Orissa High Court
Shree Durga Oil Mills And Anr. vs Sales Tax Officer And Ors. on 15 September, 1987
Equivalent citations: [1989]74STC10(ORISSA)
JUDGMENT P.C. Misra, J.
1. The petitioner No. 1, a new oil industry has prayed for quashing the assessment order under Section 12 of the Orissa Sales Tax Act, 1947, a copy of which is annexed to the writ application as annexure-1.
2. It has been alleged in the writ application that relying on the Industrial Policy Resolution of the Government of Orissa for the period 1979-83 (annexure-2) the petitioners' firm applied for setting up an industry at Betnoti in the district of Mayurbhanj and obtained a provisional registration certificate from the District Industries Centre, Mayurbhanj, on 28th November, 1979 (annexure-3). The petitioners' firm was granted a permanent registration certificate as a small-scale industrial unit by the Director of Industries, Orissa, on 10th April, 1980 vide annexure-4. The industrial unit was granted a production certificate (annexure-5) certifying that it started production on 19th March, 1980. The certificate of registration granted under Section 9 of the Orissa Sales Tax Act was issued with effect from 25th September, 1980 and has been thereafter renewed from time to time as would be evident from annexure-7 series. Clause 8 of the Industrial Policy Resolution effective for the period 1979-83 provides that village cottage and tiny industries certified as such by the State Government and small-scale industries shall be exempted from purchase/sales tax for five years on construction materials, raw materials, machinery and packing materials. S.S.I. units in non-backward areas will, however, be entitled to this exemption for four years. The petitioners allege that relying on the representation made in the Industrial Policy Resolution of the Government of Orissa for the period 1979-83 it proceeded to set up an industry and incurred a heavy loan from the United Bank of India for the purpose. Raw materials for the industry, namely, groundnut, mustard seed, etc., were purchased by the petitioners and exemption from levy of purchase tax was claimed by the petitioners on the basis of the aforesaid clause contained in the Industrial Policy Resolution referred to above. The Sales Tax Officer (opposite party No. 1) rejected the said claim of exemption on the ground that there is no notification under Section 6 of the Orissa Sales Tax Act, 1947, by his order in annexure-1 which has been impugned in this writ application. Thus the main question that arises for consideration in this writ application is whether the State can rescind from its representation of granting exemption from purchase/sales tax to new small-scale industries after the representation was acted upon.
3. Section 6 of the Orissa Sales Tax Act provides that the State 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. Pursuant to the said powers the State Government in Finance Department have issued notifications providing for exemption of tax and amending the said provision from time to time. In the notification dated 11th November, 1969 the raw materials, i.e., goods which directly go into the composition of the finished products, when sold to a registered dealer who is a manufacturer inside the State and who has started production after the 1st April, 1969 were exempted from tax for a period of five years from the date from which such registered dealer has started production, provided that he or his authorised agent furnishes a true declaration in form D which was appended to the notification. The said notification took effect from 1st January, 1970. In a similar notification dated 23rd February, 1976 under Section 6 of the Act purchase or sale of raw materials, i.e., goods which directly go into the composition of the finished products, were exempted from tax for a period of five years from the date from which the registered dealer has started production subject to furnishing a similar declaration. The exemption so granted was abrogated by a notification dated 20th May, 1977, but the State Government again restored the same by another notification dated 9th September, 1977. In the notification dated 9th September, 1977 the State Government while allowing exemption for five years limited its application to the new industries which started production from 1st April, 1977 whereas Clause 8 of the new Industrial Policy Resolution effective for the period 1979-83 does not put any such restriction. In this writ application it has also been prayed that the words "before 1st April, 1977" appearing in column 2 of the notification dated 9th September, 1977 should be declared ultra vires Section 6 of the Orissa Sales Tax Act and Article 19(1)(g) of the Constitution of India. It has also been alleged that denial of exemption to the petitioners on account of the restriction spelt out in the notification dated 9th September, 1977 are against the principles of equity and social justice for which the same is liable to be quashed.
4. Learned Standing Counsel appearing for the Sales Tax Officer (opposite party No. 1) in answer to the claim in the writ application submitted that the industrial policy in annexure-2 is ineffective and unenforceable as there has been no corresponding notification under Section 6 of the Orissa Sales Tax Act.
5. Learned counsel appearing for the petitioners urged that irrespective of the restrictions and limitations in the earlier notification dated 9th September, 1977 the petitioners are entitled to the tax exemption by virtue of Clause 8 of the latter Industrial Policy which would be effective for the period 1979-83 and in that view of the matter, the petitioners are not interested in the relief prayed for declaring a portion of the notification of 1977 as ultra vires. His main contention is that the State Government is bound to fulfil the promise made out by it in the policy resolution in annexure-2 by application of the principle of promissory estoppel. He, therefore, confined his argument for a consideration by this Court as to whether the petitioners are entitled to tax exemption by virtue of Clause 8 of the Industrial Policy Resolution, 1983 by applying the principle of promissory estoppel.
6. Promissory estoppel has come to be recognised by all the courts in this country since long. It means that where parties enter into an agreement which is intended to create a legal relation between them and in pursuance of such agreement one party makes a promise to the other which he knows will be acted on and which is in fact acted upon, by the promisee, the court will treat the promise as binding on the promisor to the extent that it will not allow him to act inconsistently with it. In a decision reported in AIR 1968 SC 718 (Union of India v. Anglo Afghan Agencies) their Lordships held that even though the case did not fall within the terms of the Evidence Act, it was still open to a party who had acted on a representation made by the Government to claim that the Government shall be bound to carry out the promise made by it, even though the promise was not recorded in the form of a formal contract as required by Article 299 of the Constitution. The said principle has been followed in several cases out of which special reference may be made to the decision reported in AIR 1972 SC 1311 (Turner Morrison and Co. Ltd. v. Hungerford Investment Trust Ltd.) and AIR 1979 SC 621 (Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh). In the decision reported in AIR 1979 SC 621 (Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh) their Lordships held that promissory estoppel is a principle evolved by equity to avoid injustice. True principle of promissory estoppel seems to be that where one party has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so, having regard to the dealings which have taken place between the parties and this would be so irrespective of whether there is any pre-existing relationship between the parties or not. Their Lordships further observed that it is an equitable principle evolved by the courts for doing justice and there is no reason why it should be given only a limited application by way of defence. Their Lordships further held that the doctrine of promissory estoppel has also been applied against the Government and the defence based on executive necessity has been categorically negatived. Where the Government makes a promise knowing or intending that it would be acted upon 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 formal contract as required by Article 299 of the Constitution. The above principle was also followed by the same court in the decision reported in AIR 1986 SC 806 (Union of India v. Godfrey Philips India Ltd.), (2) (Union of India v. India Tobacco Co. Ltd.) and (3) (Union of India v. Vazir Sultan Tobacco Co. Ltd.) where their Lordships observed that the doctrine of promissory estoppel is applicable against the Government in the exercise of its governmental, public or executive functions and the doctrine of executive necessity or freedom of future executive action cannot be invoked to defeat the applicability of the doctrine of promissory estoppel. This Court in the case of Sri Jagannath Roller Flour Mills v. State of Orissa [1987] 65 STC 384, considered the application of the doctrine of promissory estoppel and held that it is applicable against the Government. The tax exemption announced in the Industrial Policy Resolution dated 18th July, 1979 operating during the period 1979-83 was the subject-matter for consideration in the said case in which their Lordships held that the petitioners in that case were entitled to exemption of levy of octroi and sales tax by virtue of the promise made in the policy resolution applicable for the period 1979-83 and subsequent policy resolution denying exemption to the flour mills was hit by the principle of promissory estoppel. On identical facts the Supreme Court in a decision reported in [1987] 65 STC 1 (Pournami Oil Mills v. State of Kerala) held that those units of small-scale industries which were set up in Kerala in response to the order dated April 11, 1979 and prior to October 21, 1980, were entitled to the exemption extended and/or promised thereunder : such exemption would continue for the full period of five years from the date they started production. We would, therefore, follow the same principle in this case and hold that the exemption contemplated in the Industrial Policy Resolution for the period 1979-83 would be operative as against the State by virtue of the application of doctrine of promissory estoppel so far as the petitioners are concerned, as admittedly the petitioners' oil mill was started pursuant to the representations held out in the said resolution and it has been registered and recognised as a small-scale industry which went into production with effect from 19th March, 1980.
7. Learned counsel appearing for opposite party No. 1 relied upon a decision of the Supreme Court reported in AIR 1962 SC 745 (Mathra Parshad v. State of Punjab) and the other decisions which followed the same. Their Lordships in the said case were concerned with a press note of the Government dated 2nd August, 1954 exempting sales tax for the current financial year in respect of manufacture of tobacco which fall under the Punjab Tobacco Vend Fees Act. In that connection their Lordships held that there can be no estoppel against a statute. If the law requires that a certain tax be collected, it cannot be given up and any assurance that it would not be collected, would not bind the State Government whenever it chose to collect it. The facts of the said case are quite distinguishable from the facts of the present case. Learned Standing Counsel appearing for opposite party No. 1 next argued that the writ application is incompetent as ultimate remedy is available to the petitioners against the order of assessment in annexure-1. We need not discuss the merits of this point in view of the peculiar facts and circumstances of this case. This case was presented on 19th December, 1980 in this Court and came up for admission on 22nd December, 1980. At that stage the case was dismissed against which the petitioners went up to the Supreme Court. The Supreme Court while disposing of the special leave petition set aside the order passed by this Court and directed to admit the writ application to its file and dispose it of on merits on the question as to whether the appellants are entitled to the benefit of the Industrial Policy Resolution dated July 18, 1979. In view of the directions of the Supreme Court the writ application has to be disposed of on merits and cannot be dismissed as not maintainable on the ground of availability of alternative remedy. We would, therefore, refrain from discussing the point of law on the subject. In the conclusion, we hold that the petitioners are entitled to the benefit of the Industrial Policy Resolution dated July 18, 1979 and on that basis tax liability of the petitioners has to be computed.
8. In the result, the writ application is allowed and the assessment order in annexure-1 is accordingly quashed. We, however, make no order as to costs.
V. Gopalaswamy, J.
9. I agree.