2006 Supreme(SC) 879

2006(8) Supreme 230
SUPREME COURT OF INDIA
(From Kerala High Court)
(Ashok Bhan and Markandey Katju, JJ.
MRF Ltd., Kottayam—Appellant
versus
Assistant Commissioner (Assessment) Sales Tax & Ors.—Respondents
Civil Appeal No. 1610 of 2006
Decided on 21-9-2006
Counsel for the Parties :
For the Appellant : F.S. Nariman, S. Ganesh, Sr. Advocates, S. Sukumaran, Subhash Sharma for K. Rajeev, Advocates.
For the Respondents : T.L.V. Iyer, Sr. Advocate, P.V. Dinesh and M.P. Vinod, Advocates.

IMPORTANT POINTS
1. The provisions of the Kerala General Sales Tax Act are always prospective in operation unless the express language renders it otherwise making it effective with retrospective effect.
2. The doctrine of promissory estoppel has been held applicable to statutory notifications.
3. A plea of promissory estoppel is in the nature of an equitable plea and must be determined in the facts and circumstances of each case where it is raised.
4. Equity that arises in favour of a party as a result of a representation made by the State is founded on the basic concept of ‘justice and fair play’. The attempt to take away the benefit sales tax exemption is held arbitrary, unjust and unreasonable and deserves to be quashed.

Headnote:(i) Kerala General Sales Tax Act, 1963—Section 10—Power of Government to grant exemption—Withdrawing the rebate prematurely—Applicability of principle of promissory estoppel to statutory notifications—Memorandum of Understanding executed between MRF and Govt. of Kerala which provided that MRF shall be entitled to tax exemptions available for existing industries undertaking expansion/diversification—MRF is engaged in manufacture of automotive tyres, tubes, compound rubber, tread rubber, flaps etc. at its industrial unit in State of Kerala—Pursuant to the Memorandum of Understanding, MRF invested Rs. 80 crores and carried out substantial expansion of its existing industrial unit and set up new unit for manufacture of diversified products—Board of Revenue having found that MRF eligible for sales tax exemption granted tax exemption of 7 years from 30-12-1996 to 29-12-2003—On 15-1-1998 Govt. of Kerala amended SRO providing that certain processes shall not be deemed to be manufacture—Withdrawal of tax exemption w.e.f. 1-1-2000 —Notice issued on 17-1-2000 proposing to levy purchase tax stating that exemption granted was not available w.e.f. 15-1-1998—MRF having commenced commercial production on 30-12-1996—Claim of entitlement to tax exemption for full period of 7 years w.e.f. 31-12-1996 to 29-12-2003—Writ petition filed challenging notices issued as being contrary to the eligibility certificate and exemption order—Plea of promissory estoppel and legitimate expectation—Whether High Court was justified in dismissing claim of petitioners—(No)—Whether doctrine of promissory estoppel can be applied in respect of statutory notifications—(Yes)—Whether State Government is empowered to make a retrospective amendment affecting rights already accrued to MRF thereunder—(No).

       Held : The finding recorded by the Division Bench that there was nothing to show that the MRF had effected huge investments is also factually incorrect. The MOU dated 6.10.1993 between MRF and the State Government and the addendum dated 10.4.1996 to the MOU dated 6.10.1993 clearly show that the appellant had made huge investment. The eligibility certificate dated 10.11.1997 issued under SRO 1729/93 by the Director of Industries and Commerce after investigation specified the details of the capital investment made by the appellant and the capacities added to the MRF to the tune of Rs. 74,12,77,529/-. The exemption Order dated 30.6.1998 also issued under SRO 1729/93 by the Board of Revenue again specifically stated the capacities added and the total amount of eligible investment made by the MRF. According to the exemption certificate the appellant had made additional fixed capital investment on expansion-cum-diversification to the tune of Rs. 74,12,77,529/- and its annual installed capacity increased manifolds.(Para 20)

       In exemption order dated 30.6.1998 the appellant was found eligible for sales tax exemption to the tune of Rs.74,12,77,529/- for the period of 7 years from 30.12.1996 to 29.12.2003. The finding thus recorded by the High Court that the appellant had not made any investment is erroneous in the teeth of the facts, enumerated above. The appellant had made additional fixed capital investment on expansion-cum-diversification entitling him to seek exemption under SRO 1729/93. (Para 21)

       On a co-joint reading of SRO 1729/93, SRO 38/98 and SRO 1092/99 the intention of the Government does not seem to take away the benefits of exemption in respect of manufactured products including compound rubber after 15.1.1998 (the date on which SRO 38/98 was issued) where commercial production had commenced prior to that date. By virtue of the certificate of eligibility and by virtue of the exemption order granted pursuant to SRO 1729/93 dated 3.11.1993, MRF Ltd. had acquired the right to avail of tax exemption for a fixed period of 7 years from 30.12.1996 to 29.12.2003, in respect of products manufactured from raw rubber, including compound rubber. In the eligibility certificate and in the exemption order the date of commencement of commercial production of all manufactured products, including compound rubber is stated to be 30.12.1996. The Government had itself recognized that the benefit of tax exemption for the fixed period of 7 years would remain available to the units which have fulfilled the prescribed conditions, and have obtained the eligibility certificate etc. and have commenced commercial production before the date of any amendment to SRO 1729/93.(Para 22)

       The provisions of the Act or notification are always prospective in operation unless the express language renders it otherwise making it effective with retrospective effect.(Para 27)

       The view that SRO 38/98 did not affect MRFs pre-existing and accrued right to enjoy tax exemption from the full period of 7 years w.e.f. 30.12.1996 to 29.12.2003 was accepted and recognized by the assessing authority himself which can be seen from the order of the assessing authority dated 1.3.2000 whereby the proposal to deny tax exemption was "dropped as the expansion has been completed on 30.12.1996". This order was passed in respect of notice dated 17.1.2000 issued to the appellant whereby the proposal to continue tax was dropped.(Para 29)

       High Court in its judgment has recorded a finding that the notifications being statutory "no plea of estoppel will lie against a statutory notification". This finding of the High Court is erroneous. The doctrine of promissory estoppel has been repeatedly applied by this Court to statutory notifications. (Para 30)

       MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sales tax for a period of seven years. It was granted the eligibility certificate. The exemption order had also been passed. It is not open to or permissible for the State Government to seek to deprive MRF of the benefit of tax exemption in respect of its substantial investment in expansion in respect of compound rubber when the State Government had enjoyed the benefit from the investment made by the MRF in the form of industrial development in the State, contribution to labour and employment and also a huge benefit to the State exchequer in the form of the States share, i.e. 40 of the Central Excise duty paid on compound rubber of Rs. 177 crores within the State of Kerala. The impugned action on the part of the State Government is highly unfair, unreasonable, arbitrary and, therefore, the same is violative of Article 14 of the Constitution of India. The action of the State cannot be permitted to operate if it is arbitrary or unreasonable.(Para 39)

       Equity that arises in favour of a party as a result of a representation made by the State is founded on the basic concept of "justice and fair play". The attempt to take away the said benefit of exemption with effect from 15.1.1998 and thereby deprive MRF of the benefit of exemption for more than 5 years out of a total period of 7 years, in our opinion, is highly arbitrary, unjust and unreasonable and deserves to be quashed. In any event the State Government has no power to make a retrospective amendment to SRO 1729/93 affecting rights already accrued to MRF thereunder.(Para 39)

       (ii) Evidence Act, 1872—Section 114—Promissory Estoppel—Applicability—Doctrine of promissory estoppel operates even in the legislative field—Doctrine has been repeatedly applied by the Supreme Court to statutory notifications.(Paras 30 and 33)

       (iii) Evidence Act, 1872—Section 114—Promissory Estoppel—Plea of—Equitable plea and must be determined in the facts and circumstances of each case where it is raised(Para 35)

       (iv) Kerala General Sales Tax Act, 1963—Exemption notification—Power to withdraw—Provisions of the Act or notification are always prospective in operation unless the express language renders it otherwise making it effective with retrospective effect.(Para 27)