PETITIONER:
BAKUL OIL INDUSTRIES & ANR.
Vs.
RESPONDENT:
STATE OF GUJARAT & ANR.
DATE OF JUDGMENT11/11/1986
BENCH:
NATRAJAN, S. (J)
BENCH:
NATRAJAN, S. (J)
THAKKAR, M.P. (J)
CITATION:
1987 AIR 142 1987 SCR (1) 185
1987 SCC (1) 31 JT 1986 801
1986 SCALE (2)750
CITATOR INFO :
F 1991 SC1456 (13)
ACT:
Gujarat Sales Tax Act, 1969: ss. 15 & 49(2)--Tax exemp-
tion for a period o f five years from commissioning of
industry--Withdrawal Effect and validity of Government
notification.
Promissory estoppel--Doctrine of--Grant of exemption
from sales tax to new industry-- Withdrawal of--Whether
permissible.
HEADNOTE:
By a notification dated April 29, 1970 issued under s.
49(2) of the Gujarat Sales Tax Act. 1969 the State Govern-
ment exempted wholly or partly from payment of sales tax or
purchase tax certain specified classes of sales and pur-
chases described in entries 1 to 52 in the Schedule. This
notification was subsequently amended by another dated
November 11, 1970 by adding a new entry No. 53 in the Sched-
ule exempting a manufacturer, who established a new indus-
try, from the whole of (a) purchase tax under s. 15 of the
Act, (b) sales tax leviable under the Act, for a period of
five years from the date of commissioning the industry. By
another notification issued on July 17, 1971 the Government
amended the explanation contained in the second notification
thereby taking out certain industries, including oil mills,
out of the purview of the Act.
The appellants' oil mill set up in a conforming area,
was commissioned on May 14, 1970. Their application for
eligibility certificate for claiming exemption from payment
of sales tax as per the second notification having been
rejected by the Industries Commissioner, they filed a spe-
cial civil application under Art. 226 of the Constitution
for an order directing the Industries Commissioner to grant
them eligibility certificate. It was contended for them that
the notification dated July 17, 1971 would have no effect on
the eligibility already acquired by them in terms of the
second notification.
The High Court took the view that the notification dated
July 17, 1971 was only prospective in operation and not
retrospective, that it did not affect the exemption enjoyed
by the petitioners under the second notification in respect
of the purchases and sales effected prior-to July 17, 1971
and that the second notification created only existing
rights and not vested rights and such existing rights could
he taken away by
186
the subsequent notification. It, therefore, held that the
appellants were entitled to exemption from payment of tax
only for the period anterior to July 17, 1971, and for the
period thereafter they had no rights to claim exemption.
In this appeal by certificate under Art. 133(1)(c) of
the Constitution it was contended for the appellants that by
virtue of the first and the second notifications they had
acquired a vested right to a tax holiday for a period of
five years and the Government acting in exercise of the
delegated powers did not have competence to nullify the
exemption by giving retrospective effect to its notification
dated July I7, 1971, and that in any event they were enti-
tled to the benefit of tax exemption for a period of five
years on the ground of promissory estoppel and the Govern-
ment was obligated to give tax exemption for the full period
of the claim.
Dismissing the appeal, the Court,
HELD: 1. The appellants are entitled to the benefit of
tax exemption. only for the limited period during which the
concession was offered by the Government. [194F]
2. Since the first notification dated April 29. 1970 did
not stipulate as to how long the exemption from sales tax
would remain in operation the concession granted thereunder
was to have operative force only till such time that it was
allowed to remain in force before being withdrawn by the
subsequent notification. The second notification dated
November 11, 1970 which set out that the exemption granted
would be operative for a period of five years from the date
of commissioning of the industry at any time during the
period from April 1, 1970 to March 31, 1975, was prospective
in operation. It would, therefore, apply only to those new
industries which were commissioned subsequent to issuance
thereof. As the appellants' unit was commissioned several
months before the second notification the same cannot be
invoked by them for claiming benefit of tax exemption for a
period of five years from the date of commissioning of their
mill. [191E-192A]
3. The State Government was under no obligation in any
manner known to law to grant exemption from sales tax. What
was granted under the first notification was only by way of
concession for encouraging entrepreneurs to start industries
in rural and undeveloped areas. Such a concession could be
withdrawn or revoked at any time and no time limit could be
insisted before doing so. The State Government was,
187
therefore, fully within its powers to revoke the exemption
by means of a subsequent notification. [192C, 193A, 192B,
192D]
4. 1 The Government could withdraw an exemption granted
by it earlier only if such withdrawal could be made without
offending the rule of promissory estoppel and without de-
priving an industry entitled to claim exemption. If the
Government grants exemption to a new industry and if on the
basis of the representation made by the Government an indus-
try is established in order to avail the benefit of exemp-
tion then the new industry can legitimately raise a griev-
ance that the exemption could not be withdrawn except by
means of legislation having regard to the fact that promis-
sory estoppel cannot be claimed against a statute. [193B-D]
4.2 In order to claim the benefit of promissory estoppel
it was necessary to establish: (i) that a representation was
made to grant the exemption for a particular period to a new
industry established in view of the representation held out
by the State Government, and (ii) that the new industry was
established acting upon the representation made by the State
Government. In the instant case, however, the appellants
have failed to prove that but for the concession offered in
the, first notification they would not have established the
industry in question and that the entire venture was at-
tributable only to the inducement offered by the Government.
That notification was made on April 29, 1970 while the oil
mill constructed by the appellants came to be commissioned
on May 17. 1970 itself. The issuance of the notification
granting tax exemption only constituted a fortuitous circum-
stance in appellants' case and it could not be said that the
commissioning of their industry was directly the outcome of
the Government's notification granting tax exemption.
[193FG,H, 194AB,D]
JUDGMENT:
CIVIL APPELLATE JURISIDICTION: Civil Appeal No. 2061
of 1972
From the Judgment and Order dated 8/9.3. 1972 of the
Gujarat High Court in Spl. Civil Appl. No. 562 of 1971.
S.T. Desai. H.S. Parihar. M.N. Tandan and Vipin Chandra
for the Appellants.
G.A. Shah, Mrs. H. Wahi and M.N. Shroff for the Respondents.
The Judgment of the Court was delivered by
188
NATARAJAN, J. In this appeal by certificate under Arti-
cle 133(1)(c) of the Constitution two questions fail for
consideration viz;
(1) Whether the appellants had acquired a
vested right of exemption from payment of
sales tax under the Gujarat Sales Tax Act,
1969 (for short the ‘Act’) for a period of 5
years from the date of commissioning of their
oil mill in respect of purchases and sales
relating to the business of their oil mill?
and
(2) whether in any event the appellants
are entitled to claim tax exemption for a
period of 5 years under cover of the doctrine
of Promissory Estoppel?
In order to achieve dispersal of industries to rural
areas and to provide fillip to accelerate development of
industries the Government of Gujarat (‘Government’ in short)
issued a Notification on 29.4.1970 in exercise of its pOwers
under Section 49(2) of the Act exempting wholly or partly
from payment of sales tax or purchase tax, as the case may
be, certain specified classes of sales and purchases de-
scribed in the entries at Serial Nos. 1 to 52 in the Sched-
ule. The said Notification was subsequently amended by
another Notification dated 11.11.1970 and a new Entry, Entry
No. 53, was added in the Schedule below Entry at Serial No.
52. The new entry consisted of two parts, one part giving
exemption from purchase tax and the other, from sales tax.
The Notification provided that subject to the conditions
specified therein a manufacturer who establishes a new
industry would be given exemption of “the whole of purchase
tax under Section 15 of the Act” in respect of “purchase of
raw materials, processing materials, machinery or packing
materials from a person who is not a registered dealer”. It
was similarly provided that subject to the conditions pre-
scribed in the Notification a manufacturer who establishes a
new industry would be given exemption of the whole of sales
tax leviable under the Act in respect of “sales of raw
materials, processing materials by a registered dealer”. One
of the conditions impOsed was that the new industry should
have been commissioned on or after 1.4.1970 in areas beyond
24 kilometers from the Municipal limits of the cities of
Ahmedabad and Baroda and 16 kilometers from the Municipal
limits of Surat, Bhavnagar, Rajkot and Jamnagar and that the
manufacturer should obtain an eligibility certificate from
the Industries Commissioner, Gujarat State certifying the
fulfilment of these conditions. The Notification provided
that a certified manufacturer “shall be entitled to the
exemption for a period of five years from the date of com-
missioning of
189
the industry as certified by the Industries Commissioner in
the eligibility certificate”. There was an Explanation in
the Notification to define what a “new industry.” means and
it was in the following terms:–
“For the purpose of items (1) and (2) above
‘new industry’ means and includes an industry
which has been commissioned at any time during
the period from 1st April, 1970 to 31st March,
1975(both days inclusive); but shall not
include such industrial undertaking estab-
lished by transferring or shifting or disman-
tling an existing industrial unit”.
The appellants had set up a plant for decorticating and
crushing cotton and groundnut seeds for manufacture of oil
at a place called Kadi beyond 24 kilometers from Ahmedabad
and commissioned the plant on May 17, 1970. On the strength
of the location of the oil mill at a place more than 24
kilometers from the Municipal limits of Ahmedabad and the
commissioning of the plant on May 17, 1970, the appellants
applied to the Industries Commissioner for an “eligibility
certificate” for claiming exemption from payment of sales
tax as per the Notification dated November 11, 1970. The
Industries Commissioner rejected the application giving
certain reasons therefor. The appellants thereupon filed
Special Civil Application No. 562 of 1971 under Article 226
of the Constitution for an order directing the Industries
Commissioner to grant them an eligibility certificate in
terms of the Notification.
During the pendency of the petition, the State Govern-
ment issued another Notification dated July 17, 1971 amend-
ing the Explanation contained in the Notification dated
November 11, 1970. The amendment provided inter alia that
“new industry” shall not include “any of the industries,
whether so commissioned or not, mentioned in the table
appended hereto”. The table set out some 14 industries of
which the twelfth was “decorticating, expelling, crushing,
roasting, parching, frying of oilseeds and coloring, deco-
louring and scenting of oil”. It would appear that the
effect of the exemption was reviewed by the Government and
on such reconsideration “the Government was satisfied that
certain industries and the oil industries in particular were
sufficiently dispersed in rural areas, in respect of which
the existing capacity of the existing industries was also
more than adequate” and “the Government reached the conclu-
sion that certain industries required to be excluded from
the purview of the Act”. As the oil mill commissioned by the
appellants fell within the denotified industries the appel-
lants obtained the leave of the court and amended their
peti-
190
tion suitably in order to contend that the Notification
dated July 17, 1971 would have no effect on the eligibility
already acquired by them to claim exemption from payment of
sales tax in the fight of the provisions contained in the
second Notification dated November 11, 1970.
The appellants’ petition and a connected matter viz.
Special Civil Application No. 1307 of 1971 filed by a third
party came to be considered together by a Division Bench of
the Gujarat High Court. The High Court, by its judgment
dated 8-9/3/72, held that the Notification dated 17.7.71 was
only prospective in operation and not retrospective, that it
did not affect the exemption enjoyed by the petitioners
under the Notification dated 11.11.1970 in respect of pur-
chases and sales effected prior to 17.7.1971, that the
Notification dated 11.11.1970 created only existing fights
and not vested rights and such existing rights could be
taken away by the Notification dated 17.7.1971. The High
Court, therefore, ruled that the appellants were entitled to
exemption from payment of tax only for the period anterior
to 17.7.1971 and for the period thereafter they had no right
to claim exemption. Being aggrieved by the non-grant of
relief of tax exemption for the full period of 5 years the
appellants have preferred this appeal after obtaining a
certificate under Article 133(1)(c) of the Constitution.
Mr. Desai, learned counsel for the appellants formulated
his arguments under three heads to contend before us that
the High Court ought to have granted relief to the appel-
lants to the full extent of their claim and it should not
have restricted the relief of tax exemption only for the
period 17.5.1970 to 17.7.1971. The propositions put forward
were in the following terms:–
1. By virtue of the Notifications dated
29.4.70 and 11.11.70 the appellants had ac-
quired a vested right to a tax holiday for a
period of 5 years and the Government, acting
in exercise of its delegated powers did not
have competence to nullify the exemption by
giving retrospective effect to its Notifica-
tion dated 17.7.71.
2. The High Court was not justified in
drawing a fine distinction between vested
rights and existing rights and holding that
the Notifications created only existing rights
and such rights are subject to defeasance by
means of subsequent Notifications.
3. In any event the appellants are entitled to
the benefit of
191
tax exemption for a period of five years on
the ground of Promissory Estoppel and the
Government is obligated to give tax exemption
for the full period of claim.
Elaborating the first two ‘contentions Mr. Desai argued
that the Government by virtue of the first and second.
Notifications had irretrievably committed itself to grant
exemption from payment of sales tax and purchase tax to the
notified industries commissioned at any time after 1.4.1970
and before 31.3.1975 at places beyond the prescribed dis-
tances from the Municipal limits of the cities named in the
Notification. Inasmuch as the appellants had established
their oil mill at a place more than 24 kilometers away from
the Municipal limits of Ahmedabad City and had commissioned
the plant on 17.5.1970 Mr. Desai argued that the appellants
had acquired a vested right of exemption and it was not,
therefore, open to the Government under law to nullify the
exemption by issuing the Notification dated 17.7.1971 in
exercise of its delegated powers.
The merit of these contentions has to be determined with
reference to the date of commissioning of the appellants’
oil mill as well as the dates of the Notifications and their
contents. Admittedly, the appellants’ oil mill was commis-
sioned on 17.5. 1970 and, therefore, it follows that the oil
mill was commissioned after the first Notification but long
before the second Notification. It is indisputable that the
first Notification, though it provided for exemption of tax
under the Act, did not provide any period of exemption. In
other words, the Notification did not stipulate as to how
long the exemption from sales tax’ would remain in opera-
tion. The position emerging therefrom is that the exemption
granted under the Notification was to have operative force
only till such time that the exemption was allowed to remain
before being withdrawn by a subsequent Notification. The
second Notification no doubt set out that the exemption
granted would be for a period of 5 years from the date of
the commissioning of the industry at any time during the
period from 1st April, 1970 to 31st March, 1975 (both days
inclusive). But this provision cannot be invoked by the
appellants for claiming the benefit of tax exemption for
five years because the second Notification was prospective
in operation as has been rightly pointed out by the High
Court in its judgment. Since the second Notification was
prospective in operation the period of 5 years mentioned
therein would apply only to those new industries which. were
commissioned subsequent to the issuance of that Notifica-
tion. As admittedly, the appellants’ unit was commissioned
several months before the second Notification was made, the
second Notification cannot
192
afford a basis to the appellants to raise a claim for exemp-
tion for a period of 5 years from the date of the commis-
sioning of their plant.
Viewed from another perspective, it may be noticed that
the State Government was under no obligation to grant exemp-
tion from sales tax. The appellants could not, therefore,
have insisted on the State Government granting exemption to
them from payment of sales tax. What consequently follows is
that the exemption granted by the Government was only by way
of concession. Once this position emerges it goes without
saying that a concession can be withdrawn at any time and no
time limit can be insisted upon before the concession is
withdrawn. The Notifications of the Government clearly
manifest that the State Government had earlier granted the
exemption only by way of concession and subsequently by
means of the revised Notification issued on 17.7.1971, the
concession had been withdrawn. As the State Government was
under no obligation, in any manner known to law. to grant
exemption it was fully within its powers to revoke the
exemption by means of a subsequent Notification. This is an
additional factor militating against the contentions of the
appellants.
Much of the arguments of the appellants’ counsel pro-
ceeded on the assumption that the appellants had acquired a
vested right under the Notification issued by the Government
on 11.11. 1970 to claim exemption from payment of sales tax
for a period of five years and consequently the Government
had no right to take away the appellants’ vested right. The
contentions are untenable because of the fallacy contained
in them viz. the wrong assumption that the appellants had
acquired a vested fight. The High Court has rightly repelled
the plea that the appellants had acquired a vested right and
were, therefore, entitled to claim exemption from payment of
tax for a period of five years notwithstanding the revoca-
tion of the exemption under the Notification dated
17.7.1971. The High Court has further taken the view that
the earlier Notifications granting exemption of tax only
created existing rights and such existing fights can always
be withdrawn by means of a revocation Notification and that
is exactly what has happened in this case.
For the purposes of this appeal we do not think it
necessary to go into the question whether the earlier Noti-
fication had created existing rights and whether the im-
pugned Notification had the effect of only taking away the
existing rights. We are taking this view because we have
already pointed out that the State Government was under no
obligation to grant exemption and that the granting of tax
exemption
193
was only by way of a concession. Having regard to this
conclusion there is no need for any probe to be made to
determine whether the Notification had created vested rights
or only existing rights. The exemption granted by the Gov-
ernment, as already stated, was only by way of concession
for encouraging entrepreneurs to start industries in rural
and undeveloped areas and as such it was always open to the
State Government to withdraw or revoke the concession. We
must, however, observe that the power of revocation or
withdrawal would be subject to one limitation viz. the power
cannot be exercised in violation of the rule of Promissory
Estoppel. In other words, the Government can withdraw an
exemption granted by it earlier if such withdrawal could be
done without offending the rule of Promissory Estoppel and
depriving an industry entitled to claim exemption from
payment of tax under the said rule. If the Government grants
exemption to a new industry and if on the basis of the
representation made by the Government an industry is estab-
lished in order to avail the benefit of exemption. it may
then follow that the new industry can legitimately raise a
grievance that the exemption could not be withdrawn except
by means of legislation having regard to the fact that
Promissory Estoppel cannot be claimed against a statute. In
the present case the appellants had not raised the plea of
Promissory Estoppel before the High Court. This is under-
standable because the principle of Promissory Estoppel had
not found crystalised acceptance by courts of law when the
Special Civil Application came to be heard by the High Court
in the year 1972. Be that as it may, we find that the appel-
lants have not made out any case of Promissory Estoppel
either on the basis of the averments made in their petition
or with reference to the facts which have emerged from the
affidavits filed in the case. In order to claim the benefit
of Promissory Estoppel the appellants must establish:–
(i) that a representation was made to
grant the exemption for a particular period to
a new industry established in view of the
representation held out by the State Govern-
ment; and
(ii) that the appellants had established
the new industry acting upon the representa-
tion made by the State Government.
The facts in the present case do not go to establish that
the appellants had put up the new industry in question
subsequent to and in pursuance of the promise held out by
Notification dated 29.4.1970 granting exemption. Putting it
differently the appellants have not
194
proved that but for the concession offered in the first
Notification, they would not have established the industry
in question and that the entire venture was attributable
only to the inducement offered by the Government. From the
facts set out supra it may be seen that the first Notifica-
tion was made on 29.4.1970 while the oil mill constructed by
the appellants came to be commissioned on 17.5. 1970 itself.
It is not the appellants’ case and indeed it can never be so
contended that they launched the project and commenced the
construction of the oil mill only after the Notification of
29.4.1970 was made and that the entire construction was
completed in about two weeks’ time so as to enable the
appellants to commission the plant on 17.5. 1970. What is
envisaged under the Notification is that the project must
have been undertaken and construction work itself should
have been started in response to and acting on the Notifica-
tion. It is not sufficient to rely on the commissioning of
an industry after completion of construction work which had
been commenced long before the Notification was made by the
Government. In respect of such an industry as .the present
one, the issuance of a Notification granting tax exemption
would only constitute a fortuitous circumstance and by no
stretch of imagination can it ever be said that the commis-
sioning of the industry was directly the outcome of the
Government’s Notification granting tax exemption. The con-
cession offered by the Government under the first Notifica-
tion dated 29.4.70 did not prescribe any period or time
limit, and hence the appellants cannot claim anything more
than the benefit of the Notification for such period the
exemption was in force. Once the Government decided, in
exercise of the powers vested in it, to revoke the original
Notification, the benefit of exemption from sales tax en-
joyed by the appellants came to an automatic end. The period
of five years mentioned in the second Notification will have
no reference to the appellants’ oil mill commissioned much
earlier because the Notification had only prospective ef-
fect. We have, therefore, to affirm the view of the High
Court that the appellants will be entitled to the benefit of
tax exemption only for the limited period during which the
concession was offered by the Government.
We find no merit in the appeal and accordingly it stands
dismissed. No order as to costs.
P.S.S. Appeal dis-
missed.
195