Report No. 108

2.17. M.P. Sugar Mills v. State of U.P.-

On October 10, 1968, the respondent released a news item that all new industrial units in the State would be given exemption from sales tax under section 4A, U.P. Sales Tax Act, 1948, for a period of 3 years from the date of commencement of production. On October 11, the appellant wrote to the Director of Industries stating that in view of the Sales Tax Holiday announced, it would set up a hydrogenation plant and asked for confirmation regarding the exemption. On October 14, the Director replied confirming the news item. On December 12, the appellant's representative met the Chief Secretary of the Government and adviser to the Governor and informed him of the various steps being taken for setting up the plant and the Chief Secretary assured him that the appellant would be entitled to the sales tax holiday. (The State was under President's rule from February 26, 1968 to February 28, 1969, and the new elected Government assumed office on February 27, 1969.)

On December 13, the appellant wrote to the Chief Secretary a letter recording the oral assurance given by the Chief Secretary with a request for confirmation. On December 22, the Chief Secretary replied that the respondent would consider the request for exemption on the submission of a formal application. By that time, the appellant had in fact submitted such an application. The financial institutions which were approached by the appellant for financial assistance were not satisfied with the letter of December 22, as it merely stated that the respondent would consider the request for exemption and so, on January 22, 1969, the appellant again wrote to the Chief Secretary for a formal order of exemption. On January 23, the Chief Secretary gave the necessary assurance regarding the exemption.

The appellant thereupon went ahead with the setting up of the factory, and on April 25, wrote to the Chief Secretary informing him that the U.P. Finance Corporation had sanctioned financial assistance in view of the assurance given by him. On May 16, the Deputy Secretary to the Government, Industries, wrote to the appellant requesting it to send its representative to a meeting fixed by the Chief Minister to discuss the question of exemption. The appellant replied that exemption had already been granted to it but would however send its representative to the meeting. The appellant's representative attended the meeting and reiterated that exemption had already been granted to the appellant. Thereafter, the appellant proceeded with the work of setting up the factory.

On January 20, 1970, the appellant was informed by the respondent that the respondent had taken a policy decision that new vanaspati units which go into production by September 30, would be given partial exemption from sales tax. On June 25, 1970, the appellant wrote to the respondent that it would avail itself of the concession rates. The appellant's factory went into production on July 2. On August 12, another news item appeared that the respondent had decided to rescind even the partial concession. The appellant filed a writ petition for a direction to the respondent to exempt the sales of vanaspathi manufactured by the appellant for a period of 3 years.

The Supreme Court held1 that the respondent was bound to exempt the appellant from payment of sales tax in respect of sales of vanaspati for a period of 3 years from the date of commencement of production and was not entitled to recover such tax from the appellant subject to certain directions regarding the refund of the tax already collected and deposited by the appellant. For arriving at this decision the Court relied on the doctrine of promissory estoppel after review of the Indian, English and the U.S. laws on the scope of the doctrine. In doing so, the Court laid down the following propositions:

"(a) It is true that to allow promissory estoppel to found a cause of action would seriously dilute the principle which requires consideration to support a contractual obligation, but that is no reason why the new principle, which is a child of equity brought into the world with a view to promoting honesty and good faith and bringing law closer to justice, should be held in fetters and not allowed to operate in all its activist magnitude, so that it may fulfil the purpose for which it was conceived and born ... We do not see any reason why promissory estoppel should not be allowed to found a cause of action where, in order to satisfy the equity, it is necessary to do so.

(b) The law may therefore, now be taken to be settled that when the Government makes a promise knowing or intending that it would be acted upon by the promise 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 under Art. 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. No distinction can be made between the exercise of a sovereign or governmental function and trading or business activity of the Government, so far as the doctrine of promissory estoppel is concerned.

(c) We do not think that it is necessary, in order to attract the applicability of the doctrine of promissory estoppel, that the promisee, acting in reliance on the promise, should suffer any detriment."

As regards the first proposition, Bhagwati, J., in the instant case and Shah, J., in the two cases decided by him, on which Bhagwati, J. placed strong reliance, permitted promissory estoppel to be used as a cause of action, Bhagwati, J. relied on a judgment of the Court of Appeal2 for his conclusion that promissory estoppel can be the basis of a cause of action. He noticed that Spencer-Bower and Turner3 have explained that decision on the basis that it is an application of proprietary estoppel.

But Bhagwati, J. relied on Lord Scarman's observation that the distinction (between promissory estoppel and proprietary estoppel) may indeed be valuable to those who have to teach or explain the law, but I do not think that, in solving the particular problem raised in a particular case,, putting the law into categories is of the slightest assistance and said that the decision was not based on any distinctive feature of proprietary estoppel but proceeded on the assumption that there was no distinction between promissory and proprietary estoppel so far as the problem before them was concerned' (emphasis supplied).

And that is exactly the point to be noted. If it was a clear case of promissory estoppel and not proprietary' estoppel, would the learned Law Lords have given relief on the basis of estoppel as a cause of action? In fact, Lord Denning with whom Lord Scarman agreed had stated4 'there are estoppels and estoppels. Some do give rise to a cause of action. Some don't in the species of estoppel called 'proprietary estoppel' 'it does give rise to a cause of action. However there is much to be said in his favour when Bhagwati, J. asks:

"But on what principle, one may ask, is the distinction to be sustained between promissory estoppel and proprietary estoppel in the matter of enforcement by action? If proprietary estoppel can furnish a cause of action, why should promissory estoppel not?"