Tax Officer & ANR Vs. M/S. Shree Durga Oil Mills & ANR  INSC 936
(15 December 1997)
C. SEN, SUJATA V. MANOHAR
C.A. NOS. 3785-86 OF 1988)
Durga Oil Mills, respondent herein, was assessed to tax by the Sales Tax
officer for the assessment years 1979-80, 1980-81 and 1981-82 for purchase of
groundnut from unregistered dealers. There is no dispute that groundnut from
unregistered dealers. There is no dispute that groundnut was purchased from
time to time by the respondents and utilised for manufacturing oil. The
assessment orders were challenged by a writ petition on the ground that in view
of the Industrial policy Resolution (I.P.R) dated 18.7.1979 issued by the
Industries Department of the Government of Orissa, sales tax was not payable by
a new industry on the purchase of raw material for the period prescribed in the
contended on behalf of the writ petitioner that it had applied for a license
setting up an industry at Betnoti in the district of Mayurbhanj and obtained a
provisional registration certificate on 28.11.1979. A permanent registration
certificate as a small scale industrial unit was granted by the Director of
Industries, Orissa on 10.4.1980. The industrial unit also obtained a production
certificate certifying that it had started production on 19.3.1980. The
certificate of registration was renewed from time to time. clause (8) of the
I.P.R. effective for the period 1979-83 provided that village cottage and tiny
industries certified as such by the State Government and small scale industries
shall be exempt from purchase/sales tax for five years on construction
material, raw material, machinery and packaging materials. Small scale
industrial units in non-backward areas would be entitled to this exemption only
for four years. The case of the writ petitioner before the High Court was that
it set up its industry in the district of Mayurbhanj pursuant to this I.P.R. It
had obtained a huge loan from the united Bank of India. In term of the I.P.R.,
it was entitled to tax exemption on purchase of groundnut, mustard seeds etc.
which were used as raw material for production of oil.
Sales Tax Officer took the stand that there was no notification in force under
Section 6 of the Orissa Sales Tax Act, 1947 granting exemption to purchase or
sale of groundnut, mustard seeds etc. during the relevant period. In the
absence of such a notification, the assessee could not gain immunity from
payment of tax on its purchases.
6 of the Orissa Sales Tax Act Provides that the State may be notification,
subject to such conditions and exceptions, if any, exempt from tax the sale or
purchase of any goods or class of goods and likewise withdraw any such
exemption. A notification dated 11.11.1969 had been issued under Section 6 by
the State Government by which raw materials which went into manufacture of the
finished goods were exempted from sale purchase tax when such goods were sold
to a registered dealer who was a manufacturer inside the State and who had
started production after 1.4.1969.
exemption had been given for a period of five years from the date on which such
registered dealer had started production. A similar notification dated
23.4.1976 was issued granting exemption to raw materials purchased by a
manufacturer for a further period of five years from the date on which
production had commenced. Both these notifications require that in order to
avail this exemption the manufacturer should furnish declarations in Form 'D'.
exemptions granted by the two earlier notifications were abrogated by
notification dated 20.5.1977. The State Government again restored the earlier
two notifications by another notification dated 9.9.1977. However, in that
notification dated 9.9.77, the exemption was limited only to the industries
which had started production prior to 1.4.1977. Since the industry set up by
the writ petitioner had commenced production on 19.3.1980, it was not eligible
for the exemption given by the notification dated 9.91977.
case of the respondent in the writ petition was that the I.P.R. was effective
for the period 1979-83. The petitioner had set up its industry pursuant to and
in terms of this Resolution. Exemption from tax had been granted by the two
notifications issued on 11.11. 1969 and 23.4.1976. The State Government could
not change these notifications to the detriment of the assessee after the assessee
had set up its plant and had taken a huge loan from the bank for carrying on
its business. A prayer was mad to declare the notification dated 9.9.1977 as
ultra vires Article 19(1) (g) of the Constitution of India.
High Court allowed the writ petition on the ground that in the I.P.R., a clear
and unequivocal promise had been made by which a legal relationship was sought
to be created between the State and the persons who had acted on the basis of
the I.P.R. M/s. Shree Durga Oil Mills, the writ petitioner, had set up its
industry on the basis of the declaration made in the I.P.R. and the promise
held out therein. There was no way the State Government could back out from the
commitments made by it in the I.P.R. after the petitioner had actually set up
its industry pursuant to that Resolution which was effective for the period
1977-83. On the strength of this reasoning, the Orissa High Court quashed the
assessment orders passed by the Sales Tax Officer. The State has now come up in
the points raised in this Court on behalf of the respondent is that the High
Court had merely followed its judgments in the case of Jagannath Roller Flour
Mills and Ors. V. State of Orissa (1987)
65 STC 384 and also in M/s. Industrial Packaging. No appeal was preferred
against these two judgments. Therefore, it is not open to the state now to
contend in this case that the decision of the High Court was erroneous. Since
the Sales Tax Department had accepted the aforesaid two decisions as final and
binding, it could not be permitted to challenge the settled law.
behalf of the appellant, it has been pointed out that although the earlier two
decisions were not challenged in this Court, the High Court's view needs
reconsideration in view of the decision of this Court in the case of
Commissioner of Sales Tax, Orissa and Anr. v. M/S. Jagannath Cotton Mill 99 STC
83 where it was pointed out:
High Court seems to have proceeded on the assumption that the I.P.R. by itself
is enough to provide the exemption from the sales tax. But where the provisions
of the Sales Tax Act are also amended providing for exemption, then the Court
has to see whether they are the same as the I.P.R. or are they different-and if
different, what is the effect of such difference. It is, therefore, necessary
to ascertain the relevant provisions in the Sales Tax Act, Rules and
notifications, if any, issued thereunder before expressing a final opinion in
view, this appeal cannot be shut out on the preliminary ground that no appeal
was preferred against the two earlier two decisions of the High Court which
were followed in the instant case. It is for the Court to decide whether to
entertain an appeal or not. In our view, the point of law raised in this case
is of general public importance and this appeal cannot be dismissed in limine
on the preliminary issue of maintainability. On behalf of the appellant, it has
been pointed out that in the High Court itself, there has been a change in the
perception of law in this regard.
merit of the case, it has been contended on behalf of the respondent that the
State cannot be allowed to first grant exemption and induce industries to be
set up on the basis of the promise held out in its I.P.R. and thereafter back
out from the promise after it had been acted upon. reliance was placed on a
decision of this Court in Pournami Oil Mills v. State of Kerala & Anr.
(1987) 1 SCR 654 for granting exemption from sales tax an I.P.R. was sufficient
by itself. A Statutory notification was not necessary to implement that policy.
Persons who had acted on the basis of the I.P.R. were entitled to get benefit thereunder.
It has been contended that this Court has emphasised this rule once again in
the case of Pine Chemicals ltd. v. Assessing Authority, (1992) 2 SCC 683.
Chemicals case dealt with the exemption from sales tax granted under the J
& K General sales Tax Act. 1962. It was held in that case that if the
exemption was claimed on the basis of a Minister's speech or a brochure
published by the Government then the claim of promissory estoppel could not be
entertained on behalf of any person who claimed that they had changed their position
on the basis of the speech or the brochure. It was, however, held that if the
Government in exercise of powers under a statute granted exemption then if
appropriate conditions existed a case of promissory estoppel could arise. The
Court in that case found that the Government had not made any general
declaration of its intention but had actually passed an order granting
exemption to new industries from Sales Tax.
order was half to new industries from Sales Tax. The order was held to have
been issued under Section 5 of the General Sales Tax Act. Relying on these
representations each of the appellant had set up their industries. This Court
was of the view that since the appellants on the representation of the State
had set up their industries, they were entitled to the benefit of tax exemption
for the entire period of five years as promised by the Government. Section 5 of
the General Sales Tax Act as set out in the judgment was:
Exemption from tax- The Government may, subject to such restrictions and
conditions as may be prescribed, including conditions as to licence and licence
fee, by order exempt in whole or in part from payment of tax any class of
dealers or any goods in class or description of goods." It will be seen
that unlike Section 6 of the Orissa Sales Tax it does not specifically say that
any exemption from tax could be granted by the Government by a notification and
such exemption could be withdrawn at any point of time by the Government.
Moreover, in that case no argument was advanced nor was the Court called upon
to consider the necessity of overriding public interest in situations like
this. If the Government after granting tax exemption to various industries
finds itself in a tremendous financial crunch and seeks to raise finance by
doing away with the exemptions, it cannot be argued that because the Government
had promised to give tax exemption, which was revocable under the statute, the
Government cannot resile from its stand however disastrous it may turn out to
be for the State's economy.
crux of the matter in this case is whether the Government had made any promise
to the respondent and if so, can it depart from the promise made by it in the
was stated to be effective from 1977-1983.
are several reasons why we are unable to uphold the contention based on the
principle of promissory estoppel raised by the respondents in this case. No
particulars have been given by the respondents as to when the decision was
taken to set up the industry, the date when the loan was obtained from the
bank, and exactly when land was purchased or the plant and machinery were
acquired for setting up of the small scale industrial unit. the I.P.R. on which
reliance has been placed by the respondent was issued on 18.7.1979. A provisional
registration certificate in respect of the respondent's industry was issued on
28.11.1979. The respondent has not given factual details of how in the short;
span of about four months, it set up its industry on the basis of the I.P.R.
the Government may change its industrial policy if the situation so warrants. merely
because, the I.P.R. as announced for the period 1979-1983, it does not mean
that the Government cannot amend or change the policy under any circumstance.
As a matter of fact, in this case the Government had published another I.P.R.
on 31.7.1980 modifying the earlier I.P.R. The vires of the Second I.P.R. has
not been challenged. The two I.P.Rs. have not been issued under any particular
statute. A general announcement was made by the Government that certain
economic policy would be pursued for the acceleration of the growth of the
industrial sector in the State of Orissa. For that purpose, a package of measures for stimulating the growth of
industries were announced. It was specifically made clear in the I.P.R. dated
Government orders will issue laying down the mode of administering the
concessions and incentives by concerned departments." In other words, the
I.P.R. dated 18.7.79 by itself did not grant any exemption to the persons who
set up industries pursuant to that I.P.R. The I.P.R. merely promised that
orders will be issued laying down the mode of administering the concessions and
incentives by concerned departments.
of sales tax can only he granted in the manner laid down by the Sales Tax Act.
The Government by an executive order cannot override the requirement of the
statute. The method and manner of granting exemption has been laid down in
Section 6 of the Orissa Sales Tax Act.
Section specifically says that exemption have to be granted by a notification
issued under Section 6 can be modified or withdrawn by the State Government at
any point of time. The State Government in the instant case, initially issued
the exemption notifications under Section 6. The State Government subsequently
decided to withdraw the exemption notification in respect of some the
industries which had commenced production after 1.4.1977. The state Government
was fully competent to do so under the Provisions of Section 6 of the Act. The
respondent must have been aware of this when its industry was set up. Every
body is presumed to know the law. section 6 of the Orissa Sales Tax Act which
empowers the State Government to issue a notification granting exemption from
sales tax, also empowers the State Government to withdraw, amend or modify any
such notification as and when it thinks necessary to do so.
6 of the Orissa Sales Tax Act is as under:
Tax-free Goods- The State Government may, by notification, subject to such
conditions and exceptions, if any, exempt from tax the sale or purchase of any
goods, or class of goods and likewise withdraw any such exemption." When
the respondent set up its oil mill and was granted exemption from sales tax, it
should have known that the notification granting exemption of tax under Section
6 could be withdrawn at any point of time. Therefore, the case of promissory estoppel
is without any basis. There cannot be any estoppel against statute.
it is well settled that any I.P.R. can be changed if there is an overriding
public interest involved.
been stated on affidavit by the State of Orissa that after a package of incentives was given to the industries, the
Government was faced with severe resource crunch. On a review of its financial
position, it was felt that for the sake of the economy of the State, it was
necessary to limit the scope of exemption granted to various industries.
further notifications were issued under Section 6 of the Orissa Sales Tax Act
from time to time. Because of this new perception of the economic scenario, the
scope of the earlier notifications was restricted by subsequent notifications
issued under Section 6. This also led to issuance of the second I.P.R. dated
question of applicability of the doctrine of promissory estoppel against the
Government has been considered in a number of cases by this Court.
case of Kasinka Trading and Another v. Union of India and Another, (1995) 1 SCC
274, a notification was issued by the Customs Department under Section 25(1) of
the Customs Act in public interest exempting certain goods from basic import
duty and specified the date upto which it will remain in force. prior to expiry
of that date another notification was issued withdrawing the exception and
imposing customs duty on import of such goods. A challenge was made to
withdrawal of the notification by some importers who claimed that they had
entered into agreements on the basis of the earlier notifications. It was held
by this Court that the Government had issued the first notification in public
interest for a certain period. But it was felt later that in public interest. exemption
should not be continued even though that period had not expired. Therefore the
Government withdrew it. it was held that when exemption was granted under
statutory power, it was implicit that it could also be rescinded or modified in
exercise of the same power.
instant case, Section 6 of the Orissa Sales Tax Act specifically lays down that
the exemption notification issued under that Section can be withdrawn at any
point of time.
withdrawal of notification was done in public interest. The Court will not
interfere with any action taken by the Government in public interest. Public
interest must override any consideration of private loss or gain.
view taken by its Court in Kasinka's case was reiterated by a Bench of
three-judges in the case of Shrijee 398. It was laid down in that case that the
determination of applicability of promissory estoppel against the Government
hinges upon balance of equity or public interest. In case there is a
supervening public equity, the Government would be allowed to change its stand;
it would then be able to withdraw from representation made by it which induced
persons to take certain steps which may have gone adverse to the interest of
such persons on account of such withdrawal.
public interest was accepted as the superior equity which can override
individual equity, the aforesaid principle should be applicable even in cases
where a period had been indicated for operation of the promise. In that case, a
notification was issued exempting customs duty on PVC. By a second notification
the exemption was withdrawn.
Court held that the facts of the case revealed that there was a supervening
public interest and the Government was competent to withdraw the first
notification without giving any prior notice to the respondent.
instant case, it has been stated on behalf of the State that Various notifications
granting sales tax exemptions to the dealers resulted in severe resource
crunch. On reconsideration of the financial position, it was decided to limit
the scope of the earlier exemption notifications issued under Section 6 of the Orissa
Sales Tax Act. because of this new perception of the economic scenario of the
State, the scope of the earlier notifications had to be restricted. They were
first abrogated altogether on 20.5.1977. Thereafter, it was decide to grant
exemption at a limited scale.
opinion, the plea of change of policy trade on the basis of resource crunch
should have been sufficient for dismissing the respondent's case based on the
doctrine of promissory estoppel. Public interest demanded modification of the
as it has been noted earlier that the I.P.R. itself had not granted any
exemption but had indicated that orders will be issued by various departments
for granting the exemptions. The exemption order under sales tax could only be
issued under Section 6 which could be amended or withdrawn altogether. This is
expressly provided by Section
the respondent acted on the basis of a notification issued under Section 6 it
should have known that such notification was liable to be amended or rescinded
at any point of time, if the Government felt that it was necessary to do so in
public interest. That is exactly what has happened in this case.
view of the above, we are of the opinion that this appeal must succeed and is
allowed. The judgment under appeal is set aside. There will be no order as to
Nos. 3785-86 of 1988 In view of the above decision in C.A. No. 3784/88, these
appeals are also allowed.