The main legal point established in the judgment is the application of the principle of promissory estoppel to hold the Corporation accountable for its promise to reimburse the sales tax on the excise duty element, and the finding that the Corporation's retrospective withdrawal of the undertaking was unreasonable and arbitrary, violating Art.14 of the Constitution.

J.B. Koshy, J.

These two writ appeals are filed against the very same judgment in O.P. No. 4196 of 1989. They were heard and disposed of together.

2. The above O.P. was filed by a public limited company engaged in the manufacture and sale of Indian made Foreign liquor. Third respondent in the O.P. Kerala State Beverage Corporation thereinafter referred to as "the Corporation") is incorporated by the Government of Kerala with a view to constitute as the sole agent in the State for distribution of foreign liquor with effect from 1.4.1984. The Corporation was issued licence under the Kerala Abkari Act and the Rules authorising it to store in bond, foreign liquor. As can be seen from Ext. P2, the Corporation can purchase liquor without payment of excise duty and can be stored in the bonded warehouse on condition that they are removed for distribution from the bonded warehouse only on payment of excise duty payable and on obtaining a pass from the Excise Department to that effect. In other words, the Corporation was authorised to keep non-duty paid foreign liquor manufactured in the distilleries in Kerala in the bonded warehouse and to conduct sale of liquor to wholesale shops after realisation of excise duty and other dues. From 1.4.1984 itself petitioner company started supply of Indian made Foreign liquor to the third respondent Corporation and it is stated that both the petitioner company and the Corporation were under the belief that no sales tax will be payable on the excise duty element as goods were removed from the petitioner company which is manufacturing IMFL without payment of excise duty and Corporation collects excise duty when it supplies to other agencies. It is not disputed that under the provisions of the Kerala General Sales tax Act, 1963 the liability to pay sales tax on the turn over of Indian made Foreign liquor was on the petitioner, the petitioner being the first seller within the State and sale tax is being collected from the customers.

3. In McDowell & Co. Ltd. v. Commercial Tax Officer (39 STC 151) it was held that excise duty payable by the buyers of liquor and not included in the sale bills issued either by the manufacturer cannot form part of the turn over and were not liable to sales-tax. The above legal position was changed in May, 1983 when in McDowell & Co. Ltd. v. Commercial Tax Officer (59 STC 277) the Supreme Court has clearly held that the liability to pay excise duty is on the manufacturer and notwithstanding the payment of the said amount by the purchasers the element of excise duty forms part of the turn over of the manufacturer and sales-tax is liable to be levied on the element of excise duty. In view of the above decision, petitioner company demanded sales-tax on the element of excise duty also from the Corporation as, ultimately, they will be liable to pay sales-tax on the turn over of Indian made Foreign liquor and the petitioner company wrote to the third respondent Corporation regarding these matters and requested the third respondent to move the Government to make first point sale under bond without sales-tax so that this uncertainty and difficulty could be removed and the Corporation itself can pay the sales-tax directly. The matter was further discussed by the petitioner and the third respondent and on the basis of the detailed discussions Ext. P5 undertaking dated 31.5.1984 was given by the Corporation. The above undertaking signed by the Managing Director of the Corporation states as follows:

"With reference to the various purchase orders placed/and being placed with you for the supply of IMFL, the rates are exclusive of excise duty since the same is payable by us at the time of release from our bonds. In case at the time of your sales-tax assessment, the assessing authority assesses the excise duty also to tax we undertake to reimburse to you sales tax and additional sales-tax, that becomes payable by you on the element of excise duty".

In view of the above undertaking,