Bombay High Court
Ceat Tyres Of India Ltd. vs Union Of India (Uoi), E.R. Srikantia, ... on 17 July, 1987
Equivalent citations: 1988(14)ECR671(BOMBAY)
JUDGMENT H. Suresh, J.
1. The legal proposition that stands invoked in this matter is, whether there can be promissory estoppel as against taxing statute and if so to what extent.
2. The petitioners are the manufacturers of tyres and tubes. The tyres and tubes manufactured by the petitioners are subject to central excise duty on an ad valorem basis, as they fall within item 16 of the Tariff to the said Act. From 1974 onwards the appropriate rate of excise duty levied on tyres and tubes has been, with certain exceptions, 55 percent, ad valorem. It appears that some time prior to 1976 the question of impact of excise duty on the production of goods in the industrial sector generally was engaging the attention of the Central Government. The Central Government came to the conclusion that the element of excise duty had the effect, inter alia, of discouraging an increase in the production. As increase in production was in the interest of the country and the consumers generally, the Central Government with a view to increase production issued a notification bearing No. 198 of 1976 dated June 16, 1976.
3. The salient features of this notification were....
(a) The scheme was to remain in operation until March 31, 1979.
(b) The scheme applied to the goods listed in the table to the said scheme. The said table listed as many as 43 separate products and included, inter alia, tyres and tubes falling within the ambit of item 16 of the said Tariff.
(c) Under the scheme any manufacturer who cleared goods in excess of base clearances computed as provided under the said scheme was entitled to a rebate of twenty five per cent excise duty on such excess clearances.
The scheme, of course, gives further directions as to how to claim the benefit of exemption and how necessary declarations have to be filed etc.
4. The petitioners acted on this notification and submitted their declarations to the Superintendent of Central Excise on or about September 29, 1976. The said declarations were accepted by the department. Thereafter as a result of the scheme and the said declarations, the petitioners were entitled to a rebate of excise duty of 25 per cent on any clearance made by them in excess of the aforesaid base clearances and the petitioners were entitled to the benefit thereof until March 31, 1979.
5. However, on or about July 14, 1978, the Central Government purported to issue two notifications in the purported exercise of its powers under Rule 8 of the Central Excise Rules. The first notification bearing No. 363 purported to delete the items in the table of 1976-notification relating to tyres and tubes. The second notification bearing No. 364 purported to introduce another and different scheme for the rebate of excise duty only in respect of tyres and tubes. The immediate effect of these two notifications was that the petitioners lost their benefit of exemption which they were getting, at the same time it enabled respondents Nos. 3 & 4 as also certain other manufacturers of tyres and tubes, certain benefit on the basis of their having separate factories and their licenced capacity did not exceed 5 lakhs tyres and tubes per year.
6. The petitioners have filed this petition on the ground that the doctrine of promissory estoppel applies as against the Central Government and, therefore, they could not have withdrawn the 1976-notification which was time-bound upto March 31, 1979. The second ground on which the petition was filed that the latter notification bearing No. 364 discriminates between the petitioners on our side, and respondents No. 3 & 4 and other similar manufacturers ; on the other side and, therefore, the said notification is ultra vires Article 14 of the Constitution of India. It is also contended that in any event the Government has no powers to withdraw the benefit of the exemption till March 31, 1979.
7. After hearing the advocates for some time, I felt that having regard to the view 1 propose to take in this matter, it is not necessary for me to go into the question of vires of the second notification, inasmuch as the petition can be disposed of mainly on the question whether the doctrine of promissory estoppel applies to the notifications issued under Rule 8 of the Central Excise Rules or not.
8. Mr. Advani, appearing for the department, argued that the notifications have been issued under Rule 8 of the Central Excise Rules and that they have been issued in accordance with the power conferred by the statute and that, therefore, the notifications have statutory force. He submitted that there can be no promissory estoppel as against the statute. Secondly, he submitted, that the petitioners cannot be said to have acted on the 1976 notification and in any event they have not acted to their detriment and, therefore, it cannot be said that they can insist on the benefit of the said exemption upto March 31, 1979. Lastly, he submitted that the second notification has been issued in the public interest and, therefore, where public interest is involved, again doctrine of promissory estoppel would not apply.
9. Mr. Setalvad, appearing for the petitioners, has rightly conceded that these notifications cannot be construed as mere executive orders but they are of a legislative character. But his contention is that that should not make any difference.
10. Mr. Advani relied on a judgment of Mr. Justice Jahagirdar in writ petition No. 1300 of 1986 (G.T.C. Industries Limited and Anr. v. Union of India and others) , wherein the learned Judge has observed that the notification issued in exercise of powers conferred by Rule 8 which Rule itself has been framed under Section 37(xvii) of the Act, is legislative in character. There is no dispute about this proposition as such. But Mr. Advani says that the said notification is as if contained in the parent statute itself and, therefore, there can be no estoppel against the statute. Mr. Justice Jahagirdar was not concerned with the doctrine of promissory estoppel, though he has set out how in certain contingencies such a notification can be struck down.
11. Mr. Advani's main trump card is the Full Bench judgment of the Delhi High Court being case of Bombay Conductors Limited v. Government of India, .
12. In that case Justice Rohatgi, speaking for the Full Bench, after taking notice of several cases of the Supreme Court from 1952 to 1980, including the "landmark decision" of Motilal Padampat Sugar Mills Company Limited v. The State of Uttar Pradesh and Ors. and the subsequent case of Jit Ram Shiv Kumar v. State of Haryana , which has differed from Motilal or for that matter Indo-Afghan Agencies, a decision of three judges in preference to two cases decided by the bench of two Judges, observed as follows:
In our opinion it is unnecessary to explore the precise parameters of the doctrine of promissory estoppel in this case because we are convinced that we will be trespassing on the legislative domain if we admit the doctrine in the fiscal fields. In truth, the question of estoppel does not arise on the facts and circumstances of this case. This is a case of tax law. In tax law there is hardly any room for the applicability of promissory estoppel.
Thereafter while elaborating the nature of power to tax, the learned Judge said....
So two propositions can be said to be established by cases. One that the power to tax is legislative in character. Second, that in tax law estoppel is unknown.
While there is no demur about the first proposition, can it be said that the second proposition is equally unexceptionable ? However, the learned Judge relies on the following passages from Motilal in support of his second proposition:
There can also be no promissory estoppel against the exercise of legislative power. The legislature can never be precluded from exercising its legislative function by resort to the doctrine of promissory estoppel: vide State of Kerala v. Gwalior Rayon Silk Manufacturing Company Limited (l974) 1 S.C.R. 671.
Again:
There can be no promissory estoppel against the legislature in the exercise of its legislative function.
The learned Judge thereafter takes note of the fact that taxation is the prerogative of the legislatures and observes...
Imposition of tax and exemption from tax are acts of a positive kind. These cannot be created by estoppel. In a democratic system a tax can only be imposed by law. Thus the Courts or the administration do not have a "creative power" to make things or transactions taxable where it is not proved that the legislature wished them to be taxable. Likewise, exemption from tax cannot be claimed by pressing against the legislative power the doctrine of promissory estoppel.
The learned Judge was dealing with the case under Section 26 Sub-section (1) of the Customs Act, 1962, which delegates power to the Central Government to grant exemption from duty whenever it thinks necessary to do so in the public interest. He then observes...
No Court can restrain the exercise of legislative power which is to be exercised for the public good. This was firmly established in Narinder Chand. and Gwalior Rayon, .
Again:
It was pressed upon us that we should do equity to the petitioners who, it was said, in reliance on the representation made in the notification dated 18th April, 1980, altered their position and acted to their detriment. In our opinion this argument has no merit. The truth is that the doctrine of promissory estoppel has no place in tax law. Promissory estoppel is "a child of equity" and "a juristic device for preventing injustice" : M.P. Sugar Mills, . But we are told that "in the law of taxation justice has no place at all" : David M. Walker-Oxford companion to Law (1980), page 1308. Nor equity. "There is no equity about a tax" : per Rowlatt, J. in Cape Bramdy Syndicate v. Inland Revenue Commissioner (1921) 1 K.B. 64 at page 71. The power to levy taxes is but one manifestation of the sovereignty of Parliament. Parliament is concerned only with the common weal. This is why the dominant note of Section 25 is "public interest". Public Interest is overriding. It can override private interest. It can override promises.
The learned Judge finally sums up and says...
The error resides in the assertion that it is an executive action. On this assumption we were invited to review and restrain the taxes.
That is how the Full Bench finally holds that the Government was competent to withdraw the exemptions once granted whether the notification granting the exemption was time-bound or not.
13. Undoubtedly, Justic Rohatgi was aware of the conflicting approach between Motilal and Jit Ram, the latter having been described by the learned Judge as....
...as a sounding board of warning against the danger of wider extension of this new doctrine by judicial activists.
However, he assumed that Jit Ram was the final word when he quoted the following observations:
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." Excise Commissioner, U.P. v. Ram Kumar, .
But this valient effort to reconcile on not so plausible a ground has been rendered futile when the Supreme Court, in a Bench consisting of Chief Justice P.N. Bhagwati, Justice R.S. Pathak and Justice A.N. Sen, in the case of Union of India v. Godfrey Philips India Limited , expressly disapproved of Jit Ram. This is what the Chief Justice said in which the two Judges agreed...
We find it difficult to understand how a Bench of two Judges in Jeet Ram's case could possibly overturn or disagree with what was said by another Bench of two Judges in Motilal Sugar Mills case. If the Bench of two Judges in Jeet Ram's case found themselves unable to agree with the law laid down in Motilal Sugar Mills case, they could have referred Jeet Ram's case to a larger Bench, but we do not think it was right on their part to express their disagreement with the enunciation of the law by a coordinate Bench of the same Court in Motilal Sugar Mills case. We have carefully considered both the decisions in Motilal Sugar Mills case and Jeet Ram's case and we are clearly of the view that what has been laid down in Motilal Sugar Mills case represents the correct law in regard to the doctrine of promissory estoppel and we express our disagreement with the observations in Jeet Ram's case to the extent that they conflict with the statement of the law in Motilal Sugar Mills case and introduce reservations cutting down the full width and amplitude of the propositions of law laid down in that case.
Thereafter the legal position was reiterated as follows:
Of course we must make it clear, and that is also laid down in Motilal Sugar Mills case (supra), that there can be no promissory estoppel against the Legislature in the exercise of its legislative functions nor can the Government or public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It is equally true that promissory estoppel cannot be used to compel the Government or a public authority to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority to make. We may also point out that the doctrine of promissory estoppel being an equitable doctrine, it must yield when the equity so requires, if it can be shown by the Government or public authority that having regard to the facts as they have transpired, it would be inequitable to hold the Government or public authority to the promise or representation made by it, the Court would not raise an equity in favour of the person to whom the promise or representation is made and enforce the promise or representation against the Government or public authority.
(Italic supplied by me.)
14. In Motilal Bhagwati J, speaking on behalf of the Supreme Court, after considering various English and Indian cases observed that...
It may also be noted that promissory estoppel cannot be invoked to compel the Government or even a private party to do an act prohibited by law. There can also be no promissory estoppel against the exercise of legislative power. The Legislature can never be precluded from exercising its legislative function by resort to the doctrine of promissory estoppel. Vide State of Kerala v. Gwalior Rayon Silk Manufacturing (Wvg.) Company Limited, .
Justice Rohatgi missed the last part of this passage. This was further clarified with reference to Indo-Afghan Agencies as follows:
It is not possible to believe that the Court was oblivious of these earlier decisions, particularly when one of these decisions in the Indo-Afghan Agencies case was an epoch making decision which marked a definite advance in the field of administrative law. Moreover, it may be noted that though standing by itself the observation made by the Court that "there can be no question of estoppel against the Government in exercise of its legislative, sovereign or executive powers" may appear to be wide and unqualified, it is not so, if read in its proper context. This observation was made on the basis of certain decisions which the Court proceeded to discuss in the succeeding paragraphs of the judgment. The Court first relied on the statement of the law contained in para 123 at page 783, Volume 28 of the American Jurisprudence (2d) but it omitted to mention the two important sentences at the commencement of the paragraph and the words "unless its application is necessary to prevent fraud or manifest injustice" at the end, which clearly show that even according to the American Jurisprudence, the doctrine of promissory estoppel is not wholly inapplicable against the Government in its governmental, public or sovereign capacity, but it can be invoked against the Government "when justified by the facts" as for example where it is necessary to prevent fraud or injustice. In fact, as already pointed above, there are numerous cases in the United States where the doctrine of promissory estoppel has been applied against the Government in the exercise of its governmental, public or executive powers. The Court then relied upon the decision in the Gwalior Rayon Silk Manufacturing Company's case but that decision was confined to a case where legislation was sought to be precluded by relying on the doctrine of promissory estoppel and it was held, and in our opinion rightly, that there can be no promissory estoppel against the legislature in the exercise of its legislative function.
(Italic supplied by me).
15. Again, the proposition of Justice Rohatgi that there can be no estoppel against the tax law is not very accurate as can be seen from Motilal when it says....
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.
(Italic supplied by me)
16. Mr. Setalvad has drawn my attention to a recent judgment of the Supreme Court being the case of Shri Bakul Oil Industries v. State of Gujarat, , wherein the question related to exemption from payment of sales tax under the Gujarat Sales Tax Act and whether the appellants were entitled to claim that the exemption should not be withdrawn under the cover of the doctrine of promissory estoppel and this is what Mr. Justice S. Natarajan said...
The exemption granted by the Government as already stated, was only by way of concession for encouraging entrepreneurs to start industries in rural and undeveloped areas and as such it was always open to the State Government to withdraw or revoke the concession. We must, however, observe that the power of revocation or withdrawal would be subject to one limitation viz. the power cannot be exercised in violation of the rule of Promissory Estoppel and depriving an industry entitled to claim exemption from payment of tax under the said rule.
17. Yet another case from Rajasthan was cited being the case of J.K. Industries Ltd. v. Union of India and others, , which is more explicit and it deals with exemption notifications issued by the Central Government in exercise of its statutory power under Rule 8 of the Central Excise Rules, 1944. Following Motilal and Godfrey Philips, the learned Judge explained the legal position as follows:
Now, the question is whether the Notification issued by the Central Government in exercise of the powers under Rule 8 of the Excise Rules whether such notifications can be equated with the legislative function or not. My answer to this question is in negative. The clear distinction has to be borne in mind between primary legislation and subordinate legislation and if the legislature passed any Act or laying down any law which is contrary to any earlier notifications then against such legislative function principles of promissory estoppel cannot be pleaded. But if the exemption notification is issued in the purported exercise of sub-ordinate legislation like Rule 8 of the Excise Rules then such sub-ordinate legislation cannot be elevated to the position of primary legislation so as to release the Government of its promise/ representation made before the citizen and citizen have acted upon such representations.
18. Therefore, it is clear that when an exemption, has been issued under Rule 8 of the Central Excise Rules, such exercise of power cannot be equated with the legislative function and the promise held by the Central Government to grant exemption in given conditions, can be enforced and the Government is bound by it and the obligation cannot be released on the basis that such exemption is in legislative exercise of its function. It is legislative in character, but the parliament has not made it. The Government can make and unmake such laws, day in and day out. It cannot be said that in such cases the doctrine of promissory estoppel has no application.
19. This, takes me to the other question as to whether it can be said that the petitioners have acted pursuant to the notification of 1976. Here again, if one has regard for Motilal (at page 650), it is not necessary that the petitioners should suffer any detriment as such. The relevant observations are as follows:
This contention of the State is clearly unsustainable and must be rejected. We do not think 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. What is necessary is only that the promisee should have altered his position in reliance on the promise.
This is the position that has been reiterated in several other cases also. Therefore, the question is as to whether the petitioners have altered their position on the basis of this exemption notification. Here, the petitioners have set out in paragraphs 7 and 10 of the petition as to what they did pursuant to this notification of the year 1976. Firstly, they have filed their declarations pursuant to the said exemption notification. Secondly, according to them they have introduced improvements in manufacturing processes, effected thorough technological changes, which necessitated the procurement of certain allied machinery. They have also stated that they were faced with production constraints in some areas, and, therefore, they contracted out at a heavy annual cost, certain other manufacturing processes viz. mastication and cord dipping. They have also stated that they have placed orders for rubber manufacturing machinery to assist the enhanced production capacity. They also further stated that certain items of machinery which had already been purchased but were to be installed over a period under a phased programme, were commissioned much ahead of this planned schedule and they stated that the commitment on this account was to the extent of rupees six crores approximately. They have also stated that they had to have an agreement with the labour force for the purpose of implementing the scheme.
20. Mr. Advani pointed out that it cannot be said that all these things were done pursuant to the exemption notification as such. He submitted that there is no evidence to show that the petitioners have imported any special machinery after the issuance of exemption notification as such. He also submitted that their own statement shows that the machinery had been imported earlier but only according to the petitioners they installed and started operating earlier because of this notification.
21. In my view it is clear from what they have stated that the petitioners have altered their position inasmuch as, undoubtedly, they filed their declarations and increased their production. This increase in production was mainly to avail of the benefit of the exemption notification. Undoubtedly, the withdrawal of this exemption notification affected them and, therefore, it cannot be said that the petitioners have not acted upon the said exemption notification.
22. Mr. Advani submitted that the exemption notification was withdrawn in the public interest and that, therefore, where public interest is involved there cannot be any estoppel. In this connection the Government has filed an affidavit of one Mr. Verma, Assistant Collector of Central Excise and this is what he said in connection with the withdrawal of the exemption notification and issuance of the second notification favouring respondents Nos. 3 and 4 and such other similar manufacturers. The relevant portion is at para 3 of the affidavit.
I say that the considerations which compelled the Government to revoke the benefit of the concession in the notification Exhibit 'B' to the petition are that the said concessions in Exhibit 'B' were withdrawn as it was found that its applicability to the tyre industry created and inequitable situation amongst tyre manufacturers by reason of the fact that the benefits under the said scheme were going primarily to a few tyre manufacturers only while the other manufacturers could not get the benefit of concession of the scheme and bear a considerable disadvantage. In the light of this experience and after taking into consideration all relevant considerations pertaining to the tyre industry, Government decided to discontinue the scheme forming the basis of Exhibit 'B' and introduced a new scheme of exemptions of the notification Exhibit 'G'.
This is all that the Government has said with regard to its reason as to why the exemption notification was withdrawn and fresh notification was issued in the public interest. This is not enough. However, for the purpose of meeting the contentions advanced on the basis of Article 14 of the Constitution of India, they have further said in para 28 of the affidavit.
In any event, I submit that the exemption in the said Notification is designed to assist smaller manufacturers of tyres, such as the Third and Fourth Respondents and others, by allowing them a rebate upon excise duty on dearances of tyres and upto 75 per cent of their licensed capacity.
And again in para 30:
The intention of the First respondents is to give the benefit of the scheme of exemption to tyre manufacturers whose factories have installed capacities or licensed capacities of lower than 5,00,000 units. The said scheme gives an incentive to tyre manufacturers so that they could raise their production & go on relaying (sic) tyres on the basis of their rebate under the scheme till they reach 75 per cent of their licensed capcity. This is a direct incentive to smaller manufacturers to increase their outputs and obtain the benefit of the said Notification.
23. Here, it is worth while to note what Motilal has stated as to how the public interest should be proved and what should be the standard in that behalf. The relevant portion is at page 644, and it reads as follows:
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 subsequently 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 which 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 subsequent events on account of which the Government claims to be exempt from the liability and it would be for the Court to decide whether those events 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 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 could become final and irrevocable.
24. Therefore, in my view, it is not enough merely stating that the exemptions were withdrawn in the public interest. It is also not enough merely stating that there was a change in the policy of the Government. Similarly, it is also not enough to say that the exemption benefitted only the petitioners while it did not benefit other small industries. Whatever it be, when the exemption was given, the Government did take into account that such an exemption was necessary for the purpose of increasing production. That being the object, they must place such material on record as to convince the Court as to why such an exemption was detrimental in the public interest. There is no material in this behalf and, therefore, I am not prepared to accept the submissions made on behalf of the Government. In the result, I must necessarily come to the conclusion that the withdrawal of this exemption, which was available upto March 31, 1979, is against law and, therefore, the Government must be made to hold on to this exemption upto March 31, 1979.