M/S. Hero Motocorp Ltd. vs Union Of India

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7405 OF 2022 [Arising out of SLP (Civil) No. 12397 of 2020]

M/S HERO MOTOCORP LTD. …APPELLANT (S)

VERSUS

UNION OF INDIA & ORS. …RESPONDENT(S)

WITH CIVIL APPEAL NO. 7406 OF 2022 [Arising out of SLP (Civil) No. 11978 of 2021]

JUDGMENT

B.R. GAVAI, J.

1. Leave granted.

2. These appeals raise an important question of law as to

whether the Union of India can be directed to adhere to the

representation as made by it in the Office Memorandum Signature Not Verified Digitally signed by DEEPAK SINGH dated 7th January 2003 (hereinafter referred to as “the said Date: 2022.10.17 18:16:20 IST Reason:

O.M. of 2003”) even after the enactment of the Central

1 Goods and Services Tax Act, 2017 (hereinafter referred to as

“the CGST Act”).

3. Civil Appeal arising out of Special Leave Petition (Civil)

No. 12397 of 2020 arises out of judgment and order dated

2nd March, 2020, passed by the High Court of Delhi,

dismissing the Writ Petition (Civil) No. 505 of 2022 filed by

the appellant – Hero Motocorp Ltd., thereby rejecting the

appellants claim of 100% budgetary support in lieu of the

pre-existing 100% outright excise duty exemption for ten

years from the date of the commencement of commercial

production, as provided for by the said O.M. of 2003 issued

by the Government of India.

4. Civil Appeal arising out of Special Leave Petition (Civil)

No. 11978 of 2021, arises out of judgment and order dated

5th February, 2021 passed by the High Court of Sikkim,

dismissing the Writ Petition (C) No. 47 of 2018, filed by the

appellant – Sun Pharma Laboratories Ltd. assailing the

reduction of the benefit of 100% exemption from excise duty

granted to it vide office memorandum dated 17 th February,

2 2003, which were to be made available for a period of ten

years from the date of commencement of commercial

production.

5. Both the appellants herein approached the respective

High Courts claiming therein that in view of the said O.M. of

2003 and Notification No.50/2003-C.E. dated 10th June

2003 (hereinafter referred to as “2003 Notification”), the

Union was bound to give 100% tax exemption till completion

of 10 years’ period from the date of commencement of their

commercial production.

FACTUAL BACKGROUND

6. The factual scenario leading to the filing of the present

appeals lies in a narrow compass, which is as under:

6.1 The Government of India had issued the said O.M. of

2003 based on the statement made by the Hon’ble Prime

Minister, during his visit to Uttranchal (now Uttarakhand)

in March 2002. The said O.M. of 2003 provided that, for

the States of Uttaranchal and Himachal Pradesh, new

industrial units and existing industrial units on their

3 substantial expansion would be entitled to exemption of

100% outright excise duty for 10 years from the date of

commencement of commercial production. The said O.M. of

2003 also provided that there shall be 100% income tax

exemption for such units initially for five years and

thereafter 30% for companies and 25% for other companies

for a further period of five years, from the date of

commencement of commercial production. Various other

incentives were also provided vide the said O.M. of 2003.

6.2 In pursuance to the said O.M. of 2003, a 2003

Notification was notified in exercise of the powers conferred

by sub-section (1) of Section 5A of the Central Excise Act,

1944 read with sub-section (3) of Section 3 of the Additional

Duties of Excise (Goods of Special Importance) Act, 1957

and sub-section (3) of Section 3 of the Additional Duties of

Excise (Textiles and Textile Articles) Act, 1978. The said

notification provided for exemption for a period not

exceeding ten years from the date of publication of the said

notification in the Official Gazette or from the date of

4 commencement of commercial production, whichever was

later.

6.3 The appellant – Hero Motocorp Ltd. had established a

new industry unit for manufacture of motorcycles at

Haridwar, Uttarakhand, which commenced commercial

production from 7th April, 2008. The appellant – Hero

Motocorp Ltd. availed the exemption until 1 st July, 2017,

whereafter the Goods and Service Tax regime came into

existence and the benefit being enjoyed by the appellant –

Hero Motocorp Ltd. was reduced to 58% through the

Budgetary Support Policy.

6.4 The appellant - Sun Pharma Laboratories Ltd. setup its

first industrial unit which commenced its commercial

production from 20th April, 2009. A second unit was also set

up later which commenced commercial production from 14 th

April, 2014. Before the advent of the new GST regime, both

of the appellant’s units were enjoying a full refund of the

central excise duties paid by them as provided for in the

exemption notification dated 25th June, 2003, pursuant to

5 the Office Memorandum dated 17th February, 2003. After

the commencement of the new GST regime, here too, the

benefit being enjoyed by the appellant - Sun Pharma

Laboratories was reduced to 58% through the

implementation of the Budgetary Support Policy.

6.5 Subsequently, by the Constitution (One Hundred and

First Amendment) Act, 2016 (hereinafter referred to as “the

101st Amendment Act”), the Constitution of India came to be

amended by the Parliament to introduce the goods and

services tax system pan India. By the 101 st Amendment

Act, concurrent taxing power was conferred on the Union as

well as the States including the Union Territories. By the

101st Amendment Act, Article 246A was inserted, making a

special provision for levy of Goods and Service Tax (“GST”

for short), by both the Union as well as the States. Article

269A was inserted to provide for levy and collection of GST

in the course of Inter-State trade or commerce (“IGST” for

short) by the Government of India. It also provided that

such tax shall be apportioned between the Union and the

6 States in the manner as may be provided by Parliament by

law on the recommendations of the Goods and Services Tax

Council (“GST Council” for short).

6.6 In pursuance of the said amendments to the

Constitution of India, the Central Goods and Services Tax

Act, 2017 (hereinafter referred to as “the CGST Act”) and

Integrated Goods and Services Tax Act, 2017 (hereinafter

referred to as “the IGST Act”) were enacted by the

Parliament and various States Goods and Service Tax Acts

(“SGST” for short) were enacted by the State Legislatures for

their respective States for the levy of GST.

6.7 Under clause (c) of sub-section (2) of Section 174 of the

CGST Act, a Notification No.21/2017-CE dated 18 th July

2017 was issued by the respondent-Union of India by which

the exemption notifications through which tax exemptions

were granted as an incentive against the investment came to

be rescinded on or after the appointed day, i.e. 1 st July

2017. As a result, the tax exemption which was granted by

7 the said O.M. of 2003 ceased to continue with effect from 1 st

July 2017.

6.8 The GST Council, in its meeting held on 30 th

September 2016, had resolved that all entities exempted

from payment of indirect tax would pay tax in the GST

regime. It had also resolved that the decision to continue

with any incentive given to specific industries in existing

industrial policies of States or through any schemes of the

Central Government would be with the concerned State or

Central Government. It was further resolved that in the

event it was decided by the concerned State or Central

Government to continue any existing exemption/incentive,

etc., then it would be administered by way of a

reimbursement mechanism through the budgetary route.

The modalities of the same were to be worked out by the

concerned State/Centre.

6.9 In pursuance of the said recommendations of the GST

Council, the Central Government notified the Budgetary

Support Scheme vide Notification dated 5th October 2017,

8 thereby providing to refund/reimburse the Central share of

CGST and IGST to the affected eligible industrial units for

the residual period in the North Eastern and the Himalayan

States. The Central share was determined at 58% of CGST

and 29% of IGST.

6.10 Being aggrieved by the decision of the Central

Government in restricting the refund only to 58% of CGST

and 29% of IGST and not providing 100% refund of CGST,

the appellant-Hero Motocorp Ltd. approached the Delhi

High Court by way of writ petition being Writ Petition (Civil)

No. 505 of 2020 and the appellant-Sun Pharma

Laboratories Limited approached the Sikkim High Court by

way of writ petition being Writ Petition (Civil) No.47 of 2018.

The Delhi High Court, vide its judgment and order dated 2 nd

March 2020, and the Sikkim High Court, vide its judgment

and order dated 5th February 2021, have dismissed the said

writ petitions.

9 6.11 Being aggrieved by the dismissal of the writ petitions,

the appellants (the original writ petitioners) have

approached this Court.

6.12 Hence the present appeals.

SUBMISSIONS

7. We have heard Shri S. Ganesh, learned Senior Counsel

appearing on behalf of the appellant-Hero Motocorp Ltd. in

Civil Appeal arising out of Special Leave Petition (Civil)

No.12397 of 2020, Shri V. Sridharan, learned Senior

Counsel appearing on behalf of the appellant-Sun Pharma

Laboratories Ltd. in Civil Appeal arising out of Special Leave

Petition (Civil) No.11978 of 2021 and Shri N. Venkatraman,

learned Additional Solicitor General appearing on behalf of

the respondent-Union of India.

8. Shri S. Ganesh, learned Senior Counsel, submits that

the perusal of the said O.M. of 2003 would reveal that an

unequivocal representation was made by the Central

Government to the commercial entities which were desirous

of setting up industrial units in the States of Uttarakhand

10 and Himachal Pradesh, that, in the event a new industry is

established or there is a substantial expansion of the

existing unit, then such industrial units would be entitled to

100% exemption from payment of excise duty for 10 years.

He submits that the Central Government is bound by such

representation. It is submitted that the industrial units like

that of the appellants, relying on the promise made by the

Central Government, have altered their position to their

detriment and as such, the Central Government is now

estopped from resiling from the representation made by it to

the appellants.

9. Shri Ganesh submits that the figure of refund only to

the extent of 58% has been achieved in an arbitrary and

irrational manner. He submits that the Union has

purportedly done so under the umbrella of the report of the

Finance Commission. He contends that, even under the

earlier regime of excise tax and all other levies collected by

the Central Government, the States were entitled to their

share therein. It is stated that the share of the Central

11 Government and the State Government in the said regime

has always been there and it is not as if it has come for the

first time after the GST regime started. Learned Senior

Counsel submits that under the old regime, though the

Central Government was sharing with the States a certain

percentage of entire taxes collected by it, still, 100%

exemption from the payment of duty was being granted to

the entities like the appellants herein. It is submitted that

there is no reason as to why the same should not have been

continued under the new regime.

10. Shri Ganesh further submits that the policy as is

reflected in the said O.M. of 2003 would stand on a higher

pedestal than the statutory provision or a notification under

a statute and the Union would be bound to adhere to the

same. He submitted that even in January 2003 when the

exemption notifications were issued, the same sharing

pattern was in existence between the States and the Central

Government.

12

11. Shri Ganesh further submits that under Section 11 of

the CGST Act, the Government has the power to grant

exemption from tax and there is no reason as to why the

Union Government should not have exercised such a power

in the peculiar facts and circumstances of the case.

12. Learned Senior Counsel, therefore, submits that the

view taken by the Delhi High Court is not sustainable in

law. He submits that the appeals deserve to be allowed and

a direction be issued to the Central Government to provide

100% reimbursement of CGST for the remainder of the

period.

13. Shri Ganesh relied on the judgments of this Court in

the cases of State of Bihar and others vs. Suprabhat

Steel Ltd. and others1, State of Jharkhand and others

vs. Tata Cummins Ltd. and another2, Lloyd Electric and

Engineering Limited vs. State of Himachal Pradesh and

others3, MRF Ltd., Kottayam vs. Asstt. Commissioner

(Assessment) Sales Tax and others4, The State of 1 (1999) 1 SCC 31 2 (2006) 4 SCC 57 3 (2016) 1 SCC 560 4 (2006) 8 SCC 702

13 Jharkhand and ors. vs. Brahmputra Metallics Ltd. and

ors.5, Manuelsons Hotels Private Limited vs. State of

Kerala and others6 and State of Punjab vs. Nestle India

Ltd. and another7

14. He also relied on judgments of various High Courts.

However, we do not find it necessary to refer to them

inasmuch as the law on the issue is very well crystallized in

various judgments of this Court.

15. Shri V. Sridharan, learned Senior Counsel, also

submitted that the Central Government had come out with

a policy of promoting industrial growth and employment in

the backward areas. He submits that even after the GST

regime, it should have continued the said policy. He

submits that, if the Central Government has brought down

the benefit from 100% to 58%, then it should

extend/increase the period of benefit to ensure that the

promise made in 2003 industrial policy is given effect to in

reality. He relies on the judgment of this Court in the case of 5 MANU/SC/0906/2020 [Civil Appeal Nos. 3860-3862 of 2020, decided on 1.12.2020] 6 (2016) 6 SCC 766 7 (2004) 6 SCC 465

14 Video Electronics Pvt. Ltd. and another vs. State of

Punjab and another8 and Union of India vs. Paliwal

Electricals (P) Ltd. and another9.

16. Shri Sridharan further submitted that the Sikkim High

Court has only relied on the judgment of this Court in the

case of Union of India & Anr. vs. V.V.F. Limited & Anr. 10

He submitted that the issue in the case of V.V.F. Limited &

Anr. (supra) was with regard to the withdrawal of

notification since it was found to be misused. He submits

that the factual situation in the present case is different and

as such, the High Court was in error in dismissing the writ

petition.

17. Shri N. Venkatraman, learned Additional Solicitor

General (“ASG” for short), on the contrary, submits that

promissory estoppel cannot be applied to the representation

made by the Union of India, if there is a material change in

the circumstances and the larger public interest warrants

such a withdrawal. He submits that, in view of the

8 (1990) 3 SCC 87 9 (1996) 3 SCC 407 10 2020 SCC Online SC 378

15 constitutional amendment, a new era of GST has emerged.

He submits that the new era emphasizes on the principle of

pooled sovereignty where States and Centre share equal

responsibilities. Learned ASG submits that Article 279A of

the Constitution provides for the establishment of the GST

Council. It is submitted that the GST Council consists of (a)

the Union Finance Minister; (b) the Union Minister of State

in charge of Revenue or Finance; and (c) the Minister in

charge of Finance or Taxation or any other Minister

nominated by each State Government. He submits that the

GST Council has been empowered to make

recommendations to the Union and the States on the taxes,

cesses and surcharges levied by the Union, the States and

the local bodies which are to be subsumed in the GST. It is

submitted that clause (6) of Article 279A of the Constitution

of India directs the GST Council to be guided by the need for

a harmonized structure of GST and the development of a

harmonized national market for goods and services, while

discharging its functions. He submits that under clause (1)

16 of Article 246A of the Constitution, both the Parliament as

well as the State Legislatures have been empowered to make

laws with respect to GST to be imposed by the Union or by

such States, whereas clause (2) of the said Article empowers

Parliament to make laws with respect to GST where the

supply of goods, or of services, or both takes place in the

course of inter-State trade or commerce.

18. Learned ASG would, therefore, submit that a sea

change has occurred with the advent of GST from 1 st July

2017. The first change, in the submission of the learned

ASG, is that the earlier tax regime was origin based,

whereas the new tax regime is destination based. Under the

old regime, the Centre was collecting 100% excise duty,

service tax, central sales tax, etc. and the States were

collecting 100% Value Added Tax (“VAT” for short). Under

the old tax regime, there was no uniformity with regard to

State levies, whereas under the new tax regime, there is

uniformity. Under the new regime, both Union and the

States come on the same platform under Articles 246A and

17 279A of the Constitution and become common partners for

taxing together. Under the new regime, both States as well

as Union charge at the same rate. Learned ASG submits

that the only common feature in the old regime as well as in

the new regime is that the Centre continues to fund the

States.

19. Learned ASG further submitted that pursuant to the

enactment of GST, a notification, being Notification No. 21

of 2017, was issued on 18th July 2017, thereby withdrawing

the exemptions granted previously under the erstwhile

excise regime. He submits that the appellants have not

challenged the validity of the said Notification. He further

submits that, in view of the proviso to clause (c) of sub-

section (2) of Section 174 of the CGST Act, the exemptions

stood automatically rescinded. The validity thereof has also

not been challenged by the appellants. He, therefore,

submits that the writ petitions, without challenging the

validity thereof, are not tenable.

18

20. Learned ASG submits that, though after the enactment

of the GST the Central Government was not bound to

continue granting any relief, however, as a matter of good

gesture and on the recommendations of the GST Council, it

has decided to reimburse 58% of CGST paid by such

industrial units who were entitled to the benefit of

exemption notifications. He submits that the said has been

done based on the recommendations of the Finance

Commission, which has earmarked the share of the Union

at 58% and of the States at 42%.

21. Learned ASG submits that the writ petitions have been

erroneously filed seeking a relief against the Union. He

submits that if the appellants have any claim, then that

would be against the State Governments wherein the

industries are situated. It is submitted that, as a matter of

fact, the Government of Jammu & Kashmir, vide

Notification dated 21st December 2017 has already resolved

to reimburse the remaining 42% of the GST to the units

located in the State till the period the Union Scheme is

19 valid. It is submitted that the appellants ought to have

sought similar relief against the State Governments. Thus,

in his submission, a writ against the Union of India is

untenable.

22. Learned ASG further submits that the writ of

mandamus could only be issued against a statutory body

when it is established that there is a duty cast upon a

statutory authority and that the said authority has

neglected to perform such duty. It is submitted that the

appellants have not been in a position to point out that any

such duty is cast upon the Union to reimburse 100% GST

and as such, the present appeals would not be tenable.

23. Learned ASG, relying on various judgments of this

Court submitted that in view of the overwhelming public

interest, the Union cannot be held to comply with the

assurance given by it in the said O.M. of 2003.

24. In support of his submissions, learned ASG relies on

the judgments of this Court in the cases of Union of India

and others vs. VKC Footsteps India Private Limited11, 11 (2022) 2 SCC 603

20 Union of India and another vs. Mohit Minerals Pvt. Ltd.

through Director12, Union of India and others vs.

Unicorn Industries13, Augustan Textile Colours Limited

(Now Augustan Textile Colours Private Limited) vs.

Director of Industries and another14, Kuldeep Singh vs.

Govt. of NCT of Delhi15, Union of India and another vs.

International Trading Co. and another16, Comptroller

and Auditor General of India, Gian Prakash, New Delhi

and another vs. K.S. Jagannathan and another17 and

Union of India & others vs. Bharat Forge Ltd. &

another18.

25. Shri S. Ganesh, learned Senior Counsel, in rejoinder,

submits that the submission of the learned ASG that the

remedy lies against the States and not against the Centre is

devoid of any substance. He submits that the assurance

was given by the Central Government and not by the State

12 2022 SCC OnLine SC 657 13 (2019) 10 SCC 575 14 (2022) 6 SCC 626 15 (2006) 5 SCC 702 16 (2003) 5 SCC 437 17 (1986) 2 SCC 679 18 Civil Appeal No.5294 of 2022 (@ SLP(C) No.4960 of 2021) decided on 16 th August, 2022

21 Governments. He submits that the said O.M. of 2003 has to

be understood from a viewpoint of a businessman to whom

the commercial representation was made. The words

“exemption from direct or indirect tax” is required to be

given full meaning. He submits that the proviso to Section

174(2)(c) of the CGST Act would not be applicable in the

present case if looked at from the viewpoint of the ordinary

businessman.

CONSIDERATION

26. It is not in dispute that the Union of India had framed

a policy vide the said O.M. of 2003. It is also not in dispute

that, vide the said policy, the Central Government had

provided that 100% exemption would be granted to the

industrial units from payment of outright excise duty for 10

years from the date on which such industrial units

commence their commercial production. The incentives

applied to the new industrial units as well as existing

industrial units going for substantial expansion. As such, it

is clear that, vide the said O.M. of 2003, an unequivocal

22 promise was given to the entities that, in the event they

establish a new industrial unit or go for a substantial

expansion of their existing industrial units in the States of

Uttarakhand and Himachal Pradesh, they would be entitled

to 100% tax exemption.

27. It is to be noted that, subsequently, an important

development took place. By the 101 st Amendment Act, a sea

change in the earlier taxation regime occurred. A uniform

tax structure throughout the country has been adopted.

The GST Council has been constituted, which is empowered

to make recommendations to the Union and the States with

regard to GST. The Union and all the States have become

common partners in levy of various taxes. To give effect to

the 101st Amendment Act, the CGST Act has been enacted.

28. The relevant part of Section 174 of the CGST Act reads

thus:

“174. Repeal and saving.—(1) Save as otherwise provided in this Act, on and from the date of commencement of this Act, the Central Excise Act, 1944 (1 of 1944) (except as respects goods included in entry 84 of the Union List of the Seventh Schedule to

23 the Constitution), the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955), the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), and the Central Excise Tariff Act, 1985 (5 of 1986) (hereafter referred to as the repealed Acts) are hereby repealed. (2) The repeal of the said Acts and the amendment of the Finance Act, 1994 (32 of 1994)(hereafter referred to as “such amendment” or “amended Act”, as the case may be) to the extent mentioned in the sub-section (1) or Section 173 shall not—

(a) ……..

(b) ……..

(c) affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders under such repealed or amended Acts:

Provided that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded on or after the appointed day; or”

29. It could thus be seen that, under clause (1) of Section

174, various enactments, including the Central Excise Act,

1944, are repealed. Clause (c) of sub-section (2) of Section

24 174, however, provides that the repeal of the said Acts shall

not affect any right, privilege, obligation, or liability

acquired, accrued or incurred under the amended Act or

repealed Acts or orders under such repealed or amended

Acts. However, the proviso thereto is clear and specific. It

specifically provides that any tax exemption granted as an

incentive against investment through a notification shall not

continue as a privilege if the said notification is rescinded

on or after the appointed day.

30. It can thus be seen that, though the first part of clause

(c) of sub-section (2) of Section 174 would protect any right,

privilege, obligation, etc. under the amended Act or repealed

Acts, the proviso thereto provides that any tax exemption

granted as an incentive against investment shall not

continue as a privilege if the said notification is rescinded

on or after the appointed day. Admittedly, vide Notification

No.21/2017 dated 18th July 2017, various earlier area-

based exemption notifications have been rescinded. It is

thus clear that the benefit which was granted under the

25 2003 Notification stands rescinded in view of the

notification issued under proviso to clause (c) of sub-section

(2) of Section 174 of the CGST Act.

31. The question, therefore, that would fall for

consideration is, as to whether, despite a subsequent

statute specifically providing for rescinding the benefits

granted under an earlier statute, the Union Government can

be compelled to stand by the representation made by it

through the earlier notification. In other words, the

question that will have to be considered is whether doctrine

of promissory estoppel could operate against a statute.

JUDICIAL PRECEDENTS

32. For considering the rival submissions, it would also be

necessary to refer to various earlier authoritative

pronouncements of this Court on the issue.

33. Heavy reliance is placed on the judgment of this Court

in the case of Union of India & Ors. vs. M/s Indo-Afghan

Agencies Ltd.19, which is one of the earlier judgments of

this Court considering the issue of promissory estoppel. In 19 1968 2 SCR 366

26 the said case, the Textile Commissioner published a scheme

on 10th October 1962, called the Export Promotion Scheme

providing incentives to exporters of woolen goods. The

scheme was extended by a Trade Notice dated 1 st January

1963, to export of woolen goods to Afghanistan. In

pursuance of the said scheme, the exporters were entitled to

import raw materials of a total amount equal to 100% of the

F.O.B. (freight on board) value of their exports. However,

the competent authority issued an Import Entitlement

Certificate to Indo-Afghan Agencies Ltd. only in part. The

Indo-Afghan Agencies Ltd., therefore, made a representation

to the authorities. On failure of the authorities to respond,

a petition came to be filed in the High Court of Punjab. The

High Court held that the Export Promotion Scheme

specifically provided for granting certificates to import

materials of the “value equal to 100% of the F.O.B. value of

the goods exported”. It was, therefore, held by the High

Court that the petitioners therein were entitled to obtain

import licenses for an amount equal to 100% of the F.O.B.

27 value. The judgment of the High Court was challenged

before this Court. One of the issues before this Court was

with regard to the violation of principles of natural justice.

This Court also considered the issue of promissory estoppel.

This Court held:

“15. In these cases it was clearly ruled that where a person has acted upon representations made in an Export Promotion Scheme that import licences upto the value of the goods exported will be issued, and had exported goods, his claim for import licence for the maximum value permissible by the Scheme could not be arbitrarily rejected. Reduction in the amount of import certificate may be justified on the ground of misconduct of the exporter in relation to the goods exported, or on special considerations such as difficult foreign exchange position, or other matters which have a bearing on the general interests of the State. In the present case, the Scheme provides for grant of import entitlement of the value, and not upto the value, of the goods exported. The Textile Commissioner was, therefore, in the ordinary course required to grant import certificate for the full value of the goods exported: he could only reduce that amount after enquiry contemplated by clause 10 of the Scheme….”

28

34. It could thus be seen that the issue that fell for

consideration in the case of M/s Indo-Afghan Agencies

Ltd. (supra) was with regard to an arbitrary reduction of

the claim of the writ petitioner contrary to the Export

Promotion Scheme. The issue as to whether the Legislature

by a subsequent enactment was entitled to withdraw the

benefit granted under the earlier scheme did not fall for

consideration in the said case.

35. This Court in the case of Century Spinning and

Manufacturing Company Ltd. and another vs. The

Ulhasnagar Municipal Council and another20 considered

the issue wherein the Municipality had agreed to exempt the

appellant therein from payment of octroi duty for 7 years

from the date of levy of octroi. However, thereafter, the

Municipality sought to levy octroi duty from the appellant

therein. This Court observed thus:

“12. If our nascent democracy is to thrive different standards of conduct for the people and the public bodies cannot ordinarily be permitted. A public body is, in our judgment, not exempt from 20 (1970) 1 SCC 582

29 liability to carry out its obligation arising out of representations made by it relying upon which a citizen has altered his position to his prejudice.”

36. A Constitution Bench of this Court in the case of M.

Ramanatha Pillai vs. The State of Kerala and another21

considered the question as to whether estoppel could arise

against a State in regard to abolition of posts. The

Constitution Bench observed thus:

“37. The High Court was correct in holding that no estoppel could arise against the State in regard to abolition of post. The appellant Ramanatha Pillai knew that the post was temporary. In American Jurisprudence 2d at p. 783 para 123 it is stated “Generally, a state is not subject to an estoppel to the same extent as in an individual or a private corporation. Otherwise, it might be rendered helpless to assert its powers in government. Therefore as a general rule the doctrine of estoppel will not be applied against the State in its governmental, public or sovereign capacity. An exception however arises in the application of estoppel to the State where it is necessary to prevent fraud or manifest injustice”. The estoppel alleged by the appellant Ramanatha Pillai was on the ground that 21 (1973) 2 SCC 650

30 he entered into an agreement and thereby changed his position to his detriment. The High Court rightly held that the Courts exclude the operation of the doctrine of estoppel, when it is found that the authority against whom estoppel is pleaded has owed a duty to the public against whom the estoppel cannot fairly operate.” [emphasis supplied]

37. It can thus clearly be seen that the Constitution Bench

has approved the statement in American Jurisprudence that

the doctrine of estoppel will not be applied against the State

in its governmental, public or sovereign capacity. An

exception to the application of the said doctrine to the State

would, however, arise where it is necessary to prevent fraud

or manifest injustice.

38. Another Constitution Bench of this Court in the case of

State of Kerala and another vs. The Gwalior Rayon

Silk Manufacturing (WVG). Co. Ltd. Etc.22 was

considering an issue as to the application of promissory

estoppel when a right to compensation for acquisition of

forest land as provided in the earlier statute was taken away 22 (1973) 2 SCC 713

31 by a subsequent statute. The Constitution Bench held

thus:

“38. In an attempt to show that the impugned Act was a piece of colourable legislation, reference was made to the Karala Private Forests Acquisition Bill, 1968 LA Bill No. 33 of 1968 which provided for the acquisition of private forests on payment of compensation for the acquisition. That Bill, it is contended, was allowed to lapse and the present Act was enacted with the obvious intention of expropriating vast forest lands without paying compensation. We can hardly countenance such an argument. The question really is, in the first place, of the competence of the legislature to pass the impugned Act and, in the second, whether the Act is constitutional in the sense that it is protected by Section 31- A(1). So far as the competence of the legislature is concerned, no objection is made before us. As to its constitutionality we have shown that the Act purports to vast the janman rights to the forests in the Government as a step in the implementation of agrarian reform. If this could be constitutionally done by the legislature, the fact that at an earlier stage the Government was toying with the idea of paying compensation to owners of private forests is of little consequence. The dominant purpose of the impugned Act,

32 as already pointed out, is to distribute forest lands for agricultural purposes after making reservations of portions of the forests for the benefit of the agricultural community. The fear is expressed that such a course if, genuinely implemented, may lead to deforestation on a large scale leading to soil erosion and silting of rivers and streams and will actually turn out to be detrimental to the interests of the agricultural community in the long run. It is undoubtedly true that rackless deforestation might lead to very unhappy results. But we have no material before us for expressing opinion on such a matter. It is for the legislature to balance the comparative advantages of a scheme like the one envisaged in the Act against the possible disadvantages of resulting deforestation. There are many imponderables to which we have no safe guides. It is presumed that the legislature knows the needs of its people and will balance the present advantages against possible future disadvantages. If there is pressure on land and the legislature feels that forest lands in some areas can be conveniently and, without much damage to the community as a whole, utilized for settling a large proportion of the agricultural population, it is perfectly open, under the constitutional powers vested in the legislature, to make a suitable law, and if the law is constitutionally valid this Court can hardly strike it down on the ground that

33 in the long run the legislation instead of turning out to be a boon will turn out to be a curse.

39. Mr Menon who appeared for the respondent in Civil Appeal No. 1398 of 1972 put forward a plea of equitable estoppel peculiar to his client company. It appears that the Company established itself in Kerala for the production of rayon cloth pulp on an understanding that the Government would bind itself to supply the raw-material. Later Government was unable to supply the material and by an agreement undertook not to legislate for the acquisition of private forests for a period of 60 years if the Company purchased forest lands for the purpose of its supply of raw-

materials. Accordingly, the Company purchased 30,000 acres of private forests from the Nilambhuri Kovila Kannan estate for Rs 75 lakhs and, therefore, it was argued that, so far as the Company is concerned, the agreement not to legislate should operate as equitable estoppel against the State. We do not see how an agreement of the Government can preclude legislation on the subject.

The High Court has rightly pointed out that the surrender by the Government of its legislative powers to be used for public good cannot avail the company or operate against the Government as equitable estoppel.” [emphasis supplied]

34

39. It could thus be seen that this Court held that it is

presumed that the legislature knows the needs of its people

and will balance the present advantages against possible

future disadvantages. It has been held that if a new

enactment is constitutionally enacted by the legislature,

then the fact that, at an earlier stage, the Government was

toying with the idea of paying compensation to owners of

private forests would be of no consequence. Undisputedly,

the GST enactment is an enactment validly enacted by the

Parliament. It was also sought to be urged that the

petitioner Company, on the basis of the agreement by the

State Government that it would not legislate to acquire the

forest land for 60 years, had purchased 30,000 acres of

private land. It was submitted therein that, applying the

doctrine of equitable estoppel, the Government was

estopped from enacting a legislation contrary to the

agreement. Negating the said contention, it was held that

when the legislature exercises its powers for the public

35 good, the earlier representation would not operate against

the Government as equitable estoppel.

40. A four judge Bench of this Court in the case of Excise

Commissioner, U.P. Allahabad and others vs. Ram

Kumar and others23 had considered the issue wherein, at

the time of the auction, licenses sold by the Government to

vend country liquor exempted the levy of sales tax.

However, by a subsequent notification, the sale of country

liquor was subjected to the levy of sales tax. This Court

specifically rejected the contention that the State was

estopped from doing so. This Court relied on the earlier

Constitution Bench judgment in the cases of M.

Ramanatha Pillai (supra) and The Gwalior Rayon Silk

Manufacturing (WVG). Co. Ltd. Etc. (supra). It held that

an assurance given by or on behalf of the Crown by an

officer of a government, however high or low in the

hierarchy, could not bar the Crown from enforcing a

statutory prohibition. It reiterated the legal position that

23 (1976) 3 SCC 540

36 estoppel does not operate against the Government or its

assignee.

41. In the case of The Bihar Eastern Gangetic

Fishermen Co-operative Society Ltd. vs. Sipahi Singh

and others24, the State Government had directed that the

settlement of the Jalkar would continue with Sipahi Singh

for the years 1976-77 and 1977-78. However, on the

representation made by the Bihar Eastern Gangetic

Fishermen Co-operative Society Ltd., the State Government

directed that the settlement of the Jalkar would be with the

said Society for the relevant years on certain conditions.

Sipahi Singh filed a writ petition which was allowed by the

High Court relying on the doctrine of promissory estoppel.

A three-judge Bench of this Court, while reversing the

judgment of the High Court, observed thus:

“13. The doctrine of promissory estoppel could also not be pressed into service in the present case, as it is well settled that there cannot be any estoppel against the Government in exercise of its sovereign legislative and executive 24 (1977) 4 SCC 145

37 functions. (See Excise Commissioner, U.P. Allahabad v. Ram Kumar [(1976) 3 SCC 540 : 1976 SCC (Tax) 360 : AIR 1976 SC 2237] ).” [emphasis supplied]

42. It is thus clear that The Bihar Eastern Gangetic

Fishermen Co-operative Society Ltd. (supra) is also an

authority to hold that there cannot be any estoppel against

the Government in the exercise of its sovereign, legislative

and executive functions. In the said case, the judgment of

this Court in the case of M/s Indo-Afghan Agencies Ltd.

(supra) was pressed into service. Distinguishing the same,

this Court observed thus:

“14. The decision of this Court in Union of India v. Indo-Afghan Agencies Ltd. [AIR 1968 SC 718 : (1968) 2 SCR 366 : (1968) 2 SCJ 889] on which strong reliance is placed by Counsel for Respondent 1 is clearly distinguishable. In that case, unlike the present one, the respondents were not seeking to enforce any contractual right. They were merely seeking to enforce compliance with the obligation which was laid upon the Textile Commissioner by the terms of the Export Promotion Scheme providing for grant (by way of incentives to exporters of woollen textiles and goods) of Entitlement Certificate to import raw materials of a

38 total amount equal to 100% of the f.o.b.

value of their exports. Their claim was founded upon the equity which arose in their favour as a result of the representation made on behalf of the Government in the aforesaid Scheme, the exports of woollen goods made by them to Afghanistan acting upon the representation and curtailment of the import entitlement by the Textile Commissioner without notice to them.” [emphasis supplied]

43. Subsequently, a two Judge Bench of this Court in the

case of Motilal Padampat Sugar Mills Co. Ltd. vs. State

of Uttar Pradesh and others25 again considered the issue

of estoppel. In the said case, the State Government had

represented that an exemption from sales tax would be

granted to new industrial units. Based on the assurance of

the State Government, the appellant before this Court in the

said case had established its industrial unit. However,

subsequently, the Government decided to rescind the said

concession. Though this Court, in the facts of the said case,

held that the appellant therein, based on the promise made

by the respondent therein, had altered its position to its 25 (1979) 2 SCC 409

39 detriment and as such, the State could not resile from the

said promise, allowing the appeal observed thus:

“28. …… There can also 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. Vide State of Kerala v. Gwalior Rayon Silk Manufacturing Co. Ltd. [(1973) 2 SCC 713, 730 (para 39) : (1974) 1 SCR 671, 688]” [emphasis supplied]

44. Thereafter comes the judgment of this Court in the

case of M/s Jit Ram Shiv Kumar and others vs. State of

Haryana and others26. In the said case, the municipal

committee established a small mandi and decided that the

purchasers of the plots for sale in the mandi would not be

required to pay octroi duty on goods imported within the

said mandi. Subsequently, the municipal committee started

imposing octroi duty. Challenging the said act of the

municipal committee, a writ petition was filed before the

High Court. The High Court dismissed the said writ

26 (1981) 1 SCC 11

40 petition. The two-Judge Bench of this Court in the said

case, referring to judgments of courts of various other

jurisdictions as well as the judgments of this Court at an

earlier point of time, observed thus:

“40. The scope of the plea of doctrine of promissory estoppel against the Government may be summed up as follows:

(1) The plea of promissory estoppel is not available against the exercise of the legislative functions of the State.

(2) The doctrine cannot be invoked for preventing the Government from discharging its functions under the law.

(3) When the officer of the Government acts outside the scope of his authority, the plea of promissory estoppel is not available. The doctrine of ultra vires will come into operation and the Government cannot be held bound by the unauthorised acts of its officers.

(4) When the officer acts within the scope of his authority under a scheme and enters into an agreement and makes a representation and a person acting on that representation puts himself in a disadvantageous position, the Court is entitled to require the officer to act according to the scheme and the agreement or representation. The officer

41 cannot arbitrarily act on his mere whim and ignore his promise on some undefined and undisclosed grounds of necessity or change the conditions to the prejudice of the person who had acted upon such representation and put himself in a disadvantageous position.

(5) The officer would be justified in changing the terms of the agreement to the prejudice of the other party on special considerations such as difficult foreign exchange position or other matters which have a bearing on general interest of the State.” [emphasis supplied]

45. It can thus clearly be seen that this Court held that

the plea of promissory estoppel would not be available

against the exercise of the legislative functions of the State.

Equally, it cannot be invoked for preventing the government

from discharging its functions under the law. The learned

judges of this Court in the case of M/s Jit Ram Shiv

Kumar and others (supra), holding that some of the

observations of this Court in the case of Motilal Padampat

Sugar Mills Co. Ltd. (supra) were not in tune with the

earlier judgments of larger Benches of this Court, observed

thus:

42

“45. We find ourselves unable to ignore the three decisions of this Court, two by Constitution Benches in M. Ramanatha Pillai v. State of Kerala [(1973) 2 SCC 650 : 1973 SCC (L&S) 560 : AIR 1973 SC 2641 : (1974) 1 SCR 515] and State of Kerala v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. [(1973) 2 SCC 713 : AIR 1973 SC 2734 : (1974) 1 SCR 671] and the third by a Bench of four Judges of this Court in Excise Commr., U.P., Allahabad v. Ram Kumar [(1976) 3 SCC 540 : 1976 SCC (Tax) 360 : 1976 Supp SCR 532] on the ground that the observations are in the nature of obiter dicta and that it cannot be insisted as intending to have laid down any proposition of law different from that enunciated in the Indo-Afghan Agencies case [AIR 1968 SC 718 : (1968) 2 SCR 366 : (1968) 2 SCJ 889] . It was not necessary for this Court in the cases referred to above to refer to Union of India v. Indo-Afghan Agencies Ltd. [AIR 1968 SC 718 : (1968) 2 SCR 366 : (1968) 2 SCJ 889] for, if properly understood, it only held that the authority cannot go back on the agreement arbitrarily or on its mere whim. We feel we are bound to follow the decisions of the three Benches of this Court which in our respectful opinion have correctly stated the law. We are also unable to read the case of the House of Lords in Howell v. Falmouth Boat Construction Co. Ltd. [1951 AC 837 :

(1951) 2 All ER 278 : (1951) 2 TLR 151] as not having overruled the view of Denning, J., and as not having expressed its disapproval of the doctrine

43 of promissory estoppel against the Crown nor overruled the view taken by Denning, J. in Robertson v. Minister of Pensions [(1949) 1 KB 227 : (1948) 2 All ER 767 : 1949 LJR 323] that “the Crown cannot escape the obligation under the doctrine of promissory estoppel”.

46. We find ourselves unable to share the view of the learned Judge that the Constitution Bench of this Court in Ramanatha Pillai case [(1973) 2 SCC 650 : 1973 SCC (L&S) 560 : AIR 1973 SC 2641 : (1974) 1 SCR 515] heavily relied upon the quotation from the American jurisprudence, para 123, p. 873 of Vol.

28. Again we feel to remark that “unfortunately this quotation was incomplete and had overlooked perhaps inadvertently” is unjustified.

(emphasis supplied)”

46. This Court in the said case reiterated the legal position

thus:

“51. On a consideration of the decisions of this Court it is clear that there can be no promissory estoppel against the exercise of legislative power of the State. So also the doctrine cannot be invoked for preventing the Government from acting in discharge of its duty under the law. The Government would not be bound by the act of its officers and agents who act beyond the scope of their authority and a person dealing with the agent of the Government

44 must be held to have notice of the limitations of his authority. the Court can enforce compliance by a public authority of the obligation laid on him if he arbitrarily or on his mere whim ignores the promises made by him on behalf of the Government. It would be open to the authority to plead and prove that there were special considerations which necessitated his not being able to comply with his obligations in public interest.” [emphasis supplied]

47. A three Judge Bench of this Court in the case of Union

of India and others vs. Godfrey Philips India Ltd. 27

commented on the correctness of the decision in the case of

M/s Jit Ram Shiv Kumar and others (supra) and

observed thus:

“13. Of course we must make it clear, and that is also laid down in Motilal Sugar Mills case [(1979) 2 SCC 409 :

1979 SCC (Tax) 144 : (1979) 2 SCR 641] that there can be no promissory estoppel against the Legislature in the exercise of its legislative functions nor can the Government or public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It is equally true that promissory estoppel cannot be used to compel the Government or a public 27 (1985) 4 SCC 369

45 authority to carry out a representation or promise which is contrary to law or which was outside the authority or, power of the officer of the Government or of the public authority to make. We may also point out that the doctrine of promissory estoppel being an equitable doctrine, it must yield when the equity so requires; if it can be shown by the Government or public authority that having regard to the facts as they have transpired, it would be inequitable to hold the Government or public authority to the promise or representation made by it, the Court would not raise an equity in favour of the person to whom the promise or representation is made and enforce the promise or representation against the Government or public authority. The doctrine of promissory estoppel would be displaced in such a case, because on the facts, equity would not require that the Government or public authority should be held bound by the promise or representation made by it.

This aspect has been dealt with fully in Motilal Sugar Mills case [(1979) 2 SCC 409 : 1979 SCC (Tax) 144 : (1979) 2 SCR 641] and we find ourselves wholly in agreement with what has been said in that decision on this point.” [emphasis supplied]

48. Within a short period, another three-judge Bench of

this Court in the case of Express Newspapers Pvt. Ltd.

46 and others vs. Union of India and others28 referring to

the conflict between the case of Motilal Padampat Sugar

Mills Co. Ltd. and the case of M/s Jit Ram Shiv Kumar

and others (supra), observed thus:

“182. I am not oblivious that there was a discordant note struck by Kailasam, J. speaking for himself and Fazal Ali, J. in Jit Ram Shiv Kumar v. State of Haryana [(1981) 1 SCC 11 : AIR 1980 SC 1285 : (1980) 3 SCR 689] holding that the doctrine of promissory estoppel cannot be invoked for preventing the Government from discharging its functions under law. It is also not applicable when the officer and the Government act outside the scope of their authority. The doctrine of ultra vires will in that event come into operation and the Government cannot be held bound by the unauthorised acts of its officers.

183. It is not necessary for purposes of this judgment to resolve the apparent conflict between the decision of Bhagwati, J. in Motilal Padampat Sugar Mills case [(1979) 2 SCR 641 : (1979) 2 SCC 409 : 1979 SCC (Tax) 144] as to the applicability of the doctrine of estoppel for preventing the Government from discharging its functions under the law.

In public law, the most obvious 28 (1986) 1 SCC 133

47 limitation and doctrine of estoppel is that it cannot be evoked so as to give an overriding power which it does not in law possess. In other words, no estoppel can legitimate action which is ultra vires. Another limitation is that the principle of estoppel does not operate at the level of Government policy.

Estoppels have however been allowed to operate against public authority in minor matters of formality where no question of ultra vires arises: Wade: Administrative Law, fifth edition, pp. 233-34.

184. The principles laid down in Maritime Elec. Co. v. General Dairies Ltd. [1937 AC 610 (PC)] and by Lord Parker, C.J. in Southend-on-Sea Corporation v. Hodgson (Wickford) Ltd. [(1

962) 1 QB 416] relied upon by learned counsel appearing for Respondent 1 the Union of India are clearly not attracted in the facts and circumstances of the present case. In the present case, admittedly, the then Minister for Works & Housing acted within the scope of his authority in granting permission of the lessor i.e. the Union of India, Ministry of Works & Housing to the Express Newspapers Pvt. Ltd. to construct new Express Building with an increased FAR of 360 with a double basement for installation of a printing press for publication of a Hindi newspaper under the Rules of Business framed by the President under Article 77(3). Therefore, the doctrine of ultra vires does not come into operation. In view of this

48 Respondent 1 the Union of India is precluded by the doctrine of promissory estoppel from questioning the authority of the Minister in granting such permission. In that view, the successor Government was clearly bound by the decision taken by the Minister particularly when it had been acted upon.” [emphasis supplied]

49. The three-judge Bench of this Court in the case of

Express Newspapers Pvt. Ltd. and others (supra) held

that no estoppel can legitimize action which is ultra vires. It

was further held that another limitation is that the principle

of estoppel does not operate at the level of Government

policy. In the facts of the said case, this Court held that the

doctrine of ultra vires did not come into operation in the

said case. It held that, in view of the permission granted by

the then Minister for Works & Housing, the respondent-

Union of India was precluded from questioning the validity

thereof. The successor Government was bound by the

decision taken by the Minister, particularly when it had

been acted upon.

49

50. It could thus be seen that there is some discord in the

judgments of this Court in the cases of Motilal Padampat

Sugar Mills Co. Ltd. (supra) and Godfrey Philips India

Ltd. (supra) on one hand and in the case of M/s Jit Ram

Shiv Kumar and others (supra) on the other hand.

51. This Court in the case of Motilal Padampat Sugar

Mills Co. Ltd. (supra) holds that, if on the basis of a

promise made by a government, an entity changes its legal

position to its detriment, the State could not be permitted to

resile from the said promise. It is to be noted that the said

judgment is authored by Bhagwati, J. and the Bench

strength is of two learned judges.

52. Within a period of two years, Kailasam, J. in the case

of M/s Jit Ram Shiv Kumar and others (supra) found

fault with some of the observations made in the case of

Motilal Padampat Sugar Mills Co. Ltd. (supra) and held

that the observations made in Motilal Padampat Sugar

Mills Co. Ltd. (supra) were not in tune with the judgments

of Constitution Benches in the cases M. Ramanatha Pillai 50 (supra) and The Gwalior Rayon Silk Manufacturing

(WVG). Co. Ltd. Etc. (supra); and the judgment of a four-

Judge Bench of this Court in the case of Ram Kumar and

others (supra).

53. The judgment of this Court in the case of M/s Jit Ram

Shiv Kumar and others (supra) again fell for consideration

before a three-judge Bench of this Court in the case of

Godfrey Philips India Ltd. (supra), which is again

authored by Bhagwati, J. In the case of Godfrey Philips

India Ltd. (supra), the judgment of the learned three-Judge

Bench delivered through Bhagwati, J. holds that what has

been held by learned two judges in the case of Motilal

Padampat Sugar Mills Co. Ltd. has been correctly held so

and endorses the said judgment. The said judgment also

criticizes the view taken in M/s Jit Ram Shiv Kumar and

others (supra). Within a short period, the issue again

comes up for consideration before another three-judge

Bench in the case of Express Newspapers Pvt. Ltd. and

others (supra). A.P. Sen, J. speaking for the three-judge

51 Bench notes the conflict between the view taken by

Bhagwati, J. in Motilal Padampat Sugar Mills Co. Ltd.

(supra) and Kailasam, J in the case of M/s Jit Ram Shiv

Kumar and others (supra). It appears that since the

judgment was delivered within a fortnight from the date on

which Godfrey Philips India Ltd. (supra) was decided, this

Court in the case of Express Newspapers Pvt. Ltd. and

others (supra) did not notice the judgment in the case of

Godfrey Philips India Ltd. (supra). However, A.P. Sen, J

in Express Newspapers Pvt. Ltd. and others (supra) held

that it was not necessary for the purposes of the said

judgment to resolve the conflict between the decision of

Bhagwati, J. in the case of Motilal Padampat Sugar Mills

Co. Ltd. (supra) and Kailasam, J. in the case of M/s Jit

Ram Shiv Kumar and others (supra). It held that one of

the limitations on the principle of estoppel is that it does not

operate at the level of Government policy.

54. However, a common thread in all these judgments that

could be noticed is that all these judgments consistently

52 hold that there can be no estoppel against the legislature in

the exercise of its legislative functions. The Constitution

Bench in the case of M. Ramanatha Pillai (supra) has

approved the view in American Jurisprudence that the

doctrine of estoppel will not be applied against the State in

its governmental, public or sovereign capacity. It further

held that the only exception with regard to applicability of

the doctrine of estoppel is where it is necessary to prevent

fraud or manifest injustice. The analysis of all the

judgments of this Court on the issue would reveal that it is

a consistent view of this Court, reiterated again in Godfrey

Philips India Ltd. (supra), that there can be no promissory

estoppel against the legislature in the exercise of its

legislative functions.

55. Undisputedly, the Notification dated 18th July 2017

withdrawing the exemption notifications was issued in

pursuance of the statutory mandate as provided under

Section 174(2)(c) of the CGST Act. If the contention as

raised by the appellants is to be accepted, it would make the

53 provisions under the proviso to Section 174(2)(c) of the

CGST Act redundant and otiose. The legislature in its

wisdom has specifically incorporated the proviso to Section

174(2)(c) providing therein that any tax exemption granted

as an incentive against investment through a notification

shall not continue as privilege if the said notification is

rescinded. If the contention is accepted, it will amount to

enforcing a representation made in the said O.M. of 2003

and 2003 Notification contrary to the legislative

incorporation in the proviso to Section 174(2)(c) of the CGST

Act. In other words, it will permit an estoppel to be

operated against the legislative functions of the Parliament.

We are, therefore, of the considered view that the claim of

the appellants on estoppel is without merit and deserves to

be rejected.

56. It is further to be noted that this Court has also

consistently held that when an exemption granted earlier is

withdrawn by a subsequent notification based on a change

in policy, even in such cases, the doctrine of promissory

54 estoppel could not be invoked. It has been consistently held

that where the change of policy is in the larger public

interest, the State cannot be prevented from withdrawing an

incentive which it had granted through an earlier

notification. Reliance in this respect could be placed on the

judgments of this Court in the cases of Kasinka Trading

and another vs. Union of India and another29, Shrijee

Sales Corpn. vs. Union of India30, State of Rajasthan vs.

Mahaveer Oil Industries31, Shree Sidhbali Steels Ltd.

vs. State of U.P.32, and Director General of Foreign

Trade vs. Kanak Exports33

57. Recently, this Court, in the case of Unicorn

Industries (supra), after surveying the earlier judgments of

this Court on the issue has observed thus:

“26. It could thus be seen that, it is more than well settled that the exemption granted, even when the notification granting exemption prescribes a particular period till which it is available, can be withdrawn by the 29 (1995) 1 SCC 274 30 (1997) 3 SCC 398 31 (1999) 4 SCC 357 32 (2011) 3 SCC 193 33 (2016) 2 SCC 226

55 State, if it is found that such a withdrawal is in the public interest. In such a case, the larger public interest would outweigh the individual interest, if any. In such a case, even the doctrine of promissory estoppel would not come to the rescue of the persons claiming exemptions and compel the State not to resile from its promise, if the act of the State is found to be in public interest to do so.”

58. We are, therefore, of the considered view that even on

the ground of change of policy, which is in public interest or

in view of the change in the statutory regime itself on

account of the GST Act being introduced as in the instant

case, it will not be correct to hold the Union bound by the

representation made by it, i.e. by the said O.M. of 2003.

Further, this would be contrary to the statutory provisions

as enacted under Section 174(2)(c) of the CGST Act.

59. There is another reason which, in our view, could

disentitle the relief as was claimed by the appellants before

the High Courts. The appellants, in effect, are seeking a

writ of mandamus against the Union of India to reimburse

56 100% of CGST for the remainder of the period instead of

only 58%.

60. This Court in the case of The Bihar Eastern

Gangetic Fishermen Co-operative Society Ltd. (supra)

had an occasion to consider when a writ of mandamus

could be issued. This Court held that:

“15. …..There is abundant authority in favour of the proposition that a writ of mandamus can be granted only in a case where there is a statutory duty imposed upon the officer concerned and there is a failure on the part of that officer to discharge the statutory obligation. The chief function of a writ is to compel performance of public duties prescribed by statute and to keep subordinate tribunals and officers exercising public functions within the limit of their jurisdiction. It follows, therefore, that in order that mandamus may issue to compel the authorities to do something, it must be shown that there is a statute which imposes a legal duty and the aggrieved party has a legal right under the statute to enforce its performance. (See Lekhraj Satramdas Lalvani v. Deputy Custodian- cum-Managing Officer [AIR 1966 SC 334 :

(1966) 1 SCR 120 : (1966) 1 SCJ 24] , Rai Shivendra Bahadur Dr v. Governing Body of the Nalanda College [AIR 1962 SC 1210 : 1962 Supp 2 SCR 144 : (1962) 1

57 LLJ 247] and Umakant Saran Dr v. State of Bihar [(1973) 1 SCC 485 : AIR 1973 SC 964] ). In the instant case, it has not been shown by Respondent 1 that there is any statute or rule having the force of law which casts a duty on Respondents 2 to 4 which they failed to perform. All that is sought to be enforced is an obligation flowing from a contract which, as already indicated, is also not binding and enforceable. Accordingly, we are clearly of the opinion that Respondent 1 was not entitled to apply for grant of a writ of mandamus under Article 226 of the Constitution and the High Court was not competent to issue the same.” [emphasis supplied]

61. It can thus be seen that unless the appellants show

any statutory duty cast upon the respondent-Union of India

to grant them 100% refund, a writ of mandamus as sought

could not be issued. The position is reiterated by this Court

in the case of K.S. Jagannathan and another (supra) as

under:

“20. There is thus no doubt that the High Courts in India exercising their jurisdiction under Article 226 have the power to issue a writ of mandamus or a writ in the nature of mandamus or to pass orders and give necessary directions where the government or a public authority has failed to exercise or has

58 wrongly exercised the discretion conferred upon it by a statute or a rule or a policy decision of the government or has exercised such discretion mala fide or on irrelevant considerations or by ignoring the relevant considerations and materials or in such a manner as to frustrate the object of conferring such discretion or the policy for implementing which such discretion has been conferred. In all such cases and in any other fit and proper case a High Court can, in the exercise of its jurisdiction under Article 226, issue a writ of mandamus or a writ in the nature of mandamus or pass orders and give directions to compel the performance in a proper and lawful manner of the discretion conferred upon the government or a public authority, and in a proper case, in order to prevent injustice resulting to the concerned parties, the court may itself pass an order or give directions which the government or the public authority should have passed or given had it properly and lawfully exercised its discretion.”

62. It could thus be seen that this Court holds that a writ

of mandamus can be issued where the Authority has failed

to exercise the discretion vested in it or has exercised such

a discretion malafidely or on an irrelevant consideration.

59

63. This position was again reiterated by this Court

recently in the case of Bharat Forge Ltd. (supra) as

follows:

“18. Therefore, it is clear that a Writ of Mandamus or a direction, in the nature of a Writ of Mandamus, is not to be withheld, in the exercise of powers of Article 226 on any technicalities. This is subject only to the indispensable requirements being fulfilled. There must be a public duty. While the duty may, indeed, arise form a Statute ordinarily, the duty can be imposed by common charter, common law, custom or even contract. The fact that a duty may have to be unravelled and the mist around it cleared before its shape is unfolded may not relieve the Court of its duty to cull out a public 25 duty in a Statute or otherwise, if in substance, it exists. Equally, Mandamus would lie if the Authority, which had a discretion, fails to exercise it and prefers to act under dictation of another Authority. A Writ of Mandamus or a direction in the nature thereof had been given a very wide scope in the conditions prevailing in this country and it is to be issued wherever there is a public duty and there is a failure to perform and the courts will not be bound by technicalities and its chief concern should be to reach justice to the wronged. We are not dilating on or diluting other requirements, which

60 would ordinarily include the need for making a demand unless a demand is found to be futile in circumstances, which have already been catalogued in the earlier decisions of this Court.” [emphasis supplied]

64. Undoubtedly, in the present case, there is no duty cast

on the Union to refund 100% of CGST. As such, we find

that the relief as sought cannot be granted.

65. That leaves us with the judgments cited by Shri S.

Ganesh and Shri V. Sridharan, learned Senior Counsel.

66. Insofar as the judgment of this Court in the case of

Suprabhat Steel Ltd. (supra) is concerned, the question

that arose for consideration was whether the Notification

issued under Section 7 of the Bihar Finance Act by the

State Government to carry out the objectives and the policy

decisions taken in the industrial policy could be held to be

bad in law if it is in contravention of the industrial policy. In

the case of Tata Cummins Ltd. (supra), the question that

fell for consideration was whether a Notification that was

issued for implementation of the industrial policy of the

State could be construed strictly or liberally. In the case of

61 Lloyd Electric and Engineering Limited (supra), the

question was, as to whether the delay on the part of the

Excise and Taxation Department in issuing Notification

pursuant to the decision taken by the Council of Ministers

could deny the benefit of Notification to the entities which

were entitled thereto.

67. Insofar as the judgment of this Court in the case of

MRF Ltd., Kottayam (supra) is concerned, this Court, in

the facts of the said case, specifically came to a finding that

the decision to deprive MRF of the benefit of exemption for

more than 5 years out of a total period of 7 years was highly

arbitrary, unjust and unreasonable. In the case of

Manuelsons Hotels Private Limited (supra), perusal of the

impugned judgment therein would reveal that the provision

on which Manuelsons Hotels Private Limited was claiming

benefit under was deleted with effect from the 1 st of March

1993. This Court, therefore, made it clear that the benefit

would only be available during the period when the said

statutory provision existed in the statute book, i.e., from 6 th

62 November 1990 to 1st March 1993. This Court, therefore,

clearly rejected the claim of benefit from the date on which

the statutory provision was deleted from the statute book.

68. In the case of Nestle India Ltd. (supra), the

respondent milk producers did not pay the purchase tax for

the period between 1st April 1996 and 4th June 1997 since

the Government had decided to abolish purchase tax for the

said period. For the rest of the period, the tax was paid.

The State had attempted to recover the purchase tax

retrospectively for the aforesaid period. In this background,

the claim of the respondents therein before this Court was

found to be meritorious.

69. Insofar as the reliance placed by Shri V. Sridharan,

learned Senior Counsel, on the judgment of this Court in

the case of Video Electronics Pvt. Ltd. (supra) is

concerned, the question was as to whether the State was

empowered to grant sales tax exemption to a class of goods.

It was held that the classification was permissible, provided

that it was not vitiated by colourable exercise of power or

63 abuse. As such, the said judgment would not be applicable

to the facts of the present case.

70. It could thus be seen that in none of the aforesaid

cases, the issue as to whether, on account of change in the

law, the State was bound to stand by its representation

made under the earlier law even when the change in law

does not permit it to do so, fell for consideration. As against

this, this Court, in a catena of judgments, including two

Constitution Bench judgments, a four-Judge Bench

judgment and various judgments of learned three judges,

have consistently held that promissory estoppel would not

apply against the exercise of legislative powers of the State.

As such, none of the judgments cited, in our view, would be

of any assistance to the cases of the appellants.

71. Insofar as the contention of Shri S. Ganesh, learned

Senior Counsel, that the Union should have issued

exemption notification as provided under Section 11 of the

CGST Act is concerned, we find that under the said

provision, a discretion is vested in the Central Government,

64 which is to be exercised on the recommendations of the GST

Council. A writ of mandamus cannot be issued to the

Central Government to exercise power under Section 11 of

the CGST Act in a particular manner. In any case, it is a

matter of policy which has to be determined by the

Union/State while taking a decision as to whether it should

grant exemption from payment of CGST or make a

budgetary allocation for refund of the tax paid. In any case,

such power can be exercised by the Central Government

only on the recommendations of the GST Council. As

already discussed herein above, the Central Government

was not bound to continue with a representation made by it

in 2003 in view of the change of law by the enactment of the

CGST Act. However, in order to partly honour the

representation made by it, it has decided to refund 58% of

the CGST paid by the entities. It is more than settled that

this Court cannot interfere in policy matters of the

Government unless such policy is found to be palpably

arbitrary and irrational. In that view of the matter, we do

65 not find that the claim made on the basis of Section 11 of

the CGST Act is of any substance.

72. Though we have held that the appellants’ claim based

on promissory estoppel is without substance, we find that

this is not a case wherein it can be said that the appellants’

claim is wholly without any substance.

73. The appellants have established their industrial units

based on the industrial policy as reflected in the said O.M.

of 2003. The policy of the year 2003, in question, was

based on the statement made by the Hon’ble Prime Minister

during his visit to Uttarakhand. As such, the policy was

framed to bring into effect the statement made by the

highest executive functionary of the country. Relying on the

said policy, the appellants have established their units.

Though the appellants may not have a claim in law, we find

that they do have a legitimate expectation that their claim

deserves due consideration.

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74. It will be relevant to refer to the minutes of the meeting

of the GST Council dated 30th September 2016, which read

thus:

“25. The Secretary to the Council explained that the Central and State governments had given various incentives of Central Excise and Value Added Tax (VAT) and Central Sales Tax (CST). He pointed out that in the GST regime, such incentives could not be continued as supplies would need to be made on payment of tax in order to permit flow of tax to the destination state. Therefore, a decision would need to be arrived at regarding the treatment of such tax incentive schemes under the GST regime. He observed that one option could be to ‘grandfather’ such schemes and provide for a budgetary apportionment in the State and the Central budgets for reimbursing the tax paid to those units which enjoyed tax exemption up to a specified period.

However, while ‘grandfathering’ any such scheme, it would need to be kept in mind that unlike VAT and the CST which were origin-based taxes, GST was a destination-based tax and an unconditional reimbursement scheme could lead to double outflow for the origin-state – one by way of transfer of tax to the destination State and the other by way of reimbursement to the supplier. Therefore, the States would need to be careful while devising any

67 reimbursement scheme and care could be taken that such reimbursement was limited for supplies made within the State.

26. The Hon’ble Deputy Chief Minister of Gujarat alluded to examine possible legal complications. The Secretary to the Council pointed out that the agenda note contained certain judgments of the Hon’ble Supreme Court as per which the principle of promissory estoppel would not apply in a case where there was a supervening public equity.”

75. It could thus be seen that the GST Council has noticed

that the Central and State Governments had given various

incentives of Central Excise and Value Added Tax (VAT) and

Central Sales Tax (CST) so as to encourage investment in

those States. It also took notice of the fact that such

incentives could not be continued as supplies would need to

be made on payment of tax to permit flow of tax to the

destination state. The solution that was suggested was to

provide for budgetary apportionment in the State and the

Central budgets for reimbursing the tax paid to those units

which enjoyed tax exemption up to a specified period.

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76. It will be further relevant to note the concerns

expressed by the State of Uttarakhand and the State of

Jammu & Kashmir in the said meeting, which are as under:

“28. The Hon’ble Minister from Uttarakhand stated that the Government of India had given an area-based exemption for 10 years and that such exemptions were to continue upto 2020.

She observed that the Centre must reimburse such units for the Central taxes as jobs of more than one lakh workers were at stake. The Hon’ble Minister from Jammu and Kashmir stated that his State was in a similar situation as Uttarakhand. The Chairperson observed that once incentive schemes were withdrawn, the taxes paid would be accounted for in the Consolidated Fund of India and 42% of the amount would be devolved to the States. The Centre, therefore, could be expected to only reimburse the units out of the remaining 58% of the fund which was not part of the devolution and the States would also need to correspondingly reimburse such units out of the share of revenue received through devolution.”

77. It can thus be seen that the Hon’ble Minister from

Uttarakhand had stated that the Government of India had

given an area-based exemption for 10 years and that such

69 exemptions were to continue up to 2020. She was of the

view that the Centre must reimburse such units for the

Central taxes as jobs of more than one lakh workers were at

stake. The Hon’ble Minister from Jammu & Kashmir had

also supported the view of the Hon’ble Minister from

Uttarakhand. However, the Chairperson of the GST

Council, i.e. the Hon’ble Finance Minister of the Union of

India, stated that the Centre would only reimburse the units

to the extent of 58%. He also expressed that the State

would also need to correspondingly reimburse such units

out of the share of revenue received through devolution.

Accordingly, the following resolution was passed in the said

meeting by the GST Council:

“29. The Council approved the following-

(i) All entities exempted from payment of indirect tax under any existing tax incentive scheme shall pay tax in the GST regime.

(ii) The decision to continue with any incentive given to specific industries in existing industrial policies of States or through any schemes of the Central

70 Government, shall be with the concerned State or Central Government.

(iii) In case the State or Central Government decides to continue any existing exemption/incentive/deferral scheme, then it shall be administered by way of a reimbursement mechanism through the budgetary route, the modalities for which shall be worked out by the concerned State/Centre.”

78. We, therefore, find that in the deliberations of the GST

Council itself, it was observed that the States also need to

correspondingly reimburse the industrial units which were

entitled to exemption under any existing incentive scheme,

out of the share of revenue received through devolution,

which, as per the Finance Commission, stands at 42%. As

a matter of fact, the State of Jammu & Kashmir has issued

a notification dated 21st December 2017 thereby resolving to

reimburse the remaining 42% of the CGST of the Union.

This is limited until the period the Union Scheme is valid.

79. It is further to be noted that the GST Council is a

constitutional body. It has powers to make

recommendations on wide-ranging issues concerning GST,

71 including grant of exemptions from the GST. It also has

power to make recommendations with regard to special

provisions governing North Eastern and Himalayan States.

Taking into consideration that the units like the appellants

have been established in the Himalayan and North-Eastern

States based on the said O.M. of 2003 and that lakhs of

persons are employed in such industries, we are of the view

that it will be appropriate that such States should also

consider to correspondingly reimburse such units out of the

share of revenue received by them through devolution from

the Central Government. We further find that it will also be

appropriate that the GST Council considers making

appropriate recommendations to the States in that regard.

80. We, therefore, permit the appellants to make

representations to the respective State Governments as well

as to the GST Council. We also request the State

Governments and the GST Council to consider such

representations, if made, in accordance with what has been

observed herein above in an expeditious manner.

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81. In the result, the appeals are dismissed, save and

except the observations made in paragraphs 72 to 80

hereinabove.

82. Pending applications, if any, shall stand disposed of.

83. In the facts and circumstances of the case, there shall

be no order as to costs.

..............................J. [B.R. GAVAI]

.............................J. [ B.V. NAGARATHNA]

NEW DELHI;

OCTOBER 17, 2022

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