REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2480 OF 2008
M/S MANUELSONS HOTELS
PRIVATE LIMITED ….APPELLANT
VERSUS
STATE OF KERALA & OTHERS ….RESPONDENTS
J U D G M E N T
R.F. Nariman, J.
1. On 11th July, 1986, the State Government, by a Government Order
(G.O.), accepted the recommendations of the Government of India suggesting
that tourism be declared an “industry”. The fallout of this G.O. was that
this would enable those engaged in tourism promotional activities to become
automatically eligible for concessions / incentives as applicable to the
industrial sector from time to time. Apart from various other concessions
that were granted, exemption from Building Tax levied by the Revenue
Department was one such concession. It was stated in the said G.O. that
action to amend the Kerala Building Tax Act, 1975 will be taken separately.
The G.O. went on to state that persons eligible for such concessions will,
among others, be classified hotels i.e. from 1 to 5 stars. A Committee was
set up consisting of three government officers to oversee the aforesaid
scheme.
2. Vide a letter dated 25th March, 1987, the Government of India
approved the hotel project of the appellants, being a 55 double room 3 star
hotel project to be set up in the city of Calicut.
3. Pursuant to the aforesaid G.O. dated 11th July, 1986 and the
aforesaid approval, the appellants began constructing the hotel building,
which was completed in the year 1991. Notice for filing returns under the
Kerala Buildings Tax Act was issued to the appellants on 5th September,
1988. The appellants replied that they relied upon the G.O. dated 11th
July, 1986 and stated that they were under no obligation to furnish any
return under the said Act as they were exempt from payment of building tax.
4. In pursuance of the said G.O. dated 11th July, 1986, the Kerala
Buildings Tax Amendment Act of 1990 was passed with effect from 6th
November, 1990. The Objects and Reasons for said amendment act read as
follows:
“STATEMENT OF OBJECTS AND REASONS
The Government has declared tourism as an industry with a view to develop
tourism in the State and announce various concessions to tourism related
activities as per GO (P) 224/86/GAD dated 11.07.1986. One of the
concessions declared by Government was to exempt the buildings constructed
in relation to tourism from the provisions of the Kerala Building Tax Act,
1975.
For achieving the above said purpose the Kerala Building Tax Act, 1975 has
to be amended suitably and the Government have decided to amend the Kerala
Building Tax Act 1975 for the purpose.
As the above proposal had to be given effect to immediately and as the
Legislative assembly was not in session the Kerala Building Tax (Amendment)
Ordinance, 1990 (Ordinance No.8 of 1990) was promulgated by the Governor of
Kerala on the 2nd day of November, 1990, and published in the Kerala
Gazette Extraordinary dated 6th day of November, 1990.
The Bill seeks to replace the said ordinance by an Act of Legislature.
(Published in KG Ex No.1159 dt 7.12.1990)”
5. In pursuance of the said object, Section 3A was added, which reads as
under:
“3A.(1) Power to make exemption:- The Government may, if they consider it
necessary so to do for the promotion of tourism, by notification in the
Gazette make exemption from the payment of building tax under the Act in
respect of any building or buildings the construction of which is completed
during such period and in such areas as may be specified in the
notification and having such specifications as may be prescribed in the
rules in this behalf.”
Also, to effectuate the said exemption provision, Rule 14A was added in the
Kerala Buildings Tax Rules, 1974 as under:
“Rule 14A
(1) The exemption contemplated in Section 3A of the Kerala Building Tax
Act, 1975 shall be applicable to the buildings having the following
specifications in such Tourism sector and the construction of which is
completed during such period as may be specified in the notifications:-
(i) Classified hotels (1 to 5 stars)
(ii) Motels(which conform to the specification of the Department of Tourism
of Kerala/ Central Government)
(iii) Restaurants (approved by Classification committee of the Government
of India)
(iv) Amusement parks and research centres approved by the Government.
(v) Ropeways at tourist centres.
(vi) Construction of structures like Koothambalam/Auditorium etc by
schools/institutions teaching Kalaripayattu and traditional art forms of
Kerala.
(vii) Institutions teaching surfing, sking, gliding, trekking and similar
activities which will promote tourism;
(viii) Ayurvedic centres with tourism potential;
(ix) Exclusive handicrafts with emporia (approved by the State/Central
Department of Tourism)
(2) The area so notified shall be approved Tourist Centres and such other
locations certified by a Committee consisting of Secretary to Government,
Tourism Department, Secretary to Government Taxes Department and Director,
Department of Tourism.
(3) The period of exemption shall be 10 years or such shorter period in
respect of specific areas as may be notified in the Gazette based on the
recommendation of the Committee.”
6. By a Writ Petition filed in 1989, the appellants challenged the
notice dated 5th September, 1988. This resulted in a judgment of the
Kerala High Court dated 30th August, 1995 by which the appellants were
relegated to the Committee set up under the 1986 G.O. to pursue their
claim. Till final orders were passed by the Committee, the judgment stated
that the respondents would not take any coercive steps to recover any
building tax assessed on the building constructed by the appellants.
7. By a letter dated 6th February, 1997, the exemption promised by the
G.O. of 1986 was denied to the appellants stating that as Section 3A had
been omitted w.e.f. 1st March, 1993, the power to grant exemption had
itself gone and, therefore, no such exemption could be given to the
appellants.
8. Pursuant to the aforesaid letter dated 6th February, 1997, a notice
dated 28th April, 1997 was issued by the authorities asking the appellants
to submit the necessary statutory return under the Kerala Buildings Tax
Act. This notice was, in turn, challenged in O.P. No. 9601 of 1997, which
culminated in a judgment dated 20th July, 1998. Vide this judgment, the
High Court allowed the original petition and directed the Committee to
consider the matter afresh in the light of the judgment of the Supreme
Court in M/S Motilal Padampat Sugar Mills v. State Of Uttar Pradesh &
Ors., (1979) 2 SCR 641 and Shrijee Sales Corporation & Anr. v. Union of
India, (1997) 3 SCC 398.
9. Vide an order dated 4th February, 1999, the authorities once again
rejected the appellant’s application for exemption from property tax. This
order was challenged in Writ Petition No. 9820 of 1999 which has led to the
impugned judgment dated 5th December, 2006. The High Court essentially
rejected the aforesaid Writ Petition on two grounds. First, it stated that
as no exemption Notification had, in fact, been issued under Section 3A
when it was in existence in the statute book, no claim for exemption from
payment of building tax would be allowed. It further held that the mere
promise to amend the law does not hold out a promise of exemption from
payment of building tax. And finally, the High Court held that the
question of now exempting the appellants from building tax would not arise
as Section 3A itself had been omitted w.e.f. 1st March, 1993.
10. Shri V. Giri, learned Senior Advocate appearing on behalf of the
appellants before us, has argued that the High Court has failed to consider
various Supreme Court judgments on promissory estoppel in their true
perspective. In his submission, the aforesaid judgment clearly led to the
conclusion that when the Government holds out a promise which has been
acted upon, except in cases of overriding public interest, which has not
been claimed in the facts of the present case, the Government cannot resile
from the said promise and must be held to be bound thereby. He added that
there was no necessity for the Government to be directed to actually issue
a Notification under Section 3A as that would only be a ministerial act
which would be regarded as having been performed if Government was to be
held to its promise. According to the learned counsel, therefore, a
reading of the judgments of this Court would necessarily lead to granting
of relief to his client.
11. Shri Radhakrishnan, learned senior counsel appearing on behalf of the
respondents, countered these submissions and supported the impugned
judgment of the High Court. According to Shri Radhakrishnan, a mandamus
cannot be issued to the executive to frame or amend the law. In any event,
according to the learned counsel, Section 3A having been deleted w.e.f. 1st
March, 1993, it is clear that no relief can be granted to the appellants as
on date.
12. Having heard the learned counsel for both the sides, we are of the
view that it will first be necessary to examine the doctrine of promissory
estoppel as laid down in M/S Motilal Padampat Sugar Mills, (1979) 2 SCR 641
and as followed in State of Punjab v. Nestle India Ltd., (2004) 6 SCC 465.
13. In the M/S Motilal Padampat Sugar Mills case, the appellant before
this Court was primarily engaged in the business of manufacture and sale of
sugar. An assurance was given by the State Government in that case that
new Vanaspati units in the State which go into commercial production by
30th September,1970 would be given partial concession in sales tax for a
period of three years. The appellant having set up such Vanaspati unit
thereafter went into the production of Vanaspati on 2nd July, 1970 and
sought exemption. The Government apparently turned around and rescinded
its earlier decision of January, 1970 in August 1970, by which time the
factory of the appellant had gone into commercial production. A Writ
Petition was filed in the High Court of Allahabad asking for a writ
directing the State Government to exempt the sales of Vanaspati
manufacturer from sales tax for a period of three years commencing 2nd
July, 1970 as per the promise held out. This plea fell upon deaf ears in
the High Court, as a result of which the petitioner in that case appealed
to the Supreme Court. After discussing the authorities in detail, this
Court held:
“The law may, therefore, now be taken to be settled as a result of this
decision, that where the Government makes a promise knowing or intending
that it would be acted on by the promisee and, in fact, the promisee,
acting in reliance on it, alters his position, the Government would be held
bound by the promise and the promise would be enforceable against the
Government at the instance of the promisee, notwithstanding that there is
no consideration for the promise and the promise is not recorded in the
form of a formal contract as required by Article 299 of the Constitution.
It is elementary that in a republic governed by the rule of law, no one,
howsoever high or low, is above the law. Everyone is subject to the law as
fully and completely as any other and the Government is no exception. It is
indeed the pride of constitutional democracy and rule of law that the
Government stands on the same footing as a private individual so far as the
obligation of the law is concerned: the former is equally bound as the
latter. It is indeed difficult to see on what principle can a Government,
committed to the rule of law, claim immunity from the doctrine of
promissory estoppel. Can the Government say that it is under no obligation
to act in a manner that is fair and just or that it is not bound by
considerations of “honesty and good faith”? Why should the Government not
be held to a high “standard of rectangular rectitude while dealing with its
citizens”? There was a time when the doctrine of executive necessity was
regarded as sufficient justification for the Government to repudiate even
its contractual obligations; but, let it be said to the eternal glory of
this Court, this doctrine was emphatically negatived in the Indo-Afghan
Agencies case and the supremacy of the rule of law was established. It was
laid down by this Court that the Government cannot claim to be immune from
the applicability of the rule of promissory estoppel and repudiate a
promise made by it on the ground that such promise may fetter its future
executive action. If the Government does not want its freedom of executive
action to be hampered or restricted, the Government need not make a promise
knowing or intending that it would be acted on by the promisee and the
promisee would alter his position relying upon it. But if the Government
makes such a promise and the promisee acts in reliance upon it and alters
his position, there is no reason why the Government should not be compelled
to make good such promise like any other private individual. The law cannot
acquire legitimacy and gain social acceptance unless it accords with the
moral values of the society and the constant endeavour of the Courts and
the legislature, must, therefore, be to close the gap between law and
morality and bring about as near an approximation between the two as
possible. The doctrine of promissory estoppel is a significant judicial
contribution in that direction. But it is necessary to point out that since
the doctrine of promissory estoppel is an equitable doctrine, it must yield
when the equity so requires. If it can be shown by the Government that
having regard to the facts as they have transpired, it would be inequitable
to hold the Government to the promise made by it, the Court would not raise
an equity in favour of the promisee and enforce the promise against the
Government. The doctrine of promissory estoppel would be displaced in such
a case because, on the facts, equity would not require that the Government
should be held bound by the promise made by it. When the Government is able
to show that in view of the facts as have transpired since the making of
the promise, public interest would be prejudiced if the Government were
required to carry out the promise, the Court would have to balance the
public interest in the Government carrying out a promise made to a citizen
which has induced the citizen to act upon it and alter his position and the
public interest likely to suffer if the promise were required to be carried
out by the Government and determine which way the equity lies. It would not
be enough for the Government just to say that public interest requires that
the Government should not be compelled to carry out the promise or that the
public interest would suffer if the Government were required to honour it.
The Government cannot, as Shah, J., pointed out in the Indo-Afghan Agencies
case, claim to be exempt from the liability to carry out the promise “on
some indefinite and undisclosed ground of necessity or expediency”, nor can
the Government claim to be the sole Judge of its liability and repudiate it
“on an ex parte appraisement of the circumstances”. If the Government wants
to resist the liability, it will have to disclose to the Court what are the
facts and circumstances on account of which the Government claims to be
exempt from the liability and it would be for the Court to decide whether
those facts and circumstances are such as to render it inequitable to
enforce the liability against the Government. Mere claim of change of
policy would not be sufficient to exonerate the Government from the
liability: the Government would have to show what precisely is the changed
policy and also its reason and justification so that the Court can judge
for itself which way the public interest lies and what the equity of the
case demands. It is only if the Court is satisfied, on proper and adequate
material placed by the Government, that overriding public interest requires
that the Government should not be held bound by the promise but should be
free to act unfettered by it, that the Court would refuse to enforce the
promise against the Government. The Court would not act on the mere ipse
dixit of the Government, for it is the Court which has to decide and not
the Government whether the Government should be held exempt from liability.
This is the essence of the rule of law. The burden would be upon the
Government to show that the public interest in the Government acting
otherwise than in accordance with the promise is so overwhelming that it
would be inequitable to hold the Government bound by the promise and the
Court would insist on a highly rigorous standard of proof in the discharge
of this burden. But even where there is no such overriding public interest,
it may still be competent to the Government to resile from the promise “on
giving reasonable notice, which need not be a formal notice, giving the
promisee a reasonable opportunity of resuming his position” provided of
course it is possible for the promisee to restore status quo ante. If,
however, the promisee cannot resume his position, the promise would become
final and irrevocable. Vide Emmanuel Avodeji Ajaye v. Briscoe [(1964) 3 All
ER 556 : (1964) 1 WLR 1326].” [pp. 682 – 685]
14. The Court further went on to hold that it was not necessary for the
petitioner to show that it had suffered any detriment, and it was enough
that the petitioner had relied upon the promise or representation held
out, and altered its position relying upon such assurance. Importantly,
the Court held:
“Of course, it may be pointed out that if the U.P. Sales Tax Act, 1948 did
not contain a provision enabling the Government to grant exemption, it
would not be possible to enforce the representation against the Government,
because the Government cannot be compelled to act contrary to the statute,
but since Section 4 of the U.P. Sales Tax Act, 1948 confers power on the
Government to grant exemption from sales tax, the Government can
legitimately be held bound by its promise to exempt the appellant from
payment of sales tax. It is true that taxation is a sovereign or
governmental function, but, for reasons which we have already discussed, no
distinction can be made between the exercise of a sovereign or governmental
function and a trading or business activity of the Government, so far as
the doctrine of promissory estoppel is concerned. Whatever be the nature of
the function which the Government is discharging, the Government is subject
to the rule of promissory estoppel and if the essential ingredients of this
rule are satisfied, the Government can be compelled to carry out the
promise made by it. We are, therefore, of the view that in the present case
the Government was bound to exempt the appellant from payment of sales tax
in respect of sales of vanaspati effected by it in the State of Uttar
Pradesh for a period of three years from the date of commencement of the
production and was not entitled to recover such sales tax from the
appellant.” [pp. 696 – 697]
15. Having so held, the Court then went on to hold that since the
Government is bound to exempt the appellant from payment of sales tax for a
period of three years w.e.f. 2nd July, 1970, being the date of commencement
of the production of Vanaspati, the appellant would not be liable to pay
any sales tax, subject only to the State’s claim to retain any part of such
amount under any provision of law. In the absence of such claim, the State
would have to refund the amount of sales tax collected by it from the
appellant with interest thereon.
16. It is important to notice that the necessary exemption Notification
in Motilal Padampat’s case had not been issued under Section 4 of the U.P.
Sales Tax Act, 1948. Yet, this Court held that sales tax for the period in
question could not be recovered. This was done presumably because
promissory estoppel is itself an equitable doctrine. One of the maxims of
equity is that one must regard as done that which ought to be done. In
this view of the matter, it is obvious that the High Court judgment is
incorrect when it holds that as no exemption Notification was, in fact,
issued by the Government under Section 3A, the petitioner would have to be
denied relief. This judgment has been followed repeatedly and has been
applied to give the benefit of sales tax exemption in similar circumstances
in Pournami Oil Mills & Ors. v. State of Kerala & Anr., (1986) Supp. SCC
728 at Paras 7 and 8.
17. The same result would obtain on a reading of a more recent judgment
of this Court reported in State of Punjab v. Nestle India Ltd., (2004) 6
SCC 465. On the facts of that case, for the period from 1.4.1996 to
4.6.1997, purchase tax on milk was to be abolished by the State Government.
An announcement to this effect was given wide publicity in several
newspapers in the State and a speech was given to the aforesaid effect by
the Finance Minister of the State while presenting the budget for the year
1996-1997. That was further translated into a memorandum of the financial
Commissioner, dated 26.4.1996, which was addressed to the Excise and
Taxation Commissioner of the State. When a meeting was held on 27th June,
1996 by the Chief Minister and the Finance Minister with the Excise and
Taxation Commissioner and various Financial a financial notification would
be issued “in a day or two”. For the first time, on 4th
June, 1998, the Council of Ministers decided that the decision to abolish
purchase tax on milk was not accepted and, consequently, the authorities
issued notice to the respondents requiring them to pay purchase tax on milk
for the year 1996-1997.
18. In this background, the High Court held that the State Government was
bound by its promise and representation to abolish purchase tax.
According to the High Court, the absence of a financial notification was no
more than a ministerial act which remained to be performed. As the
respondents had acted on the representation made, they could not be asked
to pay purchase tax for the year 1996-1997. The Writ Petition was allowed
and the demand notice of tax for the aforesaid year was struck down.
19. This Court, after adverting to Section 30 of the Punjab General Sales
Tax Act, 1948, which gave the State Government the power to exempt from
purchase tax, by notification, any of the goods mentioned in the Schedule,
recapitulated the entire law of promissory estoppel in great detail. It
referred to M/S Motilal Padampat Sugar Mills, (1979) 2 SCR 641 and other
judgments, and finally held:
“The appellant has been unable to establish any overriding public interest
which would make it inequitable to enforce the estoppel against the State
Government. The representation was made by the highest authorities
including the Finance Minister in his Budget speech after considering the
financial implications of the grant of the exemption to milk. It was found
that the overall benefit to the State’s economy and the public would be
greater if the exemption were allowed. The respondents have passed on the
benefit of that exemption by providing various facilities and concessions
for the upliftment of the milk producers. This has not been denied. It
would, in the circumstances, be inequitable to allow the State Government
now to resile from its decision to exempt milk and demand the purchase tax
with retrospective effect from 1-4-1996 so that the respondents cannot in
any event readjust the expenditure already made. The High Court was also
right when it held that the operation of the estoppel would come to an end
with the 1997 decision of the Cabinet.
In the case before us, the power in the State Government to grant exemption
under the Act is coupled with the word “may” — signifying the discretionary
nature of the power. We are of the view that the State Government’s refusal
to exercise its discretion to issue the necessary notification “abolishing”
or exempting the tax on milk was not reasonably exercised for the same
reasons that we have upheld the plea of promissory estoppel raised by the
respondents. We, therefore, have no hesitation in affirming the decision of
the High Court and dismissing the appeals without costs.” [paras 47 – 48]
20. A perusal of this judgment would also show that relief was not denied
on the ground that no exemption notification was, in fact, issued under
Section 30 of the Punjab General Sales Tax Act, 1948. In fact, this Court
emphasized the discretionary nature of the power to grant exemption. This
Court held that the State Government’s refusal to exercise its discretion
to issue the necessary notification abolishing or exempting tax on milk was
not reasonably exercised inasmuch as it was bound by the doctrine of
promissory estoppel to do so. And the finding of the High Court that such
Notification would only be a ministerial act which had to be performed was,
therefore, upheld by this Court. This judgment has been recently applied
and followed in Devi Multiplex & Ors. v. State of Gujarat & Ors., (2015) 9
SCC 132 at Para 20.
21. In fact, we must never forget that the doctrine of promissory
estoppel is a doctrine whose foundation is that an unconscionable departure
by one party from the subject matter of an assumption which may be of fact
or law, present or future, and which has been adopted by the other party as
the basis of some course of conduct, act or omission, should not be allowed
to pass muster. And the relief to be given in cases involving the
doctrine of promissory estoppels contains a degree of
flexibility which would ultimately render justice to the aggrieved party.
The entire basis of this doctrine has been well put in a judgment of the
Australian High Court reported in The Commonwealth of Australia v.
Verwayen, 170 C.L.R. 394, by Deane,J. in the following words:
1. While the ordinary operation of estoppel by conduct is between parties
to litigation, it is a doctrine of substantive law the factual ingredients
of which fall to be pleaded and resolved like other factual issues in a
case. The persons who may be bound by or who may take the benefit of such
an estoppel extend beyond the immediate parties to it, to their privies,
whether by blood, by estate or by contract. That being so, an estoppel by
conduct can be the origin of primary rights of property and of contract.
2. The central principle of the doctrine is that the law will not permit an
unconscionable – or, more accurately, unconscientious – departure by one
party from the subject matter of an assumption which has been adopted by
the other party as the basis of some relationship, course of conduct, act
or omission which would operate to that other party’s detriment if the
assumption be not adhered to for the purposes of the litigation.
3. Since an estoppel will not arise unless the party claiming the benefit
of it has adopted the assumption as the basis of action or inaction and
thereby placed himself in a position of significant disadvantage if
departure from the assumption be permitted, the resolution of an issue of
estoppel by conduct will involve an examination of the relevant belief,
actions and position of that party.
4. The question whether such a departure would be unconscionable relates to
the conduct of the allegedly estopped party in all the circumstances. That
party must have played such a part in the adoption of, or persistence in,
the assumption that he would be guilty of unjust and oppressive conduct if
he were now to depart from it. The cases indicate four main, but not
exhaustive, categories in which an affirmative answer to that question may
be justified, namely, where that party: (a) has induced the assumption by
express or implied
representation; (b) has entered into contractual or other material
relations with the other party on the conventional basis of the assumption;
(c) has exercised against the other party rights which would exist only if
the assumption were correct; (d) knew that the other party laboured under
the assumption and refrained from correcting him when it was his duty in
conscience to do so. Ultimately, however, the question whether departure
from the assumption would be unconscionable must be resolved not by
reference to some preconceived formula framed to serve as a universal
yardstick but by reference to all the circumstances of the case, including
the reasonableness of the conduct of the other party in acting upon the
assumption and the nature and extent of the detriment which he would
sustain by acting upon the assumption if departure from the assumed state
of affairs were permitted. In cases falling within category (a), a critical
consideration will commonly be that the allegedly estopped party knew or
intended or clearly ought to have known that the other party would be
induced by his conduct to adopt, and act on the basis of, the assumption.
Particularly in cases falling within category (b), actual belief in the
correctness of the fact or state of affairs assumed may not be necessary.
Obviously, the facts of a particular case may be such that it falls within
more than one of the above categories.
5. The assumption may be of fact or law, present or future. That is to say
it may be about the present or future existence of a fact or state of
affairs (including the state of the law or the existence of a legal right,
interest or relationship or the content of future conduct).
6. The doctrine should be seen as a unified one which operates consistently
in both law and equity. In that regard, “equitable estoppel” should not be
seen as a separate or distinct doctrine which operates only in equity or as
restricted to certain defined categories (e.g. acquiescence, encouragement,
promissory estoppel or proprietary estoppel).
7. Estoppel by conduct does not of itself constitute an independent cause
of action. The assumed fact or state of affairs (which one party is
estopped from denying) may be relied upon defensively or it may be used
aggressively as the factual foundation of an action arising under ordinary
principles with the entitlement to ultimate relief being determined on the
basis of the existence of that fact or state of affairs. In some cases, the
estoppel may operate to fashion an assumed state of affairs which will
found relief (under ordinary principles) which gives effect to the
assumption itself (e.g. where the defendant in an action for a declaration
of trust is estopped from denying the existence of the trust).
8. The recognition of estoppel by conduct as a doctrine operating
consistently in law and equity and the prevalence of equity in a Judicature
Act system combine to give the whole doctrine a degree of flexibility which
it might lack if it were an exclusively common law doctrine. In particular,
the prima facie entitlement to relief based upon the assumed state of
affairs will be qualified in a case where such relief would exceed what
could be justified by the requirements of good conscience and would be
unjust to the estopped party. In such a case, relief framed on the basis of
the assumed state of affairs represents the outer limits within which the
relief appropriate to do justice between the parties should be framed.”
22. The above statement, based on various earlier English authorities,
correctly encapsulates the law of promissory estoppel with one difference –
under our law, as has been seen hereinabove, promissory estoppel can be the
basis of an independent cause of action in which detriment does not need to
be proved. It is enough that a party has acted upon the representation
made. The importance of the Australian case is only to reiterate two
fundamental concepts relating to the doctrine of promissory estoppel – one,
that the central principle of the doctrine is that the law will not permit
an unconscionable departure by one party from the subject matter of an
assumption which has been adopted by the other party as the basis of a
course of conduct which would affect the other party if the assumption be
not adhered to. The assumption may be of fact or law, present or future.
And two, that the relief that may be given on the facts of a given case is
flexible enough to remedy injustice wherever it is found. And this would
include the relief of acting on the basis that a future assumption either
as to fact or law will be deemed to have taken place so as to afford relief
to the wronged party.
23. In the circumstances, the High Court judgment when it holds that no
notification was, in fact, issued under Section 3A of the Kerala Buildings
Tax Act, 1975, (which would be sufficient to deny the appellants relief)
is, therefore, clearly incorrect in law.
24. However, some of the judgments of this Court have held that a Writ of
Mandamus cannot be issued to the executive to frame rules or regulations
which are in the nature of subordinate legislation. (See: State of Jammu &
Kashmir v. A.R. Zakki & Ors. 1992 Supp. (1) SCC 548 at paragraphs 10 and
15, and State of Uttar Pradesh and Ors. v. Mahindra and Mahindra Limited
(2011) 13 SCC 77 at 81). This is for the reason that a court would then
trespass into forbidden territory, as our Constitution recognizes a broad
division of powers between legislative and judicial activity.
25. However, though the power to grant exemption under a statutory
provision may amount to subordinate legislation in a given case, but being
in the domain of exercise of discretionary power, is subject to the same
tests in administrative law, as is executive or administrative action, as
to its validity – one of these tests being the well-known Wednesbury
principle under which a court may strike down an abuse of such
discretionary power on grounds that irrelevant circumstances have been
taken into account or relevant circumstances have not been taken into
account (for example). This is clearly exemplified in Indian Express
Newspapers (Bombay) Private Limited and others v. Union of India and
others, (1985) 1 SCC 641.
26. In that case, by a notification dated 15.7.1977 issued under Section
25(1) of the Customs Act, a total exemption from customs duty was granted
on imported newsprint. On 1.3.1981, the said Notification was superseded
by the issue of a fresh notification which exempted customs duty beyond
15%. The second notification was the subject matter of challenge in the
aforesaid judgment in this Court. In an instructive passage in the
judgment under Heading V entitled “Are the impugned notifications issued
under Section 25 of the Customs Act, 1962 beyond the reach of
Administrative Law?” this Court proceeded by assuming that the power to
grant exemption under Section 25 of the Customs Act is a legislative power
and a notification issued by the Government thereunder would amount to a
piece of subordinate legislation. Despite this being so, this Court held:
“That subordinate legislation cannot be questioned on the ground of
violation of principles of natural justice on which administrative action
may be questioned has been held by this Court in Tulsipur Sugar Co.
Ltd. v. Notified Area Committee, Tulsipur [AIR 1980 SC 882 : (1980) 2 SCR
1111 : (1980) 2 SCC 295] , Rameshchandra Kachardas Porwal v. State of
Maharashtra [(1981) 2 SCC 722 : AIR 1981 SC 1127 : (1981) 2 SCR 866] and
in Bates v. Lord Hailsham of St. Marylebone [(1972) 1 WLR 1373 : (1972) 1
A11 ER 1019 (Ch D)] . A distinction must be made between delegation of a
legislative function in the case of which the question of reasonableness
cannot be enquired into and the investment by statute to exercise
particular discretionary powers. In the latter case the question may be
considered on all grounds on which administrative action may be questioned,
such as, non-application of mind, taking irrelevant matters into
consideration, failure to take relevant matters into consideration, etc,
etc. On the facts and circumstances of a case, a subordinate legislation
may be struck down as arbitrary or contrary to statute if it fails to take
into account very vital facts which either expressly or by necessary
implication are required to be taken into consideration by the statute or,
say, the Constitution. This can only be done on the ground that it does not
conform to the statutory or constitutional requirements or that it offends
Article 14 or Article 19(1)(a) of the Constitution. It cannot, no doubt, be
done merely on the ground that it is not reasonable or that it has not
taken into account relevant circumstances which the Court considers
relevant.” [para 78]
27. Shri Radhakrishnan pressed into service Kasinka Trading and another
v. Union of India and another, (1995) 1 SCC 274. This was a case in which
PVC resins were exempted from basic import duty by a notification dated
15.3.1979. The said notification was in force up to and inclusive of
31.3.1981. However, before expiry of the time fixed in the notification, a
notification withdrawing such exemption, dated 16.10.1980, was issued. The
petitioners in that case invoked the doctrine of promissory estoppel. This
Court held that no representation had been made on facts, and that it could
not be said that a notification could not be rescinded or modified before
the date of expiry even if the Government is satisfied that it was
necessary in the public interest to rescind it.
28. This case is clearly distinguishable in that it was held (see
paragraphs 22 and 27) that no incentive to set up any industry to use PVC
resins had been made, and secondly, it was found necessary in public
interest to rescind or withdraw such notification. On the facts of the
present case, it is clear that a clear representation/promise had been made
pursuant to which the State actually amended the Kerala Building Tax Act,
1975 by inserting Section 3A. And equally, there is no claim in the present
case that there is any change in circumstance because of overriding public
interest so that the doctrine of promissory estoppel cannot be said to
apply.
29. Shri Radhakrishnan also referred to a judgment of this Court in Shree
Sidhbali Steels Limited and others v. State of Uttar Pradesh and others,
(2011) 3 SCC 193. On the facts in that case, a new industrial policy dated
30.4.1990 was declared by the State Government assuring the grant of 33.33%
hill development rebate on the total amount of electricity bills to new
entrepreneurs for a period of 5 years. This period was extended by another
period of 5 years to be made available to new industrial units set up till
31.3.1997. Vide notifications dated 18.61998 and 25.1.1999, uniform
tariffs of electricity were introduced by which the rebate so given was
reduced to 17%. Post 2000, vide a notification dated 7.8.2000, a new
tariff was announced which completely withdrew the hill development rebate.
A challenge to the aforesaid notifications was turned down by this Court.
This Court was concerned with an earlier decision reported in U.P. Power
Corporation Limited v. Sant Steels and Alloys (P) Ltd., (2008) 2 SCC 777,
which took a very restrictive view of Section 49 of the Electricity Supply
Act of 1948, stating that any notification issued thereunder can only be
revoked or modified if express provision was made for such revocation under
Section 49 itself. Further, such revocation could take place under the
General Clauses Act only if such withdrawal was in larger public interest,
or if legislation was enacted by the legislature authorizing the Government
to withdraw the benefit granted by the notification. The larger Bench
overruled the Sant Steels case stating that its view of Section 49 of the
Electricity Supply Act was plainly incorrect, and that Sections 14 and 21
of the General Clauses Act made it clear that a notification issued under
Section 49 could be exercised from time to time, including the power to
revoke such notification.
30. However, when it came to the applicability of the doctrine of
promissory estoppel, this Court relied upon the observations made in State
of Rajasthan and another v. J.K. Udaipur Udyog Ltd. and another, (2004) 7
SCC 673, and Arvind Industries and others v. State of Gujarat and others,
(1995) 6 SCC 53.
31. From the State of Rajasthan case, para 25 was quoted by this Court in
order to arrive at a conclusion that the recipient of an exemption granted
by a fiscal statute would have no legally enforceable right against the
Government inasmuch as such right is a defeasible one in the sense that it
may be taken away in exercise of the very power under which the exemption
was granted. What was missed from that case was the very next paragraph
which states as follows:-
“In this case the Scheme being notified under the power in the State
Government to grant exemptions both under Section 15 of the RST Act and
Section 8(5) of the CST Act in the public interest, the State Government
was competent to modify or revoke the grant for the same reason. Thus what
is granted can be withdrawn unless the Government is precluded from doing
so on the ground of promissory estoppel, which principle is itself subject
to considerations of equity and public interest. (See STO v. Shree Durga
Oil Mills). The vesting of a defeasible right is therefore, a
contradiction in terms. There being no indefeasible right to the continued
grant of an exemption (absent the exception of promissory estoppel), the
question of the respondent Companies having an indefeasible right to any
facet of such exemption such as the rate, period, etc. does not arise.” (at
Para 26)
32. The aforesaid paragraph 26 has been noticed by this Court in Mahabir
Vegetable Oils (P) Ltd. and another v. State of Haryana and others, (2006)
3 SCC 620, (see paragraphs 34 and 35). It is clear, therefore, that the
reliance by this Court in the Shree Sidhbali Steels Ltd. case upon the
aforesaid judgment when it comes to non application of the principle of
promissory estoppel to exemptions granted under statute would be wholly
inappropriate.
33. Similarly, the Arvind Industries case is again a judgment in which it
is clear that the doctrine of promissory estoppel could have no application
because the appellant in that case was not able to show that any definite
promise was made by or on behalf of the Government and that the appellant
had acted upon such promise. (see paragraph 9)
34. It is clear, therefore, that Shree Sidhbali Steels Limited was a case
which was concerned only with whether a benefit given by a statutory
notification can be withdrawn by the Government by another statutory
notification in the public interest if circumstances change – (see
paragraphs 30 and 42). Such is not the case before us. On the facts
before us, a notification which ought to have been issued under Section 3A
after it was introduced pursuant to a promise made was not issued at all.
And change in circumstances leading to overriding public interest
displacing the doctrine of promissory estoppel is absent in the facts of
the present case. We are, thus, satisfied that the aforesaid judgment can
have no application whatsoever to the facts of the present case. [1]
35. Shri Radhakrishnan then referred us to Excise Commissioner, U.P. v.
Ram Kumar, (1976) 3 SCC 540 at para 19, for the proposition that it is now
well settled by a catena of decisions that there can be no question of
estoppel against the Government in the exercise of its legislative,
sovereign, or executive powers.
36. This very passage was referred to in M/S Motilal Padampat Sugar Mills
and was explained thus:
“The next decision to which we must refer is that in Excise Commissioner
U.P. Allahabad v. Ram Kumar [(1976) 3 SCC 540 : 1976 SCC (Tax) 360 : 1976
Supp SCR 532] . This was also a decision on which strong reliance was
placed on behalf of the State. It is true that, in this case, the Court
observed that “it is now well settled by a catena of decisions that there
can be no question of estoppel against the Government in the exercise of
its legislative, sovereign or executive powers,” but for reasons which we
shall presently state, we do not think this observation can persuade us to
take a different view of the law than that enunciated in the Indo-Afghan
Agencies case. …
It will thus be seen from the decisions relied upon in the judgment that
the Court could not possibly have intended to lay down an absolute
proposition that there can be no promissory estoppel against the Government
in the exercise of its governmental, public or executive powers. That would
have been in complete contradiction of the decisions of this Court in
the Indo-Afghan Agencies case, Century Spinning and Manufacturing Co.
case and Turner Morrison case and we find it difficult to believe that the
Court could have ever intended to lay down any such proposition without
expressly referring to these earlier decisions and overruling them. We are,
therefore, of the opinion that the observation made by the Court in Ram
Kumar case does not militate against the view we are taking on the basis of
the decisions in the Indo-Afghan Agencies case, Century Spinning &
Manufacturing Co. case and Turner Morrison case in regard to the
applicability of the doctrine of promissory estoppel against the
Government.” [SCR at pp. 689, 691]
37. Shri Radhakrishnan then referred us to the judgment in Sharma
Transport v. Govt. of A.P., (2002) 2 SCC 188 at paragraph 24, and Bannari
Amman Sugars Ltd. v. CTO, (2005) 1 SCC 625, at paragraph 20, for the
proposition that promissory estoppel must yield to overriding public
interest. There can be no quarrel with this proposition except that, as
has been pointed out above, this case does not contain any such overriding
public interest.
38. Shri Radhakrishnan also referred us to Avinder Singh v. State of
Punjab, (1979) 1 SCC 137, at paragraphs 11 and 17, for the proposition that
the legislature cannot delegate its essential legislative functions. We
are at a loss to understand how this authority would at all apply to the
facts of the present case as it is not the State’s stand that there is any
excessive delegation of legislative power in the present case.
39. In the present case, it is clear that no Writ of Mandamus is being
issued to the executive to frame a body of rules or regulations which would
be subordinate legislation in the nature of primary legislation (being
general rules of conduct which would apply to those bound by them). On the
facts of the present case, a discretionary power has to be exercised on
facts under Section 3A of the Kerala Buildings Tax Act, 1975. The non-
exercise of such discretionary power is clearly vitiated on account of the
application of the doctrine of promissory estoppel in terms of this Court’s
judgments in Motilal Padampat and Nestle (supra). This is for the reason
that non-exercise of such power is itself an arbitrary act which is
vitiated by non-application of mind to relevant facts, namely, the fact
that a G.O. dated 11.7.1986 specifically provided for exemption from
building tax if hotels were to be set up in the State of Kerala pursuant to
the representation made in the said G.O. True, no mandamus could issue to
the legislature to amend the Kerala Buildings Tax Act, 1975, for that would
necessarily involve the judiciary in transgressing into a forbidden field
under the constitutional scheme of separation of powers. However, on
facts, we find that Section 3A was, in fact, enacted by the Kerala
legislature by suitably amending the Kerala Buildings Tax Act, 1975 on
6.9.1990 in order to give effect to the representation made by the G.O.
dated 11.7.1986. We find that the said provision continued on the statute
book and was deleted only with effect from 1.3.1993. This would make it
clear that from 6.9.1990 to 1.3.1993, the power to grant exemption from
building tax was statutorily conferred by Section 3A on the Government.
And we have seen that the statement of objects and reasons for introducing
Section 3A expressly states that the said Section was introduced in order
to fulfill one of the promises contained in the G.O. dated 11.7.1986. We
find that, the appellants, having relied on the said G.O. dated 11.7.1986,
had, in fact, constructed a hotel building by 1991. It is clear,
therefore, that the non-issuance of a notification under Section 3A was an
arbitrary act of the Government which must be remedied by application of
the doctrine of promissory estoppel, as has been held by us hereinabove.
The ministerial act of non issue of the notification cannot possibly stand
in the way of the appellants getting relief under the said doctrine for it
would be unconscionable on the part of Government to get away without
fulfilling its promise. It is also an admitted fact that no other
consideration of overwhelming public interest exists in order that the
Government be justified in resiling from its promise. The relief that must
therefore be moulded on the facts of the present case is that for the
period that Section 3A was in force, no building tax is payable by the
appellants. However, for the period post 1.3.1993, no statutory provision
for the grant of exemption being available, it is clear that no relief can
be given to the appellants as the doctrine of promissory estoppel must
yield when it is found that it would be contrary to statute to grant such
relief. To the extent indicated above, therefore, we are of the view that
no building tax can be levied or collected from the appellants in the facts
of the present case. Consequently, we allow the appeal to the extent
indicated above and set aside the judgment of the High Court.
…………………………J.
(A.K. Sikri)
…………………………J.
(R.F. Nariman)
New Delhi;
May 11, 2016.
———————–
[1] Shree Sidhbali Steels Ltd. has been applied recently in Kothari
Industrial Corporation Ltd. v. Tamil Nadu Electricity Board & Ors., (2016)
4 SCC 134.
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