in the budget of the State Government and has also relied upon the record and the notings in the government file, preceding the issuance of the impugned notifications. He has further mentioned about enhancement in plan and non-plan expenditure of the Government clue to increase of the age of retirement of the State Government employees as also introduction of new Industrial Policy of 2001 by the State of Jharkhand, providing for deferment of tax. We have carefully gone through the official file produced by Mr. Modi. At page-64 reference is made to annual loss of Rs. 181 Crores due to incentives to the industries under 1995 Policy. It was recommended by the concerned Assistant Commissioner on 10th August, 2004 to do away with the incentives. Again at page-68 detailed note appears to have been prepared by the Additional Secretary, which refers to the opinion of the Advocate General, who opined that under the existing law, the State is bound to extend the benefit under the Industrial Policy for the prescribed period. It was, however, recommended that in view of the continued loss withdrawal of the exemption notifications can be considered. At page-79 it has been noted that the Page 1176 benefit under the Policy is to continue till July, 2008 and apprehension was expressed whether withdrawal will be legally valid or not. There is an opinion of the Government Pleader on record, who suggested introduction of law to prevent the refund of amount as the State is required to refund a huge amount of sales tax in view of the judgment of the Hon’ble Supreme Court in the case of Swarnrekha Coke and coal Pvt. Ltd. (supra). Again at page-93 apprehension is expressed regarding the validity of the action revoking the benefits granted under 1995 Industrial Policy and various notifications. Recommendation was, however, made on 11.08.2005 to withdraw the notifications in view of the. provisions of the VAT Act. Again at page-107 apprehension was expressed of litigation in the event of withdrawal of notifications. However, at page-109 the Minister concerned asked for implementation of his earlier decision for withdrawal. Again at page-112 it is reported that with the enforcement of VAT Act with effect from 01.04.2006 though the exemption will disappear but the industrial units will be entitled to deferment of the tax under the VAT Act and the State will be deprived of its revenue and the matter was referred to the Industries Department for its opinion. Thereafter, a decision was taken to withdraw the exemption. It is specifically noted in the record to withdraw the notification with a view to prevent the industrial units of the benefits of deferment of tax under the VAT Act. This is also evident from the Cabinet Memo dated 25th March, 2006, wherein it is recorded that in view of deferment of tax provision in the VAT Act, it would be appropriate to end the exemption. The Cabinet finally gave the approval for withdrawal and the impugned notifications came to be issued.
34. This is the all material placed on record. It has to be noticed that there is a budget deficit right from 2001 and still the Government chose to adopt the Industrial Policy of 1995 and all exemption notifications vide S.O. No. 1259 dated 1st June, 2002, extending the benefit of exemption to all the industrial units in the State of Jharkhand. It has also been brought on record that the State has issued S.O.213 dated 31st March, 2006 whereby, the industrial units, established under 1993 Industrial Policy, have been allowed the benefit of exemption of tax. It is relevant to note that this policy was issued earlier to 1995 Policy and was, in fact, replaced by 1995 Policy. Based upon this notification, it is pleaded on behalf of the petitioners that the action of the respondents is discriminatory in nature and is violative of Article 14 of the Constitution of India.
35. Now the question, which needs consideration, is whether the budget deficit, though vaguely pleaded, can be a ground for resiling from the promise, which persuaded the petitioners to alter their position to their detriment.
Hon’ble the Supreme Court has examined the expression “public interest” and its scope, ambit and applicability in various judgments i.e.
(i) Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. (supra):
It is only if the Court is satisfied, on proper and adequate material place by the Government, that overriding public interest requires that the Government should not he held bound by the promise but should be free to act unfettered by it, that the Court would refuse to enforce the promise against the Government. However, the Court would not act on the mere ipse dixit of the Government. The burden would be upon the Government to show that the public interest in the Government acting otherwise than in accordance with the promise is so overwhelming. The Court would insist on a highly rigorous standard of proof in the discharge of this burden. Page 1177 But, when there is no such overriding public interest, it may still be competent to the Government to resile from the promise ‘on giving reasonable notice, giving promisee a reasonable opportunity of resuming his position’, provided it is possible for the promisee to restore status quo ante. If the promisee cannot resume his position, the promise would become final and irrevocable.
(ii) Onkar Lal Bajaj v. Union of India :
The expression “public interest” cannot be put in a straitjacket. “Public interest” takes into its fold several factors. There cannot be any hard-and-fast rule to determine what is public interest. The circumstances in each case would determine whether Government action was taken in public interest.
(iii) Union of India v. Indian Charge Chrome :
Where the Government on the basis of the material available before it is satisfied bona fide that the public interest would be served by either granting exemption or by withdrawing, modifying or rescinding an exemption already granted it should be allowed a free hand to do so. What was given in public interest can also be curtailed in public interest.
(iv) Hira Tikkoo v. Union Territory of Chandigarh :
Where public interest is likely to be harmed, neither the doctrine of ‘legitimate expectation’ nor ‘estoppel’ can be allowed to be pressed into service by any citizen against the State authorities.
(v) Bannari Amman Sugars Lt. v. CTO :
9. While the discretion to change the policy in exercise of executive power, when not trammeled by any statute or rule is wide enough, what is imperative and implicit in terms Article 14 is that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria.
14….The decision maker has the choice in the balancing of pros and cons relevant to the change in policy. It is therefore clear that the choice of policy is for the decision maker and not the court. The legitimate substantive expectation merely permits the court to find out if the change of policy which is the cause for defeating the legitimate expectation is irrational or perverse or one which no reasonable person could have made.
16. If the State acts within the bounds of reasonableness, it would be legitimate to take into consideration the notional priorities and adopt trade policies.
17. Reasonableness of restriction is to be determined in an objective manner and from the standpoint of interest of the general public and not from the standpoint of the interests of persons upon whom the restrictions have been imposed or upon abstract consideration. A restriction cannot be said to be unreasonable merely because in a given case, it operates harshly.
(vi) State of Kerala v. Arabind Ramakant Modawdakar :
9…Grant of exemption deduction under this section is in public interest, therefore the nexus of this classification will have to be traced to public Page 1178 interest which is again within the realm of legislative wisdom unless tainted by perversity or absurdity.
10….The opinion as to public interest contemplated under Section 22 of the Act will have to be formed by the State after taking into consideration the various factors which affect the public at large. Definitely in absence of a challenge to the decision making process on facts, it will not be open to us to substitute our views in this matter to the opinion formed by the State.
36. What transpires from the above judgments has already been summarized in Full Bench judgment of Madras High Court in the form of guidelines, which we have considered to be the guiding factors. The only ground urged on behalf of the State is its financial crunch and deficit budget over the years. We have also noticed that even when there was deficit, the State adopted 1995 Policy on 1st June, 2002 and extended its promise of granting exemption to the industries even after creation of the State of Jharkhand under 1995 Industrial Policy. This was obviously a well thought of decision and cannot be said to be against the public interest. This position continued till the issuance of the impugned notifications. Not only that, a day after the passing of the impugned notifications withdrawing exemption the State in its wisdom issued S.O. 213 dated 31st March, 2006 to allow the benefit of exemption of tax to the industries established under 1993 Industrial Policy. This was for obvious reason of granting them the benefit of deferment of tax under Section 95(3) of the VAT Act. No plausible reason is available on record as to how and why such benefit has been allowed under the earlier Industrial Policy which stood replaced by 1995 Industrial Policy Resolution and similar benefit has been taken away in respect to the industries, established pursuant to 1995 Industrial Policy. In absence of any material on record and even pleadings regarding the discriminatory treatment, we are not inclined to examine the question of discrimination. But the fact remains that the State has been extending the benefits to very old industries even when they might have enjoyed most of the benefits but the industries established later are not being given the same benefit. The plea of budget deficit and financial burden upon the State does not seem to be bona fide in view of the above circumstances. Apart from above, in the case of Usha Martin Industries Ltd. v. Addl. Supt. of Comml. Taxes reported in 55 STC 380, a similar plea was raised before the Ranchi Bench of Patna High Court, which was negatived by a Division Bench of this Court by observing:
The public interest shown in this paragraph was, therefore, increasing over draft and deficit budget of the State Government and due to shortage of resources for progressing development and welfare scheme. As already noticed, the State Government repeatedly adopted resolutions for giving incentives to large industrial units by way of exemption from sales tax for ten years and/or loan or exemption from purchase tax and loan equivalent to the amount paid as sales tax on the finished goods. In this ease the period which have been brought to our notice within which the resolutions were repeatedly adopted was between September, 1973, to October, 1981. It is common knowledge that the State was always overburdened with overdraft and deficit budget. Relying on the observations mad in Motilal’s case it must be held that the public interest shown in the counter-affidavit is not such for which the State Government should be relieved from carrying out the promise.
Page 1179
37. This judgment has been upheld by the Hon’ble Supreme Court in the case of State of Bihar v. Usha Martin Industries reported in 65 STC 430 (SC). Assuming that the plea of public interest of budgetary deficit is available to the respondent-State and it has the competence to resile from the promise but it can do so only by giving promisee a reasonable opportunity of resuming his position and it is possible for the promisee to restore status quo ante. The law laid down by the Apex Court in the case of M.P. Sugar Mills (supra) in this regard is being followed continuously by the Apex Court. It has been observed that if the promisee cannot resume his/its position, the promise would become final and irrevocable. There is yet another aspect. Admittedly, the benefit under the exemption notifications S.Os. 478, 479 and 481 was available to the petitioners for a period of eight years i.e. up to July, 2008 and only 1/4th period out of eight years was left at the time of passing impugned notifications. Therefore, it is inequitable to withdraw the notifications at this stage. Yet there is another reason which cannot be ignored by us. The exemption was to end automatically with effect from 1st April 2006 i.e. just after two days of the passing of the impugned notifications by virtue of Section 96(3) of the VAT Act and the petitioners were entitled to deferment of tax for the remaining period. Therefore, practically there was no financial loss to the State. It is also to be noticed that the petitioners are unable to resume status quo ante at this belated stage and in view of the dictum of the judgment of the Apex Court in the case of M.P. Sugar Mills (supra) the promise becomes irrevocable.
Thus, we can conveniently say on the basis of above circumstances that there is no “supervening public interest” enabling the State to resile from its promise.
38. Now the next question is whether the promissory estoppel can be enforced in the legislative field. It has been urged on behalf of Mr. Modi that impugned notifications are legislative measures, though in exercise of delegated legislative power. Hence the principle of promissory estoppel cannot be pressed into service. His further contention is that even if the exemption is not revoked by impugned notifications, yet by virtue of Section 96(3), all exemption notifications having been repealed, thus, with effect from 1st April, 2006 the exemption would have automatically vanished. It is relevant to refer to extract of Section 96 of the VAT Act, which reads as under:
96. Repeal and Savings.- (1)(a) Bihar Finance Act, 1981 Part I, Rules made thereunder and notifications issued thereunder and as adopted in the State of Jharkhand; and
(b) Bihar Tax on Entry of Goods into Vocal Areas for Consumption, use or Sale therein Act, 1993, Rules made thereunder and Notifications issued thereunder and as adopted in the State of Jharkhand,
(hereinafter referred as the repealed Acts) as in force in the State of Jharkhand is hereby repealed from the date of commencement of this Act.
(2) the repeal shall not;
(a) revive anything not in force or existing at the time of which the repeal takes effect; or
(b) affect any right, title, obligation, or liability already acquired, accrued or incurred for any thing done or suffered in respect of the period immediately preceding this repeal; or
Page 1180
(c) affect any penalty, forfeiture or punishment incurred or inflicted in respect of any offence or violation committed under the provisions of the repealed Acts; or
(d) affect any investigation, inquiry, assessment, proceeding, any other legal proceeding or remedy instituted, continued or enforced under the repealed Acts and any such penalty, forfeiture or punishment as aforesaid or any proceeding or remedy instituted, continued, or enforced under the repealed Acts shall be deemed to be instituted, continued or enforced under the corresponding provisions of this Act.
(3) All rules, orders and appointments made and notifications published, certificates granted, powers conferred and other things done under the repealed Act and in force on the commencement of this Act, except the right of privilege under this repealed Act for availing of facility of industrial concession by way of exemption from or deferment of payment of tax by registered dealers who had established new industrial units in the State or undertaken expansion, modernization or diversification under such units shall, so far they are not inconsistent with or until they are not modified, superceded or cancelled under this Act be deemed to have been respectively made, published, granted, conferred or done under this Act.
39. From the above provisions of VAT Act it is evident that all notifications and orders, relating to exemption, are repealed and are not saved. Therefore, the contention of Mr. Modi is absolutely correct. Assuming the benefit of exemption is not taken away by virtue of the impugned notifications even then it was to come to end by operation of Section 96(3) of the VAT Act. But then the petitioners would be entitled to the benefit of deferment of tax under Section 95(3) of the VAT Act.
40. Section 95(3) of the VAT Act is quoted hereunder:
95. Transitional Provisions.- (1).
XX XX XX
(3)(i) Where a Registered Dealer was enjoying the benefits of deferment of tax under the repealed Act immediately before the Appointed Day, and who would have continued to be so eligible, on such Appointed Day under that Act, had it not come into force, may be allowed deferment of payment of tax payable by him under this Act by the Commissioner, for the balance un-expired period or such percentage of gross value of the fixed assets as might have been allowed to such dealer under that Act as prescribed.
(ii) Where a registered dealer was enjoying the facility of exemption for payment of tax extended to him under the provision of adopted Bihar Finance Act 1981 for his having established new industrial unit in the State or undertaken expansion, modernization or diversification in such industrial units immediately before the appointed day, may be allowed to convert the facility of exemption from payment of tax for the un-expired period or percentage of value of fixed asset as determined, as might have been allowed to such dealer under that Act, by a notification published in the Official Gazette by the State Government.
From the bare reading of this Section, it is evident that any person, who was enjoying the benefit of exemption prior to enforcement of this Act, he will be entitled to the Page 1181 benefit of deferment of tax for the remaining period. Thus, issuance of impugned notifications, withdrawing exemption, is a device intended to deprive the petitioners from claiming benefit of deferment of tax in terms of the aforesaid Section. This fact is clearly established from the notings on file, particularly the Cabinet’s Memo prepared preceding the issuance of impugned notifications.
41. It is for this reason the petitioners have challenged the impugned notifications as also the vires of Section 96(3) and 95(3) of the VAT Act.
42. No serious attempt has been made on behalf of the petitioners to challenge the vires of Sections 96(3) and 95(3) of the VAT Act, except by stating that it is a colourable exercise of power and violates Articles 14 and 19(1)(g) of the Constitution of India. It is settled law that no malafide can be attributed against the Legislature. Otherwise also vires of law enacted by a competent Legislature can only be assailed if such a law offends any constitutional provision, violates the fundamental rights of a citizen or suffers from the vice of arbitrariness i.e. is contrary to the spirit of Article 14. In the present case, the competence of the State Legislature is not in question, though it is stated that it offends the vested rights of the petitioners and, thus, hits the rights guaranteed under Articles 14 and 19(1)(g) of the Constitution of India. But no foundation has been laid in the writ applications indicating with necessary facts in what manner the impugned provisions of the VAT Act [95(3) and 96(3)] contravene the mandate of Articles 14 and 19(1)(g) of the Constitution of India. We are unable to convince ourselves with this argument. It is also no more res-integra that attempt should be made by the courts to save the law.
43. There is no material on record to justify the challenge to Sections 96(3) and 95(3) of the VAT Act and we are not inclined to entertain the challenge under the present set of circumstances Regarding contention of Mr. Modi in respect to applicability of doctrine of promissory estoppel to the legislative action, the issue has been examined by the Apex Court from time to time.
44. It has been held in the case of M.P. Sugar Mills (supra) that there can be no promissory estoppel against the exercise of legislative power. The Legislature can never be precluded from exercising its legislative function by resort to the doctrine of promissory estoppel. Even in later judgment in the case of Union of India v. Godfrey Philips India Ltd. (supra) it has been stated that there can be no promissory estoppel against the legislature from exercising its legislative function nor can the government or public authority be debarred by promissory estoppel from enforcing statutory provision. The Hon’ble Supreme Court held:
In the case of Vij Resins Pvt. Ltd. v. State of J. & K. :
25….The petitioners were invited to set up industries by assuring them supply of the raw material. They changed their position on the basis of representations made by the State and when the factories were ready and they were in a position to utilize the raw material, the impugned Act came into force to obliterate their rights and enabled the State to get out of the commitments. We are inclined to agree with the submissions made on behalf of the petitioners that the circumstances gave rise to a fact situation of estoppel. It is true that there is no estoppel against the legislature and the vires of the Act cannot be tested by invoking the plea but so far as the State Government is concerned the rule of estoppel does apply and the precedents of this Court are clear.
Page 1182
In the case of Mahabir Vegetable Oils (P) Ltd. v. State of Haryana :
25. It is beyond any cavil that the doctrine of promissory estoppel operates even in the legislative field. Whereas in England the development and growth of promissory estoppel can be traced from Central London Property Trust Ltd. v. High Trees House Ltd. in India the same can be traced from the decision of this Court in Collector of Bombay v. Municipal Corporation of the City of Bombay. In that case the Government made a grant of land (which did not fulfill requisite statutory formalities) rent free. It, however, claimed rent after 70 years. The Government, it was opined, could not do so as they were estopped. It was further held therein that there was no overriding public interest which would make it inequitable to enforce estoppel against the State as it was well within the power of the State to grant such exemption.
In a latest case, reported as [MRF Ltd. v. Asstt. Commissioner (Assessment) Sales Tax], the Apex Court again considered the question whether the principle of promissory estoppel would apply against a statutory notification, which is legislative in nature. On consideration it held:
30. The High Court in its judgment has recorded a finding that the notifications being statutory “no plea of estoppel will lie against a statutory notification”. This finding of the High Court is erroneous. The doctrine of promissory estoppel has been repeatedly applied by this Court to statutory notifications….
45. In view of the ratio of the aforesaid judgments it transpires that the principle of promissory estoppel can be pressed against the Sub-ordinate legislation. Nonetheless the executive government is bound to honour its promise made to any person. Issuance of notification under any statutory provision, though a delegated legislative action but it is ex-facie based upon the decision of the executive and has to be viewed from that angle. We are, therefore of the opinion that by issuance of the impugned notification accrued right cannot be negated to the detriment of the petitioners, irrespective of the fact that impugned notifications are issued in exercise of statutory power. Doctrine of legitimate expectation and Promissory/equitable estoppel are attracted in the present set of circumstances.
46. It has further been urged on behalf of the respondents that the exemption is impermissible in view of the operation of the VAT Act as it breaks the VAT chain. Mr. Modi has referred to Sections 15, 16, 17 and 18 of the VAT Act to contend that under the VAT Act tax paid on the purchase of raw material will be an imput tax and tax to be paid on sale of fresh product will be an output tax and the tax payable becomes the difference between the output tax and input tax. According to him, if there is an exemption, the next dealer who will purchase the finished product from the petitioners will not be in a position to pay the tax and, thus, it will break the VAT chain. This argument of Mr. Modi is itself belied if we look to the provisions of Section 57 of the VAT Act, Clause (1) of which reads as under:
57 Exemption of certain Sales and Purchase. – (1) Subject of such conditions as it may impose, the Government may, if it is necessary so to do in the public interest, by notification in the Official Gazette, exempt any sales or purchases made to or by a class of dealers or persons specified in the said notification from payment of the whole or any part of any tax payable under the provisions of this Page 1183 Act and any notification issued under this Section may be issued so as to be retrospective to any date, not earlier than the appointed date and such exemption shall take effect from the dale of the publication of the notification in the Official Gazette or such other earlier or later date as may be mentioned therein.
47. From the above provision it is evident that the Act itself provides for exemption of tax on any sale or purchase by a notification. If the contention of Mr. Modi is accepted then this provision is rendered otiose.
48. Petitioners have also placed on record various notifications issued by the States of Madhya Pradesh, Karnataka, Punjab and West Bengal, wherein, exemption from sales tax is continuing even when the States have adopted the value added tax structure. Based upon the provision of Section 57 of the VAT Act and continuance of exemption in various States after adoption of the value added tax regime, it has been argued on behalf of the petitioners that the VAT Act itself provides for exemption and, thus, exemption earlier granted vide S.Os. 478, 479 and 481 can be continued by issuance of fresh notification(s) under Section 57 of the VAT Act. From the language of Section 57 it appears that this Section speaks of grant of exemption under the Act and does not save or protect an earlier exemption. We do not subscribe to the view expressed on behalf of the petitioners in this regard.
49. We may now deal with the petitioners’ contention that by virtue of concluded judgment in the case of Tata Steel Ltd. (supra) the respondents are not entitled to withdraw the exemption benefit and are, in fact, liable to continue the same for the assured period.
50. There is no dispute that the Hon’ble Supreme Court has given categorical finding that the respondent-State is bound to honour its promise extended to the petitioner for the period envisaged under 1995 Industrial Policy and consequential notifications and a direction was given to honour the promise. As a consequence the State restored the exemption certificates in favour of the petitioner.
51. It has been, accordingly, argued by Mr. Debi Prasad Pal, Senior Advocate, that the State, in exercise of its power under Section 7(3) of the Bihar Finance Act, has no power, competence and jurisdiction to override and/or annul the judicial decision of the Apex Court and to deny exemption, which is already allowed by the highest court of the land. His further contention is that even by legislative measure the same cannot be taken away. According to him, it is a colourable exercise of power to render the judgment nugatory.
52. Mr. Modi, on the other hand, has stated that no law has been passed to nullify the judgment. The State has exercised legislative power which is general in nature and applicable to all uniformly. It is a different aspect that its incidence may be the overriding effect of the judgment.
In the case of S.R. Bhagwat v. State of Mysore :
A financial benefit given to the employees under a Division Bench’s judgment of Karnataka High Court was nullified by issuing an ordinance and, thereafter, adopting an Act. The Apex Court while considering the validity of the Act observed:
12. It is now well settled by a catena of decisions of this Court that a binding judicial pronouncement between the parties cannot be made Page 1184 ineffective with the aid of any legislative power by enacting a provision which in substance overrules such judgment and is not in the realm of a legislative enactment which displaces the basis or foundation of the judgment and uniformly applies to a class of persons concerned with the entire subject sought to be covered by such an enactment having retrospective effect….
13. …The principle which emerges from these authorities is that the legislature can change the basis on which a decision is given by the Court and thus change the law in general, which will affect a class of persons and events at large. It cannot, however, set aside an individual decision inter partes and affect their rights and liabilities alone. Such an act on the part of the legislature amounts to exercising the judicial power of the State and to functioning as an appellate court or tribunal.
The Apex Court, accordingly, set aside the offending provision of the Act and held the same as ultra vires the legislative powers of the State.
In the case of Cauvery Water Disputes Tribunal reported in 1993 Supp. (1) SCC 96(II):
The Cauvery Water Disputes Tribunal established by enactment of the Parliament granted an interim order, which was sought to be nullified by the State of Karnataka by an ordinance by saying that the order of the Tribunal is without jurisdiction. The Supreme Court while examining the validity of the ordinance held:
76. The principle which emerges from these authorities is that the legislature can change the basis on which a decision is given by the Court and thus change the law in general, which will affect a class of persons and events at large. It cannot, however set aside an individual decision inter partes and affect their rights and liabilities alone. Such an act on the part of the legislature amounts to exercising the judicial power of the State and to functioning as an appellate court or tribunal.
53. What has been laid down in the aforesaid judgments is that the State cannot nullify the concluded decision Inter-se parties by enacting a law, though it has the power and competence to change the basis on which decision has been given by changing the law in general, which may affect a class of persons and events at general. The principle enunciated in these cases is of no help to the petitioners. Neither by the impugned notifications nor by enacting VAT Act the judgment of the Apex Court has been superseded. The State has only changed its policy and hence the basis for rendering the judgment by the Supreme Court no more exists. The benefit accrued to the petitioner under the Supreme Court’s judgment gets revoked as an incidence of the law, which cannot be said to be constitutionally impermissible or makes inroads into the basic structure of the Constitution.
54. From the records produced it has been revealed that the State had clear intention to prevent the petitioners from claiming deferment of tax and the exemption notifications were withdrawn with this objective in so far 1995 Industrial Policy is concerned and at the same time allowed rather notified the exemption in favour of the industries, established pursuant to 1993 Industrial Policy. Mr. Modi has stated that the Industries under 1993 Industrial Policy were established in backward districts and, thus, only negligible financial burden was involved whereas the industries, established pursuance to 1995 Industrial Policy involved huge financial burden. Page 1185 This argument itself is sufficient to draw an inference that the withdrawal of exemption two days before the enforcement of VAT is motivated device to prevent the petitioners from claiming the benefit of deferment of tax under Section 95(3) of the VAT Act.
55. After holding that the principle of promissory estoppel is enforceable in the present cases, the question arises what relief the petitioners are entitled to. As observed by us, even if the impugned notifications had not been issued, the exemption notifications were otherwise to die in view of Section 96(3) of the VAT Act and the petitioners were not entitled to the benefit of exemption thereafter. We have declined to strike down the provisions of VAT Act, including Section 96(3) of the VAT Act. Therefore, we are unable to uphold the exemption benefits to the petitioners on account of the provisions of Section 96(3) of the VAT Act. However, the State cannot justify the issuance of the impugned notifications in view of our findings on various aspects, upholding the enforceability of doctrine of promissory/equitable estoppel when it is intended to even deny legitimate tax deferment benefit under Section 95(3) of the VAT Act. We, therefore, quash the impugned notifications S.Os. 201 and 202 both dated 30th March, 2006 as also order dated 5th May, 2006 rejecting claim for deferment of tax under Section 95(3) of VAT Act, and as a natural corollary the petitioners will be and are entitled to the benefit of deferment of tax in terms of Section 95(3) of the VAT Act. We, thus, allow these writ petitions and direct the respondent-State to allow the benefit of deferment of tax to the petitioners for the remaining period under 1995 Industrial Policy read with the notifications S.Os. 478, 479 and 481 all dated 22nd December, 1995 and S.Os. 57 and 58 both dated 2nd March, 2000, in accordance with the provisions of Section 95(3) of the VAT Act. However, in the facts and circumstances, there shall be no order as to costs.