PETITIONER:
ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (ASST.) DHARWAR
Vs.
RESPONDENT:
DHARNENDRA TRADING COMPANY, ETC. ETC.
DATE OF JUDGMENT05/05/1988
BENCH:
KANIA, M.H.
BENCH:
KANIA, M.H.
PATHAK, R.S. (CJ)
CITATION:
1988 AIR 1247 1988 SCR (3) 946
1988 SCC (3) 570 JT 1988 (2) 606
1988 SCALE (1)973
CITATOR INFO :
RF 1991 SC 14 (11)
F 1992 SC 152 (7)
RF 1992 SC1075 (8)
ACT:
Karnataka Sales Tax Act, 1957-Whether Government has
power to notify exemptions and reductions in levy of tax on
sale or purchase of goods under section 8A of-Whether
Government can withdraw concessions in sales tax granted by
its earlier order on ground of alleged misuse of concessions
without proof thereof-Against the Doctrine of Promissory
Estoppel.
HEADNOTE:
The Government of Karnataka issued an order dated the
30th June, 1969, sanctioning in-centives and concessions in
the matter of sales tax to the entrepreneurs for starting
new industries in the Mysore State. On the 12th January,
1977, the Government issued another order, presecribing
ceiling limits on the quantum of the sales tax or concession
to be granted. Thereupon several persons filed writ
petitions before the High Court, claiming that they had
started new industries in the State because of the
concessions granted to them under the order dated the 30th
June, 1969 and they could not be deprived of the concessions
given to them by the former order as the said grant of
concessions constituted a promissory estoppel against the
Government and the Government was not entitled to go back on
the promise. The High Court upheld the contention of the
petitioners and allowed the writ petitions. Against the
decision of the High Court, these appeals were filed in this
Court by the Assistant Commissioner of Commercial Taxes and
others.
Dismissing the appeals, the Court,
^
HELD: The contention of the appellants that the
doctrine of Promissory Estoppel was not applicable in this
case because the concessions granted under the order dated
30th June, 1969 were being misused, could not be accepted.
There was nothing to show that any misuse was made of the
concessions. A recital in the order dated 12th January,
1977, regarding misuse of the concessions, could not by
itself establish that the concessions were misused. [949F-G]
There was no substance in the appellants' contention
that the
947
concessions granted by the order dated 30th June, 1969, were
of no legal effect of the contention that the said order was
ultra vires and bad in law, as there was no provision in the
Kranataka Sales Tax Act ("the said Act") under which any
refund could be granted, and the State Government had no
authority to provide for refunds. Though the benefit
regarding sales tax granted to the new industries was by way
of refunds of sales tax paid to the extent provided in the
order, in effect, the benefit granted was in the nature of
an exemption from the payment of the sales tax or reduction
in the sales tax liability to the extent stated in the
Order. The mere fact that the order of 30th June, 1969 did
not specify the power under which it was issued would make
no difference because such a power was there in Section 8A
of the said Act. Where the source of power under which an
order is issued is not stated in the order but can be found
on the examination of the relevant Act, the exercise of the
power must be attributed to that source. The appeals were
dismissed. [951C-E]
Union of India v. M/s Indo Afghan Agencies Limited,
[1968] 2 S.C.R. 366; Century Spinning and Manufacturing
Company Limited & Anr. v. The Ulhasnagar Municipal Council
and Anr., [1970] 3 S.C.R. 854; M s Motilal Padampat Sugar
Mills Company Pvt. Ltd. v. State of Uttar Pradesh and Ors.,
A.I.R. 1979 S.C.621 and State of Bihar and Anr. v. Usha
Martin Industries Ltd., [1987] 65 STC 430, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Apeal Nos. 2204-47
of 1980.
From the Judgment and Order dated 15.10.1979 of the
High Court of Karnataka in W.A. No. 1101 to 1144 of 1979.
P.R. Ramasesh for the Appellants.
T.S. Krishnamurthy, Vineet Kumar and H. Raghavendra Rao
for the Respondents.
The Judgment of the Court was delivered by.
KANIA, J. These appeals arise from the decision of a
Division Bench of the High Court of Karnataka in Writ
Appeals Nos. 1101 ‘to 1144 of 1979. It appears that the
Government of Karnataka decided to adopt a policy to
encourage rapid industrialisation. An Order No. CI 58 FMI 69
dated 30th June, 1969 was issued which recited that the
Government, namely, the Government of Karnataka was
committed
948
to a policy of rapid industrialisation and that, in
pursuance thereof, the Government had on 30th November,
1966, issued directions indicating the incentives that would
be given to entrepreneurs starting new industries in the
Mysore State. The material part of the said order, for our
purpose, runs thus:
“Consequently, the Governor of Mysore is pleased
to sanction the following incentives and
concessions to the entrepreneurs for starting new
industries in Mysore State:
(1) Sales Tax-A cash refund will be allowed on all
Sales Tax paid by a new industry on raw materials
purchased by it for the first 5 (five) years from
the date the industry goes into production,
eligibility to the concessions being determined on
the basis of a certificate to be issued by the
Department of Industries and Commerce ……….”
By an order dated 11th August, 1975, the procedure was
prescribed for obtaining the concessions given under the
orders referred to earlier. On 12th January, 1977, the
Government of Karnataka issued another order which recited
that the reasons for making the said order of 12th January,
1977 were that the scheme of concessions adopted by the
Government earlier had given room for many types of misuse
and the earlier orders had not prescribed any ceiling limits
or restrictions on the quantum of refund of sales tax or
concessions to be granted. The said order dated 12th
January, 1977, inter alia, provided as under:
“(i) The concession of refund of sales tax on raw
materials used by new enterprises should be
limited to 10 per cent of the cost of fixed assets
per year, thus not exceeding the total of 50 per
cent over a period of five years for which the
concession is available. Where the annual sales
tax paid on raw materials is less than 10 per cent
of the cost of the fixed assets according to the
original value, the concession will be limited to
the actual sales tax paid……….”
Several persons claimed that they had started new
industrial units in the State on the assurances extended or
because of the concessions granted to them, inter alia,
under the said order dated 30th June, 1969. They filed writ
petitions before the High Court of Karnataka claiming that
the industrial undertakings started between 30th June, 1969
when the order dated 12th June, 1969 came into effect and
before
949
the order dated 12th January, 1977 was issued could not be
deprived of the concessions given to them by the former
order as the said grant of concessions constituted a
promissory estoppel against the Government on the basis of
which they had acted by starting new industries requiring
investment of considerable funds and the Government was not
entitled to go back or that promise as it had sought to do
by the order dated 12th January, 1977. A learned Single
Judge of the Karnataka High Court, before whom these writ
petitions were filed, upheld the aforesaid contention of the
petitioners urged before him relying mainly on the rulings
of this Court in Union of India v. M/s. Indo Afghan Agencies
Limited, [1968] 2 S.C.R. 366; Century Spinning and
Manufacturing Company Limited & Anr. v. The Ulhasnagar
Municipal Council & Anr., [1970] 3 S.C.R. 854 and the ruling
in M/s. Motilal Padampat Sugar Mills Company Pvt. Ltd. v.
State of Uttar Pradesh & Ors., A.I.R. 1979 S.C. 621. In the
concluding portion of his judgment, the learned Judge
clarified that he had not examined the correctness of the
individual claims made by the petitioners and that these
claims would have to be examined by the competent
authorities. He further clarified that the order dated 12th
January, 1977 would undoubtedly apply to industries started
after that date. The learned Trial Judge allowed the writ
petitions and granted relief on the basis set out earlier.
An appeal preferred by the Assistant Commissioner of
Commercial Taxes, Dharwar, Deputy Commissioner of Commercial
Taxes and the Government of Karnataka before a Division
Bench of the Karnataka High Court was dismissed by the Court
which agreed with the reasoning of the learned Trial Judge.
It is from this decision that the present appeals arise.
The first contention of the learned counsel for the
appellants is that the doctrine of Promissory Estoppel was
not applicable in the present case because it was found by
the Government of Karnataka that the concessions granted
under the said order dated 30th June, 1969 were being
misused and undue advantage was being taken of the same. It
was submitted by him that in view of this, it would not be
proper to hold the Government to the promises or the
assurances it had given under the said order dated 30th
June, 1969. We are afraid it is not possible to accept this
submission. No counter-affidavit was filed by the appellants
before the Trial Court in the writ petition. Beyond the
statement of counsel, there is nothing to show that any
misuse was made of these concessions or undue advantage
taken of the same. It is true that the preamble to the order
dated 12th January, 1977 does recite that the concessions
given by the earlier order had given room for many types of
misuse but such a recital by itself cannot establish
950
that the concessions were, in fact, misused. If that were
so, it was the duty of the Government and the concerned
authorites to file a counteraffidavit and place the relevant
facts establishing the misuse before the Court. This they
have totally failed to do. It is well settled that if the
Government wants to resile from a promise or an assurance
given by it on the ground that undue advantage was being
taken or misuse was being made of the concessions granted
the Court may permit the Government to do so but before
allowing the Government to resile from the promise or go
back on the assurance the Court would have to be satisfied
that allegations by the government about misuse being made
or undue advantage being taken of the concessions given by
it were reasonable well established. In the present case,
there is nothing on record to show that any such misuse was
being made or undue advantage taken of the said concessions
by the newly established industries. The Government had,
therefore, failed to establish the requisite ground or the
basis of which it might be allowed to go back on its
promise. The first submission of the learned counsel for the
appellants must, therefore, fail.
The next submission of learned counsel for the
appellants was that the concessions granted by the said
order dated 30th June, 1969 were of no legal effect as there
is no statutory provision under which such concessions could
be granted and the order of 30th June, 1969 was ultra vires
and bad in law. We totally fail to see how an Assistant
Commissioner or Deputy Commissioner of Sales Tax who are
functionaries of a State can say that a concession granted
by the State itself was beyond the powers of the State or
how the State can say so either. Moreover, if the said
argument of learned counsel is correct, the result would be
that even the second order of 12th January, 1977 would be
equally invalid as it also grants concessions by way of
refunds, although in a more limited manner and that is not
even the case of the appellants.
Although, we are of the view that the contention set
out in the foregoing paragraph is not open to the appellants
at all, we propose to examine the merits of that contention
because, in our view, even on merits the contention raised
must be rejected. The ground on which it was submitted that
the said order of 30th June, 1969 was invalid is that there
is no provision under the Karnataka Sales Tax Act, 1957
(referred to hereinafter as “the said Act”) under which any
refund could be granted. The learned counsel for the
appellants pointed out that only relevant provision, in this
connection, is Section 8A of the said Act and that Section
empowers the State Government to notify exemp-
951
tions and reductions in the levy of tax on sale or purchase
of goods that are made exigible under the provisions
contained in Chapter-3 of the said Act. Section 8A expressly
empowers the State Government to grant exemptions and
reductions. Under the said order dated 30th June, 1969 it
has been inter alia provided that a cash refund will be
allowed on all sales tax paid by a new industry on raw
materials purchased by it for the first five years from the
date the industry goes into production as set out in said
the Order. The only submission made on behalf of the
appellants is that since the benefit given is called a
refund, it cannot be said to be an exemption or reduction as
permitted by Section 8A. In our view, there is no substance
in this submission at all. In order to test the validity of
the order dated 30th June, 1969, one has to see the
substance of the concession granted under the order and not
merely certain words used out of context. Although the
benefit regarding sales tax granted to the new industries is
by way of refunds of sales tax paid to the extent provided
in the Order, it is clear that, in effect, the benefit
granted is in the nature of an exemption from the payment of
the sales tax or reduction in the sales tax liability to the
extent stated in the order. In view of this, there is no
substance whatever in the contention that the State
Government had no authority to provide for the grant of
refunds. Again, the mere fact that the order of 30th June,
1969 did not specify the power under which it was issued
will make no difference because such a power is clearly
there in Section 8A and where the source of power under
which it is issued is not stated in an order but can be
found on the examination of the relevant Act, the exercise
of the power must be attributed to that source. The second
submission of the learned counsel for the appellants must,
also, therefore, be rejected.
Although at one stage a faint doubt was raised by
learned counsel for the appellants as to whether the
Doctrine of Promissory Estoppel could be regarded as good
law now, he conceded that doctrine must be regarded as good
law in view of the recent decision of this Court in State of
Bihar and Anr. v. Usha Martin Industries Ltd., [1987] 65
STC, 430 where a Division Bench comprising three learned
Judges of this Court upheld and applied that doctrine.
In the result, there is no merit in the appeals and
they are dismissed with costs.
S.L. Appeals dismissed.
952