Holding

The Supreme Court held that the Karnataka Government’s 1969 concessions are valid exercises of power under Section SA of the Karnataka Sales Tax Act, the doctrine of promissory estoppel applies, and the government cannot rescind the concessions without demonstrable misuse; thus the appeals were dismissed.

Summary

The Karnataka Government issued an order on 30 June 1969 granting cash refunds of sales tax to new industries as an incentive, which was later limited by a 12 January 1977 order citing alleged misuse. Several industrialists who had relied on the 1969 concessions filed writ petitions claiming that the government was estopped from withdrawing the benefits under the doctrine of promissory estoppel. The High Court upheld their claim, but the Assistant Commissioner of Commercial Taxes appealed to the Supreme Court. The Court examined whether the doctrine of promissory estoppel could be invoked, whether the government could retract the concessions without proof of misuse, and whether the 1969 order was ultra vires of the Karnataka Sales Tax Act, 1957. It held that the concessions were within the State’s power under Section SA, that the doctrine of promissory estoppel remains good law, and that the government had not shown any misuse; consequently the appeals were dismissed.

Issues considered

Whether the doctrine of promissory estoppel applies to the concessions granted under the 1969 order when the government alleges misuse.
Whether the Karnataka Government can withdraw or limit the sales‑tax concessions without proof of misuse.
Whether the 30 June 1969 order granting cash refunds is ultra vires of the Karnataka Sales Tax Act, 1957.
Whether the State has authority under the Act to notify exemptions or reductions in sales tax liability.

Legislation cited

Karnataka Sales Tax Act, 1957s. Section 8A, s. Section SA

Subjects

Promissory estoppelKarnataka Sales Tax ActTax concessionsUltra viresGovernment powerSales tax refundIndustrial policy

Judgment

A
ASSIStANT COMMISSIONER OF COMMERCIAL TAXES
(ASST.) DHARWAR
""
v.
DHARNENDRA TRADING COMPANY, ETC. ETC.

MAY 5, 1988
B
[R.S. PATHAK, CJ'AND M.H. KANIA, J.]

Karnataka Sales Tax Act, 1957-Whether Government has power
to notify exemptions and reductions in levy of tax on sale or purchase of
goods under section BA of-Whether Government can withdraw con-
cessions in sales tax granted by its earlier order on ground of alleged
c misuse of concessions without proof thereof-Against the Doctrine of
Promissory Estoppel.

The Government of Karnataka issued an order dated the 30th
June, 1969, sanctioning in-centives and concessions in the matter of
D sales tax to the entrepreneurs for starting new industries in the Mysore
State. On the 12th January, 1977, the Government issued another
order, presecribing ceiling limits on the quantum of the sales tax or
concession to be granted. Thereupon several persons filed writ petitions
before the High Court, claiming that they had started new Industries In
the State because of the concessions granted to them under the order -f
E .dated the 30th June, 1969 and they could not be deprived of the conces-
sions given to them by the former order as the said grant of concessions
constituted a promissory estoppel against the Government and the Gov-
ernment was not entitled to go back on the promise. The High Court
•
upheld the contention of the petitioners and allowed the writ petitions.
Against the decision of the High Court, these appenls were filed in this
F Court by the Assistant Commissioner of Commercial Taxes and others. (
v
Dismissing the appeals, the Court,

HELD: The contention of the appellants that the doctrine of
Promissory Estoppel was not applicable in this case because the conces-
G sions granted under the order dated 30th June, 1969 were being mis-
used, could not be accepted. There was nothing to show that any misuse
}
was made of the concessions. A recital in the order dated 12th January,
1977, regarding misuse of the concessions, could not by itself establish
that the concessions were misused. I949F-G I

H There was no substance in the appellants' contention that the
946
ASSTI. COMMR. OF COMMERCIAL TAXES v. D.T. CO. [KANIA,J.I 947

concessions granted by the order dated 30th June, 1969, were of no
A
legal effect of the contention that the said order was ultra vires and bad
in law, as there was no provision in the Kranataka Sales Tax Act ("the
said Act") under which any refund could be granted, and the State
Government bad no authority to provide for refunds. Though the be·
nefit regarding sales tax granted to the new industries was by way of
refunds of sales tax paid to the extent protided in the order, in effect, B
the benefit granted was in the nature of an exemption from the payment
of the sales tax or reduction in the sales tax liability to the extent stated
in the Order. The mere fact that the order of 30th June, 1969 did not
specify the power under which it was issued would make no difference
because such a power was there in Section SA of the said Act. Where the
source of power under which an order is issued is not stated in the order
but can be found on the examination of the relevant Act, the exercise of C
the power must be · attributed to that source. The appeals were
. dismissed. [95!C-E]

Union of India v. Mis Indo Afghan Agencies Limited, [1968] 2
S.C.R. 366; Century Spinning and Manufacturing Company Limited & D
Anr. v. The Ulhasnagar Municipal Council and Anr., [.1970) 3 S.C.R.
854; Ms Motilal l'adampat Sugar Mills Company Pvt. Ltd. v. State of
Uttar Pradesh and Ors., A.1.R. 1979 S.C.621 and State of Bihar and
')- Anr. v. Usha Martin Industries Ltd., [1987) 65 STC 430, referred to.

CIVIL APPELLATE JURISDICTION: Civil A peal Nos. 2204· E
47of1980.

From the Judgment and Order dated 15.10.1979 of the High
Court of Karnataka in W.A. No. 1101to1144 of 1979.

P.R. Ramasesh for the Appellants. F

T.S. Krishnamurthy, Vineet Kumar and H. Raghavendra Rao
for the Respondents.

The Judgment of the Court was delivered by.
G
KANIA, J. These appeals arise from the decision of a Division
Bench of the High Court of Karnatflka in Writ Appeals Nos. 1101 'to
1144 of 19791 It appears that the Government of Karnatflka decided to
adopt a policy to encourage rapid industria1isation. An Order No. CI
58 FMI 69 dated 30th June, 1969 was issued which recited that the
Government, namely, the Government of Karnatflka was committed H
948 SUPREME COURT REPORTS IJ988] 3 S.C.R.

A to a policy of rapid industrialisation and that, in pursuance thereof, the
Govemnient had on 30th November, 1966, issued directions indicating
the incentives that would be given to entrepreneurs startfo.g new
industries in the Mysore State. The material part of the said order, for
our purpose, runs thus: \

B "Consequently, the Governor of Mysore is pleased to sanc-
tion the following incentives and concessions to the ent-
repreneurs for starting new industries in Mysore State:

(1) Sales Tax-A cash refund will be allowed on all Sales
Tax paid by a new industry on raw materials purchased by
it for the first 5 (five) years from the date the industry goes
c into production, eligibility to the concessions being
determined on the basis of a certificate to be issued by the
Department of Industries and Commerce .......... "

By an order dated 11th August, 1975, the procedure was pre-
D scribed for obtaining the concessions given under the orders referred
to earlier. On 12th January, 1977, the Government of Kamataka
issued another order which recited that the reasons for making the said
order of 12th January, 1977 were that the scheme of concessions
adopted by the Government earlier had given room for many types of
misuse and the earlier orders had not prescribed any ceiling limits or
E restrictions on the quantum of refund of sales tax or concessions to be
granted. The said order dated 12th January, 1977, inter alia, provided
as under:

"(i) TI1e concession of refund of sales tax on raw materials
used by new enterprises should be limited to 10 per cent of v·
F the cost of fixed assets per year, thus not exceeding the 1
total of 50 per cent over a period of five years for which the
concession is available. Where the annual sales tax paid on
raw materials is less than 10 per cent of the cost of the fixed
assets according to the original value, the concession will
be limited to the actual sales tax paid .......... "
G
Several persons clainled that they had started new industrial .>-
units in the State on the assurances extended or because of the conces-
. sions granted to them, inter alia, under the said order dated 30th June,
1969. They filed writ petitions before the High Court of Kamataka
clainling that the industrial undertakings started between 30th June,
H 1969 when the order dated 12th June, 1969 came into effect and before
ASSTI. COMMR. OF COMMERCIAL TAXESv. D.T.CO. [KAl'11A,J.J 949
';
the order dated 12th January, 1977 was issued could not be deprived of
A
the concessions given to them by the former order as the said grant of
concessions constituted a promissory estoppel against the Government
on the basis of which they had acted by starting new industries requir-
ing investment of considerable funds and the Government was not
entitled to go back or that pwmise as it had sought to do by the order
dated 12th January, 1977. A teamed Single Judge of the Kamataka B
High Court, before whom thes.e writ petitions were filed; upheld the
aforesaid contention of the petitioners .urged before him relying
mainly on the rulings of this Court in Union of India .v. M/s. Inda
Afghan Agencies Limited, [19681 2 S.C.R. 366; Century Spinning and
Manufacturing Company Limited & Anr. v. The UlhasnagarMunicipal
Council & Anr., [1970] 3 S.C.R. 854 and the ruling in Mis. Motilal
Padampat Sugar Mills Company Pvt.. Ltd. v. State of Uttar Pradesh & c
Ors., A.LR. 1979 S.C. 621. in the concluding portion of his judgment,
the learned Judge clarified that he had not examined the correctness of
the individual claims made by the petitioners and that these claims
would have to be examined by the competent authorities. He further
clarified that the order dated 12th January, 1977 would undoubtedly D
apply to industries started after· that date. The teamed Trial Judge
allowed the writ petitions and granted relief oli the basis. set out
earlier. An appeal preferred by the Assistant Commissioner of Com-
mercial Taxes, Dharwar, Deputy Commissioner of Commercial Taxes
~ and the Government of Karnataka before a Division Bench of the
Karnataka High Court was dismissed by the Court which agreed with E
the reasoning of the learned Trial Judge. It is from this decision that
the present appeals arise.

The first contention of the learned counsel for the appellants is
that the doctrine of Promissory Estoppel was not applicable in the
~ present case because it was found by the Government of Karnataka F
that the concessions granted under the said order dated 30th June,
1969 were being misused and undue advantage was being taken of the
same. It was submitted by him that in view of this, it would not be
proper to hold the Government to the promises or the assurances it had
given under the said order dated 30th June, 1969. We are afraid it is
not possible to accept this submission. No counter-affidavit was filed G
by the appellants before the Trial Court in the writ petition. Beyond
-.\ the statement of counsel, there is not)iing to show that any misuse was
made of these concessions or undue advantage taken of the same. It is
true that the preamble to the order dated 12th January, 1977 does
recite that the concessions given by the earlier order had given room
for many types of misuse but such a recital by itself cannot establish H
950 SUPREME COURT REPORTS [1988] 3 S.C.R.
~
that the concessions were, in fact, misused. If that were so, it was the
A
duty of the Government and the concerned authorites to file a counter-
affidavit and place the relevant facts establishing the misuse before the
Court. This they have totally failed to do. It is well settled that if the
Government wants to resile from a promise or an assurance given by it
on the ground that undue advantage was being taken or misuse was
.B being made of the concessions granted the Court may permit the
Government to do so but before allowing the Government to resile
from the promise or go back on the assurance the Court would have to
be satisfied that allegations by the government about misuse being
made or undue advantage being taken of the concessions given by it
were reasonable well established. In the present case, there is nothing
on record to show that any such misuse was being made or undue
c advantage taken of the said concessions by the newly established.
industries. The Government had, therefore, failed to establish the
requisite ground or the basis of which it might be allowed to go back on
its promise. The first submission of the learned counsel for the appel-
!ants must, therefore, fail.
D
The next submission of learned counsel for the appellants was
that the concessions granted by the said order dated 30th June, 1969
were of no legal effect as there is no statutory provision under which
such concessions could be granted and the order of 30th June, 1969
was ultra vires and bad in law. We totally fail to see how an Assistant
E Commissioner or Deputy Commissioner of Sales Tax who are func-
tionaries of a State can say that a concession granted by the State itself
was beyond the powers of the State or how the State can say so either.
Moreover, if the said argument of learned counsel is correct, the result
would be that even the second order of 12th January, 1977 would be
equally invalid as it also grants concessions by way of refunds,
F although in a more limited manner and that is not even the case of the
appellants.
r'
Although, we are of the view that the contention set out in the
foregoing paragraph is not open to the appellants at all, we propose to
examine the merits of that contention because, in our view, even on
G merits the contention raised must be rejected. The ground on which it
was submitted that the said order of 30th June, 1969 was invalid is that
there is no provision under the Karnataka Sales Tax Act, 1957 (refer-
red to hereinafter as "the said Act") under which any refund could be
granted. The learned counsel for the appellants pointed out that only
relevant provision, in this connection, is Section 8A of the said Act
H and that Section empowers the State Government to notify. exemp-
ASSTI. COMMR. OF COMMERCIAL TAXES v. D.T. CO. [KANIA, J. I 95 I

' tions and reductions in the levy of tax on sale or purchase of goods that
are made exigible under the provisions contained in Chapter-3 of the
said Act. Section SA expressly empowers the State Government to
A

grant exemptions and reductions. Under the said order dated 30th
June, 1969 it has be~ inter alia.provided that a cash refund will be
allowed on all sales tax paid by a new industry on raw materials
B
purchased by it for the first five years from the date the industry goes
into production as set out in said the Order. The only submission made
on behalf of the appellants is that since the benefit given is called a
refund, it cannot be said. to be an exemption or reduction as permitted
by Section SA. In our view, there is no substance in this submission at
all. In order to test the validity of the order dated 30th June, 1969, one
has to see the substance of the concession granted under the order and c
not merely certain words used out of context. Although the benefit
regarding sales tax granted to the new industries is by way of refunds
of sales tax paid to the extent provided in the Order, it is clear that, in
effect, the benefit granted is in the nature of an exemption from·the
payment of the sales tax or reduction in the sales tax liability ·to the
D
extent stated in the order. In view of this, there is no substance what-
ever in the contention that the State. Government had no authority to
provide for the grant of refunds. Again, the mere fact that the order of
30th June, 1969 did not specify the power under which it was issued
will make no difference because such a power is clearly there in Sec-
~ tion SA and where the source of power under which it is issued is not
E
stated in an order but can be found on the examination of the relevant
Act, the exercise of the power must be attributed to that source. The
second submission of the learned counsel for the appellants must, also,
• therefore, be rejected.

Althoug at one stage a faint doubt was raised by learned counsel
-~ F
\ for the appellants as to whether the Doctrine of Promissory Estoppel
could be regarded as good law now, he conceded that doctrine must be
regarded as good law in view of the recent decision of this Court in
State of Bihar and Anr. v. Usha Martin Industries Ltd., [19S7] 65 STC,
430 where a Division Bench comprising three learned Judges of this
Court upheld and applied that doctrine.
G
In the r,esult, there is no merit in the appeals and they are dismis-
~ sed with costs.

S.L. Appeals dismissed ..