Holding

The Supreme Court held that although estoppel arose against the Government, the promise to refund sales tax is illegal, ultra vires and contrary to public policy, and therefore unenforceable.

Summary

The Punjab Government issued a brochure promising a refund of sales tax as an incentive for setting up large‑scale industries in focal points. Amrit Banaspati Co. relied on assurances from the Director and Secretary of Industries, purchased land and machinery, and later sought a refund of sales tax paid. The High Court initially ordered the refund on the basis of promissory estoppel, but the Division Bench set aside that order, holding the promise unauthorised and contrary to Articles 265 and 266 of the Constitution. On appeal, the Supreme Court affirmed that the officials acted within their authority and estoppel arose, but ruled that a promise to refund a duly levied tax is ultra vires, void under Section 23 of the Contract Act and against public policy. Consequently, the promise cannot be enforced and the appeal was dismissed.

Issues considered

Whether a State Government can be bound by a promise of sales‑tax refund made through its officials under the doctrine of promissory estoppel.
Whether the promise to refund sales tax is void as it contravenes constitutional provisions (Arts. 265, 266) and public policy.
Whether the brochure and subsequent assurances were authorized and within the scope of the officials' authority.
Whether promissory estoppel can be invoked when the promised act is prohibited by statute (Section 23, Contract Act).
Whether a change in policy before the promise was given defeats the operation of estoppel.
Distinction between tax exemption and tax refund in the context of industrial incentives.

Legislation cited

Subjects

promissory estoppelsales tax refundpublic policyconstitutional lawArticle 265tax exemption vs refundsovereign powerContract Act Section 23industrial incentives

Judgment

AMRIT BANASPATI CO. LTD. AND ANR. A
v.
STATE OF PUNJAB AND ANR.

MARCH 5, 1992

[R. M. SAHAI AND S. MOHAN, JJ.] B
~

Promissory Estoppe~ature extent and applicability of-Promissory
estoppel cannot be enforced against Statute or public policy.

Stat~Announcement of policy of incentives and concession including c
refund of sales tax to persons. establishing large scale industries in focal
point-Establishment of Vanaspati Unit-Authorities assuring concession and
-ol.
incentive-Claim for refund of sales tm:-Action of authorities held not
unauthorised nor beyond the scope of their authority-Held there was estoppel
..,,.. against the Government-But scheme of refund of sales tax held contrary to
public policy and void under section 23 of the Contract Act and not enforce- D
able in law.

Constitution of India, 1950: Article 265.

Taxation-Nature of power-Taxation is a sovereig.: power.
E
Taxation-Refund of tax-:-Pennissibility and legality of-.No law can be
made to refund the tax except when the levj is contrary to law-A promise or
agreement to refund tax is a fraud on Constitution-Exemption from tax and
..-.-. refund of tax-Distinction between-Exemption is neither illegal nor against
public policy-Refund of tax, unless levied contrary to law, would be invalid F
and ultra vires.
~

).. The Government of Punjab issued a brochure in December, 1966

.... announcing its 'New Policy' declaring that incentives and concession, one
of the them being refund of sales-tax. would be available to those persons
who were willin~ to set up selective large scale industries in the focal point. G
Attracted by the concessions and incentives the appellant's Manager wrote
a letter in June, 1968 to the Chief Minister of Punjab expressing his
..~. willingness to set up a vanaspati unit provided the concession was made
available to it. By its letter dated 2nd July, 1968 the Director of Industries
replied the appellant assuring that the concession would be granted to it. H
13
14 SUPREME COURT REPORTS [1992] 2 S.C.R

A Thereafter there had been exchange of correspondence and various meet-
ings between the appellant's representative and officials of file Govern-
ment. By its letter dated 25th October, 1968 the appellant requested for
confirmation of the concession. By a letter dated 16th June, 1969 it was
confirmed that the State Government had agreed to give the concession
and incentives. Acting on the assurance the appellant purchased the land,
B which by a notification issued by the Government was included in the focal
....J,
point, and also invested substantial amount in setting up the unit.

Subsequently, the appellant claimed refund of sales tax paid by it to
the State Government on sale made by it of its fiDished products. On
c respondents failure to refund the amount, the appellant filed a writ -r-
petition in the High Court of Punjab and Haryana for a direction to refund
the sales tax to the appellant.
>--
A single judge of the High Court allowed the petition and directed

D
the Government to honour its commitment of refunding sales tax to the ..
appellant on principle of promissory estoppel.

On appeal the order of Single Judge was set aside by the Division
Bench holding that (i) the decision of the Government to grant concession
came in June, 1969 but before that i.e. in May, 1969 the policy had
undergone a change; (ii) in view of the decision of the Cabinet Sub-Com-
E
mittee in 1966 not to give any refund of sales tax the brochure itself was
unauthorised and consequently the actions of the Government officials y-
could not create any right in favour of the appellant; a~d (iii) the refund

-
of amount paid as sales tax by the appellant would be contrary to Articles
265 and 266 of the Constitution of India.
F
In appeal to this court it was contended on behalf of the State that
(i) in the absence of any assurance by a competent authority on behalf of ~
the State the promise if any was incapable of giving rise to any equity; and - .J..

G
(ii) that the policy of the Government announced in the brochure was only
an offer and letter of the appellant sent on 25th October, 1968 was a ....
counter offer which was under consideration of Government which made
another counter offer on 16th June which was accepted by the appellant
who thereafter applied for registration and the Government issued a
notification declaring the factory in the focal point. 7-
H Dismissing the appeal, this Court,
AMRIT BANASPATI v. STATE 15

HELD : 1. The finding of the Division Bench, was factually and A
legally incorrect. .It was not justified in holding that the Government
officials had extended promise, unauthorisedly and beyond scope of their
authority. (26-F]

Vasant Kumar Radhakisan Vora v. Board of Trnstees of the Port of
Bombay & Anr., (1991] 1 SCC 761, held inapplicable. B

2. The Government functions through its officials and so long they
are acting bona fide in pursuanc~ of Government policy the Government
cannot be permitted to disown it as a citizen can have no means to know
if what was being done was with tacit approval of the Government. The C
Government cannot be permitted to go back on its promise by producing
some documents lying in its file which was neither known, nor announced,
_.._ nor acted upon as it would be unjust and unfair, therefore, illegal. If it is
found that the representation made by the official concerned was such that
any reasonable person would believe it to have been made on behalf of the
Government then unless such representation is established to be beyond D
scope of authority it should be held binding on the Government. It is
another matter that even if it is binding it may be contrary to law and
therefore unenforceable. [21F-G, 25-H, 26-A]

Motilal Padampat Sugar Mills v. State of U.P., (1979) 2 S.C.R. 641, E
referred to.

2.1 In the instant case the record unmistakenly demonstrate that
the authorities were not only assuring the appellant but were making every
effort that the unit be established in consonance with the policy of Govern-
ment as it would result in industrialization and development of the State. F
Such painstaking effort of responsible and senior officers of the State was
neither unauthorised nor beyond scope of their authority. [23B-C]

3. There is no merit in the finding that by the time the Government
agreed, in writing, to grant concession the policy had undergone a change. G
Estoppel arose against Government not by the letter dated 16th June, 1969
but by the promise made by it in December, 1968, assurance by its officials
both in writing and oral leading appellant to believe that it was intended
.>< to create an agreement that sales tax paid shall be refunded as a result of
which it not only purchased land, machinery and other parts much before
the policy went into any change bui the Government issued notification as H
16 SUPREME COURT REPORTS (1992] 2 S.C.R.

A well declaring the area where the factory was established to be in focal
point. Rights of parties were therefore governed by the old and not new
policy. [26H, 27A·C]

Pumami Oil Mills etc. v. State of Kera/a, (1987) 1 S.C.R. 654 and
Assistant Commissioner of Commercial Taxes v. Dhamendra Trading Co.,
B (1988) 3 S.C.R. 946, referred to.

4. The entire argument founded on offer and counter offer is mis·
conceived. There is no merit in the submission that after considering
proposal of appellant the Government gave a counter offer on 16th June,
1969. It would be too much to read the letter dated 25th October, 1968 as
c counter offer. It was only intimation by the appellant that it had decided
to set up the unit as it has been assured that the concessions as announced
would be available to it. [25A-C, 24-E] >--
5. Promissory Estoppel being an extension of principle of equity, 01e
D basic purpose of which is to promote justice founded on fairness and
relieve a promises of any injustice perpetrated due to promisor's going
back on its promise, is incapable of being enforced in a court of law if the
promise which furnishes the cause of action or the agreement, express of
implied, giving rise to binding contract is statutorily prohibited or is
E against public policy. [27E-F]

Union of India v. Indo Afghan Agencies, [1968) 2 S.C.R. 366; Union f
of India v. Godfrey Philips India Ltd., [1985] 4 SCC 370 and Delhi Cloth
and General Mills Ltd. v. Union of India, (1988] 1. S.C.R. 383, referred to.

6. Taxation is a sovereign power exercised by the State. to realise
F revenue to enable it to discharge its obligations. Even a legislature, much
less a government, cannot enact a law or issue an order or agree to refund
the tax realised by it from people in exercise of its sovereign powers, except
when the levy or realisation is contrary to a law validly enacted. A promise
or agreement to refund tax which is due under the Act and realised in
G accordance with law would be a fraud on the Constitution and breach of
faith of the people. (27-G, 28A·B]

Halsbu.ry's Laws of England, Vol., 52; para 20.04, referred to.
Y~
7. Exemption from tax to encourage industrialisation should not be
H confused with refund· of tax. They are two different legal and distinct
.t

A..\1RIT BANASPATI v. STATE 17

concepts. An exemption is a concession allowed to a class or individual A
from general burden for valid and justifiable reason. Such provisions in
an Act or Notification or order issued by Government are neither illegal
nor against public policy. [28D-F]

7.1 But refund of tax is made in consequence of excess payment of
it or its realisation illegally or contrary to the provisions of Jaw. A B
)-
provision or agreement to refund tax due or realised in accordance with
law cannot be comprehended. No law can be made to refund tax to a
manufacturer realised under a statute. It would be invalid and ultra vires.
An agreement or even a notification or order permitting refund of sales
tax which was due shall be contrary to the statute. [28G, 29A] C
7.2 Neither section 12 nor section 30 of the Punjab Sales Tax Act
empowers the Government to refund s11les tax realised by a manufacturer on
sales of its finished product. Refund could be allowed if tax paid was in
excess of amount due. Any agreement for such refund being contrary to
public policy was void under Section 23 of the Contract Act. The constitu- D
tional requirements of levy of tax being for the welfare of the society and not
for a specific individual the agreement or promise made by the government
was in contravention of public purpose thus violative of public policy. No
legal relationship could have arisen by operation of promissory estoppel as
it was contrary both to the Constitution and the law. Realisation of tax E
through State mechanismfor sake of paying it to private person directly or
} indirectly is impermissible under constitutional scheme. The law does not
permit it nor equity can countenance it. The scheme of refund of sales tax
was thus incapable of being enforced in a court of law. [28H, 29A-D]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2832- F
2833 of 1979. -

From the Judgment and Order dated 25.1.1977 of the Punjab and
Haryana High Court in Civil Writ No. 5653 of 1975 and Letters Patent
Appeal No. 368 of 1975. G

Kapil Sibal, U .K. Khaitan, Praveen Kumar and Vivek Sibal for the
Appellants.

D.S. Mehra, Mrs. Jayshree Anand, Arun Mehra, Sanjay Bansal and
G .K. Bansal, for the Respondents. H
'·
18 SUPREME COURT REPORTS [1992] 2 S.C.R.

A The Judgment of the Court was delivered by
~
R.M. SAHAI, J: Promissory ~stoppel, its extent and applicability,
apart, one of the important issue, that arises for consideration in this
appeal, directed against the judgment and ord~r of. a Division Bene~ of the
Punjab and Haryana High Court exercising jurisdiction under Letters
B
Patent and setting aside order of the learned single Judge directing refund
of sales. tax and inter-State sales tax, is if the Government of a State could -{
agree expressly or impliedly to refund sales tax realised by a manufacturer.

Facts, found by the learned single Judge, which wei:e sufficient to
c direct the government to honour its commitments of refunding sales tax to
the appellant on principle of promissory estoppel were announcement -of
policy by the Government to refund sales tax, as an incentive to those who
were willing to set up large scale selective industries in the focal points, )..-
letter of the appellant seeking details of policy as he was willing to set up
D a Vanaspati manufacturing unit, favourable response from the _Director of
Industries followed by exchange of letters and meetings between
appellant's representatives and Secretary of Industries extending assurance
that the incentives shall be available to the appellant acting on which it
purchased land, machinery etc., laying of f~undation stone by the Gover-
nor and issuance of notification declaring the land, on which unit was
E established, in focal point. The order was set aside in appeal and it was
held that even though rule of equitable estoppel should be observed by all
government and public authorities but its scope was restricted and it could
not be extended, too widely so as to bind a government even where its
officials in excess of their. authority or against the interest of the Govern-
F ment extended the promise. The Bench drew inference against the appel-
lant from its letters seeking written assurance that the concession would be
extended to it which came, as well, in June, 1969 but before that the policy
had, already, undergone change in May, 1969. The Bench further felt
--{
mystified that even though there was a decision of Cabinet Sub-Committee ...I..

as far back as 1966 not to give any refund of sales tax yet the Government
G officials acting contrary to it issued the brochure and corresponded ~th
the appellant in, wholly, unauthorised manner therefore their action could
not create any right in favour of the appellant. It also negatived the claim
of appellant, as· refund of an amount paid as sales tax by the appellant, ..,.._
would be raising revenue by the Government not for itself or for public but
H for a private person which would be contrary to Articles 265 and 266 of
AMRIT BANASPATI v. STAIB [SAHAI, J.) 19

the Constitution of India. A
Law of Promissory Estoppel which found its 'most eloquent
exposition' in Union of India v. Indo Afghan Agencies, [1968] 2 SCR 366,
crystallised in Motilal Padampat Sugar Mills v. State of U.P., [1972].2 SCR
641 as furnishing cause of action to a citizen, enforceable in a court of Jaw,
against government if it or its officials in course of their authority extended B
any promise which created or was capable or creating legal relationship,
and it was acted upon, by the promisee irrespective of any prejudice. It was
reiterated in Union of India v. Godfrey Philips India Ltd., [1985] 4 SCC 370
and was taken further when it was held that no duty of excise was asses-
sable on cigarettes manufactured by assessee by including, cost of cor- C
rugated fibreboard containers, when it was clearly represented by the
Central Board of Excise and Customs in response to the submission made
by the Cigarette Manufacturers' Association - and this representation was
approved and accepted by the Central Government - that the cost of
corrugated fibreboard containers would not be includible in the value of D
the cigarettes for the purpose of assessment of excise duty. In Delhi Cloth
and General Mills Ltd. v. Union of India, (1988] 1 SCR 383 it was held.

"All that is now required is that the party asserting the estoppel
must have acted upon the assurance given to him. Must have
relied upon the representation made to him. It means, the party E
has changed or altered the position by relying on the assurance
l or the representation. The alteration of position by the party is
the only indispensable requirement of the doctrine. It is not
necessary to prove further any damages, detriment or prejudice
to the party asserting the estoppel." F

What, therefore, requires to be examined, is if any promise was made
by the Government or its officials to the appellant that sales tax shall be
refunded to it and if the appellant acting on it altered its position. For this
it is necessary to narrate few facts even though both the learned Single
Judge and Division Bench have dealt with it elaborattly. Admittedly, a G
brochure was issued in December 1966 by the Government of Punjab
announcing its 'New Policy' declaring that incentive and concession, one
of them being refund of sales tax, would be available to those persons who
set up selective large scale industries in the focal point. Whether this
brochure was authorised or not and its legal effect on rights of parties shall H
20 SUPREME COURT REPORTS [1992] 2 S.C.R.

A be adverted to later. But it is undisputed that acting on it the appellant's
representative met the Chief Minister of the State personally and found
that he was interested in 'encouraging Vanaspati Manufacturing unit in the
State, therefore, its Manager wrote a letter in June, 1968 to the Chief
Minister expressing willingness to set up the unit provided the concessions
were made available to it which was replied by the Director of Industries
B on 2nd July, 1%8 assuring the appellant that the concession as announced
shall be available and further informed the appellant that the Government
was willing to consider such additional concession which the appellant may
require for implementation of the scheme. It was followed by exchange of
correspondence and various meetings between appellant's representative
c and officials of the Government. Outcome of it is recorded in the note
submitted by the Secretary of Industries on 1.4.1969 to Finance Depart-
ment, on certain queries made by it, relevant portion of which reads,

"As Government investment had taken place in Rajpura the
D Sub-Committee appointed for allotment of industrial plots was
very much concerned to allot the same but it was finding
difficulty in getting suitable parties. In October, 1968 Shri
Khaitan of Amrit Banaspati Factory of Ghaziabad approached
me and the DJ. for location of their vanaspati plant of 100
tonnes capacity per day in Punjab. These people since they
E were already very much in the business and since their
vegetable ghee was meeting 20 to 25% of Punjab's needs of
vanaspati it was felt that if we encourage these people to come
to Punjab it will give great boost to industrial growth. These
people were attracted mainly to Punjab on account of the
F availability of raw material, i.e., groundnut which are in plenty
around about. They consequently asked for a plot in Dhandari
Kalan. At that stage we had 2-3 applications for setting up of
vanaspati plants at Ludhiana and since our Rajpura Estate was
very much neglected it was decided that we persuade this party
to locate its factory at Rajpura as by their coming there, it was
G felt that several small and ancillary units would also get located
and our plots would .be sold. In fact Shri Khaitan, during the
course of his discussions with me mentioned that his project
which wouU be costing nearly Rs.1.5 crores would necessitate
setting up of the other smaller units-tin makers-who would
H come over from U.P. and settle up at Rajpura. Taking all these
AMRIT BANASPATI v. STATE [SARAI, J.] 21

factors into consideration I mentioned this matter to Mr........ A
and also informally to FS also at that stage and it was decided
that we get this party located at Rajpura. Unfortunately, the
demand of land by this party was in one place to the tune of
15 to 20 acres and since our plots were only of 1-1.5 acres of
size it was decided that they may be allowed to locate their plot B
nearabout our Focal Point so that it could be integrated finally
in our future expansion of the Industrial Estate at Rajpura
which yet shows no sign of life and consequently it was felt that
by bringing this party more industries of allied nature would
come here. In plan for 1969-70 the F.D. are aware that we have
very little money set aside for further acquisition of land. C
Realising this, we,- therefore, suggested to this party to go in
for purchase of land themselves as we were not sure whether
we would be able to have enough fuhds to acquire more land
at Rajpura particularly when our earlier plots had not been
sold out. This party was keen to come in as it wanted to do D
into production from November, 1969. The party has purchased
that piece of land which has approval of the Town and Country
Planning d,epartment, it has also submitted its plan for con-
struction of buildings etc."

It is, thus, obvious that there was representation to the appellant that E
it would be entitled to concession and incentives announced by the Govern-
ment if it set up its unit in the focal point. Whether such representation
resulted in binding agreement is different issue but the representation
coming from Industries Secretary and Director of Industries in pursuance
of Government policy cannot be held to be unauthorised or beyond the F
scope of authority. The Government functions through its officials and so
long they are acting bona fide in pursuance of Government policy the
Government cannot be permitted to disown it as a citizen can have no
means to know if what was being done was with tacit approval o( the
Government. And if it is found that the representation made by the official G
concerned was ·such that any reasonable person would believe it to have
been made on behalf of the Government then unless such representation
is established to be beyond scope of authority it should be held binding on
the Government. It is another matter that even if it is binding it may be
contrary to law and therefore unenforceable. In Motilal Padampat Sugar
Mills (supra) the Government was held bound to grant exemption from H
22 SUPREME COURT REPORTS [1992] 2 S.C.R.

A sales tax to the sugar mill even though the manufactmer had written letter
to the Director of Industries on a news item published for grant of
exemption from sales tax, based on a statement issued by the Secretary of
Industries which was favourably replied first by the Director of Industries

-
endorsed later by the Chief Secretary informing the manufacturer that
Government was willing to consider the request and necessary form etc.
B
may be obtained from Secretary Industries. As is clear from the noting of
the Secretary the appellant purchased the land, privately, on assurance of
the Secretary which by a notification issued by Government was included
in focal point. It was not denied that by January, 1969 the appellant had
purchased the land and various other materials at a cost of 15 lakhs and
c had placed an order for purchase of plant and machinery of value of Rs.35
lakhs whi<::h was intimated by a telegram sent on 11th January, 1969. Even
rules were framed in February, 1969 by sanction of the President of India
which provided for refund of sales and purchase tax to new and expanding
industries. All this indicates that the promise was made on behalf of the
D Government by its officials in pursuance of and in line with the declaration
of policy by the Government that a new unit shall be entitled to concession.
Acting on the assurance, both express and implied, the appellant invested
•
substantial amount in setting up the unit requesting, in the meanwhile, for
grant of written sanction from the Government which, too, came. But even
if it would not have it would not have made any difference in law as the
E equity arose in favour of appellant not by the letter dated 16th June, 1969
but by altering its position on assurance given by authorities. In Godfrey
Philips (supra) it was observed, -f"
"Now the doctrine of promissory estoppel is well-established
F in the administrative law of India, It represents a principle
evolved by equity to avoid injustice and, though commonly
named promissory estoppel, it is neither in the realm of con-
tract nor in the realm of estoppel. The basis of this doctrine is
the interposition of equity which has always, true to its form,
stepped into mitigate the rigour of strict law."
G

Basic ingredients of promise by the Government, belief of the appel-
lant that it was true and if acted upon shall, entitle it to refund of sales tax,
and finally altering its position by investing substantial amount were thus
H established to invoke promissory estoppel against government.
AMRIT BANASPATI v. STATE [SARAI, J.] 23

Vehement argument of the learned counsel, for the State of Punjab, A
that in absence of any assurance by a competent authority on behalf of the
State the promise if any was incapable of giving rise to any equity, cannot
be accepted in absence of any positive material to show that the Govern-
rilent either dissassociated itself from the letter sent by the Secretary or
'f Pirector of Industries or acted contrary to what was alleged to have been
reptesented 'or assured by them. On the other hand the notings of the
B
\.- Secretary, extracted earlier, demonstrate unmistakenly that the authorities
were not only assuring the appellant but were making every effod that the
unit be established in consonance with the policy of Government as it
would result in industrialisation and development of the State. Such
painstaking effort of responsible and senior officers of the State was neitherc
unauthorised nor beyond scope of their authority. In fact tlie letter dated
16th January, 1969 and the notification declaring the land where the unit
-1..
of appellant was established to be in focal point to enable it to avail of the
concession were only follow up action which demolish any such conclusion
as was canvassed by the learned counsel.
D
Effort was, also, made to advanced an innovative submission of offer,
counter offer and recounter offer. It was submitted that policy of the
Government announced in the brochure was only an offer. And letter of
the appellant sent on 25th October, 1968 was a counter offer which was
under consideration of Government which made another counter offer on E
't 16th June which was accepted by the appellant who thereafter applied for
registration and the Government issued a notification declaring the factory
in the focal point. All that can be said is that the submission was advanced
without an:.- foundation, in complete is regard of facts and misapprehension
about the law of offer and counter offer. Letter dated 25th October, 1968 F
was written, to the Secretary of Industries pursuant to letter dated 2nd July,
~- 1968 and with reference to the interview held between appellant's repre-
sentative and the Secretary of Industries at Chandigarh on 16th October,
~
1968. undertaking to set up a factory at Rajpura, a site approved by the
department within area covered by the layout plan of industrial estate with
assurance that the plot shall be in focal point at Rajpura and if necessary G
steps shall be taken to include it in focal point. The letter mentioned that
according to the policy the concession available to the appellant would be
refund of purcha5e and sales tax including inter-state sales tax for a period
""'\ ~

of five years. In paragraph 6 of the letter the appellant wanted clarification
that the period of five years shall be counted from the date of production. H
24 SUPREME COURT REPORTS [1992] 2 S.C.R.

A Paragraph 7 of the letter read,

"7. We would very much like to spend money on further
industrial development, staff and labqur welfare activities,
housing for staff and labour, research and development of
agricultural products for use in industry in the State of Punjab.
B In order to enable us to do so, it is requested that instead of
refunding the amount of the purchase and sales tax including
inter-state sales tax as such an amount equivalent to the amount
of purchase aJ;td sales tax including inter-state sales tax to be
paid by US-every quarter is paid to us as Capital grant quarterly
c for a period of five years commencing from the date of produc-
tion. If our request is accepted, we on our part undertake to
utilise the same for all or any of the said purposes as we feel
proper in the State of Punjab. You will appreciate that after
all the State will benefit if the concessions are utilised for
advancement of industry and research and staff and welfare in
D the State and this will be possible if our request is considered
favourably."

Request for confirmation of the concession mentioned in the letter
dated 25th October, 1968 were reiterated in a telegram sent on 11th
E January and letters dated 3rd, 13th and 23rd January, 1969. It would be
too much to read the letter dated 25th October, 1968, as counter offer. It
was intimation by the appellant that it had decided to set up the unit as it
has been assured that the concessions as announced would be available to
it. The request that the period of five years for refund should be calculated
F from the date of production, and capital grant may be made every quarterly
equivalent to the amount of sales tax are impossible to be read as declining
-
of availing the. offer made by the Government. What was requested was
that if instead of refunding of the sales tax or purchase tax an amount
equivalent to it was paid to them every quarter for a period of five years
it would enable them to utilise the same for the benefit of the State itself.
G It was this request which was reiterated in the telegrams and letters but at
no point of time the appellant made any request that if capital grant was
not paid it shall not avail of the concession in respect of sales tax. The
request was to change the nature of payment and not the refund. It could
not be termed as counter offer, also, because the appellant not only
undertook to establish the unit but as agreed went on to purchase Jand and
AMRIT BANASPATI v. STAIB [SARAI, J.] 25

machinery etc. Nor is there any merit in the submission that after consider- A
ing proposal of appellant the Government gave a counter offer on 16th
June, 1969 forgetting that issuance of letter was not an isolated action of
the Government but it was preceded, apart, from earlier notings of the
Secretary extracted earlier, by a meeting which took place on 2nd May
between various officials in which the decision was taken. 'that the conces-
~ B
sion and incentives. applicable to focal point will be given to M/s Amrit
~ Banaspati Co. Ltd. only in respect of 12 acres of land to be utilised by them
for setting up the ghee industry'. Letter dated 16th June, 1%9 was faithful
reproduction of the decision taken on 2nd May, 1979 informing the appel-
lant that, 'the State Government have agreed to give the concessions and
incentives admissible to a unit in the focal point of industrial growth to the c
unit proposed to be set up by you for the manufacture of Vanaspati Ghee'.
The entire argument founded an offer and counter offer, thus, was miscon-
~ ceived.

' Two reasons were given, by Division Bench of the High Court, to
D
permit the Government to escape from rigour of the principle of promis-
sory estoppel one that the brochure itself was unauthorised and other that
when the decision of the Government came the policy had already under-
gone change. Neither appear to be well founded. Cabinet Sub-Committee's
decision of 15th December, 1968 which formed the basis for the fmding
that the brochure was unauthorised, are minutes of a decision of a Com- E
mittee comprising of the Industries Minister and Secretary Industries which
4.
I
did not see light of the day till it was filed by way of supplementary affidavit
before the Division Bench. As against it, the Chief Minister and Industries
Minister in an inaugural speech of Conference of Industries at Chandigarh
after five days of its, that is, on 20th December, 1968, announced that
F
concession and incentive shall be offered to new units set up in focal points
details of which were mention in the booklet issued by the Government in
December, 1966, which provided of refund of sales tax as claimed by the
)..._
appellant.

A citizen of a State can have no means to ascertain that an- G
nouncement by the Chief Minister and the Industries Minister of State that
concession made in the booklet would be available was not the government
policy as the Cabinet Sub-Committee earlier had taken some other
decision. The Government cannot be permitted to go back on its promise
by producing some documents lying in its file which was neither known, H
26 SUPREME COURT REPORTS (1992) 2 S.C.R.

A nor announced, nor acted upon as it would be unjust and unfair, therefore, (

illegal. Factually the Division Bench read too much in the minutes of 15th ~
December, 1968 but it is not necessary to deal with it. Suffice it to say how
the Government understood and wanted others to understand its policy
was mentioned in the brochure. Even the Secretary who was a member of
the Sub-Committee understood it in the manner in which it was printed in ~
B
the booklet. In the note submitted to the Finance Department it was stated,
~

" .... The Entire Matter of giving concessions was discussed at
the Cabinet level and all these factors (namely exemption from
c sales tax)* were taken into consideration when the Government
took a decision to give such attractive concessions to the
industry. I would like this case to be seen by D.M. also as he
had enquired about this case from me. The Amrit Banaspati _).-.
people as I.N. and F.S.R are aware, have already gone f~r
construction of their building and according to their plan they ...,
D propose to go into product in November 1969. They are anxious
that the Government takes an early decision granting conces-
sion to their unit also. As it is a big industry we should take an
immediate decision as by so doing the possibility of bri:nging in
ancillary can be explored thereby ensuring that our industrial
......
E estate gets fully developed at the earliest...."

*(bi:acket supplied] '-Jr

As stated earlier the letter dated 16th June, 1969 was folinded on
notings of 27th May, 1969 which was based on decision arrived on 22nd
F May, 1969. The finding of the DiVision Bench, was thus, factually and
legally incorrect. It was not justified in holding that the Government
officials had extended promise, unauthorisedly and beyond scope of their ~
authority. Reliance on Vasantkumar Radhakisan Vora v. Board of Trustees __... I

of the Port of Bombay & another, [1991] 1 SCC 761 was not apposite as the
Estate Manager at whose instance the lessee had deposited the amount for
G
grant of tenancy after reconstruction was authorised to collect rent only.
Further the letter indicated that if the lessee complied with conditions· he
would recommend to the Board for grant of lease. And recommendation
was made. But is was not accepted.

H Nor. there is any .merit in the fmding that by the time the Government
AMRIT BANASPATI v. STATE [SARAI, J.) 27

agreed, in writing, to grant concession the policy had undergone change, A
;;. therefore, the appellant was entitled to the concession under the new policy
, only, Estoppel arose against Government not by the letter dated 16th June,
1969 but by the promise made by it in December, 1968 to those who were
willing to set up new unit, assurance by its officials both in writing and
oral leading appellant to belief that it was intended to create an agreement
that sales tax paid shall be refunded as a result of which it not only
B
>-- purchased land, machinery and other parts much before the policy went
into any change but the Government issued notification as well declaring
the area where the factory was established to be in focal point. Rights of
parties were therefore governed by the old and not ne" policy. The
-r- appellant was never intimated that the Government had changed its policy c
in respect of refund of sales tax at any point prior to filing of the counter
affidavit in the High Court. Even the letter dated 16th June, 1969, did not
mentioq that the concessions would be available as provided in the new
policy. In Pumami Oil Mills, etc. v. State of Kera/a, [1987] 1 SCR 654 the
Government was not permitted to go back on its earlier promise of wider
D
exemption from sales tax in pursuance of which the industries had been set
up on principle of promissory estoppel and the Notification issued after
one year curtailing exemption was held to apply to industries set up
thereafter. To same effect is the decision in Assistant Commissioner of
Commercial Taxes v. Dhamendra Trading Company [1988] 3 SCR 946.
E
But Promissory Estoppel being on extension of principle of equity,
:0,-
the basic purpose of which is to promote justice founded on fairneS's and
relieve a promisee of any injustice perpetrated due to promisor's going
back on its promise, is incapable of being enforced in a court of law if the
promise which furnishes the cause of action or the agreement, express of F
implied, giving rise to binding contract is statutorily prohibited or is against
'i public policy. What then was the nature of refund which was promised by
the govt? Was such promise contrary to law and against public policy?
,).._
Could it be enforced in a court of law? Taxation is a sovereign power
exercised by the State to realise revenue to enable it to discharge its
obligations. Power to do so is derived from entries in Lists I, II and III of G
the Seventh Schedule of the Constitution. Sales tax or purchase tax is levied
in exercise of power derived from an Act passed by a State under Entry
54 of List II of Vllth Schedule. It is an indirect tax as even though it is
~
collected by a dealer the law normaily permits it to be passed on and the
ultimate burden is borne by the consumer. But 'the fact that the burden of H
SUPREME COURT REPORTS (1992] 2 S.C.R.

A a tax may have been passed on to the consumer does not alter the legal
nature of the tax' (Halsbury's Laws of England, Vol. 52, paragraph 20.04).
Therefore even a legislature, much less a government, cannot enact a law
or issue an order or agree to refund the tax realised by it from people in
exercise of its sovereign powers, except when the levy or realisation is
contrary to a law validly enacted. A promise or agreement to refund tax
B
which is due under the Act and realised in accordance with law would be
a fraud on the Constitution and branch of faith of the people. Taxes like
sales tax are paid even by a poor man irrespective of his savings with a
sense of participation in growth of national economy and development of
the State. Its utilization by way of refund not to the payer but to a private
c person, a manufacturer, as an inducement to set up its unit in the State
would be breach of trust of the people amounting to deception under law.

Exemption from tax to encourage industrialisation should not be
confused with refund of tax. They are two different legal and distinct
D concepts. An exemption is a concession allowed to a class or individual
from general burden for valid and justifiable reason. For instance tax
holiday or concession to new or expanding industries is well known to be
one of the methods to grant incentive to encourage industrialisation.
Avowed objective is to enable the industry to stand ·up and compete in the
market. Sales tax is an indirect tax which is ultimately passed on to the
E consumer. If an industry is exempt from tax the ultimate beneficiary is the
consumer. The industry is allowed to overcome its teething period by
·, selling its products at comparatively cheaper rate as compared to others.
Therefore, both the manufacturer and consumer gain, one by concession
of non-levy and other by non-payment. Such provisions in an Act or
F Notification or orders issued by Government are neither illegal nor against
public policy.

But refund of tax is made in consequence of excess payment of it or
its realisation illegally or contrary to the provisions of law. A provision or
G agreement to refund tax due or realised in accordance with law cannot be
comprehended. No law can be made to refund tax to a manufacturer
realised under a statute. It WO\\ld be invalid and ultra vires. The Punjab
Sales Tax Act provided for refund of sales tax and grant of exemption in
circumstances specified in Sections 12 and 30 respectively. Neither em-
powered the Government to refund sales tax realised by a manufacturer
H on sales of its finished product. Refund could be allowed if tax paid was
AMRIT BANASPATI v. STATE [SAHA!, J.] 29

in excess of amount due. An agreement or even a notification or order A
permitting refund of sales tax which was due shall be contrary to the
statute. To illustrate it the appellant claimed refund of sales tax paid by it
to the State Government of sale made by it of its finished products. But
the tax paid is not an amount spent by the appellant but realised on sale
by it. What is deposited under this head is tax which is otherwise due under
provisions of the Act. Return or refund of its or its equivalent, irrespective B
of form is repayment or refund of sales tax. This would be contrary to
. Constitution. Any agreement for such refund being contrary to public
policy was void under Section 23 of the Contract Act. The constitutional
requirements of levy of tax being for the welfare of the society and not for
a specific individual the agreement or promise made by the government C
was in contravention of public purpose thus violative of public policy. No
legal relationship could have arisen by operation of promissory estoppel as
it was contrary both to the Constitution and the law. Realisation of tax
through State mechanism for sake of paying it to private person directly or
indirectly is impermissible under Con.Stitutional scheme. The.law does not
permit it nor equity can countenance it. The scheme of refund of sales tax D
was thus incapable of being enforced in a court of law.

Fallacy of such constitutionally inhibited policy, sacrificing public
interest resulting in illegal private enrichment is exposed by claim of refund
for nearly Rs. 2 crores, for a period of three years, only, when total
investment in establishing the unit was Rs. 15 crores, Levy of tax to raise E
revenue for promoting economic growth of the State reduced itself in
enhancing the profit margin of the manufacturer and the sales tax stood

-- converted into income of the appellant. Such contrivance of law even
though bona fide is legally unenforceable.

In the result this appeal fails and is dismissed with cost. F
T.N.A. Appeal dismissed.