Important Points1. The doctrine of promissory estoppel operates even in the legislative field. What is granted can be withdrawn by the Government except in the case where the doctrine of promissory estoppel applies.2. It is now a 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.

Headnote:Haryana General Sales Tax Act, 1973—Sections 64, 13-B and 25-A—Haryana General Sales Tax Rules, 1975—Rule 28A as amended on 16.12.1996—Industrial Policy—Withdrawal of—Claim of applicability of Rule of Promissory Estoppel—State of Haryana announced an Industrial Policy for the period 1.4.1988 to 31.3.1997 wherein incentive by way of sales tax exemption was to be given for the industries set up in backward areas in the State—Appellants, owners of solvent extraction plants—They 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 State Act and the Central Act—On 26.3.1997, appellant started the trial production—Commercial production commenced on 29.3.1997—Appellants had applied for grant of exemption from payment of sales tax which was rejected—State had issued a notification on or about 3.1. 1996 expressing its intention to amend the rules—By issuing Note 2 to the notification dated 16.12.1996, solvent extraction plant was for the first time inserted in Schedule III, i.e. in the negative list—Whether amendments carried out in 1996 as also the subsequent amendments made prior to 2001, could have taken away rights of appellant with retrospective effect—(No)—Impugned judgment of the High Court dismissing writ petitions filed by appellants held not sustainable.
       Held : 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. 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. (Paras 19 to 21)
       It is beyond any cavil that the doctrine of promissory estoppel operates even in the legislative field. (Para 22)
       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. (Para 31)
       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. (Para 33)
       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. (Paras 34 & 35)
       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. (Paras 38 to 40)

JUDGMENT

S.B. Sinha, J.—Leave granted in S.L.Ps.

2. Applicability of promissory estoppel and/or the extent thereof is in question in these appeals which arise out of a judgment and order dated 22.4.2005 passed by a Division Bench of High Court of Punjab and Haryana in Amended Civil Petition No. 15025 of 1997.

3. 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.

4. 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."

5. 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.

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

6. 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 IVA 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".

7. 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.

8. 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 a

Click Here to Read the rest of this document

2006 Supreme(SC) 228

Cases Referred (9)