M/S.K.B.Tea Product Pvt.Ltd. vs Commercial Tax Officer,Siliguri .

CIVIL APPEAL NO. 2297 OF 2011

M/s. K.B. Tea Product Pvt. Ltd. & Anr. …Appellants

Versus

Commercial Tax Officer, Siliguri & Ors. …Respondents

WITH

CIVIL APPEAL NO. 2301 OF 2011

CIVIL APPEAL NO. 2305 OF 2011

CIVIL APPEAL NO. 2298 OF 2011

CIVIL APPEAL NO. 2300 OF 2011

CIVIL APPEAL NO. 2299 OF 2011

CIVIL APPEAL NO. 2302 OF 2011

CIVIL APPEAL NO. 2303 OF 2011

CIVIL APPEAL NO. 2304 OF 2011 Signature Not Verified

Digitally signed by Neetu Sachdeva Date: 2023.05.12 15:47:39 IST Reason:

CIVIL APPEAL NO. 2297 OF 2011 Page 1 of 65 JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Calcutta at Calcutta in respective writ petitions by which the Division Bench of the High Court has dismissed the said writ petitions preferred by the appellants herein – original writ petitioners, the original writ petitioners have preferred the present appeals.

2. As common question of law and facts arise in this set of appeals, all these appeals are being decided and disposed of together by this common judgment and order. For the sake of convenience, Civil Appeal No. 2297 of 2011 arising out of impugned judgment and order passed by the High Court in Writ Petition No. 479 of 2006 be treated as the lead matter. The facts leading to the present appeal in nutshell are as under:-

2.1 That Section 2(dd) of the erstwhile Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as “Act, 1941”) defined the term “manufacture” and “blending of any goods” was included within the said definition. That

CIVIL APPEAL NO. 2297 OF 2011 Page 2 of 65 the Act, 1941 came to be replaced by the West Bengal Sales Tax Act, 1994 (hereinafter referred to as the “Act, 1994”) and in the month of April, 1998, the definition of “manufacture” provided under section 2(17) of the Act, 1994 was amended and as a result of which, "blending of any goods" was omitted from the definition of “manufacture” but “blending of tea” continued to be included in the said definition.

2.2 By virtue of the amendment made in the definition of “manufacture” provided under section 2(17) of the Act, 1994, tax holiday was granted to new small scale industrial units for a specified period under section 39 of the Act, 1994 read with section 17(3)(a)(xi) of the Act, 1994 with Rule 52 of the West Bengal Sales Tax Rules, 1995 (hereinafter referred to as “Rules, 1995”).

2.3 Subsequently, the State Scheme of Incentives for Cottage and Small-Scale Industries, 1993 (1993 Scheme) was amended by the Governor of West Bengal in the year 1999, thereby, implementing the West Bengal Incentive Scheme, 1999 (hereinafter referred to as “1999 Scheme”), effective for a period of five years, i.e., from 01.04.1999 till 31.03.2004, for the purpose of providing incentives and

CIVIL APPEAL NO. 2297 OF 2011 Page 3 of 65 promotion of the large, medium and small-scale industrial units in the State of West Bengal.

2.4 As per the provisions of the 1999 Scheme, the new industrial units which were established after complying with all the requirements provided under the 1999 Scheme were given an exemption from payment of sales tax for a specified period upon the purchase of raw materials required for carrying the manufacturing activity in said units.

2.5 It is the case on behalf of the appellants that relying upon the said Scheme and the amendment made in the definition of “manufacture” under section 2(17) of the Act, 1994, at the relevant time, the appellants had set up a new small scale industrial unit for the purpose of carrying on the business of manufacturing blended tea.

2.6 As per the provisions of the 1999 Scheme, the small-scale industrial units to claim exemption from payment of sales tax, were required to get themselves registered as small-scale industrial unit and obtain an eligibility certificate from the Sales Tax Department as per Section 39 read with Rule 55 of the Rules, 1995. The Deputy Commissioner granted the eligibility certificate to the appellants for a period of seven years from the date of

CIVIL APPEAL NO. 2297 OF 2011 Page 4 of 65 first sale of the manufactured product. The appellants enjoyed the benefit of exemption from payment of sales tax as provided under Section 2(17) and Section 39 of the Act, 1994 for a period of two years till Section 2(17) came to be amended by the West Bengal Finance Act, 2001. Section 2(17) of the Act, 1994 came to be amended by the West Bengal Finance Act, 2001 w.e.f. 01.08.2001, whereby the words “blending of tea” were omitted from the definition of “manufacture” provided under section 2(17) of the Act,1994. Consequently, the exemption from payment of sales tax, which was granted to the appellants came to be stopped and even the eligibility certificate was required to be modified.

2.7 The aforesaid action / order was challenged before the Tribunal first and thereafter before the High Court. The Tribunal dismissed the application, which has been confirmed by the High Court by the impugned judgment and order. The impugned judgment and order passed by the High Court is the subject matter of present appeals, claiming the exemption from payment of sale tax as per earlier 1999 Scheme.

3. Ms. Kavita Jha, learned counsel has appeared on behalf of the appellants and Ms. Madhumita

CIVIL APPEAL NO. 2297 OF 2011 Page 5 of 65 Bhattacharjee, learned counsel has appeared on behalf of the respondents - State.

4. Learned counsel appearing on behalf of the appellants had made the following submissions:-

4.1 That the appellants had been allured by the State of West Bengal Government to set up new industrial unit in expectation of getting benefit of tax for a period on fulfilment of certain requirements and once on the basis of such requirements such industrial unit is given such benefit, subsequently, by way of amendment such right cannot be taken away.

4.2 That the State authority has in a blanket manner simply removed the word “blending of tea” from the definition of “manufacture” under Section 2(17) of the Act, 1994 without taking into account the fact that the appellants had received eligibility certificate for a period of seven years and had already availed the benefit of the scheme for a particular period. The appellants’ rights were crystalised from the day eligibility certificate had been granted under the Act, 1994 and the only justifiable manner in which the State could have rescinded this benefit was to show overarching public interest. In the

CIVIL APPEAL NO. 2297 OF 2011 Page 6 of 65 present case as well, no overarching public interest has been demonstrated by the respondents in order to justify the amendment made to Section 2(17).

4.3 That the doctrine of legitimate expectation can be invoked where the amendment under the provision of law is not made in consonance with public interest. It is submitted that in the present case, the respondents have failed to showcase any public interest in rescinding the benefits.

4.4 It is submitted that since in this case, the appellants were denied benefit on account of amendment made in the definition of “manufacture” under Section 2(17) of the Act, 1994 which is an arbitrary move by the State without showing any accompanying public interest involved. Therefore, any decision taken in an arbitrary manner contradicts the principle of legitimate expectation, if taken without specifically showing the public interest involved in the matter.

4.5 It is submitted that the State action in this case, fails to meet the test of reason and relevance, as no explanation has been given by the State for rescinding the benefits.

CIVIL APPEAL NO. 2297 OF 2011 Page 7 of 65 4.6 It is further submitted that the appellants had altered their position to avail the benefit under the Scheme and incurred additional cost such of almost Rs. 18,12,967/- and procured loan for almost Rs. 65,00,000/- in the K.B. Tea Products Pvt. Ltd. and since, the appellants had made substantial expenses for availing the benefits under the Scheme, the State cannot take away such benefits unless some overriding public interest is involved. The said act done by the State is unfair and abuse of power against the appellants. Reliance is placed on the following decisions: Manuelsons Hotels Private Limited Vs. State of Kerala & Ors., (2016) 6 SCC 766; MRF Ltd., Kottayam Vs. Assistant Commissioner (Assessment) Sales Tax & Ors., (2006) 8 SCC 702 and Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh & Ors., (1979) 2 SCC 409.

4.7 Learned counsel appearing on behalf of the appellants has also relied upon the decision of this Court in the case of State of Jharkhand & Ors. Vs. Brahmputra Metallics Ltd., Ranchi & Anr. [Civil Appeal Nos. 3860-3862 of 2020] and in the case of Dai-ichi Karkaria Ltd. Vs. Union of India & Ors., (2000) 4 SCC

CIVIL APPEAL NO. 2297 OF 2011 Page 8 of 65 57 in support of the submission on the legitimate expectation.

4.8 Making above submissions and relying upon the above decisions, it is prayed to allow the present appeals.

5. Learned counsel appearing on behalf of the State while opposing the present appeals has vehemently submitted that in the facts and circumstances of the case, the appellants shall not be entitled to the exemption as claimed.

5.1 It is submitted that in the year 1999, the appellants were granted a certificate of eligibility for Tax Holiday under Section 39 of the Act, 1994 for a period of seven years from the date of first sale of the manufactured product, i.e., 18.05.1999, since at that point of time the definition of “manufacture” in Section 2(17) of the Act, 1994 included 'blending of tea'.

5.2 It is submitted that subsequently, the definition of “manufacture” under Section 2(17) of the Act, 1994 came to be amended by the West Bengal Finance Act, 2001 and “blending of tea” came to be omitted from the definition w.e.f. 01.08.2001. It is submitted that therefore, the appellant company ceased to be a manufacturer

CIVIL APPEAL NO. 2297 OF 2011 Page 9 of 65 under the Act, 1994 and, therefore, was ineligible to avail the benefit under Section 39 of the Act, 1994. It is submitted that therefore, the Commercial Tax Officer, Siliguri Charge sought to amend the Registration Certificate of the appellant company in terms of the amendment.

5.3 It is submitted that earlier the exemption was granted to the small-scale industrial units engaged in manufacturing activities. It is submitted that at the relevant time, pre-01.08.2001, and as per Section 2(17) of the Act, 1994, “blending of tea” was included in the definition of “manufacture”. It is submitted that therefore, being manufacturers, the appellants were allowed the exemption. It is submitted that however, thereafter, in view of the amendment to Section 2(17) of the Act, 1994 w.e.f. 01.08.2001, “blending of tea” was excluded from the definition of “manufacture” and, therefore, the appellants ceased to be the manufacturers. It is submitted that once the appellants ceased to be the manufacturers, the appellants shall not be entitled to the exemption as the exemption was available only to the small-scale industrial units engaged in manufacturing activities and to manufacturer under the Act, 1994.

CIVIL APPEAL NO. 2297 OF 2011 Page 10 of 65 5.4 It is submitted that when the legislature in its wisdom, excluded “tea blending” from the definition of “manufacture”, therefore, “tea blending” cannot be regarded as a manufacturing activity entitled to enjoy exemption as provided by Section 39 of the Act, 1994. It is submitted that the submission on behalf of the appellants on legitimate expectation and that by amending Section 2(17) “vested right” in favour of the appellants could not have been taken away, has no substance.

5.5 It is submitted that as rightly observed and held by the High Court, this is not a case of “vested right” but a case of “existing right”. It is submitted that therefore, the existing right can be taken away. It is submitted that there cannot be any legitimate expectation against a statute.

5.6 It is further submitted that to grant the exemption or not is a policy decision and nobody can claim the exemption as a matter of right. It is submitted that therefore, both the learned Tribunal as well as the High Court have rightly refused to grant the appellants any exemption from payment of sales tax which the appellants

CIVIL APPEAL NO. 2297 OF 2011 Page 11 of 65 were being granted prior to 01.08.2001 being the manufacturers of “tea blending”.

5.7 It is further submitted that this is not the case of retrospective operation, but it is a case of prospective withdrawal of an existing continuing right to get exemption of sales tax. It is submitted that when the legislature in its wisdom amended the definition of “manufacture” contained in Section 2(17) and the “tea blending” came to be excluded from the definition of “manufacture” and which resulted in withdrawing the exemption, which the appellants were availing prior to 01.08.2001 as manufacturer, being a policy decision, the same is not subject to judicial review. Reliance is placed on the decision of this Court in the case of Directorate of Film Festivals & Ors. Vs. Gaurav Ashwin Jain & Ors., (2007) 4 SCC 737.

5.8 Making above submissions, it is prayed to dismiss the present appeals.

6. Heard the learned counsel for the respective parties at length.

CIVIL APPEAL NO. 2297 OF 2011 Page 12 of 65 7. The short question, which is posed for the consideration of this Court is: “Whether despite Section 2(17) of the West Bengal Sales Tax Act, 1994 which came to be amended w.e.f. 01.08.2001 vide West Bengal Finance Act, 2001, omitting “tea blending” from the definition of “manufacture”, still the appellants shall be entitled to the exemption from payment of sales tax?

8. The main submission on behalf of the appellants is that as prior to 01.08.2001, the appellants were availing the benefit of sales tax exemption, the said right could not have been taken away by virtue of amendment to Section 2(17) of the Act, 1994 on the ground of legitimate expectation as well as by promissory estoppel. Thus, it is the case on behalf of the appellants that as on 01.08.2001, under the Act, 1994, when Section 2(17) of the Act, 1994 came to be amended, the appellants had a “vested right” and therefore, the amendment to Section 2(17) of the Act, 1994 shall not affect such “vested right” of exemption from payment of sales tax, which the appellants were availing prior to 01.08.2001.

8.1 However, it is required to be noted that this is a case of claiming exemption from payment of sales tax. As per

CIVIL APPEAL NO. 2297 OF 2011 Page 13 of 65 the settled position of law, nobody can claim the exemption as a matter of right. The exemption is always on the fulfilment of the conditions for availing the exemption and the same can be withdrawn by the State. To grant the exemption and/or to continue and/or withdraw the exemption is always within the domain of the State Government and it falls within the policy decision and as per the settled position of law, unless withdrawal is found to be so arbitrary, the Court would be reluctant to interfere with such a policy decision.

8.2 In the present case, prior to 2001, as per Section 2(17) of the Act, 1994, the activity of “tea blending” was included in the definition of “manufacture”. Therefore, being in the activity of “tea blending”, the appellants were entitled to the exemption from payment of sales tax as manufacturers. It cannot be disputed that being the manufacturer in the activity of “tea blending” the appellants would have always been entitled to the exemption from payment of sales tax. Being a manufacturer, being in the activity of “tea blending”, the appellants were availing the sales tax exemption. However, thereafter, the definition of “manufacture” as contained in Section 2(17) of the Act, 1994 came to be amended w.e.f. 01.08.2001 vide West Bengal Finance

CIVIL APPEAL NO. 2297 OF 2011 Page 14 of 65 Act, 2001 and the activity of “tea blending” came to be excluded from the definition of “manufacture”. Consequently, the appellants ceased to be the manufacturers. Once the appellants ceased to be the manufacturers, the appellants shall not be entitled to the exemption from the payment of sales tax, which was available to the appellants as a manufacturer being in the activity of “tea blending”. Therefore, on and from 01.08.2001, “tea blending” activity ceased to be the manufacturing activity and the appellants ceased to be the manufacturers and therefore, on and from 01.08.2001, the appellants shall not be entitled to the exemption from payment of sales tax. Thus, the withdrawal of exemption from payment of sales tax would be prospective and not retrospective. So long as the appellants continue to be the manufacturers as per Section 2(17) of the Act, 1994 prevailing prior to 01.08.2001, the appellants can be said to be entitled to the benefit of exemption from payment of sales tax as manufacturers being in the activity of “tea blending”. The moment, “tea blending” activity ceases to be the manufacturing activity, on and from that day, the appellants shall not be entitled to the exemption from payment of sales tax.

CIVIL APPEAL NO. 2297 OF 2011 Page 15 of 65 8.3 Now, so far as the submission on behalf of the appellants on legitimate expectation and/or promissory estoppel and the submission on behalf of the appellants that the “vested right” cannot be taken away is concerned, the aforesaid has no substance. There cannot be any promissory estoppel against the statute as per the settled position of law. As rightly observed and held by the High Court, this is not a case of “vested right” but a case of “existing right”, which can be varied or modified and/or withdrawn. In the present case, as per amendment in the definition contained in Section 2(17) of the Act, 1994 w.e.f. 01.08.2001 by which “tea blending” activity is excluded from the definition of “manufacture” and therefore, on and from that day itself, the appellants ceased to be the manufacturers and shall not be entitled to the benefit of exemption from payment of sales tax as was available to them as manufacturers.

8.4 At this stage, it is also required to be noted that as per Section 39 of the Act, 1994, under which the appellants are claiming the exemption from payment of sales tax, no tax shall be payable by a dealer for such period as may be prescribed in respect of his sales – goods manufactured by him. Therefore, the word

CIVIL APPEAL NO. 2297 OF 2011 Page 16 of 65 “manufacture” is very relevant and is a condition sine qua non to be satisfied. Therefore, the definition of “manufacture” is really relevant. Therefore, if a dealer ceased to be the manufacturer, he shall not be entitled to the benefit of exemption under Section 39. The relevant portion of Section 39 reads as under:- “39. Tax holiday for new small-scale industrial units- (1) Subject to such conditions and restrictions as may be prescribed, no tax shall be payable by a dealer for such period as may be prescribed in respect of his sales of goods manufactured by him in his newly set up small-scale industrial unit situated in the prescribed area, and in calculating his taxable turnover of sales under sub-section (3) of section 17, that part of his gross turnover of sales which represents the turnover of sales of such goods shall be deducted from his gross turnover of sales under sub-clause (viii) of clause (a) of sub- section (3) of that section.

XXXXXXXXXXXXXXXX”

8.5 Under the circumstances, the decisions relied on behalf of the appellants referred to hereinabove, shall not be applicable to the facts of the case on hand.

CIVIL APPEAL NO. 2297 OF 2011 Page 17 of 65 9. In view of the above and for the reasons stated above, I am in complete agreement with the view taken by the learned Tribunal as well as the High Court that on and after 01.08.2001 and in view of the amendment to Section 2(17) of the Act, 1994, by which the definition of “manufacture” is amended and “tea blending” is excluded from the definition of “manufacture”, the appellants shall not be entitled to the exemption from payment of sales tax. Under the circumstances, all these appeals fail and the same deserve to be dismissed and are accordingly dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.

………………………………….J. [M.R. SHAH]

NEW DELHI; MAY12, 2023.

CIVIL APPEAL NO. 2297 OF 2011 Page 18 of 65 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2297 OF 2011

M/S K.B. TEA PRODUCT PVT. LTD. & ANR. ... APPELLANT(S)

VERSUS

COMMERCIAL TAX OFFICER, SILIGURI & ORS. ... RESPONDENT(S)

With

Civil Appeal No. 2301 of 2011

Civil Appeal No. 2305 of 2011

Civil Appeal No. 2298 of 2011

Civil Appeal No. 2300 of 2011

Civil Appeal No. 2299 of 2011

Civil Appeal No. 2302 of 2011

Civil Appeal No. 2303 of 2011

CIVIL APPEAL NO. 2297 OF 2011 Page 19 of 65 Civil Appeal No. 2304 of 2011

JUDGMENT

KRISHNA MURARI, J.

1. I have had the advantage of reading the judgment

proposed by my esteemed brother, Hon’ble Mr. Justice

M.R. Shah. However, I am unable to agree with the

reasoning as well as the result arrived at by my esteemed

brother, and thus separately pen down my conclusion.

2. In brief, Section 2(dd) of the erstwhile Bengal Finance

(Sales Tax) Act, 1941 defined the term “manufacture”,

under the definition of which, “blending of any goods” was

also included. The said act was then replaced by the West

Bengal Sales Tax Act, 1994, under which, the definition of

“manufacture” was changed, and the term “blending of

CIVIL APPEAL NO. 2297 OF 2011 Page 20 of 65 any goods” was omitted, however, “blending of tea” was

still included under the definition of “manufacture”.

Further, by virtue of the said amendment, a tax holiday

was granted to new small scale industrial units for a

specified period.

3. Subsequent to the amendments, the State scheme of

Incentives for Cottage and Small-Scale Industries, 1993 was

amended, for the purpose of providing incentives and

promotion of large, medium and small scale industrial

units.

4. Subsequent to this tax holiday being granted, and on

the basis of such tax holiday, the Appellants herein set up

small-scale industrial units for the purpose of carrying on

the business of manufacturing blended tea. After the

setting up of the unit by the appellants, by way of an

CIVIL APPEAL NO. 2297 OF 2011 Page 21 of 65 amendment, the term “blending of tea” was omitted from

the definition of “manufacture”, leading to the appellant’s

exclusion from claiming the said tax holiday. It is against

this exclusion and omission that the appellants have filed

the present batch of civil appeals.

5. A detailed factual matrix of the present case at hand

has been rendered by my esteemed brother in his opinion,

and for the sake of brevity, I am not replicating the same

herein.

ANALYSIS

6. Learned counsel appearing on behalf of both the

parties were heard in great detail.

7. Through the present batch of civil appeals, two

substantial questions of law have been raised, and for a

CIVIL APPEAL NO. 2297 OF 2011 Page 22 of 65 ready reference, the two issues are being mentioned

hereunder:

I. Whether the appellants herein have a

vested right in claiming exemption from

payment of sales tax under the Act, since the

vested right was accrued upon the appellants

before the amendment was made under

Section 2(170) of the Act?

II. Whether the doctrine of legitimate

expectation is applicable in the present case

since the appellants had set up their industrial

units on the basis of the allurement of a tax

holiday granted by the Government?

8. I am in agreement with the conclusion

arrived at by my esteemed brother on the first

CIVIL APPEAL NO. 2297 OF 2011 Page 23 of 65 issue, and hence, my dissent is limited only to

the second question posed before this Court.

RULE OF LAW

9. The doctrine of rule of law, as an ideal, denotes

that a state must be governed, not by men, but by

law. This concept finds its origins in the work of

Aristotle, where he remarks that in a state that

functions on the principles of justice and equality,

rule of law must be supreme, and the state as an

institution must not be subject to the whims and

fancies of its ruler.

10. While the origins of rule of law date back to ancient

Greece, the modern conception of rule of law, which is the

bedrock for most democratic constitutions across the

CIVIL APPEAL NO. 2297 OF 2011 Page 24 of 65 world, finds its roots in the book “The Law of the

Constitution” authored by professor A.V. Dicey.

11. Professor Dicey, in his conception of the doctrine of

rule of law, while echoing the thoughts of Aristotle, states

that all individuals and entities must be subject to law, and

that no one, not even the government or its officials, are

above the law. For such a functioning of the law, Dicey

points out that the law must be clear, unambiguous, and

must apply to all equally. To further such a conception and

bring clarity on the same, Professor Dicey elucidated on

three principles that characterize a smooth application of

the law.

12. The first principle, which is most relevant to the

context of the present case, is the ideal that the law is

supreme, and no entity can be above it. A reading of this

CIVIL APPEAL NO. 2297 OF 2011 Page 25 of 65 principle would also mean that for law to be supreme, it

must be applicable to all, it cannot be arbitrary, and nor

can it take away anything conferred by it in an arbitrary

manner. In simpler terms, for law to be supreme, it must

be clear, and it must stay true to itself, without falling prey

to other powers inside or outside of it.

13. This principle of rule of law, in the context of our

nation, has found refuge within the basic structure of our

constitution. In the case of Sub-Committee on Judicial

Accountability vs. Union Of India and Ors. 1, while

expounding on the importance of the independence of the

judiciary, a Constitution Bench of this Court held that rule

of law is a part of the basic structure of the constitution of

India, the relevant observations made in this regard are as

under:

1 (1991) 4 SCC 699

CIVIL APPEAL NO. 2297 OF 2011 Page 26 of 65 “Before we discuss the merits of the arguments it is necessary to take a conspectus of the constitutional provisions concerning the judiciary and its independence. In interpreting the constitutional provisions in this area the Court should adopt a construction which strengthens the foundational features and the basic structure of the Constitution. Rule of law is a basic feature of the Constitution which permeates the whole of the constitutional fabric and is an integral part of the constitutional structure.”

14. It is from this principle of rule of law, does the

doctrine of legitimate expectation flow. The doctrine of

legitimate expectation, as described in detail below, is

closely linked with, and is essential for the functioning of

the rule of law. This is because both, the rule of law and

legitimate expectation form the bedrock for fairness and

predictability of the legal system. The doctrine of rule of

law ensures that laws are applied equally and consistently,

while the doctrine of legitimate expectation ensures that

CIVIL APPEAL NO. 2297 OF 2011 Page 27 of 65 public authorities act reasonably and consistently in their

decision-making processes. Together, these principles

promote transparency and accountability in government

actions, and they help to maintain the trust of the people

in the legal system.

DOCTRINE OF LEGITIMATE EXPECTATION

15. The doctrine of legitimate expectation, in simple

terms, is a legal principle that arises when a public

authority makes a promise or acts in a manner that leads

an individual or a group to expect a particular outcome.

This doctrine , which flows from the doctrine of rule of law,

is based on the idea of fairness and consistency in the

decision-making processes of public authorities.

CIVIL APPEAL NO. 2297 OF 2011 Page 28 of 65

16. When a legitimate expectation of a specific outcome

is created by a public authority, the said public authority is

required to take into account such expectation created by it

when making a decision that affects the interests of the

individual or group concerned. If the public authority fails

to do so, the individual or group has a right to challenge the

decision and seek a remedy, such as an order to enforce the

legitimate expectation, as is the situation in the case at

hand.

17. In Halsbury's Laws of England, Fourth Edition,

Volume I(I) 151,the concept of legitimate expectation has

been elucidated on, and for the sake of convenience, the

same is being extracted herein:

Legitimate expectations. A person may have a legitimate expectation of being treated in a certain way but an administrative authority even though he has no legal right in private law to

CIVIL APPEAL NO. 2297 OF 2011 Page 29 of 65 receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice. The existence of a legitimate expectation may have a number of different consequences; it may give locus standi to seek leave to apply for judicial review; it may mean that the authority ought not to act so as to defeat the expectation without some overriding reason of public policy to justify its doing so; or it may mean that, if the authority proposes to defeat a person's legitimate expectation, it must afford" him an opportunity to make representations on the matter. The Courts also distinguish, for example in licensing cases, between original applications, applications to renew and revocations; a party who has been granted a licence may have a legitimate expectation that it will be renewed unless there is some good reason not to do so, and may therefore be entitled to greater procedural protection than a mere applicant for a grant.

18. The Courts of United Kingdom, while conceptualizing

the doctrine of legitimate expectation, have adopted other

CIVIL APPEAL NO. 2297 OF 2011 Page 30 of 65 key aspects of judicial review such as Wednesbury

unreasonableness in the case of R vs. Inland Revenue

Commissioners, exparte M.F.K. Underwirting Agents

Limited2 and abuse of power in the case of R. (Bancoult)

vs. Secretary of State for Foreign and Commonwealth

Affairs)3 to justify the existence and the protection of

legitimate expectations.

19. The term legitimate expectation was first used in the

case of Schmidt v Secretary of State for Home Affairs 4 by

the UK Courts. The doctrine however, was not applied to

the facts therein. Subsequently, in the case of O'Reilly v

Mackman5, the doctrine of legitimate expectation was

recognized as a ground for judicial review, allowing

2 [1982] AC 617

3 [1990] 1 WLR 1545

4 [1969] 2 WLR 337

5 [1983] 2 AC 237

CIVIL APPEAL NO. 2297 OF 2011 Page 31 of 65 individuals to challenge the legality of decisions on the

grounds that the decision-maker "had acted out with the

powers conferred upon it".

20. Further in the cases of Council of Civil Service Unions

v Minister for the Civil Service6 and R v North and East

Devon Health Authority, ex parte Coughlan7, the

boundaries of the doctrine were further elaborated upon.

Notwithstanding efforts of the Courts, some ambiguity as

to when legitimate expectations arise persisted, and in

response, Lord Justice of Appeal, John Laws proposed the

aspiration of "good administration" as a justification for the

protection of legitimate expectations in the case of

Nadarajah v. Secretary of State for the Home

Department8.

6 [1984] 3 WLR 1174

7 [2001] Q.B. 213

8 [2005] EWCA Civ 1363

CIVIL APPEAL NO. 2297 OF 2011 Page 32 of 65

21. The doctrine of legitimate expectation was first

introduced to Indian jurisprudence in the case of State Of

Kerala & Ors. vs. K.G. Madhavan Pillai & Ors.9. In the

aforesaid case, the government had issued a sanction in

favour of the respondent therein to open a new school and

to upgrade certain already existing schools. However,

subsequent to the abovementioned sanction, a new

direction was given by the government to keep the said

sanction in abeyance. This Court, while deciding the said

issue, was of the opinion that the original sanction given by

the government gave rise to a legitimate expectation in the

minds of the respondents. This legitimate expectation was

however breached by the subsequent direction for

abeyance, and hence there was a violation of the principles

of natural justice. The relevant observations in this regard

from the said judgment are being reproduced hereunder:

9 (1988) 4 SCC 669

CIVIL APPEAL NO. 2297 OF 2011 Page 33 of 65 “…In other words once the Government approves an application for opening a new unaided school or a higher class in an existing unaided school and passes an order under Rule 2-A(5), then the successful applicant acquires a right of legitimate expectation to have his application further considered under Rules 9 and 11 for the issue of a sanction order under Rule 11 for opening a new school or upgrading an existing school. It is no doubt true, as pointed out by the Division Bench, that by the mere grant of an approval under Rule 2-A(5), an applicant will not acquire a right to open a new school or to upgrade an existing school but he certainly acquires a right enforceable in law to have his application taken to the next stage of consideration under Rule 11. The Division Bench was therefore, right in taking the view that the general power of rescindment available to the State Government under Section 20 of the Kerala General Clauses Act has to be determined in the light of the “subject matter, context and the effect of the relevant provisions of the statute”.

CIVIL APPEAL NO. 2297 OF 2011 Page 34 of 65 22. In Navjyoti Coop. Group Housing Society & Ors. vs.

Union Of India & Ors.10, the original policy for allotment of

land to housing societies therein was based on the

principle of seniority, and seniority under the said policy

was decided on the basis of the date of registration.

Subsequently, a change was made to the original policy,

wherein the criteria for deciding seniority was changed

from the date of registration to the date of approval of the

final list. The said deviation from the original policy was

challenged on the touchstone of legitimate expectation by

the petitioners therein. This Court, while deciding on the

said challenge, held that the original policy, as well as the

past practice of allotting land, gave rise to a legitimate

expectation to the parties therein of a predictable pattern

of allotment, and the new change in policy broke such

legitimate expectation. This interpretation by way of the 10 (1992) 4 SCC 477

CIVIL APPEAL NO. 2297 OF 2011 Page 35 of 65 abovementioned judgment, expanded the width of the

doctrine of legitimate expectation further, and extended it

to not just an explicit guarantee, but also to expectations

arising out of past practice. The relevant observations of

the said judgment, for a ready reference, are being

reproduced hereunder:-

“It also appears to us that in any event the new policy decision as contained in the impugned memorandum of January 20, 1990 should not have been implemented without making such change in the existing criterion for allotment known to the Group Housing Societies if necessary by way of a public notice so that they might make proper representation to the concerned authorities for consideration of their viewpoints. Even assuming that in the absence of any explanation of the expression “first come first served” in Rule 6(vi) of Nazul Rules there was no statutory requirement to make allotment with reference to date of registration, it has been rightly held, as a matter of fact, by the High Court that prior to the new guideline contained in the memo of January 20, 1990 the principle for allotment had always been on the basis of date of

CIVIL APPEAL NO. 2297 OF 2011 Page 36 of 65 registration and not the date of approval of the list of members. In the brochure issued in 1982 by the DDA even after Gazette notification of Nazul Rules on September 26, 1981 the policy of allotment on the basis of seniority in registration was clearly indicated. In the aforesaid facts, the Group Housing Societies were entitled to ‘legitimate expectation’ of following consistent past practice in the matter of allotment, even though they may not have any legal right in private law to receive such treatment. The existence of ‘legitimate expectation’ may have a number of different consequences and one of such consequences is that the authority ought not to act to defeat the ‘legitimate expectation’ without some overriding reason of public policy to justify its doing so. In a case of ‘legitimate expectation’ if the authority proposes to defeat a person's ‘legitimate expectation’ it should afford him an opportunity to make representations in the matter. In this connection reference may be made to the discussions on ‘legitimate expectation’ at page 151 of Volume 1(1) of Halsbury's Laws of England, 4th edn. (re-issue). We may also refer to a decision of the House of Lords in Council of Civil Service Unions v. Minister for the Civil Service [(1984) 3 All ER 935] . It has been held in the said decision that an aggrieved person was entitled to judicial review if he could show that a decision of the public authority affected him of some benefit or advantage which in the past he had been permitted to enjoy and

CIVIL APPEAL NO. 2297 OF 2011 Page 37 of 65 which he legitimately expected to be permitted to continue to enjoy either until he was given reasons for withdrawal and the opportunity to comment on such reasons.

It may be indicated here that the doctrine of ‘legitimate expectation’ imposes in essence a duty on public authority to act fairly by taking into consideration all relevant factors relating to such ‘legitimate expectation’. Within the conspectus of fair dealing in case of ‘legitimate expectation’, the reasonable opportunities to make representation by the parties likely to be affected by any change of consistent past policy, come in. We have not been shown any compelling reasons taken into consideration by the Central Government to make a departure from the existing policy of allotment with reference to seniority in registration by introducing a new guideline. On the contrary, Mr Jaitley the learned counsel has submitted that the DDA and/or Central Government do not intend to challenge the decision of the High Court and the impugned memorandum of January 20, 1990 has since been withdrawn. We therefore feel that in the facts of the case it was only desirable that before introducing or implementing any change in the guideline for allotment, an opportunity to make representations against the proposed change in the guideline should have been given to the registered Group Housing Societies, if necessary, by way of a public notice.”

CIVIL APPEAL NO. 2297 OF 2011 Page 38 of 65

23. The doctrine of legitimate expectation was then

further elaborated upon in the case of Food Corporation

Of India vs. Kamdhenu Cattle Feed Industries 11, wherein,

this Court held that the duty of public authorities to act in

a reasonable manner, entitles every person to have a

legitimate expectation to be treated in such a reasonable

manner. This legitimate expectation imposed on public

authorities to act in a fair manner, as has been held, is

imperative to ensure non-arbitrariness of state action. It

was further held by this Court that while such a legitimate

expectation might not by itself be an enforceable right,

however, the failure to take into account such expectation

may deem a decision of the public authority to be

arbitrary. It is my opinion, that the above said decision

rendered by this Court, remarkably weaves in the doctrine

11 (1993) 1 SCC 71

CIVIL APPEAL NO. 2297 OF 2011 Page 39 of 65 of rule of law, the doctrine of legitimate expectation, and

the doctrine of arbitrariness together, and firmly roots the

doctrine of legitimate expectation within Article 14 of the

Constitution Of India. The relevant paragraphs of the said

judgment are being reproduced hereunder:

“In our view, Shri A.K. Sen is right in the first part of his submission. However, in the present case, the respondent does not get any benefit there from. The High Court's decision is based on the only ground that once tenders have been invited and the highest bidder has come forward to comply with the conditions stipulated in the tender notice, it is not permissible to switch over to negotiation with all the tenderers and thereby reject the highest tender. According to the High Court, such a procedure is not countenanced by the rule of law. This is not the same as the submission of Shri Sen which is limited to permissibility of such a course only on cogent grounds indicated while deciding to switch over to the procedure of negotiation after receiving the tenders to satisfy the requirement of

CIVIL APPEAL NO. 2297 OF 2011 Page 40 of 65 non-arbitrariness, a necessary concomitant of the rule of law. The proposition enunciated by the High Court which forms the sole basis of its decision is too wide to be acceptable and has to be limited in the manner indicated hereafter.

In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law: A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is ‘fairplay in action’. Due observance of this obligation as a part of good administration raises a reasonable or legitimate expectation in every citizen to be treated fairly in his interaction with the State and its instrumentalities, with this element forming a necessary component of the decision-making process in all State actions. To satisfy this requirement of non- arbitrariness in a State action, it is, therefore, necessary to consider and give due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else

CIVIL APPEAL NO. 2297 OF 2011 Page 41 of 65 that unfairness in the exercise of the power may amount to an abuse or excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exercise of power, as it is unrealistic, but provides for control of its exercise by judicial review.”

24. Further, in the case of M.P.Oil Extraction & Anr. vs.

State Of M.P. & Ors.12,this Court held that the doctrine of

legitimate expectation operates in the sphere of public law

and as such, is a substantive and enforceable right

depending on the facts and circumstances of the case. The

relevant paragraph from the said judgment is being

extracted hereunder:-

“The renewal clause in the impugned agreements executed in favour of the respondents does not also appear to be

12 (1997) 7 SCC 592

CIVIL APPEAL NO. 2297 OF 2011 Page 42 of 65 unjust or improper. Whether protection by way of supply of sal seeds under the terms of agreement requires to be continued for a further period, is a matter for decision by the State Government and unless such decision is patently arbitrary, interference by the Court is not called for. In the facts of the case, the decision of the State Government to extend the protection for further period cannot be held to be per se irrational, arbitrary or capricious warranting judicial review of such policy decision. Therefore, the High Court has rightly rejected the appellant's contention about the invalidity of the renewal clause. The appellants failed in earlier attempts to challenge the validity of the agreement including the renewal clause. The subsequent challenge of the renewal clause, therefore, should not be entertained unless it can be clearly demonstrated that the fact situation has undergone such changes that the discretion in the matter of renewal of agreement should not be exercised by the State. It has been rightly contended by Dr Singhvi that the respondents legitimately expect that the renewal clause should be given effect to in usual manner and according to past practice unless there is any special reason not to adhere to such practice. The doctrine of “legitimate

CIVIL APPEAL NO. 2297 OF 2011 Page 43 of 65 expectation” has been judicially recognised by this Court in a number of decisions. The doctrine of “legitimate expectation” operates in the domain of public law and in an appropriate case, constitutes a substantive and enforceable right.”

25. While the abovementioned judgments discuss the

breadth of applicability of the doctrine of legitimate

expectations, however, such a right is not all encompassing,

and as such has limitations placed on it. It is on these

restrictions, as has been discussed in detail below, the

respondent places their reliance on.

26. In the case of MRF Ltd. Kottayam vs. Assistant

Commissioner Sales Tax & Ors.13, while analyzing the

doctrine of legitimate expectation, this Court held that

legitimate expectation, as a ground for challenge, can be

done away with in circumstances wherein it has been 13 (2006) 8 SCC 702

CIVIL APPEAL NO. 2297 OF 2011 Page 44 of 65 demonstrated by the public authority that the withdrawal

of the said expectation has been done on grounds of public

interest. In simpler terms, this Court clarified that public

interest takes precedence over a created legitimate

expectation.

“The principle underlying legitimate expectation which is based on Article 14 and the rule of fairness has been re-stated by this Court in Bannari Amman Sugars Ltd. Vs. Commercial Tax Officer & Ors.14,. It was observed in paras 8 & 9:

"A person may have a 'legitimate expectation' of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice. The doctrine of legitimate expectation has an important place in the developing law of judicial review. It is, however, not necessary to explore the doctrine in this case, it is enough merely to note that a legitimate expectation can provide a sufficient interest to enable one who cannot

14 (2005) 1 SCC 625

CIVIL APPEAL NO. 2297 OF 2011 Page 45 of 65 point to the existence of a substantive right to obtain the leave of the Court to apply for judicial review. It is generally agreed that 'legitimate expectation' gives the applicant sufficient locus standi for judicial review and that the doctrine of legitimate expectation to be confined mostly to right of a fair hearing before a decision which results in negativing a promise or withdrawing an undertaking is taken. The doctrine does not give scope to claim relief straightway from the administrative authorities as no crystallized right as such is involved. The protection of such legitimate expectation does not require the fulfilment of the expectation where an overriding public interest requires otherwise. In other words, where a person's legitimate expectation is not fulfilled by taking a particular decision then the decision maker should justify the denial of such expectation by showing some overriding public interest.

While the discretion to change the policy in exercise of the executive power, when not trammelled by any statute or rule is wide enough, what is imperative and implicit in terms of Article 14 is that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity

CIVIL APPEAL NO. 2297 OF 2011 Page 46 of 65 of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non- arbitrariness in essence and substance is the heart beat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for discernible reasons, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualized than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness."

[Emphasis supplied]

MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sales tax for a period of seven years. It was granted the eligibility certificate. The exemption order had also been passed. It is not open to or permissible for the State Government to seek to deprive MRF of the benefit of tax exemption in respect of its substantial investment in expansion in respect of compound rubber when the State Government had enjoyed the benefit from the investment made by the MRF

CIVIL APPEAL NO. 2297 OF 2011 Page 47 of 65 in the form of industrial development in the State, contribution to labour and employment and also a huge benefit to the State exchequer in the form of the State's share, i.e. 40% of the Central Excise duty paid on compound rubber of Rs. 177 crores within the State of Kerala. The impugned action on the part of the State Government is highly unfair, unreasonable, arbitrary and, therefore, the same is violative of Article 14 of the Constitution of India. The action of the State cannot be permitted to operate if it is arbitrary or unreasonable. This Court in E.P. Royappa Vs. State of Tamil Nadu15, observed that where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14. Equity that arises in favour of a party as a result of a representation made by the State is founded on the basic concept of "justice and fair play". The attempt to take away the said benefit of exemption with effect from 15.1.1998 and thereby deprive MRF of the benefit of exemption for more than 5 years out of a total period of 7 years, in our opinion, is highly arbitrary, unjust and unreasonable and deserves to be quashed. In any event the State Government has no power to make a retrospective amendment to SRO 1729/93 affecting rights already accrued to MRF there under.”

15 (1974) 4 SCC 3 CIVIL APPEAL NO. 2297 OF 2011 Page 48 of 65

27. Further, in the case of Howrah Municipal

Corporation & Ors. vs. Ganges Rope Company Ltd. &

Ors.16, it was held by this Court that no right can be

claimed on the basis of legitimate expectation, when the

said expectation is contrary to statutory provisions

enforced in the public interest. Similarly, in the case of

Madras City Wine Merchants Association & Anr. vs. State

Of Tamil Nadu & Anr.17, It was held that the doctrine of

legitimate expectation is rendered defunct in cases where

the said expectation is rescinded by the public authority by

way of a change in public policy because of public interest.

28. While a cursory reading of the abovementioned

judgments on the limitations of the doctrine of legitimate

expectation would show that the said doctrine would not

16 (2004) 1 SCC 663

17 (1994) 5 SCC 509

CIVIL APPEAL NO. 2297 OF 2011 Page 49 of 65 be available against policy or statutory change, a careful

perusal of the same would show otherwise. The doctrine

of legitimate expectation finds its home within the doctrine

of rule of law and is a limb of Article 14 that fights against

the contamination of arbitrary state action and misuse of

power. In all the above mentioned judgments that discuss

the limitations of legitimate expectation, what is most

important, is the principle that public interest is supreme.

29. In such a circumstance, wherein all limitations on the

doctrine of legitimate expectation rest on the touchstone

of public interest, then, in cases where public interest itself

is defeated by barring the applicability of legitimate

expectation, the bar on the legitimate expectation must be

removed. Further, it would also mean that for an

amendment to claim a bar against legitimate expectation,

CIVIL APPEAL NO. 2297 OF 2011 Page 50 of 65 it must demonstrate that the said change in policy was

constructed in public interest.

30. In simpler terms, on the basis of the

abovementioned discussions, legitimate expectation can

be inferred against a statute, provided that such a claim of

legitimate expectation is in public interest, and for a

statute to claim a bar against legitimate expectation, it

must demonstrate that the shift in policy is for the

advancement of public interest.

31. To elucidate on why such a blanket bar on the

invocation of legitimate expectation against a statute is

contrary to the rule of law, we must first take such an

interpretation to its logical conclusion. If the aforesaid

interpretation is adopted, then the state, by way of

amendments, can entice persons and institutions to act in

CIVIL APPEAL NO. 2297 OF 2011 Page 51 of 65 a certain manner with the expectation of a certain

outcome, and suddenly, without any demonstration of

public interest, rescind the same. Such a scenario, if

allowed to manifest into reality, would remove any and all

certainty of the legal system, and directly become an

antithesis to the rule of law. Further, if a blanket bar of the

doctrine of legitimate expectation against a statute is to be

allowed, no domestic or foreign investor would ever invest

in local business and ventures, as any legitimate

expectation by way of a statute would translate only to a

façade, as such a benefit could be snatched away arbitrarily

at any point in time. Hence, any contrary interpretation of

the doctrine of legitimate expectation, would cause great

havoc, and only cause detriment to the rights of individuals

and the society at large.

CIVIL APPEAL NO. 2297 OF 2011 Page 52 of 65

32. Further, it must be borne in mind that the doctrine of

legitimate expectation and the doctrine of promissory

estoppel are two separate principles, and as such, the

blanket ban on promissory estoppel against a statute

cannot be applicable to the doctrine of legitimate

expectation.

33. The doctrine of promissory estoppel and the doctrine

of legitimate expectation, while they share a common root

and a similar theme, by way of going through the rigours of

common law, have developed into two distinct doctrines.

The doctrine of promissory estoppel is a remedy in private

law; however, the doctrine of legitimate expectation is a

remedy in public law, and as stated above, is rooted in

Article 14 of the Constitution of India.

CIVIL APPEAL NO. 2297 OF 2011 Page 53 of 65

34. Such a distinction between public law and private

law becomes important, because once a law enters the

public sphere, it affects the rights of the society, and thus

becomes liable to a stricter level of scrutiny, and as such,

becomes more susceptible to judicial review.

35. In light of the abovementioned discussions, and to

bring clarity to the scope and limitations of the doctrine of

legitimate expectations, I find it essential to chart out the

following principles for the application of legitimate

expectations:

I. The expectation must be reasonable: The

expectation of the individual or group must be

reasonable and not based on any arbitrary or

irrational grounds. The expectation must be based on

CIVIL APPEAL NO. 2297 OF 2011 Page 54 of 65 an established practice or a clear promise made by

the public authority.

II. The expectation must be based on a clear

representation: The expectation must be based on a

clear and unambiguous representation made by the

public authority.

III. The representation must be made by an

authorized person: The representation must be

made by an authorized person or body within the

public authority. The authority must have the power

and competence to make such a representation.

IV. The representation must be legitimate: The

representation made by the public authority must be

legitimate and not against any law or policy. It must

CIVIL APPEAL NO. 2297 OF 2011 Page 55 of 65 also not be against any public interest or public

policy.

V. The public interest must be demonstrated:If a

legitimate expectation is being taken away by way of

a modification to an existing policy on grounds of

public interest, such public interest must be

demonstrated by the said modification.

VI. Public Interest must supersede change in policy:

In cases where a legitimate expectation is being

taken away by way of a modification to policy, such

modification must not be antithesis to public policy,

and if such a modification runs counter to public

interest, the remedy of legitimate expectation would

become exercisable.

CIVIL APPEAL NO. 2297 OF 2011 Page 56 of 65 VII. The expectation must be based on a legitimate

interest: The expectation must be based on a

legitimate interest of the individual or group. It must

not be based on any vested interest or personal gain.

VIII. The expectation must be protected : Once a

legitimate expectation is created, it must be

protected and not arbitrarily or capriciously

withdrawn by the public authority. The public

authority must provide a reasonable opportunity for

the individual or group to be heard before any

decision is taken to withdraw or modify the

expectation.

APPLICATION OF LEGITIMATE EXPECTATION IN THE

PRESENT FACTUAL MATRIX

CIVIL APPEAL NO. 2297 OF 2011 Page 57 of 65

36. A tax holiday was granted to new small scale

industrial units involved in the manufacture of tea for a

specified period of time under Section 39 of the Bengal

Finance (Sales Tax) Act, 1941 (hereinafter referred to as

the ‘1941 Act’) read with Section 17(3)(1)(xi) of the said

Act with Rule 52 of the West Bengal Sales Tax Rules, 1995.

37. It is important to note that at this period, statutorily,

blending of tea was read under the definition of

“manufacture”, and as such, the tax holiday was also

applicable to small scale industrial units involved in the

blending of tea.

38. Subsequent to such a tax holiday being granted, the

appellants herein, relying upon the assurance and faith

made by the government, set up small scale industrial

units, and got the necessary authorizations to certify them

CIVIL APPEAL NO. 2297 OF 2011 Page 58 of 65 as the same. However, by way of an amendment in the

West Bengal Finance Act, 2001, the words “blending of

tea” were omitted from the definition of “manufacture”,

as a consequence of which, the appellants herein became

ineligible to claim benefit under the tax holiday.

39. From an understanding of the facts, it can be clearly

seen that the tax holiday, granted by way of an

amendment to small scale industries involved in the

manufacture and blending of tea, created a legitimate

expectation in favour of the appellants herein. Such a

legitimate expectation, created by way of an amendment,

lured the appellants to pour their hard earned money into

setting up small scale industrial units, under the

assumption that the authority would hold true to its

promise, act in a fair manner and abide by the decision

made by it.

CIVIL APPEAL NO. 2297 OF 2011 Page 59 of 65

40. This legitimate expectation, created by the

appropriate and competent authority, was broken when a

subsequent amendment was brought in, wherein the

words “blending of tea” was removed from the definition

of “manufacture”. Such an amendment, by removing the

said words, snatched away the legitimate expectation of a

specific outcome, and ousted the appellants from claiming

the tax holiday, to which they were promised by the

original amendment. As can be seen, a reasonable

legitimate expectation was created by the competent

authority, which lured the appellants to act in a certain

manner. Such a legitimate expectation was then snatched

away, leaving the appellants without remedy, and in

losses.

41. To justify such a shift in policy, and snatch away the

legitimate expectation created in favour of the appellants,

CIVIL APPEAL NO. 2297 OF 2011 Page 60 of 65 the public authority must demonstrate the reasons for

such a shift, and while giving its justifications, must take

into consideration the rights of the affected persons, and

why the snatching away of such rights is essential for the

state to advance public interest.

42. In the present case at hand, while perusing through

the subsequent amendment, it can be clearly seen that no

such appropriate justification has been provided by the

government. No appropriate reason for the enactment of

the amendment, nor the considerations of the affected

party have been discussed. In my opinion, a mere claim of

change of policy is not sufficient to discharge the burden

of proof vested in the government. The government must

precisely show what the change of policy is, and why such

a change of law is in furtherance of public policy, and the

public good.

CIVIL APPEAL NO. 2297 OF 2011 Page 61 of 65

43. In light of the factual matrix herein and the

abovementioned discussions, it can be clearly seen that a

legitimate expectation was created by the public authority,

and such an expectation, accrued in the favour of the

appellants herein, was rescinded by the said authority

without any demonstration of public interest. No

appropriate explanation has been provided as to why a

shift was made in Law, and why such a shift, in spite of the

loss which would occur to the appellants and similarly

situated persons, was necessary to advance public

interest. In such a circumstance, the legitimate expectation

created in the minds of the appellants, must be protected,

and the benefits given originally must be made applicable

to the appellants herein for the period promised by the

respondent authority.

CIVIL APPEAL NO. 2297 OF 2011 Page 62 of 65 CONCLUSION

44. The doctrine of legitimate expectation, as has been

mentioned above, is a facet of Article 14, and is essential to

maintain the rule of law. Such a doctrine, which ensures

predictability in the application of law, in its very essence,

fights against the corrosion of the rule of law, and prevents

arbitrary state action.

45. For a democratic state to function on the principles

of equality and justice, the state must be ruled, not by its

ruler, but by the law. In such a circumstance, to prevent

such a contamination of the rule of law, the application of

the doctrine of legitimate expectation becomes most

important. If a state is allowed to make promises, and

rescind the same without justification or explanation, it

would lead to a situation wherein every action of the state

CIVIL APPEAL NO. 2297 OF 2011 Page 63 of 65 would be bereft of accountability, and every person

governed by the laws of this country would live in a state of

fear and unrest, causing a chilling effect on the civil

liberties of the people.

46. Hence, I am of the opinion that in the present case at

hand, the Authority must be held accountable to the

legitimate expectation created by it, and therefore, a

direction is liable to be issued to the respondents herein

to extend the benefits of the original amendment to the

appellants herein, till the expiry of such a benefit as per the

original amendment. In light of the same, the present

batch of civil appeals are allowed.

……...…....………………,J (KRISHNA MURARI)

NEW DELHI;

12TH MAY, 2023

CIVIL APPEAL NO. 2297 OF 2011 Page 64 of 65 CIVIL APPEAL NO. 2297 OF 2011 Page 65 of 65