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CASE NO.: Appeal (civil)  1635 of 2006

PETITIONER: Mahabir Vegetable Oils Pvt. Ltd. & Anr

RESPONDENT: State of Haryana & Ors

DATE OF JUDGMENT: 10/03/2006

BENCH: S.B. Sinha & P.K. Balasubramanyan

JUDGMENT: J U D G M E N T [Arising out of S.L.P. (Civil) No.17730 of 2004] WITH  W.P. (C) NO. 489 OF 2004 AND CIVIL APPEAL NO.           1631     OF 2006 [Arising out of S.L.P.(Civil) No. 23361 of 2004]

S.B. SINHA,  J :

       Leave granted in S.L.Ps.

       Applicability of promissory estoppel and/or the extent thereof is in  question in these appeals which arise out of a judgment and order dated  22.04.2005 passed by a Division Bench of High Court of Punjab and  Haryana in Amended Civil Petition No. 15025 of 1997.           The basic facts are not in dispute.

       The Appellants are owners of solvent extraction plants.  The State of  Haryana announced an Industrial Policy for the period 1.4.1988 to 31.3.1997  wherein inter alia incentive by way of sales tax exemption was to be given  for the industries set up in backward areas in the State.   

       The State enacted Haryana General Sales Tax Act, 1973 (for short  "the Act").  Section 64 of the Act provides for rule making power.  The said  provision was amended by inserting sub-section (2A) therein which reads as  under:

"(2A) The power to make rules under Sub- sections (1) and (2) with respect to clauses (ff) and  (oo) of Sub-section (2) shall include the power to  give retrospective effect to such rules i.e. from the  date on which policy for incentives to industry is  announced by the State and for this purpose rules  28A, 28B and 28C of the Haryana General Sales  Tax Rules, 1975, shall have retrospective effect i.e.  with effect from 1st April, 1988, 1st August, 1997  and 15th November, 1999, respectively, but such  retrospective operation shall not prejudicially  affect the interest of any person to whom such  rules may be applicable."

Clause (ff) of sub-section (2) of Section 64 of the Act provides for the  class of industries, period of exemption and conditions of such exemption,  under Section 13B; whereas Clauses (oo) thereof provides for class of  industries, period of deferment and the conditions to be imposed for such  deferment under Section 25-A.          

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       Section 13-B of the Act was inserted on 8.9.1988.

       Pursuant to or in furtherance of the said rule making power, the State  made rules known as the Haryana General Sales Tax Rules, 1975 (for short  ’the Rules’).  Rule 28A occurring in Chapter IV A of the Rules provide for  the class of industries, period and other conditions for exemption/ deferment  from payment of tax as envisaged both under Sections 13B and 25A of the  Act.  ’Operative period’ has been defined in sub-rule (2)(a) of Rule 28A of  the Rules to mean "the period starting from the 1st day of April 1988 and  ending on the 31st day of March, 1997".  Sub-rule (2)(c) thereof defines  "New Industrial Unit" to mean "a unit which is or has been set up in the  State of Haryana and comes or has come into commercial production for the  first time during the operative period and has not been or is not formed as a  result of purchase or transfer of old machinery except when purchased in the  course of import into the territory of India or when the cost of old machinery  does not exceed 25% of the total cost of machinery re-establishment,  amalgamation, change of lease, change of ownership, change in constitution,  transfer of business, reconstruction or revival of the existing unit".   "Negative List" has been defined in sub-rule 2(o) to mean "a list of class of  industries as specified in Schedule III appended to these rules".

       Schedule III appended to the Rules provide for a negative list of the  industries and/ or class of industries which were not to be included therein.   Solvent extraction plant was admittedly not included in the list.

       On or about 3.1.1996, notice was given as regards the intention of the  State to amend the rules in respect whereof a draft was circulated for  information of persons likely to be affected thereby so as to enable them to  file objections and suggestions thereto.  Amendments in the terms of the said  draft rules were notified on 16th December, 1996 substituting Schedule III  appended to the Rules whereby and whereunder the solvent extraction plant  was included therein.  Note 2 appended thereto reads as under:

"The Industrial units in which investment has been  made upto 25% of the anticipated cost of the  project and which have been included in the above  list for the first time shall be entitled to the sales  tax benefits related to the extent of investment  made upto the 3rd January, 1996.  Only those assets  will be included in the fixed capital investment  which have been installed or erected at site and  have been paid for.  The anticipated cost of the  project will be taken on the basis of documents  furnished to a financial institution or banks for  drawing a loan and which have been accepted by  the financial institution or bank concerned for  sanction of loan."

       On or about 28th May, 1997, the said rules were amended inter alia by  omitting Note 2  deeming to have always been omitted.

       Yet again on 3rd June, 1997, in clause (a) of sub-rule (2) of Rule 28A  of the Rules instead and in place of 31st March, 1997, the words "date on  which new policy for incentive to industry is announced by the Government  of Haryana in Industries Department" was substituted.

       On 26th June, 2001, in Section 13-B after the words "for such period",  the words "either prospectively or retrospectively" were inserted.  

       Mahavir Vegetable Oil Pvt. Limited (Appellant in civil appeal arising  out of S.L.P. (C) No. 17730 of 2004) purchased land measuring 30 kanals 17  marlas in the month of August, 1995  to set up the unit.  It also obtained  registration under the provisions of the Act and Central Sales Tax Act, 1956  on 06.09.1995.  On 13.08.1996 it applied for a No Objection Certificate  from the Haryana State Pollution Control Board which is a condition

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precedent for setting up a solvent extraction plant.  On 15.08.1996, the  Appellant entered into an agreement with M/s. Saratech Consultants and  Engineers, Karnal for supply and erection of the plant for a sum of Rs.  55,55,000/- and Rs. 22,75,000/- respectively and advances were paid on  different dates.  Furthermore, on 6.09.1996, civil construction work started  at site.  Plans submitted by the Appellant for getting permission for storage  of Hexane were sanctioned by the Explosives Department on 19.9.1996 and  licence was finally given on 11.3.1997.  On 26.09.1996, process of  installation of the plant started at the site.  On or about 18.11.1996, a 250  KVA power generating set costing Rs. 9,91,000/- was installed, no objection  certificate wherefor was granted on 22.11.1996.  The Appellant applied to  the Haryana State Electricity Board for release of the power connection vide  application dated 12.12.1996 and also deposited the security of Rs. 68,700/-  for the same.  On 26.03.1997, the Appellant started the trial production and  commercial production commenced on 29.03.1997.

       Bharat Rasayan Ltd. (Appellant in Civil Appeal arising out of SLP(C)  No. 23361 of 2004) set up on or about 17.01.1991 its unit to manufacture  pesticides at Village Makhara, Madina-Makhara Road, District Rohtak with  an investment of Rs. 252.70 lakhs.  Commercial production commenced on   and from 17.1.1991. The unit of the Appellant falls in a backward area.  On  7.8.1993, the Appellant carried out expansion with an additional investment  of Rs. 181.83 lakhs and added another 250MT in the production capacity in  its unit wherefor eligibility certification/ exemption certification was issued  in its favour.  The Appellant also got itself registered with the Sales Tax  Department for the expanded unit under the Act and under the Central Sales  Tax Act, 1956 with effect from 4.12.1993.  On 16.11.1995, the Appellant  also applied for additional licence which was required for the product  manufactured by it.  On 3.2.1997, the Appellant was registered with the  Government of India.  Furthermore, on 7.9.1997, an additional licence was  granted to it by the Central Insecticides Board.  After receipt of the same, the  Appellant applied to the Director of Agriculture, Haryana for addition of  new items in the manufacturing licence and the Appellant commenced its  commercial production in its expanded unit on 28.4.1998.

       By 16.12.1996, they had invested about 80% of the total project cost.   The Appellants had applied for grant of exemption from payment of sales  tax as on 16.12.1996 which was rejected in the case of Mahabir Vegetable  Oils Pvt. Ltd. in the following terms:

"\005The Solvent extraction plants were included in  negative list with effect from 16.12.1996.  The  industrial unit has made 45% of total investment.   In the notification it was stipulated that industrial  unit in which investment has been made upto 25%  of the anticipated cost of the project which has  been included in the negative list for the first time  shall be entitled to sales tax benefit, however, this  condition has been deleted vide notification dated  28.5.1997.  Committee was of the view that this  condition has already been deleted and certain  parties have challenged in Punjab and Harayana  High Court.  Director of Industries was of the view  that in case a particular industry is put in the  negative list, benefit on account of investment  made before the date of putting the unit in the  negative list should be available to the unit for  sales tax exemption/ deferment.  Though the  Higher Level Screening Committee broadly agreed  with this view, yet in view of the fact that such  cases were not covered in the existing notification  of Commercial Taxation Department, it was  decided to reject the claim of the party."

       The writ petition filed by Mahabir Vegetable Oils Pvt. Ltd. before the

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High Court was dismissed holding:

(i)     "The power to grant exemption from the payment of sales tax is an  exercise of the powers conferred by the statute on the State  Government and is, thus, a delegated legislative function.  The  delegated legislation can be struck down if it is established that  there is manifest arbitrariness.  It must be shown that it was not  reasonable or manifestly arbitrary."

(ii)    "As per the records made available, a Standing Committee was  constituted by the State of Haryana for revising the negative list  periodically keeping in view the industries scheme of the State and  its neighbourhood.  Such Standing Committee considered the  revision of negative list in its meeting held on 15.9.1995 wherein it  was decided to include highly polluting industries, power intensive  industries, conventional type of industries where sufficient  capacity has already come up and any further increase in the  capacity would jeopardize the health of existing industry in the  negative list.  There is no challenge to the decision or proceedings  of such Committee on any ground indicating arbitrariness, bias,  mala fide or any such like reason."

(iii)   In view of certain decisions of this Court, the benefit of exemption  can be withdrawn in public interest.

(iv)    "\005There is no allegation of exercise of such power to include  solvent extraction plant is actuated by any mala fides, fraud or lack  bona fide.  It is a matter of fiscal policy of the State Government as  to which industries should be granted exemption."

(v)     Mahabir Vegetable Oils Pvt. Ltd. only invested Rs. 4,44,000/- in  the land and purchased machinery worth Rs. 16,90,000/- on  14.12.1996.

(vi)    "Thus, we hold that there is no representation on behalf of the  State Government that the scheme of granting incentives by way of  exemption or deferment will not be modified amended or varied  during the operative period.  There cannot be any restraint on the  State Government to exercise the delegated legislative functions  within the parameters laid down by the statute\005."

       In the case of Bharat Rasayan Ltd., the judgment rendered in Mahabir  Vegetable Oils Pvt. Ltd.  was followed without considering the factual  aspect therein.

       In the writ petition filed before this Court, it has been prayed:

"(a) issue an appropriate writ, order or direction  especially in the nature of certiorari quashing the  draft notification dated 03.01.1996, final  notification dated 16.12.1996 modifying the  industrial policy of 1988 and the notification dated  28.05.1997 modifying the Haryana Sales Tax  Rules, 1975 as ultravires the constitution being  arbitrary, malafide, unjust unreasonable,  unworkable, illegal and against the principles of  public policy;

(b) issue an appropriate writ, order or direction  especially in the nature of Mandamus directing the  respondents to grant the benefit of sales tax  exemption to the petitioners as per the State’s  Industrial Policy of 1988;

(c) pass any such further order or orders as this

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Hon’ble Court may deem fit and proper under the  facts and circumstances of the case."

       Mr. S. Ganesh, learned senior counsel appearing on behalf of the  Appellants submitted that:  (i)     The Appellants had made investments pursuant to or in furtherance  of the representation made by the State in making Rule 28A and as  on the date when Rule 28A was amended i.e. on 16.12.1996, the  Appellant had substantially complied with the provisions of the  said rule. (ii)    As in Schedule III appended to the Rules, the solvent extraction  plant was not included, the Appellant invested a large amount as  would appear from the letter dated 4.9.1997 of the Director of  Industries that it had invested 45% of the total project cost and,  thus, reached an irretrievable position.  (iii)   No reason has been assigned by the State as to why amendment  had been made at the end of the operative period.   (iv)    Withdrawal of such exemption provision with retrospective effect  is otherwise bad in law. (v)     The Director committed a manifest error in rejecting the  application for grant of exemption of the Appellants on a wrong  premise and despite the fact that the provisions of the Statute have  rightly been construed by the higher authorities, the High Court  also committed a manifest error in holding that no right came into  existence before commercial production started.   (vi)    The Note 2 appended to the notification dated 16.12.1996  recognizes equity and in that view of the matter the representation  was also made in terms thereof.   (vii)   The State did not have any competence to amend the rules by  deleting Note 2 with retrospective effect as sub-section (2A) of  Section 64 came into force in the year 2001.   (viii)  The State in its return filed in the High Court did not raise any  contention that there existed a larger public interest in withdrawing  the exemption notification.

       Mr. Manjeet Singh, learned counsel appearing on behalf of the State,  on the other hand, submitted that:  (a)     draft rules having been published by the State by way of a notification  dated 3.1.1996 all the prospective entrepreneurs were aware that the  said rules may be amended.   (b)     There was no reason for the Appellants’ being misled by reason of the  existing rules.   (c)     As on the date of final notification, the Appellants did not commence  commercial production, they did not acquire any legal right to obtain  any exemption.   (d)     The State has the requisite jurisdiction to make amendments with  retrospective effect.   (e)     In any event, the right of the entrepreneurs being not an indefeasible  right, the same could be withdrawn before commencement of  production.   

       It is not in dispute that when the Appellants herein started making  investments, Rule 28A was operative.  Representation indisputably was  made in terms of the said Rules.  The State, as noticed hereinbefore, made a  long term industrial policy.  From time to time it makes changes in the  policy keeping in view the situational change.

The State intended inter alia to grant incentive to include industrial  units by way of waiver and/ or deferment of payment of sales tax wherefor  Rule 28A was made.  The sales tax laws enacted by the State, as noticed  hereinbefore, contain a provision empowering the State to grant such  exemption.

       The relevant provisions of the Act and the Rules framed thereunder  indisputably were made keeping in view the industrial policy of the State.

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Such industrial policies by way of legislation or otherwise, subject, of  course, to the provisions of the statute have been framed by several other  States.

       It is beyond any cavil that the doctrine of promissory estoppel  operates even in the legislative field.  Whereas in England the development  and growth of promissory estoppel can be traced from Central London  Property Trust Ltd. v. High Trees House Ltd.[(1947) 1 KB 130], in India the  same can be traced from the decision of this Court in Collector of Bombay v.  Municipal Corporation of the City of Bombay and others [AIR 1951 SC  469].  In that case the government made a grant of land (which did not fulfill  requisite statutory formalities) rent free.  It, however, claimed rent after 70  years. The government, it was opined,  could not do so as they were  estopped. It was further held therein that there was no overriding public  interest which would make it inequitable to enforce estoppel against the  State as it was well within the power of the State to grant such exemption.

       In M/s. Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar  Pradesh and Others [(1979) 2 SCC 409] this Court rejected the plea of the  State to the effect that in the absence of any notification issued under Section  4-A of the U.P. Sales Tax Act, the State was entitled to enforce  the liability  to sales tax imposed on the petitioners thereof under the provisions of the  Sales Tax Act and there could be no promissory estoppel against the State so  as to inhibit it from formulating and implementing its policy in public  interest.

       The question came up for consideration before this Court in Pournami  Oil Mills and Others v. State of Kerala and Another [1986 (Supp) SCC 728]  wherein it was held: "Under the order dated April 11, 1979, new small  scale units were invited to set up their industries in  the State of Kerala and with a view to boosting of  industrialisation, exemption from sales tax and  purchase tax for a period of five years was  extended as a concession and the five-year period  was to run from the date of commencement of  production. If in response to such an order and in  consideration of the concession made available,  promoters of any small scale concern have set up  their industries within the State of Kerala, they  would certainly be entitled to plead the rule of  estoppel in their favour when the State of Kerala  purports to act differently. Several decisions of this  Court were cited in support of the stand of the  appellants that in similar circumstances the plea of  estoppel can be and has been applied and the  leading authority on this point is the case of M.P.  Sugar Mills. On the other hand, reliance has been  placed on behalf of the State on a judgment of this  Court in Bakul Cashew Co. v. STO. In Bakul  Cashew Co. case this Court found that there was  no clear material to show any definite or certain  promise had been made by the Minister to the  concerned persons and there was no clear material  also in support of the stand that the parties had  altered their position by acting upon the  representations and suffered any prejudice. On  facts, therefore, no case for raising the plea of  estoppel was held to have been made out. This  Court proceeded on the footing that the  notification granting exemption retrospectively  was not in accordance with Section 10 of the State  Sales Tax Act as it then stood, as there was no  power to grant exemption retrospectively. By an  amendment that power has been subsequently

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conferred. In these appeals there is no question of  retrospective exemption. We also find that no  reference was made by the High Court to the  decision in M.P. Sugar Mills’ case. In our view, to  the facts of the present case, the ratio of M.P.  Sugar Mills’ case directly applies and the plea of  estoppel is unanswerable."

       Yet again in Assistant Commissioner of Commercial Taxes (Asst.)  Dharwar and Others v. Dharmendra Trading Company and Others [(1988) 3  SCC 570], this Court, on the fact situation obtaining therein, rejected the  contention of the State that any misuse was committed by the respondent  therein and thus the State cannot go back on its promise.  

       It was observed:  

"The next submission of learned counsel for the  appellants was that the concessions granted by the  said order dated 30-6-1969 were of no legal effect  as there is no statutory provision under which such  concessions could be granted and the order of 30- 6-1969 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 12-1-1977 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."

       Mangalore Chemicals and Fertilisers Limited v. Deputy  Commissioner of Commercial Taxes and Others [1992 Supp (1) SCC 21] is  a case where this Court had the occasion to consider as to whether  subsequent change  in the eligibility criteria can undo the eligibility for the  condition stipulated in the earlier notification and answered the same in the  negative.  

       This Court reaffirmed the legal position in Pawan Alloys & Casting  Pvt. Ltd., Meerut v. U.P. State Electricity Board and Others [(1997) 7 SCC  251] holding:

"As a result of the aforesaid discussion on these  points the conclusion becomes inevitable that the  appellants are entitled to succeed. It must be held  that the impugned notification of 31-7-1986 will  have no adverse effect on the right of the  appellant-new industries to get the development  rebate of 10% for the unexpired period of three  years from the respective dates of commencement  of electricity supply at their units from the Board  with effect from 1-8-1986 onwards till the entire  three years’ period for each of them got exhausted.  This result logically follows for the appellants who  have admittedly entered into supply agreements  with the Board as new industries prior to 1-8- 1986."  

       The question came up for consideration before this Court recently in

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State of Punjab v. Nestle India Ltd. and Another [(2004) 6 SCC 465]  wherein this Court surveyed the growth of the said doctrine.

       In that case the State, pursuant to its promise, did not issue any  notification.  The High Court, in the writ petition filed by the Respondent  therein was of the opinion that the State was bound by its promise to abolish  purchase tax and as the Respondent acted on the representation made,  absence of a formal notification which was no more than a ministerial act  would not make the Respondents therein to pay purchase tax with effect  from 1.4.1996 to 3.6.1997.

       The learned counsel appearing on behalf of the State, however, has  placed strong reliance on the judgment of this Court in State of Rajasthan  and Another v. J.K. Udaipur Udyog Ltd. and Another [(2004) 7 SCC 673],  wherein the question which fell for consideration was as to whether in  absence of any specific promise, the scheme of grant of exemption of sales  tax payable by all the existing units as also the new industrial units would  constitute a promise.  It was held:

"In this case the Scheme being notified under the  power in the State Government to grant  exemptions both under Section 15 of the RST Act  and Section 8(5) of the CST Act in the public  interest, the State Government was competent to  modify or revoke the grant for the same reason.  Thus what is granted can be withdrawn unless the  Government is precluded from doing so on the  ground of promissory estoppel, which principle is  itself subject to considerations of equity and public  interest. (See STO v. Shree Durga Oil Mills) The  vesting of a defeasible right is therefore, a  contradiction in terms. There being no indefeasible  right to the continued grant of an exemption  (absent the exception of promissory estoppel), the  question of the respondent Companies having an  indefeasible right to any facet of such exemption  such as the rate, period, etc. does not arise."  

(Emphasis supplied)

        The said decision itself is an authority for the proposition that what is  granted can be withdrawn by the Government except in the case where the  doctrine of promissory estoppel applies.  The said decision is also an  authority for the proposition that the promissory estoppel operates on equity  and public interest.  

       In Bannari Amman Sugars Ltd. v. Commercial Tax Officer and  Others [(2005) 1 SCC 625], it was stated:

"19. In order to invoke the doctrine of promissory  estoppel clear, sound and positive foundation must  be laid in the petition itself by the party invoking  the doctrine and bald expressions without any  supporting material to the effect that the doctrine is  attracted because the party invoking the doctrine  has altered its position relying on the assurance of  the Government would not be sufficient to press  into aid the doctrine. The courts are bound to  consider all aspects including the results sought to  be achieved and the public good at large, because  while considering the applicability of the doctrine,  the courts have to do equity and the fundamental  principles of equity must for ever be present in the  mind of the court."

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       It is true that the State issued a notification on or about 3.1.1996  expressing its intention to amend the rules.  By reason thereof, however, the  State neither stated nor could it expressly state, that the rules shall stand  amended.  It is now well-settled principle of law that draft rules can be  invoked only when no rule is operative in the field.  Recourse to draft rules  for the purpose of taking a decision in certain matters, can also be taken   subject to certain conditions.  [See Union of India Through Govt. of  Pondicherry and Another v. V. Ramakrishnan and Others, (2005) 8 SCC  394, para 23 and 24]

       The promises/representations made by way of a statute, therefore,  continued to operate in the field.  It may be true that the Appellants altered  their position only from August, 1996 but it has neither been denied nor  disputed that during the relevant period, namely, August, 1996 to 16.12.1996  not only they have invested  huge amounts but also the authorities of the  State sanctioned benefits, granted permissions.  Parties had also taken other  steps which could be taken only for the purpose of setting up of a new  industrial unit.  An entrepreneur who sets up an industry in a backward area  unless otherwise prohibited, is entitled to alter his position pursuant to or in  furtherance of the promises or representations made by the State.  The State  accepted that equity operated in favour of the entrepreneurs by issuing Note  2 to the notification dated 16.12.1996 whereby and whereunder solvent  extraction plant was for the first time inserted in Schedule III, i.e., in the  negative list.

       Both the provisions contained in Schedule III and the Note 2 formed  part of subordinate legislation.  By reason of the said Note, the State did not  deviate from its professed object.  It was in conformity with the purport for  which original Rule 28A was enacted.  

       We, in this case, are not concerned with the quantum of exemption to  which the Appellants may be entitled to, but only with the interpretation of  the relevant provisions which arise for consideration before us.           We may at this stage consider the effect of omission of the said Note.   It is beyond any cavil that a subordinate legislation can be given a  retrospective effect and retroactive operation, if any power in this behalf is  contained in the main act.  Rule making power is a species of delegated  legislation.  A delegatee therefor can make rules only within the four-corners  thereof.

       It is a fundamental rule of law that no statute shall be construed to  have a retrospective operation unless such a construction appears very  clearly in the terms of the Act, or arises by necessary and distinct  implication. [See West v. Gwynne, (1911) 2 Ch. 1]

       A retrospective effect to an amendment by way of a delegated  legislation could be given, thus, only after coming into force of sub-section  (2A) of Section 64 of the Act and not prior thereto.

       By reason of Note 2, certain rights were conferred.  Although there  lies a distinction between vested rights and accrued rights as by reason of a  delegated legislation, a right cannot be taken away.  The amendments carried  out in 1996 as also the subsequent amendments made prior to 2001, could  not, thus,  have  taken away the rights of the appellant with retrospective  effect.

       For the reasons aforementioned, the impugned judgment cannot be  sustained which is set aside accordingly.  The appeals are allowed and the  matter is remitted to the Director of Industries to consider the matter afresh.

       In view of our findings aforementioned no direction is required to be  issued in the writ petition filed by the appellants.  The writ petition is

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disposed of accordingly.