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CASE NO.: Appeal (civil)  6449 of 1998

PETITIONER: State of Punjab  

RESPONDENT: M/s Nestle India Ltd. & Anr.

DATE OF JUDGMENT: 05/05/2004

BENCH: Ruma Pal & P.Venkatarama Reddi.

JUDGMENT: J U D G M E N T

With

Civil Appeal Nos.5826/98, 6451/98 and  6450/98   

RUMA PAL, J.

       All the respondents before us have factories in the State  of Punjab where they produce various milk products.  For the  purpose  of their business, they purchase milk from villages,  each respondent from a particular "milk shed area" which  covers several hundred villages in and around such  respondent’s factory.    As registered dealers under the Punjab  General Sales Tax Act, 1948, the respondents  had  been   and

are at present paying purchase tax on milk in terms o f Section  4(B) of the State Act. However, for one year i.e. for the period  1.4.96 to 4.6.97, none of the respondents paid the purchase  tax.  They did not do so because they say that the Government  had decided to abolish purchase tax on milk for the period in  question and was estopped from contending to the contrary.         On the basis that the State had wrongly raised demands  for purchase tax on milk on the respondents for the period  1996-97, the respondents filed separate writ petitions before  the High Court.  The High Court allowed the writ petitions and  quashed the demands raised.   Aggrieved by the decision of the  High Court, these appeals have been preferred by the State  Government.         The circumstances under which the respondents had  approached the Court chronologically commenced with an  announcement made by the then Chief Minister of Punjab on  26th February 1996 while addressing dairy farmers at a state  level function, that the State Government had abolished  purchase tax on milk and milk products in the State.  This  announcement was given wide publicity in several newspapers  in the State.          The second circumstance was the speech given by the  Finance Minister of the State while presenting the budget for  the year 1996-97. Like all other budget speeches, it consisted  of a review of achievements and a delineation of  future  economic measures proposed to be taken for the development  of the State.  It was said: "In a package of measures, special relief  was given to the farming community  which is the backbone of the State’s  economy \005..\005\005\005\005.. Furthermore,

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last month the Chief Minister has  abolished the purchase tax on milk.   While this would reduce the inflow of tax  revenue to the extent of Rs.6.93 crores,  it will assist the milk producers, and also  the milk co-operatives."

The budget speech also noted that despite the fact that  the State Government had given a large number of tax                   concessions during the year which reduced the inflow of  revenue, the collections under the sales tax, excise  and other  taxes had increased by about 100 crores for the current year.   The next circumstance was a memo of the Financial  Commissioner dated 26.4.96 addressed to the Excise and  Taxation Commissioner, the relevant extract of which reads as  follows: "Pursuant to the announcements made  by the Finance Minister, Punjab, on the  floor of the House and the  announcement made by the Chief  Minister, Punjab on 26.2.1996, while  addressing a public function organised  by the Milk-fed in connection with Milk  Day at Milk Plant, Ludhiana relating to  exemption of purchase tax on milk, it  has been decided in principle, to abolish  the purchase tax on Milk w.e.f. 1.4.1996.   You are requested to send proposal  along with the financial implication  involved therein, immediately. \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005. On the basis of the above decision, you  are also requested to issue necessary  instructions to the field officers."

       In response to this memo, a circular dated 26th April 1996  was issued by the Excise and Taxation Commissioner, Punjab  to all the Deputy and Assistant Excise and Taxation  Commissioners and the Deputy Directors (Enforcement) in the  State.  The circular  requires quotation: "The Government have decided to abolish  purchase tax on milk and to exempt dhoop- agerbati, kumkun, kirpan, pens and ball-pens  from the levy of sales tax.  It has also decided  to reduce rate of tax on stainless steel utensils  from 10% to 4% on tractor parts from 8% to  2% and on bullion from 2% to 0.5% all these  exceptions/reductions will be effective from  1.4.1996.

2.      To implement these decisions,  necessary notifications are under process and  likely to be issued shortly

3.      This position may be brought to the  notice of all the officers/officials for information  and necessary action.  

4.      The receipt of this communication may  please be acknowledged".                

It is averred in the writ petitions and not disputed by the  appellants that the representatives of the respondents

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companies were informed about the instructions contained in  the above circular dated 18th May 1996 by the concerned  officials of the Department.   The fact of exempting milk and  milk products from purchase tax was also recorded in a letter  written by the Excise and Taxation Commissioner to the  Financial Commissioner in which it is also said that in  compliance with the directions of the Government, instructions  had been circulated to the field officers to charge the tax as per  the decision of the Government.  The issuance of the  necessary notification to implement the decision of the  Government was urged, to avoid any "legal complications or  audit objection".   That such instruction has been issued is also  recorded in a series of letters between the Financial  Commissioners which are not referred to in detail here.  On 27th June 1996, a meeting was held under the  chairmanship of the Chief Minister which was attended by the  Finance Minister, the Excise and Taxation Minister and various  Financial Commissioners.   At the meeting, the decision to  abolish purchase tax on milk was reiterated and it was decided  to issue a formal notification "in a day or two".  On 18th July 1996/24th July 1996 the Finance Minister  made an announcement that with a view to encourage milk  producers and for granting relief to the common people, traders  and industrialists, the Government had abolished tax on milk.    The Finance Department formally approved the proposal of the  Administrative Department to abolish purchase tax on milk and  the Council of Ministers gave its formal approval to the decision  at its meeting on 21st August 1996. Therefore, it appears that the Chief Minister, the Council  of Ministers and the Finance Department had all decided to  abolish purchase tax on milk w.e.f. 1st April 1996 and the Sales  Tax Authorities have taken the consequential action by issuing  circulars.   Consequently,  the respondents-milk producers did  not pay the purchase tax along with their returns for the year  1996-97 as required under the Rules framed under the Act.     Along with each return, it was expressly stated that "purchase  tax on milk is not being deposited from 1.4.96 due to various  Press statements/letters/circulars issued by Department and  the issue has been discussed with the Excise and Taxation  Commissioner, Patiala and Assistant Commissioner, Moga  wherein we were informed that sales tax return will be accepted  on the basis of tax exemption on ground of purchase of milk".    The returns were not rejected by the tax authorities.   According to the respondents, the benefit which arose  from the exemption of purchase tax was passed on by them to  the farmers and milk producers.  Details of this expenditure  have been mentioned in the writ petitions filed.   None of the facts which we have narrated earlier have  been denied by the respondents.  In fact even after the end of  the financial year 1996-97, the Government published  advertisements claiming credit for having abolished purchase  tax on milk. For the first time, on 4th June 1997, the Council of  Ministers held a meeting to consider various items on the  agenda.  One of the items related to the abolishing of purchase  tax on milk. The minutes cryptically record that the decision to  abolish purchase tax on milk was not accepted. Consequently  on 3rd July 1977 the Excise and Taxation Officer issued notices  to the respondents requiring them to pay the amount of  purchase tax for the whole of the year 1996-97. In this background, the High Court held that the State  Government was bound by its promise/representation made to  the respondents to abolish purchase tax.   According to the  High Court, "the absence of a formal notification was no more  than a ministerial act"  which remained to be performed.  The

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respondents had acted on the representation made and could  not be asked to pay the purchase tax w.e.f. 1.4.96 but would be  liable after the decision of the Government for the subsequent  period i.e. from 4.6.97.   The appellants have not seriously questioned the fact that  the Government had by a series of actions on its part, in effect,   made representations regarding the non-levy of purchase tax  w.e.f. 1.4.1996 nor is it denied that the respondents had acted  on the representations so made.  The only question raised by  the appellant is that the principle of promissory estoppel would  not arise when the relevant statute prescribes a particular mode  for the grant of relief in respect of which the representation has  been made. The relevant statute is the Punjab General Sales  Tax Act, 1948.  It is said by the appellants that there can be no  estoppel against the statute and since no notification had been  issued as required by the statute, the respondents could not  refuse to pay the tax on any principle of promissory estoppel.   According to the appellants the decision not to abolish  purchase tax on milk was taken in the public interest.   The Punjab General Sales Tax Act, 1948 (hereafter  referred to as ’the Act’) provides for the levy of tax on the sale  and purchase of certain goods in the State of Punjab.  Rules  have been framed under Section 27 of the Act known as the  Punjab General Sales Tax Rules, 1949 (referred to as "the  Rules").    We are concerned with the purchase tax which is  payable  under Section 4 read with Section 2(ff) on the  acquisition of goods mentioned in Schedule ’C’ to the Act, milk   when purchased for use in the manufacture of goods (other  than  tax free goods) for sale is one of the items in Schedule  ’C’.   The Excise and Taxation Commissioner (who has featured  in the various statements and correspondence referred to  earlier) is appointed under Section 3(1) as the Taxing Authority.   The Excise and Taxation Commissioner has overall  superintendence and control over the administration and the  collection of tax leviable under the Act as well as control on all  officers empowered under the Act(Rule 69). The incidence of  taxation has been provided for under Section 4 of the Act   under which every dealer dealing in goods not declared tax free  under Section 6 and whose gross turnover exceeds the taxable  quantum is liable to pay tax on the sales effected or the  purchases made.  Certain goods have been made tax free  under Section 6(1) read with Schedule ’B’ to the Act.  Section  6(2) at the material time provided that the State Government  "after giving by notification not less than twenty days notice of  its intention so to do may by like notification add to or delete  from Schedule B and thereupon Schedule B shall be deemed to  be amended accordingly".   The respondents are admittedly dealers within the  meaning of the definition of the word under Section 2(d) of the  Act.   Every dealer is required to pay tax in the manner  prescribed under Section 10 which requires furnishing of  returns/declarations by the dealer  together with the receipt  showing that the full amount of tax due from the dealer under  the Act according to such returns had been paid in the  prescribed manner.  If there is failure to pay the tax in the  manner prescribed, the dealer may be liable to pay penalty of a  sum upto one and a half times of the tax payable under sub- section (6) of Section 10.  The substance of section 10 has  been detailed in Rules 20 to 25 of the Rules.   Rule  20  provides for the furnishing of returns either quarterly or monthly.    Rule 24 provides for the form in which such returns are to be  filed.   Rule 25 provides that all returns which are required to be  furnished under the Rules "shall be signed by the registered  dealer or the agent, and shall be sent to the appropriate  assessing authority\005\005\005\005\005 together with the treasury or

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bank receipt in proof of payment of the tax due".  The  Assessing Authority then passes an order of assessment on  such return under Section 11 unless he is satisfied that the  returns are not correct and complete.  Apart from the power to treat goods otherwise leviable to  tax under the Act as tax free under Section 6(2), the State  Government has the power under Section 31 to amend  Schedule ’’C’ itself and thereby remove goods from imposition  of tax altogether.  It provides: "The State Government after giving by  notification not less than twenty days  notice of its intention so to do, may by  notification  add to, or delete from,  schedule C any goods, and thereupon  Schedule C shall be deemed to be  amended accordingly."

                                 (emphasis added)               

In addition, the State Government has the power to  exempt the payment of tax under Section 30 which reads: "Power to exempt (1)     The State Government, if satisfied that it  is necessary or expedient so to do in the  interest of cottage industries, may by  notification exempt any class of co- operative societies, or persons from the  payment of tax under this Act on the  purchase or sale of any goods subject to  such conditions as may be specified in  such notification.

(2)     ***********

(3)     Every notification made under sub-section  (1) shall as soon as may be after it is  made, be laid before the State  Legislature."

(emphasis added)

Section 30-A also gives the State Government the power to  exempt certain industries from payment of tax. It provides:  "The State Government may, if satisfied  that it is necessary or expedient so to do  in the interest of industrial development  of the State, exempt such class of  industries from the payment of tax, for  such period and subject to such  conditions, as may be prescribed\005\005.. \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005.."

The authority of the State Government to exempt in  exercise of the powers conferred on it by statute has not been  disputed before us.  The pleas raised by the parties for and against the  operation of the doctrine of promissory estoppel are to be  considered against the background of these  statutory  provisions.   But first a recapitulation of the law on the subject of  promissory estoppel.  The foundation of the doctrine was laid in  the decision of Chandrasekhar Aiyar, J. in Collector of

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Bombay V. Municipal Corporation of the City of Bombay  (1952 SCR 42).  There, in 1865, the Government of Bombay  had passed a resolution authorising the grant of an area to the  municipality rent free for the purpose of setting up a market.   Although possession of the site was made over to the then  Municipal Commissioner  no formal grant was in fact executed  as  required by the applicable statute.  Acting on the resolution,  the Corporation spent considerable sums of money in building   and improving the market and was in possession for 70 years  during which period  no revenue had been paid to or        claimed by the Government.  At this stage, a demand was  sought to be raised on account of rent under the Bombay City  Land Revenue Act, 1876.   The Corporation impugned the  demand by filing a suit.  The suit was dismissed.  An appeal  was preferred before the High Court.  The High Court reversed  the decision of the Trial Court  and held that the Corporation  was entitled to hold the land for ever without payment of any  rent and the Government had no right to assess the premises.     The Collector preferred an appeal before this Court.  There was  no dispute that by reason of non-compliance with the statutory  formalities, the Government resolution of 1865 was not a  factual grant passing title in the land to the Corporation.  There  was also no dispute that there was no enforceable contract  between the State Government and the Municipal Corporation.   Of the three Judges,  Das, J. held that the possession of the  Corporation not being referrable to any legal title was adverse  to the legal title of the Government and the right acquired by the  Corporation to hold the land in perpetuity included an immunity  from payment of rent.   Patanjali Sastry, J differed.   Chandrasekhara Aiyar, J., concurred with the conclusion of  Das, J but based his reasoning on the fact that by the  resolution, representations had been made to the Corporation  by the Government and the accident that the grant was invalid  did not wipe out the existence of the representation nor the fact  that it was acted upon by the Corporation.  What has since  been recognised as a signal exposition of the principle of  promissory estoppel, Chandrasekhara Aiyar, J. said: "\005.The invalidity of the grant does not  lead to the obliteration of the  representation. \005\005\005\005\005\005\005\005\005\005\005.  \005\005\005\005\005\005.Can the Government be  now allowed to go back on the  representation, and if we do so, would it  not amount to our countenancing the  perpetration of what can be  compendiously described as legal fraud  which a court of equity must prevent  being committed.  If the resolution can be  read as meaning that the grant was of  rent-free land, the case would come  strictly within the doctrine of estoppel  enunciated in section 115 of the Indian  Evidence Act.  But even otherwise, that  is  if there was merely the holding out of  a promise that no rent will be charged in  the future, the Government must be  deemed  in the circumstances of this  case to have bound themselves to fulfil  it\005\005\005\005\005.. Courts must do justice by  the promotion of honesty and good faith,  as far as it lies in their power".   

       In other words, promissory estoppel long recognised as a  legitimate defence in equity was held to found a cause of

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action against the Government, even when, and this needs to  be emphasised, the representation sought to be enforced was  legally invalid in the sense that it was made in a manner which  was not in conformity with the procedure prescribed by statute.  This principle was built upon in  M/s Union of India &  Ors. V. M/s Indo-Afghan Agencies Ltd. (1968 (2) SCR 366)   where it was said (at p. 385): "Under our jurisprudence the Government is  not exempt  from liability to carry out the  representation made by it as to its future  conduct and it cannot on some undefined and  undisclosed ground of necessity or  expediency fail to carry out the promise  solemnly made by it, nor claim to be the judge  of its own obligation to the citizen on an             ex parte appraisement of the circumstances in  which the obligation has arisen:.

                However, the superstructure of the doctrine with its pre- conditions, strengths and limitations has been outlined in the  decision of M/s Motilal Padampat Sugar Mills Co. Ltd. V.  State of Uttar Pradesh and Others 1979 (2) SCC 409.  Briefly  stated \026 the case related to a representation made by the State  Government that the petitioners factory would be exempted from  payment of sales tax for a period of three years from the date of  commencement of production.  It was proved that the petitioners  had, as a consequence of the representation, set up the factory  in the State.  But the State Government refused to honour its  representation.  It claimed sales tax for the period it had said  that it would not.  When the petitioners went to Court, the State  Government took the pleas : (1)     In the absence of notification under Section 4-A, the  State Government could not be prevented from  enforcing the liability to Sales Tax imposed on the  petitioners under the provisions of the Sales Tax Act; (2)     That the petitioners had waived its right to claim  exemption and; (3)     That there could be no promissory estoppel against  the State Government so as to inhibit it from  formulating and implementing its policies in public  interest.

This Court rejected all the three pleas of the Government.  It  reiterated the well-known preconditions for the operation of the  doctrine. (1)     a clear and unequivocal promise knowing and intending  that it would be acted upon by the promisee; (2)     such acting upon the promise by the promisee so that it  would be inequitable to allow the promisor to go back on  the promise.

As for its strengths it was said: that the doctrine was not limited  only to cases where there was some contractual relationship or other  pre-existing legal relationship between the parties.  The principle  would be applied even when the promise is intended to create legal  relations or affect a legal relationship which would arise in future.   The Government was held to be equally susceptible to the operation  of the doctrine in whatever area or field the promise is made,  contractual, administrative or statutory.     To put it in the words of the  Court: "The law may, therefore, now be taken to be settled  as a result of this decision, that where the  Government makes a promise knowing or intending  that it would be acted on by the promisee and, in

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fact, the promisee, acting in reliance on it, alters his  position, the Government would be held bound by  the promise and the promise would be enforceable  against the Government at the instance of the  promisee, notwithstanding that there is no  consideration for the promise and the promise is not  recorded in the form of a formal contract as required  by Article 299 of the Constitution.     (p.442)\005\005\005\005.  \005\005\005\005. Equity will, in a given case where justice  and fairness demand, prevent a person from  insisting on strict legal rights, even where they arise,  not under any contract, but on his own title deeds or  under statute.(p.424)   \005\005\005Whatever 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. "      (p. 453)

                               (emphasis added)

         So much for the strengths. Then come the limitations.  These  are:

(1)     since the doctrine of promissory estoppel is an equitable  doctrine, it must yield when the equity so requires.  But  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.( p.443) (2)     No representation can be enforced which is prohibited by  law in the sense that the person or authority making the  representation or promise must have the power to carry  out the promise.  If the power is there, then subject to the  preconditions and limitations noted earlier, it must be  exercised.  Thus, if the statute  does not contain a  provision enabling the Government to grant exemption, it  would not be possible to enforce the representation  against the Government, because the Government cannot  be compelled to act contrary to the statute.  But if the  statute confers power on the Government to grant the  exemption, the Government can legitimately be held  bound by its promise to exempt the promisee from  payment of sales tax. (p.387-388)             The remaining decisions are illustrative of various aspects of  the framework set up by the Court in the decision in M.P. Sugar  Mills.   For example Century Spinning & Manufacturing Company  Ltd. & Anr. v.  The Ulhasnagar Municipal Council & Anr. [1970] 3  SCR 854 emphasised the strengths defined earlier:

" If the representation is acted upon by  another person it may, unless the statute  governing the person making the  representation provides otherwise, result in  an agreement enforceable at law ; if the  statute requires that the agreement shall be  in a certain form, no contract may result from  the representation and acting thereupon but  the law is not powerless  to raise in  appropriate cases an equity against him to  compel performance of the obligation arising

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out of his representation". (p.859)

       An apparently aberrant note was struck in Jit Ram Shiv Kumar  & Ors. etc. v. State of Haryana and Anr. etc.( 1980(3) SCR 689  where despite all the factors of promissory estoppel being  established, the Court held:

"The plea of estoppel is not available against  the State in the exercise of its legislative or  statutory functions". (P.699)

       Of course, it was also found that the representator had no  authority to make the representation it had.  To that extent the  decision could not be said to have deviated from the earlier  pronouncements of the law.         The discordant note struck by Jitram’s case  was firmly  disapproved by a bench of three Judges in Union of India & Ors. v.  Godfrey Philips India Ltd.etc.etc. (1985) 4 SCC 369.  It was  affirmed that:

" There can therefore be no doubt 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". (p.387)

                It was held that irrespective of the nature of power wielded the  Government is bound to wield that power provided it possessed such  power and has promised to do so knowing and intending that the  promisee would act on such promise and the promisee has done so: " We think that the Central Government had power   under Rule 8 sub-rule (1) of the Rules to issue a  notification excluding the cost of corrugated  fibreboard containers from the value of the  cigarettes and thereby exempting the cigarettes  from the part of the excise duty which would be  attributable to the cost of corrugated fibreboard  containers.  So also the Central Board of Excise  and Customs had power under Rule 8 sub-rule (2)  to make a special order in the case of each of  respondents granting the same exemption, because  it could legitimately be said that, having regard to  the representation made by the Cigarette  Manufactures’ Association, there were  circumstances of an exceptional nature which  required the exercise of the power under sub-rule  (2) of Rule 8.  The Central Government and the  Central Board of Excise and Customs were  therefore clearly bound by promissory estoppel to  exclude the cost of corrugated fibreboard containers  from the value of the goods for the purpose of  assessment of excise duty for the period May 24,  1976 to November 2, 1982". (p.389)

                               (emphasis added)

       The limitations to the doctrine delineated in M.P. Sugar Mills  (supra), however, were also reaffirmed when it was said:  

"\005\005.. that there can be no promissory estoppel

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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".  (pp.387-388)

               In all these decisions, Chandrasekhar Aiyar, J.’s judgment  was quoted with approval.  In the case before us, the State  Government had the power to exempt or abolish milk as a taxable  commodity.  There was nothing in law which prohibited it from doing  so.  The representation to exempt milk was made by persons who  had the power to implement the representation.  Can it not be said  that there are such circumstances in this case which required the  State Government to exercise its powers to exempt milk from the  burden of purchase tax, a power which it undoubtedly had?  Before  we determine the answer to this question, we may consider the  remaining decisions cited to determine whether the principles relating  to promissory estoppel as culled out from these earlier cases still hold  the field.         The decision in Bakul Cashew Co.  V. Sales Tax Officer,  Quilon Q1986 (2) SCC 365 was a case dealing with the  preconditions on the fulfilment of which a plea of promissory estoppel  can be raised viz., that the representation must not only be definite  but must be satisfactorily established.  The alteration of the  petitioner’s position acting upon such representation must also be  pleaded with particularity and sufficiently supported with material. The  Court found that it had not been established that any prejudice had  been suffered by the petitioner.   As we have noted earlier, each of  the respondents in these appeals has given a detailed account of  how the monies which were otherwise payable on account of  purchase tax have been expended on the milk shed areas and  producers of milk.  No dispute has been raised by the appellants to  this. The doctrine of promissory estoppel has also been extended to  service law.  In Surya Narain Yadav and Others V. Bihar State  Electricity Board 1985 (3) SCC 38, It was found as a fact that the  Bihar State Electricity Board had made representations that  graduates who would be taken as training engineers would be  regularised against appropriate posts and the submission that such  appointments would be contrary to statutory rules of the Board was  brushed aside and the Court directed the Board, following  Chandrasekhara Aiyar, J’s opinion  in Collector of Bombay V.  Municipal Corporation (supra) as well as the decisions Union of  India V. Indo-Afghan Agencies (supra) and Century Spinning &  Manufacturing Co. Ltd. V. Ulhasnagar Municipal Council (supra)  and Motilal Padampat Sugar Mill Co. Ltd. v. State of U.P.  (supra),  to act in terms of the representation made. Indeed the principles of  promissory estoppel have been applied time and again by this Court

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and it is unnecessary to burden our decision by referring to all the  cases except to note that the view expressed by Chandrasekhara  Aiyar, J in 1952 still holds good.        [See: State of Madhya Pradesh  vs. Orient Paper Mills (1990) 1 SCC 161; Delhi Cloth and General  Mills v. Union of India 1998 1 SCR 383;  Sharma Transport v.  Govt. of A.P. (2002) 2 SCC 188; State of Orissa v. Mangalam  Timber Products (2004) 1 SCC 139] The case of Kasinka Trading V. Union of India 1995 (1) SCC  274, cited by the appellants is an authority for the proposition that the  mere issuance of an exemption notification under a provision in a   fiscal statute such as Section 25 of the Customs Act, 1962, could not  create any promissory estoppel because such an exemption by its  very nature is susceptible  to being revoked or modified or subjected  to other conditions. In other words there is no unequivocal  representation.  The seeds of equivocation are inherent in the power  to grant exemption.    Therefore, an exemption notification can be  revoked without falling foul of the principle of promissory estoppel.  It  would not, in the circumstances, be necessary for the Government to  establish an over-riding equity in its favour to defeat the petitioner’s  plea of promissory estoppel.  The Court also held that the  Government of India had justified the withdrawal  of exemption  notification on  relevant reasons in the public interest. Incidentally, the  Court also noticed the lack of established prejudice to the promises  when it said: "The burden of customs duty etc. is  passed on to the consumer and  therefore the question of the appellants  being put to a huge loss is not  understandable".   

[See also Shrijee Sales Corporation v. Union of India  1997 (3)  SCC 398 ;  Sales Tax Officer v. Shree Durga Oil Mills 1998 (1)  SCC 572] .  We do not see the relevance of this decision to the facts  of this case.  Here the representations are clear and unequivocal.  

         Amrit Banaspati Co. Ltd. V. State of Punjab 1992 (2) SCC  411  is an example of where despite the petitioner having established  the ingredients of promissory estoppel, the  representation could not  be enforced against the Government because the Court found that  the Government’s assurance was incompetent and illegal and "a  fraud on the Constitution and a breach of faith of the people".    This  principle would also not be applicable in these appeals.  No one is  being asked to act contrary to the statute.  What is being sought is a  direction on the Government to grant the necessary exemption.  The  grant of exemption cannot be said to be contrary to the statute.  The  statute does not debar the grant.  It envisages it.           Although the view expressed by two Judges in Jitram’s case  (supra) has been disapproved in Godfrey Phillips  (supra), it was  ostensibly resuscitated in ITC Bhadrachalam Paperboards V.  Mandal Revenue Officer, A.P. 1996 (6) SCC 634.  In that case the  State Government had the power to remit assessment under section  7 of the Andhra Pradesh Non-Agricultural Lands Assessment Act,  1963.  Section 11 of that Act provided for exemption to be made by  an order of the State Government which was required to be  published in the Andhra Pradesh Gazette  prior to which the order  had to be laid on the table of the Legislative Assembly.   The Court  construed the provisions of the State Act and came to the conclusion  that the nature of the power under Section 11 did not amount to  delegated legislation but conditional legislation.  It was  held that   "If the statute requires that a particular act  should be done in a particular manner and if it  is found, as we have found hereinbefore, that  the act done by the Government is invalid and  ineffective for non-compliance with the  mandatory requirements of law, it would be

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rather curious if it is held that notwithstanding  such non-purpose of invoking the rule of  promissory/equitable estoppel.  Accepting  such a plea would amount to nullifying the  mandatory requirements of law besides  providing a licence to the Government or other  body to act ignoring the binding provisions of  law.  Such a course would render the  mandatory  provisions of the enactment  meaningless and superfluous.  Where the field  is occupied by an enactment, the executive  has to act in accordance therewith, particularly  where the provisions are mandatory in nature.   There is no room for any administrative action  or for doing the thing ordained by the statute  otherwise than in accordance therewith.   Where, of course, the matter is not governed  by a law made by a competent legislature, the  executive can act in its executive capacity  since the executive power of the State  extends to matters with respect to which the  legislature of a State has the power to make  laws (Article 162 of the Constitution).  The  proposition urged by the learned counsel for  the appellant falls foul of our constitutional  scheme and public interest.  It would virtually  mean that the rule of promissory estoppel can  be pleaded to defeat the provisions of law  where the said rule, it is well settled, is not  available against a statutory provision.  The  sanctity of law and the sanctity of the  mandatory requirement of the law cannot be  allowed to be defeated by resort to rules of  estoppel.  None of the decisions cited by the  learned counsel say that where an act is done  in violation of a mandatory provision of a  statute, such act can still be made a  foundation for invoking the rule of  promissory/equitable estoppel.  Moreover,  when the Government acts outside its  authority, as in this case, it is difficult to say  that it is acting within its ostensible authority".

                               (p.657-658)

It would appear that these observations are in conflict  with the earlier and subsequent pronouncements of the law on  promissory estoppel.  Chandrasekhara Aiyar, J. had held that  the representation was enforceable despite the "accident" that  the grant was invalid inasmuch as it was contrary to statute.   M.P. Sugar Mills (supra) had said that the promise was  enforceable against the Government despite the requirement  of Article 299 of the Constitution.  Similarly, Century Spinning  (supra) held that despite the requirement of the statute  prescribing the manner and form to grant exemption from  payment of octroi, a promise not made in that manner or form  could  be enforced in equity.  Then again in Godfrey Philips  (supra), the Court directed an exemption to be granted on the  basis of the principles of promissory estoppel even though  Rule 8 of the Central Excise Rules 1944 required exemption to  be granted by notification.                 Of course, the Government cannot rely on a  representation made without complying with the procedure  prescribed by the relevant statute, but a citizen may and can  compel the Government to do so if the factors necessary for

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founding a plea of promissory estoppel are established.  Such a  proposition would not "fall foul of our constitutional scheme and  public interest".  On the other hand, as was observed in Motilal  Sugar Mills. case and approved in the subsequent decisions:  

"It is indeed the pride of constitutional  democracy and rule of law that the  Government stands on the same  footing as a private individual so far as  the obligation of the law is concerned :  the  former is equally bound as the  latter.  It is indeed difficult to see on  what principle can a Government,  committed to the rule of law, claim  immunity from the doctrine of  promissory estoppel."                           None of these decisions have been considered in ITC  Bhadrachalam Paperboards V. Mandal Revenue Officer   (supra) except for a brief reference to Chandrasekhara Aiyar,  J’s judgment which was explained away as not being an  authority for the proposition that even where the Government  has to and can act only under and in accordance with a statute  \026 an act done by the Government in violation thereof can be  treated as a presentation to found a plea of promissory  estoppel.  But that is exactly what the learned Judge had said.                 In any event judicial discipline requires us to follow the  decision of the larger Bench.  The facts in the present case are  similar to those of prevailing in Godfrey Philips (supra).  There  too, as we have noted earlier, the statutory provisions require  exemption to be granted by notification.  Nevertheless, the  Court having found that the essential pre-requisites for the  operation of promissory estoppel had been established,  directed the issuance of the exemption notification.           The appellants have been unable to establish any  overriding public interest which would make it inequitable to  enforce the estoppel against the State Government.  The  representation  was made by the highest authorities including  the Finance Minister in his Budget Speech after considering  the financial implications of the grant of the exemption to milk.    It was found that the overall benefit to the state’s economy and  the public would be greater if the exemption were allowed.   The respondents have passed on the benefit of that exemption  by providing various facilities and concessions for the  upliftment of the milk producers.  This has not been denied.   It  would, in the circumstances,  be inequitable to allow the State  Government now to resile from its decision to exempt milk and  demand the purchase tax with retrospective effect from 1st April  1996 so that the respondents cannot in any event re-adjust the  expenditure already made.  The High Court was also right  when it held that the operation of the estoppel would come to  an end with the 1987 decision of the Cabinet.  In the case before us, the power in the State  Government to grant exemption under the Act is coupled with  the word "may" \026 signifying the discretionary nature of the  power.    We are of the view that the State Government’s  refusal to  exercise its discretion to issue the necessary  notification "abolishing" or exempting the tax on milk was not  reasonably exercised for the same reasons that we have  upheld  the  plea   of    promissory   estoppel   raised  by  the  

respondents.   We, therefore, have no hesitation in affirming  the decision of the High Court and dismissing the appeals  without costs.         

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