Holding

The amendment that excluded "blending of tea" from the definition of manufacture lawfully extinguished the appellants' entitlement to the sales‑tax exemption, and the doctrine of legitimate expectation does not bar such withdrawal.

Summary

The appellants, K.B. Tea Product Pvt. Ltd. and others, set up small‑scale units for blended tea under a tax‑holiday scheme that exempted manufacturers from sales tax under the West Bengal Sales Tax Act, 1994. The scheme was based on the then‑existing definition of "manufacture" which included "blending of tea". In August 2001 the West Bengal Finance Act, 2001 amended the definition, removing "blending of tea" and thereby disqualifying the appellants from being manufacturers. The appellants argued that they had a vested right and a legitimate expectation to continue receiving the exemption, invoking promissory estoppel. The majority held that the exemption is a policy‑driven benefit, not a vested right, and that the amendment lawfully withdrew the entitlement; the doctrine of legitimate expectation does not apply where the statute itself has been changed without a demonstrated public‑interest justification. Consequently, the Court allowed the appeals, directing the respondents to withdraw the exemption and dismissing the appellants' claim.

Issues considered

Whether the amendment removing "blending of tea" from the definition of "manufacture" deprives the appellants of the sales‑tax exemption.
Whether the appellants have a vested right or legitimate expectation to continue enjoying the exemption despite the statutory amendment.
Whether the doctrine of promissory estoppel can be invoked against a statutory change.
Whether the withdrawal of the exemption is arbitrary or violative of Article 14.

Legislation cited

Bengal Finance (Sales Tax) Act, 1941s. 2(dd)
State Scheme of Incentives for Cottage and Small‑Scale Industries, 1993
West Bengal Finance Act, 2001
West Bengal Incentive Scheme, 1999
West Bengal Sales Tax Act, 1994s. 17(3)(a)(xi), s. 2(17), s. 39
West Bengal Sales Tax Rules, 1995s. Rule 52

Subjects

sales tax exemptionmanufacture definitionlegitimate expectationpromissory estoppelvested righttax holidayWest Bengal Sales Tax Actrule of lawarbitrarinessArticle 14

Judgment

828 SUPREME COURT REPORTS
[2023] 8 S.C.R. 828 [2023] 8 S.C.R.

A M/S. K.B. TEA PRODUCT PVT. LTD. & ANR.
v.
COMMERCIAL TAX OFFICER, SILIGURI & ORS.
(Civil Appeal No. 2297 of 2011)
B MAY 12, 2023
[M. R. SHAH AND KRISHNA MURARI, JJ.]
Doctrines/Principles – Doctrine of legitimate expectation –
West Bengal Sales Tax Act, 1994 – ss.2(17), 17(3)(a)(xi), 39 – West
Bengal Finance Act, 2001 – West Bengal Sales Tax Rules, 1995 –
C
r.52 – Bengal Finance (Sales Tax) Act, 1941 – s.2(dd) – Whether
despite s.2(17) of the 1994 Act which was amended w.e.f.
01.08.2001, omitting “tea blending” from the definition of
“manufacture”, the appellants shall still be entitled to the exemption
from payment of sales tax – Held: Per M.R. Shah, J. Nobody can
D claim the exemption as a matter of right – To grant/continue/
withdraw the exemption is a policy decision – Unless withdrawal is
found to be so arbitrary, the Court would be reluctant to interfere –
Prior to 2001, as per s.2(17), 1994 Act, the activity of “tea blending”
was included in the definition of “manufacture” – Therefore, being
in the activity of “tea blending”, the appellants were entitled to the
E
exemption from payment of sales tax as manufacturers – However,
consequent to the amendment, when the activity of “tea blending”
was excluded from the definition of “manufacture”, the appellants
ceased to be the manufacturers and thus, on and from 01.08.2001,
they were not entitled to the exemption – There cannot be any
F promissory estoppel against the statute – This is not a case of “vested
right” but of “existing right”, which can be varied or modified and/
or withdrawn – View taken by the Tribunal and the High Court
agreed with – Per Krishna Murari, J. [Dissenting (on the
applicability of the doctrine of legitimate expectation)] The tax
holiday granted by way of an amendment to small scale industries
G
involved in the manufacture and blending of tea, created a legitimate
expectation in favour of the appellants – This legitimate expectation
was broken when a subsequent amendment was brought removing
“blending of tea” from the definition of “manufacture” – To justify
such a shift in policy, and snatch away the legitimate expectation
H created in favour of the appellants, the public authority must
828
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 829
OFFICER, SILIGURI

demonstrate the reasons for such a shift – However, no such A
appropriate justification was provided – A mere claim of change of
policy not sufficient to discharge the burden of proof vested in the
government – Respondents to extend the benefits of the original
amendment to the appellants, till the expiry of such benefit as per
the original amendment – In view of divergence of opinion, matter
B
to be placed before the Hon’ble the Chief Justice of India for
appropriate orders – State Scheme of Incentives for Cottage and
Small-Scale Industries, 1993 – West Bengal Incentive Scheme, 1999.
Manuelsons Hotels Private Limited v. State of Kerala &
Ors. (2016) 6 SCC 766 : [2016] 3 SCR 718; MRF Ltd.,
Kottayam v. Assistant Commissioner (Assessment) Sales C
Tax & Ors. (2006) 8 SCC 702 : [2006] 6 Suppl. SCR
417; Motilal Padampat Sugar Mills Co. Ltd. v. State of
Uttar Pradesh & Ors. (1979) 2 SCC 409 : [1979] 2
SCR 641; State of Jharkhand & Ors. v. Brahmputra
Metallics Ltd. Ranchi & Anr. Civil Appeal Nos. 3860- D
3862 of 2020; Dai-ichi Karkaria Ltd. v. Union of India
& Ors. (2000) 4 SCC 57 : [2000] 2 SCR 1254 – held
not applicable.
Directorate of Film Festivals & Ors. v. Gaurav Ashwin
Jain & Ors. (2007) 4 SCC 737 : [2007] 5 SCR 7 – E
referred to.
Sub-Committee on Judicial Accountability v. Union of
India and Ors. (1991) 4 SCC 699 : [1991] 2 Suppl.
SCR 1 – followed.
State Of Kerala & Ors. v. K.G. Madhavan Pillai & Ors. F
(1988) 4 SCC 669 : [1988] 3 Suppl. SCR 94; Navjyoti
Coop. Group Housing Society & Ors. v. Union of India
& Ors. (1992) 4 SCC 477 : [1992] 1 Suppl. SCR 709;
Food Corporation Of India v. Kamdhenu Cattle Feed
Industries (1993) 1 SCC 71 : [1992] 2 Suppl. SCR 322; G
M. P. Oil Extraction & Anr. v. State Of M.P. & Ors.
(1997) 7 SCC 592 : [1997] 1 Suppl. SCR 671; MRF
Ltd. Kottayam v. Assistant Commissioner Sales Tax &
Ors. (2006) 8 SCC 702 : [2006] 6 Suppl. SCR 417;
Howrah Municipal Corporation & Ors. v. Ganges Rope
H
830 SUPREME COURT REPORTS [2023] 8 S.C.R.

A Company Ltd. & Ors. (2004) 1 SCC 663 : [2003] 6
Suppl. SCR 1212; Madras City Wine Merchants
Association & Anr. v. State Of Tamil Nadu & Anr. (1994)
5 SCC 509 : [1994] 2 Suppl. SCR 281 – referred to.
R v. Inland Revenue Commissioners, exparte M.F.K.
B Underwirting Agents Limited [1982] AC 617;
R. (Bancoult) v. Secretary of State for Foreign and
Commonwealth Affairs) [1990] 1 WLR 1545; Schmidt
v. Secretary of State for Home Affairs [1969] 2 WLR
337; O’Reilly v Mackman [1983] 2 AC 237; Council of
Civil Service Unions v. Minister for the Civil Service
C [1984] 3 WLR 1174; R v. North and East Devon Health
Authority, ex parte Coughlan [2001] Q.B. 213;
Nadarajah v. Secretary of State for the Home
Department [2005] EWCA Civ 1363 – referred to.
Case Law Reference
D
In the judgment of M.R. Shah, J.
[2016] 3 SCR 718 held not applicable Para 4.6
[2006] 6 Suppl. SCR 417 held not applicable Para 4.6
[1979] 2 SCR 641 held not applicable Para 4.6
E
[2000] 2 SCR 1254 held not applicable Para 4.7
[2007] 5 SCR 7 referred to Para 5.7
In the judgment of Krishna Murari, J.
F [1991] 2 Suppl. SCR 1 followed Para 13
[1988] 3 Suppl. SCR 94 referred to Para 21
[1992] 1 Suppl. SCR 709 referred to Para 22
[1992] 2 Suppl. SCR 322 referred to Para 23
G [1997] 1 Suppl. SCR 671 referred to Para 24
[2006] 6 Suppl. SCR 417 referred to Para 26
[2003] 6 Suppl. SCR 1212 referred to Para 27
[1994] 2 Suppl. SCR 281 referred to Para 27
H
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 831
OFFICER, SILIGURI

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2297 A
of 2011.
From the Judgment and Order dated 18.03.2008 of the High Court
of Calcutta in W.P. T.T. No. 479 of 2006.
With
B
Civil Appeal Nos. 2301, 2305, 2298, 2300, 2299, 2302, 2303 and
2304 of 2011.
Ms. Kavita Jha, Shammi Kapoor, Aditeya Bali, Advs. for the
Appellants.
Ms. Madhumita Bhattacharjee, Adv. for the Respondents. C
The Judgments of the Court were delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Calcutta at Calcutta in respective D
writ petitions by which the Division Bench of the High Court has
dismissed the said writ petitions preferred by the appellants herein –
original writ petitioners, the original writ petitioners have preferred the
present appeals.
2. As common question of law and facts arise in this set of appeals, E
all these appeals are being decided and disposed of together by this
common judgment and order. For the sake of convenience, Civil Appeal
No. 2297 of 2011 arising out of impugned judgment and order passed by
the High Court in Writ Petition No. 479 of 2006 be treated as the lead
matter. The facts leading to the present appeal in nutshell are as under:-
F
2.1 That Section 2(dd) of the erstwhile Bengal Finance (Sales
Tax) Act, 1941 (hereinafter referred to as “Act, 1941”) defined the term
“manufacture” and “blending of any goods” was included within the
said definition. That the Act, 1941 came to be replaced by the West
Bengal Sales Tax Act, 1994 (hereinafter referred to as the “Act, 1994”)
and in the month of April, 1998, the definition of “manufacture” provided G
under section 2(17) of the Act, 1994 was amended and as a result of
which, “blending of any goods” was omitted from the definition of
“manufacture” but “blending of tea” continued to be included in the said
definition.
H
832 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 2.2 By virtue of the amendment made in the definition of
“manufacture” provided under section 2(17) of the Act, 1994, tax holiday
was granted to new small scale industrial units for a specified period
under section 39 of the Act, 1994 read with section 17(3)(a)(xi) of the
Act, 1994 with Rule 52 of the West Bengal Sales Tax Rules, 1995
(hereinafter referred to as “Rules, 1995”).
B
2.3 Subsequently, the State Scheme of Incentives for Cottage
and Small-Scale Industries, 1993 (1993 Scheme) was amended by the
Governor of West Bengal in the year 1999, thereby, implementing the
West Bengal Incentive Scheme, 1999 (hereinafter referred to as “1999
Scheme”), effective for a period of five years, i.e., from 01.04.1999 till
C 31.03.2004, for the purpose of providing incentives and promotion of the
large, medium and small-scale industrial units in the State of West Bengal.
2.4 As per the provisions of the 1999 Scheme, the new industrial
units which were established after complying with all the requirements
provided under the 1999 Scheme were given an exemption from payment
D of sales tax for a specified period upon the purchase of raw materials
required for carrying the manufacturing activity in said units.
2.5 It is the case on behalf of the appellants that relying upon the
said Scheme and the amendment made in the definition of “manufacture”
under section 2(17) of the Act, 1994, at the relevant time, the appellants
E had set up a new small scale industrial unit for the purpose of carrying
on the business of manufacturing blended tea.
2.6 As per the provisions of the 1999 Scheme, the small-scale
industrial units to claim exemption from payment of sales tax, were
required to get themselves registered as small-scale industrial unit and
F obtain an eligibility certificate from the Sales Tax Department as per
Section 39 read with Rule 55 of the Rules, 1995. The Deputy
Commissioner granted the eligibility certificate to the appellants for a
period of seven years from the date of first sale of the manufactured
product. The appellants enjoyed the benefit of exemption from payment
G of sales tax as provided under Section 2(17) and Section 39 of the Act,
1994 for a period of two years till Section 2(17) came to be amended by
the West Bengal Finance Act, 2001. Section 2(17) of the Act, 1994
came to be amended by the West Bengal Finance Act, 2001 w.e.f.
01.08.2001, whereby the words “blending of tea” were omitted from the
definition of “manufacture” provided under section 2(17) of the Act,1994.
H Consequently, the exemption from payment of sales tax, which was
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 833
OFFICER, SILIGURI [M. R. SHAH, J.]

granted to the appellants came to be stopped and even the eligibility A
certificate was required to be modified.
2.7 The aforesaid action / order was challenged before the Tribunal
first and thereafter before the High Court. The Tribunal dismissed the
application, which has been confirmed by the High Court by the impugned
judgment and order. The impugned judgment and order passed by the B
High Court is the subject matter of present appeals, claiming the
exemption from payment of sale tax as per earlier 1999 Scheme.
3. Ms. Kavita Jha, learned counsel has appeared on behalf of the
appellants and Ms. Madhumita Bhattacharjee, learned counsel has
appeared on behalf of the respondents - State. C
4. Learned counsel appearing on behalf of the appellants had made
the following submissions:-
4.1 That the appellants had been allured by the State of West
Bengal Government to set up new industrial unit in expectation of getting
benefit of tax for a period on fulfilment of certain requirements and once D
on the basis of such requirements such industrial unit is given such benefit,
subsequently, by way of amendment such right cannot be taken away.
4.2 That the State authority has in a blanket manner simply
removed the word “blending of tea” from the definition of “manufacture”
under Section 2(17) of the Act, 1994 without taking into account the fact E
that the appellants had received eligibility certificate for a period of seven
years and had already availed the benefit of the scheme for a particular
period. The appellants’ rights were crystalised from the day eligibility
certificate had been granted under the Act, 1994 and the only justifiable
manner in which the State could have rescinded this benefit was to F
show overarching public interest. In the present case as well, no
overarching public interest has been demonstrated by the respondents in
order to justify the amendment made to Section 2(17).
4.3 That the doctrine of legitimate expectation can be invoked
where the amendment under the provision of law is not made in
G
consonance with public interest. It is submitted that in the present case,
the respondents have failed to showcase any public interest in rescinding
the benefits.
4.4 It is submitted that since in this case, the appellants were
denied benefit on account of amendment made in the definition of
H
834 SUPREME COURT REPORTS [2023] 8 S.C.R.

A “manufacture” under Section 2(17) of the Act, 1994 which is an arbitrary
move by the State without showing any accompanying public interest
involved. Therefore, any decision taken in an arbitrary manner contradicts
the principle of legitimate expectation, if taken without specifically showing
the public interest involved in the matter.
B 4.5 It is submitted that the State action in this case, fails to meet
the test of reason and relevance, as no explanation has been given by
the State for rescinding the benefits.
4.6 It is further submitted that the appellants had altered their
position to avail the benefit under the Scheme and incurred additional
C cost such of almost Rs. 18,12,967/- and procured loan for almost Rs.
65,00,000/- in the K.B. Tea Products Pvt. Ltd. and since, the appellants
had made substantial expenses for availing the benefits under the Scheme,
the State cannot take away such benefits unless some overriding public
interest is involved. The said act done by the State is unfair and abuse of
power against the appellants. Reliance is placed on the following decisions:
D
Manuelsons Hotels Private Limited Vs. State of Kerala &
Ors., (2016) 6 SCC 766; MRF Ltd., Kottayam Vs. Assistant
Commissioner (Assessment) Sales Tax & Ors., (2006) 8
SCC 702 and Motilal Padampat Sugar Mills Co. Ltd. Vs.
State of Uttar Pradesh & Ors., (1979) 2 SCC 409.
E
4.7 Learned counsel appearing on behalf of the appellants has
also relied upon the decision of this Court in the case of State of
Jharkhand & Ors. Vs. Brahmputra Metallics Ltd., Ranchi & Anr.
[Civil Appeal Nos. 3860-3862 of 2020] and in the case of Dai-ichi
Karkaria Ltd. Vs. Union of India & Ors., (2000) 4 SCC 57 in
F support of the submission on the legitimate expectation.
4.8 Making above submissions and relying upon the above
decisions, it is prayed to allow the present appeals.
5. Learned counsel appearing on behalf of the State while opposing
the present appeals has vehemently submitted that in the facts and
G
circumstances of the case, the appellants shall not be entitled to the
exemption as claimed.
5.1 It is submitted that in the year 1999, the appellants were granted
a certificate of eligibility for Tax Holiday under Section 39 of the Act,
1994 for a period of seven years from the date of first sale of the
H
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 835
OFFICER, SILIGURI [M. R. SHAH, J.]

manufactured product, i.e., 18.05.1999, since at that point of time the A
definition of “manufacture” in Section 2(17) of the Act, 1994 included
‘blending of tea’.
5.2 It is submitted that subsequently, the definition of “manufacture”
under Section 2(17) of the Act, 1994 came to be amended by the West
Bengal Finance Act, 2001 and “blending of tea” came to be omitted B
from the definition w.e.f. 01.08.2001. It is submitted that therefore, the
appellant company ceased to be a manufacturer under the Act, 1994
and, therefore, was ineligible to avail the benefit under Section 39 of the
Act, 1994. It is submitted that therefore, the Commercial Tax Officer,
Siliguri Charge sought to amend the Registration Certificate of the
appellant company in terms of the amendment. C

5.3 It is submitted that earlier the exemption was granted to the
small-scale industrial units engaged in manufacturing activities. It is
submitted that at the relevant time, pre-01.08.2001, and as per Section
2(17) of the Act, 1994, “blending of tea” was included in the definition of
“manufacture”. It is submitted that therefore, being manufacturers, the D
appellants were allowed the exemption. It is submitted that however,
thereafter, in view of the amendment to Section 2(17) of the Act, 1994
w.e.f. 01.08.2001, “blending of tea” was excluded from the definition of
“manufacture” and, therefore, the appellants ceased to be the
manufacturers. It is submitted that once the appellants ceased to be the E
manufacturers, the appellants shall not be entitled to the exemption as
the exemption was available only to the small-scale industrial units
engaged in manufacturing activities and to manufacturer under the Act,
1994.
5.4 It is submitted that when the legislature in its wisdom, excluded F
“tea blending” from the definition of “manufacture”, therefore, “tea
blending” cannot be regarded as a manufacturing activity entitled to
enjoy exemption as provided by Section 39 of the Act, 1994. It is submitted
that the submission on behalf of the appellants on legitimate expectation
and that by amending Section 2(17) “vested right” in favour of the
appellants could not have been taken away, has no substance. G
5.5 It is submitted that as rightly observed and held by the High
Court, this is not a case of “vested right” but a case of “existing right”.
It is submitted that therefore, the existing right can be taken away. It is
submitted that there cannot be any legitimate expectation against a
statute. H
836 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 5.6 It is further submitted that to grant the exemption or not is a
policy decision and nobody can claim the exemption as a matter of right.
It is submitted that therefore, both the learned Tribunal as well as the
High Court have rightly refused to grant the appellants any exemption
from payment of sales tax which the appellants were being granted
prior to 01.08.2001 being the manufacturers of “tea blending”.
B
5.7 It is further submitted that this is not the case of retrospective
operation, but it is a case of prospective withdrawal of an existing
continuing right to get exemption of sales tax. It is submitted that when
the legislature in its wisdom amended the definition of “manufacture”
contained in Section 2(17) and the “tea blending” came to be excluded
C from the definition of “manufacture” and which resulted in withdrawing
the exemption, which the appellants were availing prior to 01.08.2001 as
manufacturer, being a policy decision, the same is not subject to judicial
review. Reliance is placed on the decision of this Court in the case of
Directorate of Film Festivals & Ors. Vs. Gaurav Ashwin Jain &
D Ors., (2007) 4 SCC 737.
5.8 Making above submissions, it is prayed to dismiss the present
appeals.
6. Heard the learned counsel for the respective parties at length.

E 7. The short question, which is posed for the consideration of this
Court is:
“Whether despite Section 2(17) of the West Bengal Sales Tax
Act, 1994 which came to be amended w.e.f. 01.08.2001 vide
West Bengal Finance Act, 2001, omitting “tea blending” from the
F definition of “manufacture”, still the appellants shall be entitled to
the exemption from payment of sales tax?
8. The main submission on behalf of the appellants is that as prior
to 01.08.2001, the appellants were availing the benefit of sales tax
exemption, the said right could not have been taken away by virtue of
amendment to Section 2(17) of the Act, 1994 on the ground of legitimate
G
expectation as well as by promissory estoppel. Thus, it is the case on
behalf of the appellants that as on 01.08.2001, under the Act, 1994, when
Section 2(17) of the Act, 1994 came to be amended, the appellants had
a “vested right” and therefore, the amendment to Section 2(17) of the
Act, 1994 shall not affect such “vested right” of exemption from payment
H of sales tax, which the appellants were availing prior to 01.08.2001.
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 837
OFFICER, SILIGURI [M. R. SHAH, J.]

8.1 However, it is required to be noted that this is a case of claiming A
exemption from payment of sales tax. As per the settled position of law,
nobody can claim the exemption as a matter of right. The exemption is
always on the fulfilment of the conditions for availing the exemption and
the same can be withdrawn by the State. To grant the exemption and/or
to continue and/or withdraw the exemption is always within the domain
B
of the State Government and it falls within the policy decision and as per
the settled position of law, unless withdrawal is found to be so arbitrary,
the Court would be reluctant to interfere with such a policy decision.
8.2 In the present case, prior to 2001, as per Section 2(17) of the
Act, 1994, the activity of “tea blending” was included in the definition of
“manufacture”. Therefore, being in the activity of “tea blending”, the C
appellants were entitled to the exemption from payment of sales tax as
manufacturers. It cannot be disputed that being the manufacturer in the
activity of “tea blending” the appellants would have always been entitled
to the exemption from payment of sales tax. Being a manufacturer, being
in the activity of “tea blending”, the appellants were availing the sales D
tax exemption. However, thereafter, the definition of “manufacture” as
contained in Section 2(17) of the Act, 1994 came to be amended w.e.f.
01.08.2001 vide West Bengal Finance Act, 2001 and the activity of “tea
blending” came to be excluded from the definition of “manufacture”.
Consequently, the appellants ceased to be the manufacturers. Once the
appellants ceased to be the manufacturers, the appellants shall not be E
entitled to the exemption from the payment of sales tax, which was
available to the appellants as a manufacturer being in the activity of “tea
blending”. Therefore, on and from 01.08.2001, “tea blending” activity
ceased to be the manufacturing activity and the appellants ceased to be
the manufacturers and therefore, on and from 01.08.2001, the appellants F
shall not be entitled to the exemption from payment of sales tax. Thus,
the withdrawal of exemption from payment of sales tax would be
prospective and not retrospective. So long as the appellants continue to
be the manufacturers as per Section 2(17) of the Act, 1994 prevailing
prior to 01.08.2001, the appellants can be said to be entitled to the benefit
of exemption from payment of sales tax as manufacturers being in the G
activity of “tea blending”. The moment, “tea blending” activity ceases to
be the manufacturing activity, on and from that day, the appellants shall
not be entitled to the exemption from payment of sales tax.
8.3 Now, so far as the submission on behalf of the appellants on
legitimate expectation and/or promissory estoppel and the submission on H
838 SUPREME COURT REPORTS [2023] 8 S.C.R.

A behalf of the appellants that the “vested right” cannot be taken away is
concerned, the aforesaid has no substance. There cannot be any
promissory estoppel against the statute as per the settled position of law.
As rightly observed and held by the High Court, this is not a case of
“vested right” but a case of “existing right”, which can be varied or
modified and/or withdrawn. In the present case, as per amendment in
B
the definition contained in Section 2(17) of the Act, 1994 w.e.f. 01.08.2001
by which “tea blending” activity is excluded from the definition of
“manufacture” and therefore, on and from that day itself, the appellants
ceased to be the manufacturers and shall not be entitled to the benefit of
exemption from payment of sales tax as was available to them as
C manufacturers.
8.4 At this stage, it is also required to be noted that as per Section
39 of the Act, 1994, under which the appellants are claiming the exemption
from payment of sales tax, no tax shall be payable by a dealer for such
period as may be prescribed in respect of his sales – goods manufactured
D by him. Therefore, the word “manufacture” is very relevant and is a
condition sine qua non to be satisfied. Therefore, the definition of
“manufacture” is really relevant. Therefore, if a dealer ceased to be the
manufacturer, he shall not be entitled to the benefit of exemption under
Section 39. The relevant portion of Section 39 reads as under:-
E “39. Tax holiday for new small-scale industrial units- (1)
Subject to such conditions and restrictions as may be prescribed,
no tax shall be payable by a dealer for such period as may be
prescribed in respect of his sales of goods manufactured by him
in his newly set up small-scale industrial unit situated in the
prescribed area, and in calculating his taxable turnover of sales
F under sub-section (3) of section 17, that part of his gross turnover
of sales which represents the turnover of sales of such goods
shall be deducted from his gross turnover of sales under sub-
clause (viii) of clause (a) of sub-section (3) of that section.
XXXXXXXXXXXXXXXX”
G
8.5 Under the circumstances, the decisions relied on behalf of
the appellants referred to hereinabove, shall not be applicable to
the facts of the case on hand.
9. In view of the above and for the reasons stated above, I am in
complete agreement with the view taken by the learned Tribunal as well
H
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 839
OFFICER, SILIGURI

as the High Court that on and after 01.08.2001 and in view of the A
amendment to Section 2(17) of the Act, 1994, by which the definition of
“manufacture” is amended and “tea blending” is excluded from the
definition of “manufacture”, the appellants shall not be entitled to the
exemption from payment of sales tax.
Under the circumstances, all these appeals fail and the same B
deserve to be dismissed and are accordingly dismissed. However, in the
facts and circumstances of the case, there shall be no order as to costs.

KRISHNA MURARI, J.
C
1. I have had the advantage of reading the judgment proposed by
my esteemed brother, Hon’ble Mr. Justice M.R. Shah. However, I am
unable to agree with the reasoning as well as the result arrived at by my
esteemed brother, and thus separately pen down my conclusion.
2. In brief, Section 2(dd) of the erstwhile Bengal Finance (Sales D
Tax) Act, 1941 defined the term “manufacture”, under the definition of
which, “blending of any goods” was also included. The said act was
then replaced by the West Bengal Sales Tax Act, 1994, under which, the
definition of “manufacture” was changed, and the term “blending of any
goods” was omitted, however, “blending of tea” was still included under
the definition of “manufacture”. Further, by virtue of the said amendment, E
a tax holiday was granted to new small scale industrial units for a specified
period.
3. Subsequent to the amendments, the State scheme of Incentives
for Cottage and Small-Scale Industries, 1993 was amended, for the
purpose of providing incentives and promotion of large, medium and F
small scale industrial units.
4. Subsequent to this tax holiday being granted, and on the basis
of such tax holiday, the Appellants herein set up small-scale industrial
units for the purpose of carrying on the business of manufacturing blended
tea. After the setting up of the unit by the appellants, by way of an G
amendment, the term “blending of tea” was omitted from the definition
of “manufacture”, leading to the appellant’s exclusion from claiming the
said tax holiday. It is against this exclusion and omission that the appellants
have filed the present batch of civil appeals.
H
840 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 5. A detailed factual matrix of the present case at hand has been
rendered by my esteemed brother in his opinion, and for the sake of
brevity, I am not replicating the same herein.
ANALYSIS
6. Learned counsel appearing on behalf of both the parties were
B heard in great detail.
7. Through the present batch of civil appeals, two substantial
questions of law have been raised, and for a ready reference, the two
issues are being mentioned hereunder:

C I.Whether the appellants herein have a vested right in
claiming exemption from payment of sales tax under the
Act, since the vested right was accrued upon the appellants
before the amendment was made under Section 2(170) of
the Act?

D II. Whether the doctrine of legitimate expectation is
applicable in the present case since the appellants had set
up their industrial units on the basis of the allurement of a
tax holiday granted by the Government?
8. I am in agreement with the conclusion arrived at by my
esteemed brother on the first issue, and hence, my dissent is limited only
E
to the second question posed before this Court.
RULE OF LAW
9. The doctrine of rule of law, as an ideal, denotes that a state
must be governed, not by men, but by law. This concept finds its origins
F in the work of Aristotle, where he remarks that in a state that functions
on the principles of justice and equality, rule of law must be supreme,
and the state as an institution must not be subject to the whims and
fancies of its ruler.
10. While the origins of rule of law date back to ancient Greece,
G the modern conception of rule of law, which is the bedrock for most
democratic constitutions across the world, finds its roots in the book
“The Law of the Constitution” authored by professor A.V. Dicey.
11. Professor Dicey, in his conception of the doctrine of rule of
law, while echoing the thoughts of Aristotle, states that all individuals
H and entities must be subject to law, and that no one, not even the
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 841
OFFICER, SILIGURI [KRISHNA MURARI, J.]

government or its officials, are above the law. For such a functioning of A
the law, Dicey points out that the law must be clear, unambiguous, and
must apply to all equally. To further such a conception and bring clarity
on the same, Professor Dicey elucidated on three principles that
characterize a smooth application of the law.
12. The first principle, which is most relevant to the context of the B
present case, is the ideal that the law is supreme, and no entity can be
above it. A reading of this principle would also mean that for law to be
supreme, it must be applicable to all, it cannot be arbitrary, and nor can it
take away anything conferred by it in an arbitrary manner. In simpler
terms, for law to be supreme, it must be clear, and it must stay true to
itself, without falling prey to other powers inside or outside of it. C

13. This principle of rule of law, in the context of our nation, has
found refuge within the basic structure of our constitution. In the case of
Sub-Committee on Judicial Accountability vs. Union Of India and
Ors.1, while expounding on the importance of the independence of the
judiciary, a Constitution Bench of this Court held that rule of law is a part D
of the basic structure of the constitution of India, the relevant observations
made in this regard are as under:
“Before we discuss the merits of the arguments it is necessary
to take a conspectus of the constitutional provisions
concerning the judiciary and its independence. In interpreting E
the constitutional provisions in this area the Court should
adopt a construction which strengthens the foundational
features and the basic structure of the Constitution. Rule of
law is a basic feature of the Constitution which permeates the
whole of the constitutional fabric and is an integral part of F
the constitutional structure.”
14. It is from this principle of rule of law, does the doctrine of
legitimate expectation flow. The doctrine of legitimate expectation, as
described in detail below, is closely linked with, and is essential for the
functioning of the rule of law. This is because both, the rule of law and G
legitimate expectation form the bedrock for fairness and predictability
of the legal system. The doctrine of rule of law ensures that laws are
applied equally and consistently, while the doctrine of legitimate
expectation ensures that public authorities act reasonably and consistently
1
(1991) 4 SCC 699 H
842 SUPREME COURT REPORTS [2023] 8 S.C.R.

A in their decision-making processes. Together, these principles promote
transparency and accountability in government actions, and they help to
maintain the trust of the people in the legal system.
DOCTRINE OF LEGITIMATE EXPECTATION
15. The doctrine of legitimate expectation, in simple terms, is a
B legal principle that arises when a public authority makes a promise or
acts in a manner that leads an individual or a group to expect a particular
outcome. This doctrine , which flows from the doctrine of rule of law, is
based on the idea of fairness and consistency in the decision-making
processes of public authorities.
C 16. When a legitimate expectation of a specific outcome is created
by a public authority, the said public authority is required to take into
account such expectation created by it when making a decision that
affects the interests of the individual or group concerned. If the public
authority fails to do so, the individual or group has a right to challenge the
D decision and seek a remedy, such as an order to enforce the legitimate
expectation, as is the situation in the case at hand.
17. In Halsbury’s Laws of England, Fourth Edition, Volume I(I)
151,the concept of legitimate expectation has been elucidated on, and
for the sake of convenience, the same is being extracted herein:
E Legitimate expectations. A person may have a legitimate
expectation of being treated in a certain way but an
administrative authority even though he has no legal right in
private law to receive such treatment. The expectation may
arise either from a representation or promise made by the
F authority, including an implied representation, or from
consistent past practice. The existence of a legitimate
expectation may have a number of different consequences; it
may give locus standi to seek leave to apply for judicial review;
it may mean that the authority ought not to act so as to defeat
the expectation without some overriding reason of public policy
G to justify its doing so; or it may mean that, if the authority
proposes to defeat a person’s legitimate expectation, it must
afford” him an opportunity to make representations on the
matter. The Courts also distinguish, for example in licensing
cases, between original applications, applications to renew
and revocations; a party who has been granted a licence may
H
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 843
OFFICER, SILIGURI [KRISHNA MURARI, J.]

have a legitimate expectation that it will be renewed unless A
there is some good reason not to do so, and may therefore be
entitled to greater procedural protection than a mere applicant
for a grant.
18. The Courts of United Kingdom, while conceptualizing the
doctrine of legitimate expectation, have adopted other key aspects of B
judicial review such as Wednesbury unreasonableness in the case of
R vs. Inland Revenue Commissioners, exparte M.F.K. Underwirting
Agents Limited2 and abuse of power in the case of R. (Bancoult) vs.
Secretary of State for Foreign and Commonwealth Affairs)3 to justify
the existence and the protection of legitimate expectations.
C
19. The term legitimate expectation was first used in the case of
Schmidt v Secretary of State for Home Affairs4 by the UK Courts.
The doctrine however, was not applied to the facts therein. Subsequently,
in the case of O’Reilly v Mackman 5, the doctrine of legitimate
expectation was recognized as a ground for judicial review, allowing
individuals to challenge the legality of decisions on the grounds that the D
decision-maker “had acted out with the powers conferred upon it”.
20. Further in the cases of Council of Civil Service Unions v
Minister for the Civil Service6 and R v North and East Devon Health
Authority, ex parte Coughlan7, the boundaries of the doctrine were
further elaborated upon. Notwithstanding efforts of the Courts, some E
ambiguity as to when legitimate expectations arise persisted, and in
response, Lord Justice of Appeal, John Laws proposed the aspiration of
“good administration” as a justification for the protection of legitimate
expectations in the case of Nadarajah v. Secretary of State for the
Home Department8. F
21. The doctrine of legitimate expectation was first introduced to
Indian jurisprudence in the case of State Of Kerala & Ors. vs. K.G.
Madhavan Pillai & Ors.9. In the aforesaid case, the government had

2
[1982] AC 617
3
[1990] 1 WLR 1545
G
4
[1969] 2 WLR 337
5
[1983] 2 AC 237
6
[1984] 3 WLR 1174
7
[2001] Q.B. 213
8
[2005] EWCA Civ 1363
9
(1988) 4 SCC 669 H
844 SUPREME COURT REPORTS [2023] 8 S.C.R.

A issued a sanction in favour of the respondent therein to open a new
school and to upgrade certain already existing schools. However,
subsequent to the abovementioned sanction, a new direction was given
by the government to keep the said sanction in abeyance. This Court,
while deciding the said issue, was of the opinion that the original sanction
given by the government gave rise to a legitimate expectation in the
B
minds of the respondents. This legitimate expectation was however
breached by the subsequent direction for abeyance, and hence there
was a violation of the principles of natural justice. The relevant
observations in this regard from the said judgment are being reproduced
hereunder:
C “…In other words once the Government approves an
application for opening a new unaided school or a higher
class in an existing unaided school and passes an order under
Rule 2-A(5), then the successful applicant acquires a right of
legitimate expectation to have his application further
D considered under Rules 9 and 11 for the issue of a sanction
order under Rule 11 for opening a new school or upgrading
an existing school. It is no doubt true, as pointed out by the
Division Bench, that by the mere grant of an approval under
Rule 2-A(5), an applicant will not acquire a right to open a
new school or to upgrade an existing school but he certainly
E acquires a right enforceable in law to have his application
taken to the next stage of consideration under Rule 11. The
Division Bench was therefore, right in taking the view that
the general power of rescindment available to the State
Government under Section 20 of the Kerala General Clauses
F Act has to be determined in the light of the “subject matter,
context and the effect of the relevant provisions of the statute”.
22. In Navjyoti Coop. Group Housing Society & Ors. vs. Union
Of India & Ors.10, the original policy for allotment of land to housing
societies therein was based on the principle of seniority, and seniority
G under the said policy was decided on the basis of the date of registration.
Subsequently, a change was made to the original policy, wherein the
criteria for deciding seniority was changed from the date of registration
to the date of approval of the final list. The said deviation from the
original policy was challenged on the touchstone of legitimate expectation

H 10
(1992) 4 SCC 477
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 845
OFFICER, SILIGURI [KRISHNA MURARI, J.]

by the petitioners therein. This Court, while deciding on the said challenge, A
held that the original policy, as well as the past practice of allotting land,
gave rise to a legitimate expectation to the parties therein of a predictable
pattern of allotment, and the new change in policy broke such legitimate
expectation. This interpretation by way of the abovementioned judgment,
expanded the width of the doctrine of legitimate expectation further, and
B
extended it to not just an explicit guarantee, but also to expectations
arising out of past practice. The relevant observations of the said
judgment, for a ready reference, are being reproduced hereunder:-
“It also appears to us that in any event the new policy decision
as contained in the impugned memorandum of January 20,
1990 should not have been implemented without making such C
change in the existing criterion for allotment known to the
Group Housing Societies if necessary by way of a public notice
so that they might make proper representation to the
concerned authorities for consideration of their viewpoints.
Even assuming that in the absence of any explanation of the D
expression “first come first served” in Rule 6(vi) of Nazul
Rules there was no statutory requirement to make allotment
with reference to date of registration, it has been rightly held,
as a matter of fact, by the High Court that prior to the new
guideline contained in the memo of January 20, 1990 the
principle for allotment had always been on the basis of date E
of registration and not the date of approval of the list of
members. In the brochure issued in 1982 by the DDA even
after Gazette notification of Nazul Rules on September 26,
1981 the policy of allotment on the basis of seniority in
registration was clearly indicated. In the aforesaid facts, the F
Group Housing Societies were entitled to ‘legitimate
expectation’ of following consistent past practice in the matter
of allotment, even though they may not have any legal right
in private law to receive such treatment. The existence of
‘legitimate expectation’ may have a number of different
consequences and one of such consequences is that the G
authority ought not to act to defeat the ‘legitimate expectation’
without some overriding reason of public policy to justify its
doing so. In a case of ‘legitimate expectation’ if the authority
proposes to defeat a person’s ‘legitimate expectation’ it should
afford him an opportunity to make representations in the matter. H
846 SUPREME COURT REPORTS [2023] 8 S.C.R.

A In this connection reference may be made to the discussions
on ‘legitimate expectation’ at page 151 of Volume 1(1)
of Halsbury’s Laws of England, 4th edn. (re-issue). We may
also refer to a decision of the House of Lords in Council of
Civil Service Unions v. Minister for the Civil Service [(1984)
3 All ER 935] . It has been held in the said decision that an
B
aggrieved person was entitled to judicial review if he could
show that a decision of the public authority affected him of
some benefit or advantage which in the past he had been
permitted to enjoy and which he legitimately expected to be
permitted to continue to enjoy either until he was given reasons
C for withdrawal and the opportunity to comment on such
reasons.
It may be indicated here that the doctrine of ‘legitimate
expectation’ imposes in essence a duty on public authority to
act fairly by taking into consideration all relevant factors
D relating to such ‘legitimate expectation’. Within the conspectus
of fair dealing in case of ‘legitimate expectation’, the
reasonable opportunities to make representation by the
parties likely to be affected by any change of consistent past
policy, come in. We have not been shown any compelling
reasons taken into consideration by the Central Government
E to make a departure from the existing policy of allotment with
reference to seniority in registration by introducing a new
guideline. On the contrary, Mr Jaitley the learned counsel
has submitted that the DDA and/or Central Government do
not intend to challenge the decision of the High Court and
F the impugned memorandum of January 20, 1990 has since
been withdrawn. We therefore feel that in the facts of the case
it was only desirable that before introducing or implementing
any change in the guideline for allotment, an opportunity to
make representations against the proposed change in the
guideline should have been given to the registered Group
G Housing Societies, if necessary, by way of a public notice.”
23. The doctrine of legitimate expectation was then further
elaborated upon in the case of Food Corporation Of India vs.
Kamdhenu Cattle Feed Industries11, wherein, this Court held that the

H 11
(1993) 1 SCC 71
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 847
OFFICER, SILIGURI [KRISHNA MURARI, J.]

duty of public authorities to act in a reasonable manner, entitles every A
person to have a legitimate expectation to be treated in such a reasonable
manner. This legitimate expectation imposed on public authorities to act
in a fair manner, as has been held, is imperative to ensure non-arbitrariness
of state action. It was further held by this Court that while such a legitimate
expectation might not by itself be an enforceable right, however, the
B
failure to take into account such expectation may deem a decision of the
public authority to be arbitrary. It is my opinion, that the above said
decision rendered by this Court, remarkably weaves in the doctrine of
rule of law, the doctrine of legitimate expectation, and the doctrine of
arbitrariness together, and firmly roots the doctrine of legitimate
expectation within Article 14 of the Constitution Of India. The relevant C
paragraphs of the said judgment are being reproduced hereunder:
“In our view, Shri A.K. Sen is right in the first part of his
submission. However, in the present case, the respondent does
not get any benefit there from. The High Court’s decision is
based on the only ground that once tenders have been invited D
and the highest bidder has come forward to comply with the
conditions stipulated in the tender notice, it is not permissible
to switch over to negotiation with all the tenderers and thereby
reject the highest tender. According to the High Court, such a
procedure is not countenanced by the rule of law. This is not
the same as the submission of Shri Sen which is limited to E
permissibility of such a course only on cogent grounds
indicated while deciding to switch over to the procedure of
negotiation after receiving the tenders to satisfy the
requirement of non-arbitrariness, a necessary concomitant
of the rule of law. The proposition enunciated by the High F
Court which forms the sole basis of its decision is too wide to
be acceptable and has to be limited in the manner indicated
hereafter.
In contractual sphere as in all other State actions, the State
and all its instrumentalities have to conform to Article 14 of G
the Constitution of which non-arbitrariness is a significant
facet. There is no unfettered discretion in public law: A public
authority possesses powers only to use them for public good.
This imposes the duty to act fairly and to adopt a procedure
which is ‘fairplay in action’. Due observance of this obligation
as a part of good administration raises a reasonable or H
848 SUPREME COURT REPORTS [2023] 8 S.C.R.

A legitimate expectation in every citizen to be treated fairly in
his interaction with the State and its instrumentalities, with
this element forming a necessary component of the decision-
making process in all State actions. To satisfy this requirement
of non-arbitrariness in a State action, it is, therefore,
necessary to consider and give due weight to the reasonable
B
or legitimate expectations of the persons likely to be affected
by the decision or else that unfairness in the exercise of the
power may amount to an abuse or excess of power apart from
affecting the bona fides of the decision in a given case. The
decision so made would be exposed to challenge on the ground
C of arbitrariness. Rule of law does not completely eliminate
discretion in the exercise of power, as it is unrealistic, but
provides for control of its exercise by judicial review.”
24. Further, in the case of M.P.Oil Extraction & Anr. vs. State
Of M.P. & Ors. 12,this Court held that the doctrine of legitimate
D expectation operates in the sphere of public law and as such, is a
substantive and enforceable right depending on the facts and
circumstances of the case. The relevant paragraph from the said judgment
is being extracted hereunder:-
“The renewal clause in the impugned agreements executed in
favour of the respondents does not also appear to be unjust
E or improper. Whether protection by way of supply of sal seeds
under the terms of agreement requires to be continued for a
further period, is a matter for decision by the State Government
and unless such decision is patently arbitrary, interference
by the Court is not called for. In the facts of the case, the
F decision of the State Government to extend the protection for
further period cannot be held to be per se irrational, arbitrary
or capricious warranting judicial review of such policy
decision. Therefore, the High Court has rightly rejected the
appellant’s contention about the invalidity of the renewal
clause. The appellants failed in earlier attempts to challenge
G the validity of the agreement including the renewal clause.
The subsequent challenge of the renewal clause, therefore,
should not be entertained unless it can be clearly
demonstrated that the fact situation has undergone such
changes that the discretion in the matter of renewal of
H 12
(1997) 7 SCC 592
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 849
OFFICER, SILIGURI [KRISHNA MURARI, J.]

agreement should not be exercised by the State. It has been A
rightly contended by Dr Singhvi that the respondents
legitimately expect that the renewal clause should be given
effect to in usual manner and according to past practice unless
there is any special reason not to adhere to such practice.
The doctrine of “legitimate expectation” has been judicially
B
recognised by this Court in a number of decisions. The doctrine
of “legitimate expectation” operates in the domain of public
law and in an appropriate case, constitutes a substantive and
enforceable right.”
25. While the abovementioned judgments discuss the breadth of
applicability of the doctrine of legitimate expectations, however, such a C
right is not all encompassing, and as such has limitations placed on it. It
is on these restrictions, as has been discussed in detail below, the
respondent places their reliance on.
26. In the case of MRF Ltd. Kottayam vs. Assistant
Commissioner Sales Tax & Ors.13, while analyzing the doctrine of D
legitimate expectation, this Court held that legitimate expectation, as a
ground for challenge, can be done away with in circumstances wherein
it has been demonstrated by the public authority that the withdrawal of
the said expectation has been done on grounds of public interest. In
simpler terms, this Court clarified that public interest takes precedence
over a created legitimate expectation. E
“The principle underlying legitimate expectation which is
based on Article 14 and the rule of fairness has been re-stated
by this Court in Bannari Amman Sugars Ltd. Vs. Commercial
Tax Officer & Ors.14,. It was observed in paras 8 & 9:
“A person may have a ‘legitimate expectation’ of being treated F
in a certain way by an administrative authority even though
he has no legal right in private law to receive such treatment.
The expectation may arise either from a representation or
promise made by the authority, including an implied
representation, or from consistent past practice. The doctrine G
of legitimate expectation has an important place in the
developing law of judicial review. It is, however, not necessary
to explore the doctrine in this case, it is enough merely to
13
(2006) 8 SCC 702
14
(2005) 1 SCC 625 H
850 SUPREME COURT REPORTS [2023] 8 S.C.R.

A note that a legitimate expectation can provide a sufficient
interest to enable one who cannot point to the existence of a
substantive right to obtain the leave of the Court to apply for
judicial review. It is generally agreed that ‘legitimate
expectation’ gives the applicant sufficient locus standi for
judicial review and that the doctrine of legitimate expectation
B
to be confined mostly to right of a fair hearing before a
decision which results in negativing a promise or withdrawing
an undertaking is taken. The doctrine does not give scope to
claim relief straightway from the administrative authorities
as no crystallized right as such is involved. The protection of
C such legitimate expectation does not require the fulfilment of
the expectation where an overriding public interest requires
otherwise. In other words, where a person’s legitimate
expectation is not fulfilled by taking a particular decision
then the decision maker should justify the denial of such
expectation by showing some overriding public interest.
D
While the discretion to change the policy in exercise of the
executive power, when not trammelled by any statute or rule
is wide enough, what is imperative and implicit in terms
of Article 14 is that a change in policy must be made fairly
and should not give the impression that it was so done
E arbitrarily or by any ulterior criteria. The wide sweep
of Article 14 and the requirement of every State action
qualifying for its validity on this touchstone irrespective of
the field of activity of the State is an accepted tenet. The basic
requirement of Article 14 is fairness in action by the State,
F and non- arbitrariness in essence and substance is the heart
beat of fair play. Actions are amenable, in the panorama of
judicial review only to the extent that the State must act validly
for discernible reasons, not whimsically for any ulterior
purpose. The meaning and true import and concept of
arbitrariness is more easily visualized than precisely defined.
G A question whether the impugned action is arbitrary or not is
to be ultimately answered on the facts and circumstances of a
given case. A basic and obvious test to apply in such cases is
to see whether there is any discernible principle emerging
from the impugned action and if so, does it really satisfy the
H test of reasonableness.”
[Emphasis supplied]
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 851
OFFICER, SILIGURI [KRISHNA MURARI, J.]

MRF made a huge investment in the State of Kerala under a 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
B
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 State’s share, i.e. 40% of the C
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
D
permitted to operate if it is arbitrary or unreasonable. This
Court in E.P. Royappa Vs. State of Tamil Nadu15, observed
that where an act is arbitrary, it is implicit in it that it is unequal
both according to political logic and constitutional law and
is therefore violative of Article 14. Equity that arises in favour
of a party as a result of a representation made by the State is E
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
F
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 there under.”
27. Further, in the case of Howrah Municipal Corporation &
Ors. vs. Ganges Rope Company Ltd. & Ors.16, it was held by this G
Court that no right can be claimed on the basis of legitimate expectation,
when the said expectation is contrary to statutory provisions enforced in
the public interest. Similarly, in the case of Madras City Wine Merchants
15
(1974) 4 SCC 3
16
(2004) 1 SCC 663 H
852 SUPREME COURT REPORTS [2023] 8 S.C.R.

A Association & Anr. vs. State Of Tamil Nadu & Anr.17, It was held
that the doctrine of legitimate expectation is rendered defunct in cases
where the said expectation is rescinded by the public authority by way
of a change in public policy because of public interest.
28. While a cursory reading of the abovementioned judgments on
B the limitations of the doctrine of legitimate expectation would show that
the said doctrine would not be available against policy or statutory change,
a careful perusal of the same would show otherwise. The doctrine of
legitimate expectation finds its home within the doctrine of rule of law
and is a limb of Article 14 that fights against the contamination of arbitrary
state action and misuse of power. In all the above mentioned judgments
C that discuss the limitations of legitimate expectation, what is most
important, is the principle that public interest is supreme.
29. In such a circumstance, wherein all limitations on the doctrine
of legitimate expectation rest on the touchstone of public interest, then,
in cases where public interest itself is defeated by barring the applicability
D of legitimate expectation, the bar on the legitimate expectation must be
removed. Further, it would also mean that for an amendment to claim a
bar against legitimate expectation, it must demonstrate that the said change
in policy was constructed in public interest.
30. In simpler terms, on the basis of the abovementioned
E discussions, legitimate expectation can be inferred against a statute,
provided that such a claim of legitimate expectation is in public interest,
and for a statute to claim a bar against legitimate expectation, it must
demonstrate that the shift in policy is for the advancement of public
interest.
31. To elucidate on why such a blanket bar on the invocation of
F legitimate expectation against a statute is contrary to the rule of law, we
must first take such an interpretation to its logical conclusion. If the
aforesaid interpretation is adopted, then the state, by way of amendments,
can entice persons and institutions to act in a certain manner with the
expectation of a certain outcome, and suddenly, without any demonstration
G of public interest, rescind the same. Such a scenario, if allowed to
manifest into reality, would remove any and all certainty of the legal
system, and directly become an antithesis to the rule of law. Further, if a
blanket bar of the doctrine of legitimate expectation against a statute is
to be allowed, no domestic or foreign investor would ever invest in local
17
H (1994) 5 SCC 509
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 853
OFFICER, SILIGURI [KRISHNA MURARI, J.]

business and ventures, as any legitimate expectation by way of a statute A
would translate only to a façade, as such a benefit could be snatched
away arbitrarily at any point in time. Hence, any contrary interpretation
of the doctrine of legitimate expectation, would cause great havoc, and
only cause detriment to the rights of individuals and the society at large.
32. Further, it must be borne in mind that the doctrine of legitimate B
expectation and the doctrine of promissory estoppel are two separate
principles, and as such, the blanket ban on promissory estoppel against a
statute cannot be applicable to the doctrine of legitimate expectation.
33. The doctrine of promissory estoppel and the doctrine of
legitimate expectation, while they share a common root and a similar
theme, by way of going through the rigours of common law, have C
developed into two distinct doctrines. The doctrine of promissory estoppel
is a remedy in private law; however, the doctrine of legitimate expectation
is a remedy in public law, and as stated above, is rooted in Article 14 of
the Constitution of India.
34. Such a distinction between public law and private law becomes D
important, because once a law enters the public sphere, it affects the
rights of the society, and thus becomes liable to a stricter level of scrutiny,
and as such, becomes more susceptible to judicial review.
35. In light of the abovementioned discussions, and to bring clarity
to the scope and limitations of the doctrine of legitimate expectations, I E
find it essential to chart out the following principles for the application of
legitimate expectations:
I.The expectation must be reasonable: The expectation of
the individual or group must be reasonable and not based on any
arbitrary or irrational grounds. The expectation must be based on
F
an established practice or a clear promise made by the public
authority.
II. The expectation must be based on a clear representation:
The expectation must be based on a clear and unambiguous
representation made by the public authority.
G
III. The representation must be made by an authorized
person: The representation must be made by an authorized person
or body within the public authority. The authority must have the
power and competence to make such a representation.
IV. The representation must be legitimate: The representation
made by the public authority must be legitimate and not against H
854 SUPREME COURT REPORTS [2023] 8 S.C.R.

A any law or policy. It must also not be against any public interest or
public policy.
V. The public interest must be demonstrated:If a legitimate
expectation is being taken away by way of a modification to an
existing policy on grounds of public interest, such public interest
B must be demonstrated by the said modification.
VI. Public Interest must supersede change in policy: In cases
where a legitimate expectation is being taken away by way of a
modification to policy, such modification must not be antithesis to
public policy, and if such a modification runs counter to public
interest, the remedy of legitimate expectation would become
C exercisable.
VII. The expectation must be based on a legitimate interest:
The expectation must be based on a legitimate interest of the
individual or group. It must not be based on any vested interest or
personal gain.
D VIII. The expectation must be protected: Once a legitimate
expectation is created, it must be protected and not arbitrarily or
capriciously withdrawn by the public authority. The public authority
must provide a reasonable opportunity for the individual or group
to be heard before any decision is taken to withdraw or modify
E the expectation.
APPLICATION OF LEGITIMATE EXPECTATION IN
THE PRESENT FACTUAL MATRIX
36. A tax holiday was granted to new small scale industrial units
involved in the manufacture of tea for a specified period of time under
F Section 39 of the Bengal Finance (Sales Tax) Act, 1941 (hereinafter
referred to as the ‘1941 Act’) read with Section 17(3)(1)(xi) of the said
Act with Rule 52 of the West Bengal Sales Tax Rules, 1995.
37. It is important to note that at this period, statutorily, blending of
tea was read under the definition of “manufacture”, and as such, the tax
holiday was also applicable to small scale industrial units involved in the
G
blending of tea.
38. Subsequent to such a tax holiday being granted, the appellants
herein, relying upon the assurance and faith made by the government,
set up small scale industrial units, and got the necessary authorizations
to certify them as the same. However, by way of an amendment in the
H West Bengal Finance Act, 2001, the words “blending of tea” were omitted
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX 855
OFFICER, SILIGURI [KRISHNA MURARI, J.]

from the definition of “manufacture”, as a consequence of which, the A
appellants herein became ineligible to claim benefit under the tax holiday.
39. From an understanding of the facts, it can be clearly seen that
the tax holiday, granted by way of an amendment to small scale industries
involved in the manufacture and blending of tea, created a legitimate
expectation in favour of the appellants herein. Such a legitimate B
expectation, created by way of an amendment, lured the appellants to
pour their hard earned money into setting up small scale industrial units,
under the assumption that the authority would hold true to its promise,
act in a fair manner and abide by the decision made by it.
40. This legitimate expectation, created by the appropriate and
competent authority, was broken when a subsequent amendment was C
brought in, wherein the words “blending of tea” was removed from the
definition of “manufacture”. Such an amendment, by removing the said
words, snatched away the legitimate expectation of a specific outcome,
and ousted the appellants from claiming the tax holiday, to which they
were promised by the original amendment. As can be seen, a reasonable D
legitimate expectation was created by the competent authority, which
lured the appellants to act in a certain manner. Such a legitimate
expectation was then snatched away, leaving the appellants without
remedy, and in losses.
41. To justify such a shift in policy, and snatch away the legitimate
E
expectation created in favour of the appellants, the public authority must
demonstrate the reasons for such a shift, and while giving its justifications,
must take into consideration the rights of the affected persons, and why
the snatching away of such rights is essential for the state to advance
public interest.
42. In the present case at hand, while perusing through the F
subsequent amendment, it can be clearly seen that no such appropriate
justification has been provided by the government. No appropriate reason
for the enactment of the amendment, nor the considerations of the
affected party have been discussed. In my opinion, a mere claim of
change of policy is not sufficient to discharge the burden of proof vested G
in the government. The government must precisely show what the change
of policy is, and why such a change of law is in furtherance of public
policy, and the public good.
43. In light of the factual matrix herein and the abovementioned
discussions, it can be clearly seen that a legitimate expectation was H
856 SUPREME COURT REPORTS [2023] 8 S.C.R.

A created by the public authority, and such an expectation, accrued in the
favour of the appellants herein, was rescinded by the said authority without
any demonstration of public interest. No appropriate explanation has
been provided as to why a shift was made in Law, and why such a shift,
in spite of the loss which would occur to the appellants and similarly
situated persons, was necessary to advance public interest. In such a
B
circumstance, the legitimate expectation created in the minds of the
appellants, must be protected, and the benefits given originally must be
made applicable to the appellants herein for the period promised by the
respondent authority.
CONCLUSION
C
44. The doctrine of legitimate expectation, as has been mentioned
above, is a facet of Article 14, and is essential to maintain the rule of
law. Such a doctrine, which ensures predictability in the application of
law, in its very essence, fights against the corrosion of the rule of law,
and prevents arbitrary state action.
D
45. For a democratic state to function on the principles of equality
and justice, the state must be ruled, not by its ruler, but by the law. In
such a circumstance, to prevent such a contamination of the rule of law,
the application of the doctrine of legitimate expectation becomes most
important. If a state is allowed to make promises, and rescind the same
E without justification or explanation, it would lead to a situation wherein
every action of the state would be bereft of accountability, and every
person governed by the laws of this country would live in a state of fear
and unrest, causing a chilling effect on the civil liberties of the people.
46. Hence, I am of the opinion that in the present case at hand,
F the Authority must be held accountable to the legitimate expectation
created by it, and therefore, a direction is liable to be issued to the
respondents herein to extend the benefits of the original amendment to
the appellants herein, till the expiry of such a benefit as per the original
amendment. In light of the same, the present batch of civil appeals are
G allowed.

Divya Pandey Matters to be placed before Hon’ble CJI.
(Assisted by : Abhishek Agnihotri and
Shevali Monga, LCRAs)

H