IMPORTANT POINT
When the State Government had the power to exempt or abolish milk as a taxable commodity and the representation to exempt milk was made by persons who had the power to implement the representation, the Court directed an exemption to be granted on the basis of the principle of promissory estoppel.

Headnote:Punjab General Sales Tax Act, 1948-Sections 4, 2(ff), 11, 4(B), 27, 30A and 31-Punjab General Sales Tax Rules, 1949-Rules 20 to 25-Purchase tax on milk-Abolition of-Plea of promissory estoppel-Announcement made by the then Chief Minister of Punjab while addressing dairy farmers 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-Second speech given by the Finance Minister of the State while presenting the budget for year 1996-97-Memo of Financial Commissioner regarding exemption of purchase tax on milk-Fact of exempting milk and milk products from purchase tax was also recorded in a letter written by Excise and Taxation Commissioner-Respondents milk producers did not pay the purchase tax along with their returns for year 1996-97 due to various Press statements/letters/circulars issued by the Department-Whether State Government was bound by its promise/representation made to respondents to abolish purchase tax-(Yes)-Judgment of the High Court affirmed-Evidence Act, 1872-Sections 114 and 115.
       Held : 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. (Para 11)
       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. (Paras 13 & 14)
       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 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. (Para 15)
       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" - 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. (Paras 47 and 48)

JUDGMENT

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 of 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.

2. 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.

3. 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.

4. 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 ......... Furthermore, 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."

5. 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.

6. 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.

.......................

On the basis of the above decision, you are also requested to issue necessary instructions to the field officers."

7. 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, kumkum, 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

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2004 Supreme(SC) 629

Cases Referred (15)