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PETITIONER: ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (ASST.) DHARWAR

       Vs.

RESPONDENT: DHARNENDRA TRADING COMPANY, ETC. ETC.

DATE OF JUDGMENT05/05/1988

BENCH: KANIA, M.H. BENCH: KANIA, M.H. PATHAK, R.S. (CJ)

CITATION:  1988 AIR 1247            1988 SCR  (3) 946  1988 SCC  (3) 570        JT 1988 (2)   606  1988 SCALE  (1)973  CITATOR INFO :  RF         1991 SC  14  (11)  F          1992 SC 152  (7)  RF         1992 SC1075  (8)

ACT:      Karnataka Sales  Tax Act,  1957-Whether Government  has power to  notify exemptions and reductions in levy of tax on sale or  purchase  of  goods  under  section  8A  of-Whether Government can  withdraw concessions in sales tax granted by its earlier order on ground of alleged misuse of concessions without proof  thereof-Against the  Doctrine  of  Promissory Estoppel.

HEADNOTE:      The Government  of Karnataka  issued an order dated the 30th June,  1969, sanctioning in-centives and concessions in the matter  of sales  tax to  the entrepreneurs for starting new industries  in the  Mysore State.  On the  12th January, 1977, the  Government  issued  another  order,  presecribing ceiling limits on the quantum of the sales tax or concession to  be   granted.  Thereupon   several  persons  filed  writ petitions before  the High  Court, claiming  that  they  had started  new   industries  in   the  State  because  of  the concessions granted  to them  under the order dated the 30th June, 1969 and they could not be deprived of the concessions given to  them by  the former  order as  the said  grant  of concessions constituted  a promissory  estoppel against  the Government and the Government was not entitled to go back on the promise.  The High  Court upheld  the contention  of the petitioners and  allowed the  writ  petitions.  Against  the decision of the High Court, these appeals were filed in this Court by  the Assistant Commissioner of Commercial Taxes and others.      Dismissing the appeals, the Court, ^      HELD:  The   contention  of  the  appellants  that  the doctrine of  Promissory Estoppel  was not applicable in this case because  the concessions  granted under the order dated 30th June,  1969 were  being misused, could not be accepted. There was  nothing to  show that  any misuse was made of the concessions. A  recital in  the order  dated  12th  January,

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1977, regarding  misuse of  the concessions,  could  not  by itself establish that the concessions were misused. [949F-G]      There was  no substance  in the  appellants’ contention that the 947 concessions granted by the order dated 30th June, 1969, were of no legal effect of the contention that the said order was ultra vires and bad in law, as there was no provision in the Kranataka Sales  Tax Act  ("the said  Act") under  which any refund could  be granted,  and the  State Government  had no authority  to   provide  for  refunds.  Though  the  benefit regarding sales tax granted to the new industries was by way of refunds  of sales  tax paid to the extent provided in the order, in  effect, the  benefit granted was in the nature of an exemption  from the payment of the sales tax or reduction in the  sales tax  liability to  the extent  stated  in  the Order. The  mere fact  that the order of 30th June, 1969 did not specify  the power  under which it was issued would make no difference  because such  a power was there in Section 8A of the  said Act.  Where the  source of power under which an order is  issued is not stated in the order but can be found on the  examination of the relevant Act, the exercise of the power must  be attributed  to that  source. The appeals were dismissed. [951C-E]      Union of  India v.  M/s Indo  Afghan Agencies  Limited, [1968] 2  S.C.R. 366;  Century  Spinning  and  Manufacturing Company Limited  & Anr.  v. The Ulhasnagar Municipal Council and Anr.,  [1970] 3  S.C.R. 854;  M s Motilal Padampat Sugar Mills Company  Pvt. Ltd. v. State of Uttar Pradesh and Ors., A.I.R. 1979  S.C.621 and  State of  Bihar and  Anr. v.  Usha Martin Industries Ltd., [1987] 65 STC 430, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Apeal Nos. 2204-47 of 1980.      From the  Judgment and  Order dated  15.10.1979 of  the High Court of Karnataka in W.A. No. 1101 to 1144 of 1979.      P.R. Ramasesh for the Appellants.      T.S. Krishnamurthy, Vineet Kumar and H. Raghavendra Rao for the Respondents.      The Judgment of the Court was delivered by.      KANIA, J.  These appeals  arise from  the decision of a Division Bench  of the  High  Court  of  Karnataka  in  Writ Appeals Nos.  1101 ’to  1144 of  1979. It  appears that  the Government  of  Karnataka  decided  to  adopt  a  policy  to encourage rapid industrialisation. An Order No. CI 58 FMI 69 dated 30th  June, 1969  was issued  which recited  that  the Government,  namely,   the  Government   of  Karnataka   was committed 948 to  a   policy  of  rapid  industrialisation  and  that,  in pursuance thereof,  the Government  had  on  30th  November, 1966, issued directions indicating the incentives that would be given  to entrepreneurs  starting new  industries in  the Mysore State.  The material  part of the said order, for our purpose, runs thus:           "Consequently, the  Governor of  Mysore is pleased           to   sanction   the   following   incentives   and           concessions to  the entrepreneurs for starting new           industries in Mysore State:           (1) Sales Tax-A cash refund will be allowed on all           Sales Tax  paid by a new industry on raw materials           purchased by  it for the first 5 (five) years from

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         the  date   the  industry  goes  into  production,           eligibility to the concessions being determined on           the basis  of a  certificate to  be issued  by the           Department of Industries and Commerce .........."      By an  order dated 11th August, 1975, the procedure was prescribed for  obtaining the  concessions given  under  the orders referred  to earlier.  On  12th  January,  1977,  the Government of  Karnataka issued  another order which recited that the  reasons for making the said order of 12th January, 1977 were  that the  scheme of  concessions adopted  by  the Government earlier  had given  room for many types of misuse and the earlier orders had not prescribed any ceiling limits or restrictions  on the  quantum of  refund of  sales tax or concessions  to  be  granted.  The  said  order  dated  12th January, 1977, inter alia, provided as under:           "(i) The  concession of refund of sales tax on raw           materials  used   by  new  enterprises  should  be           limited to 10 per cent of the cost of fixed assets           per year,  thus not  exceeding the total of 50 per           cent over  a period  of five  years for  which the           concession is  available. Where  the annual  sales           tax paid on raw materials is less than 10 per cent           of the  cost of  the fixed assets according to the           original value,  the concession will be limited to           the actual sales tax paid.........."      Several persons  claimed  that  they  had  started  new industrial units  in the State on the assurances extended or because of  the concessions  granted to  them,  inter  alia, under the  said order dated 30th June, 1969. They filed writ petitions before  the High  Court of Karnataka claiming that the industrial  undertakings started between 30th June, 1969 when the  order dated  12th June,  1969 came into effect and before 949 the order  dated 12th  January, 1977 was issued could not be deprived of  the concessions  given to  them by  the  former order  as  the  said  grant  of  concessions  constituted  a promissory estoppel  against the  Government on the basis of which they  had acted  by starting  new industries requiring investment of  considerable funds and the Government was not entitled to  go back  or that promise as it had sought to do by the  order dated  12th January,  1977. A  learned  Single Judge of  the Karnataka  High Court,  before whom these writ petitions were filed, upheld the aforesaid contention of the petitioners urged  before him  relying mainly on the rulings of this Court in Union of India v. M/s. Indo Afghan Agencies Limited,  [1968]   2  S.C.R.   366;  Century   Spinning  and Manufacturing Company  Limited  &  Anr.  v.  The  Ulhasnagar Municipal Council & Anr., [1970] 3 S.C.R. 854 and the ruling in M/s.  Motilal Padampat  Sugar Mills  Company Pvt. Ltd. v. State of  Uttar Pradesh & Ors., A.I.R. 1979 S.C. 621. In the concluding  portion  of  his  judgment,  the  learned  Judge clarified that  he had  not examined  the correctness of the individual claims  made by  the petitioners  and that  these claims  would   have  to   be  examined   by  the  competent authorities. He  further clarified that the order dated 12th January, 1977  would undoubtedly apply to industries started after that  date. The  learned Trial  Judge allowed the writ petitions and  granted relief  on the basis set out earlier. An  appeal   preferred  by  the  Assistant  Commissioner  of Commercial Taxes, Dharwar, Deputy Commissioner of Commercial Taxes and  the Government  of Karnataka  before  a  Division Bench of the Karnataka High Court was dismissed by the Court which agreed  with the reasoning of the learned Trial Judge. It is from this decision that the present appeals arise.

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    The first  contention of  the learned  counsel for  the appellants is  that the  doctrine of Promissory Estoppel was not applicable  in the  present case because it was found by the Government  of Karnataka  that the  concessions  granted under the  said order  dated  30th  June,  1969  were  being misused and  undue advantage was being taken of the same. It was submitted  by him  that in view of this, it would not be proper to  hold  the  Government  to  the  promises  or  the assurances it  had given  under the  said order  dated  30th June, 1969.  We are afraid it is not possible to accept this submission. No counter-affidavit was filed by the appellants before the  Trial Court  in the  writ petition.  Beyond  the statement of  counsel, there  is nothing  to show  that  any misuse was  made of  these concessions  or  undue  advantage taken of the same. It is true that the preamble to the order dated 12th  January, 1977  does recite  that the concessions given by  the earlier order had given room for many types of misuse but such a recital by itself cannot establish 950 that the  concessions were,  in fact,  misused. If that were so, it  was the  duty of  the Government  and the  concerned authorites to file a counteraffidavit and place the relevant facts establishing  the misuse  before the  Court. This they have totally  failed to  do. It  is well settled that if the Government wants  to resile  from a  promise or an assurance given by  it on  the ground  that undue  advantage was being taken or  misuse was  being made  of the concessions granted the Court  may permit  the Government  to do  so but  before allowing the  Government to  resile from  the promise  or go back on  the assurance  the Court would have to be satisfied that allegations  by the  government about misuse being made or undue  advantage being  taken of the concessions given by it were  reasonable well  established. In  the present case, there is  nothing on record to show that any such misuse was being made  or undue advantage taken of the said concessions by the  newly established  industries. The  Government  had, therefore, failed  to establish  the requisite ground or the basis of  which it  might be  allowed  to  go  back  on  its promise. The first submission of the learned counsel for the appellants must, therefore, fail.      The  next   submission  of   learned  counsel  for  the appellants was  that the  concessions granted  by  the  said order dated 30th June, 1969 were of no legal effect as there is no statutory provision under which such concessions could be granted  and the order of 30th June, 1969 was ultra vires and bad  in law.  We totally  fail to  see how  an Assistant Commissioner or  Deputy Commissioner  of Sales  Tax who  are functionaries of  a State  can say that a concession granted by the  State itself  was beyond  the powers of the State or how the  State can  say so  either. Moreover,  if  the  said argument of  learned counsel is correct, the result would be that even  the second  order of  12th January, 1977 would be equally invalid  as it  also grants  concessions by  way  of refunds, although  in a  more limited manner and that is not even the case of the appellants.      Although, we  are of  the view  that the contention set out in the foregoing paragraph is not open to the appellants at all,  we propose to examine the merits of that contention because, in  our view,  even on merits the contention raised must be  rejected. The ground on which it was submitted that the said  order of 30th June, 1969 was invalid is that there is no  provision under  the Karnataka  Sales Tax  Act,  1957 (referred to  hereinafter as "the said Act") under which any refund  could  be  granted.  The  learned  counsel  for  the appellants pointed out that only relevant provision, in this

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connection, is  Section 8A  of the said Act and that Section empowers the State Government to notify exemp- 951 tions and  reductions in the levy of tax on sale or purchase of  goods  that  are  made  exigible  under  the  provisions contained in Chapter-3 of the said Act. Section 8A expressly empowers  the  State  Government  to  grant  exemptions  and reductions. Under  the said  order dated  30th June, 1969 it has been  inter alia  provided that  a cash  refund will  be allowed on  all sales  tax paid  by a  new industry  on  raw materials purchased  by it for the first five years from the date the  industry goes  into production  as set out in said the Order.  The  only  submission  made  on  behalf  of  the appellants is  that since  the benefit  given  is  called  a refund, it cannot be said to be an exemption or reduction as permitted by  Section 8A. In our view, there is no substance in this  submission at all. In order to test the validity of the order  dated  30th  June,  1969,  one  has  to  see  the substance of  the concession granted under the order and not merely certain  words used  out  of  context.  Although  the benefit regarding sales tax granted to the new industries is by way  of refunds  of sales tax paid to the extent provided in the  Order, it  is clear  that, in  effect,  the  benefit granted is in the nature of an exemption from the payment of the sales tax or reduction in the sales tax liability to the extent stated  in the  order. In  view of  this, there is no substance  whatever   in  the   contention  that  the  State Government had  no authority  to provide  for the  grant  of refunds. Again,  the mere  fact that the order of 30th June, 1969 did  not specify  the power  under which  it was issued will make  no difference  because such  a power  is  clearly there in  Section 8A  and where  the source  of power  under which it  is issued  is not  stated in  an order  but can be found on  the examination  of the relevant Act, the exercise of the  power must  be attributed to that source. The second submission of  the learned  counsel for the appellants must, also, therefore, be rejected.      Although at  one stage  a faint  doubt  was  raised  by learned  counsel  for  the  appellants  as  to  whether  the Doctrine of  Promissory Estoppel  could be  regarded as good law now,  he conceded that doctrine must be regarded as good law in view of the recent decision of this Court in State of Bihar and  Anr. v.  Usha Martin  Industries Ltd.,  [1987] 65 STC, 430  where a  Division Bench  comprising three  learned Judges of this Court upheld and applied that doctrine.      In the  result, there  is no  merit in  the appeals and they are dismissed with costs. S.L.                                 Appeals dismissed. 952