Holding

A tax exemption that has vested under a statutory notification cannot be retrospectively withdrawn; Section 10(3) does not confer such power, and the State’s amendment is prospective, so the doctrine of promissory estoppel applies and the action is unconstitutional under Article 14.

Summary

MRF Ltd. invested heavily in expanding its tyre and rubber manufacturing unit in Kerala under a Memorandum of Understanding that promised a seven‑year sales‑tax exemption. The company obtained an eligibility certificate and a Board of Revenue exemption order covering 30 Dec 1996 to 29 Dec 2003. The Kerala Government later amended the exemption notification (SRO 38/98) to exclude certain rubber processes and subsequently withdrew the exemption (SRO 1092/99) with a saving clause for units sanctioned before 1 Jan 2000. The Assistant Commissioner issued notices to levy purchase tax, which were later dropped, but the State again pursued the matter. The High Court dismissed MRF’s writ, holding that no estoppel could arise against a statutory notification. The Supreme Court allowed the appeal, holding that Section 10(3) of the Kerala General Sales Tax Act does not permit retrospective cancellation of a vested exemption, that SRO 38/98 is prospective and cannot affect accrued rights, and that the doctrine of promissory estoppel and the principle of legitimate expectation apply, rendering the State’s action arbitrary and violative of Article 14. Consequently, MRF’s exemption stands for the full period and the State is restrained from proceeding against it.

Issues considered

The State’s power under Section 10(3) of the Kerala General Sales Tax Act to retrospectively withdraw a tax exemption already granted.
Whether the doctrine of promissory estoppel and the principle of legitimate expectation can be invoked against a statutory notification granting tax exemption.
Whether the amendment notification SRO 38/98 operates prospectively and thus does not affect vested rights.
The effect of the saving clause in SRO 1092/99 on MRF’s entitlement to exemption.
Whether the State’s action violates Article 14 of the Constitution as arbitrary and unfair.

Legislation cited

Kerala General Sales Tax Act, 1963s. 10(1), s. 10(3)

Subjects

tax exemptionpromissory estoppellegitimate expectationArticle 14retrospective amendmentvested rightsarbitrarinessKerala General Sales Tax Actsales taxpurchase tax

Judgment

MRF LTD., KOTTAYAM A
v.
ASSISTANT COMMISSIONER (ASSESSMENTS)
SALES TAX AND ORS.

SEPTEMBER 21, 2006
B
· · •. . [ASHOK BHAN .AND MARKANDEY KATJU, JJ.]

. Kera/a
-
General Sales.- Tax
. .
Act, 1963-Seciion
. .io:
. Large ·amounts iiivested by assessees on substantial expansion/ C
diversification oi its indusirial unit on the. basis of a Memorandum ·of
Understanding with Government and exemption notificationc Certificdte for '··
exemption granted by Board of Revenue to assessee for a specified period of
seven years and in aggregate of a specified amount-Thereafter, State
Gove~nment. amending ex~mption notification to the effect' that processes D
!tndertaken by assessee beca,;,e ineligible for its' benefit and subsequently
(withdrew the exemptio~Demand oftax from assessee upheld by"High Court-
'correctness Of-Held: Assessee had made. hz;ge investment under promise that
it 'would be granted ·exemption for a period of seven years.,-lt. ·was not .
permissible for State to depriv~ aSsessee. benefit of exemption .1vhen it had
enjoyed benefit of investment in' industrial development of State, contribution E
a
to labour; e,;,ployment 'and also huge benefit by way of Central Excise
du~Denial ofbenefit ofexemption U:as highly unfair, unreasonable, arbitrary
and th~refore, violative of Article. 14 of the Constitution of India-Doctrine of
· p~omi~sory estoppel ,;,as 'applicable especially as State did not ·plead any
overridini public 'interest «>r equity-It was more so as State did not have F
. po11Y.r lo wiihdraw /Jn exemption with retros{lectfre effect.
' - •' . - • . - - - - ,_ ·i '
' . . ' .
. '- '
-- . - . . - . .

&emption. in respect' of products ·manufactured upon substanl{al
expansion/di;ersificatio1i.o/industrial unit~'icope of-Hel"'-C;,..joint reading
ofnotifications SRO No. 1729/93 dated 3.11.1993, SRO 38198 dated 15.1.1998
and SRO No. 1092199 dated Jl.12.1999 does not show that Government G.
intended to take m••ay benefits ofexemption after 15./: 1998 where commercial
production had commenced prior to that date-'-C/ause' (2) of SRO 1092199
· stated ihat industrial unit which haicommenced production before the /st
. day ofJanuary, 2000 shall conlinu~ to enjay the concession for the full period
. ' _, ·. - -. . ·• - . . . .
·....
417 H
418 SlJPREl'vlE COURT REPORTS [2006] SUPP. 6 S.C.R.

A covered by order of exemption-Notification SRO 38198 was prospective in
operation and it could not take away assessee 's accrued righl lo exemplion.

Section 10(3)-Scvpe o/-Held: It does no/ confer power lo 1rithdraw
an exemplion with retrospectil•e effect.

B Appellant is a manufacturer of automotive tyres, tubes, compound
rubber, traced rubber, flaps, pre-cured tread rubber etc. Acting on the
incentives, concessions and benefits held out by the respondent State
(Government, it approached latter with its proposal to make substantial
expansion and diversification. A Memorandum of Understanding (MOU)
was entered between the two expressly providing that appellant shall be
C entitled to tax exemptions. In exercise of its powers under Section 10 of
Kerala General Sales Tax Act, 1963, respondent issued a Notification, SRO
No. 1729/93 dated 3.11.1993 providing for exemption from tax payable
on sale or purchase, as the case may, to industrial units in the State going
in for expansion/ diversification/modernization; emption being available
D for a period of seven years from the date of completion of diversification
etc. Pursuant to this, appellant invested large amounts and carried out
substantial expansion of its existing industrial unit and set up new unit
for manufacture of diversified products. Thereupon, they obtained the
necessary eligibility certificate for exemption, which in/er alia set out the
details of fixed capital invested by them. On the basis of this certificate,
E Board of Revenue issued certificate granting them tax exemption for a
specified period of seven years and in the aggregate of a specified amount.
However, thereafter, on 15.1.1998, respondent amended the exemption
notification whereby certain processes were deemed not to be manufacture
for the purpose of the exemption notification. These processes inter alia
F included conversion of rubber latex into centrifugal latex, raw rubber
sheet, ammoniated latex, crepe rubber, crumb rubber, or any other item
falling under entry 110 of the First Schedule to the Act or treating the
raw rubber in any form with chemicals to form a compound of rubber
by whatever name called. Thereafter, respondent, by notification SRO
1092/99 dated 31.12.1999, withdrew the tax exemption with a proviso that
G industrial unit which had been sanctioned exemption before 1st day of
January, 2000 shall continue to enjoy the concession for the full period
covered by the order of exemption.

Sales Tax department issued notice to appellant proposing to levy
H purchase lax on the footing that exemption under SRO No. 1729/93 dated
MRF LTD .. KOTI AYAM 1·. ASSISTANT COMMR. (ASSESSMENTS) SALES TAX 419

3.ll.1993 was not available with effect from 15.1.1998 by reason of amendment A
on that date. Appellant replied that their expansion/diversification was
completed and commercial production commenced on 30.12.1996 and
thereafter they were entitled to exemption for full period of seven years with
effect from 31.12.1996 to 29.12.2003. Thereupon, department dropped the
proceedings against appellant, and order regarding same was neither revoked B
nor withdrawn. Thereafter, department issued to appellant another set of
notices for non-payment of purchase tax. Appella;it replied to them raising
i~ue of jurisdiction in view of the earlier order dropping proceedings against
t~em. On rejection of their objections by department, appellant filed a writ
· petition challenging the notices against them as being contrary to the
eligibility certificate and exemption order. High Court rejected this challenge C
holding that plea of promissory estoppel does not lie against a statutory
notification, and in any case, there was no factual foundation for sanie.
Aggrieved by this, appellant filed the present appeal.

Appellant contendec! that High Court was wrong as (i) plea of promissory
estoppel is available against statutory notification (ii) the principle underlying D
legitimate expectation is based on Article 14-any action taken by State which
goes against the rule of fairness is liable to be struck down (iii) the State
Government did not have the power to make a retrospective amendment to SRO
1729/93 affecting the rights already accrued to the appellant (iv) it
misconstrued the true purpose and meaning of the Notifications bearing No. E
SRO 1729/93, SRO 38/98 and SRO !092/99 (vii) authorities under the Act
could not sit in judgment over or ignore the order granting exemption from
payment of sales tax by the highest tax authority, i.e., the Board of Revenue,
especially when sJch an order had neither been amended nor withdrawn.

Respondent contended that (i) SRO 1729/93 itself specifically provided F
that the state had the power to add to the negative list, hence the appellant
was aware that the benefit of that notification was liable to be cancelled or
varied at any time; Section 10(3) of the Act also enabled the State to withdraw
or cancel any exemption though prospectively {ii) as regards doctrine of
promissory estoppel, it cannot bind the Government where public interest is
involved and it does not operate against a statute; also in view of the defeasible G
nature of the right grafted by SRO 1729/93, no right came to vested in the
appellant by reason thereof to justify the invocation of either this doctrine or
principle of legitimate expectation (iv) Board of Revenue order certifying
eligibility of appellant to exemption had to be read in conjunction with the
earlier notifications, and it couid not have granted a benefit which was not . H
420 SUPREME COURT REPORTS [2006j SUPP. 6 S.C.R.

A otherwise available to the appellant under the prevailing notifications.
Allowing the appeal, the Court

HELD I.I. Appellant made a huge investment in the State of Kerala
under a promise held to it that it would be granted exemption from payment of
B sales tax for a period of seven years. It was granted the eligibility certificate.
The exemption order had also been passed. It is not permissible for the State
Government to seek to deprive appellant the benefit of tax 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 appellant in the form of industrial development in the State, contribution
C 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 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
D of India. The action of the State cannot be permitted to operate ifit is arbitrary
or unreasonable. 1442-B, C, DI

E. P. Royappa v. State of Tamil Nadu, [197414 SCC 3, relied on.

2.1. The doctrine of promissory estoppel has been repeatedly applied by
the Court to statutory notification. Of course, overriding public interest would
E prevail over a plea based on promissory estoppel, but in the present case there
is not even a whisper of any overriding public interest or equity. Notification
SRO 38/98 was an amendment and not a clarification of SRO 1729/93 and
was expressly made prospective w.e.f. 15.1.1998. Besides, a plea of promissory
estoppel is in the nature of an equitable plea and must be determined in the
F facts and cil'cumstances of each case where it is raised. 1436-B; 439-D, El

Pournami Oil Mills v. State of Kera/a, 119861 Supp. SCC 'i28, State of
Bihar v. Usha Martin Industries ltd., 119871 Supp. SCC 710, Shri Baku! Oil
Industries v. Stale o.fGujarat. AIR (1987) SC 142, Pawan .41/oys & Casting
Pvt. ltd. v. U.P. State Electricity Board, I 199717 SCC 251, Alahabir Vegetable
G Oils (PJ ltd. v. State of HatJ'atia, 120061 3 SCC 620, Dai-!chi Karkaria ltd.
v. Union of India, 120001 4 SCC 57 and Bannari Amman Sugars ltd. v.
Commercial Tar Officer, 120051 I SCC 625, relied on

Kasinka Trading v. Union of India, jl 9951 I SCC 274 and Rom
Industries v. State ofJammu & Kashmir., 120051 7 SCC 348, distinguished.

H State of Punjab v. Nestle India ltd., 120041 6 SCC 465, referred to.
MRF LTD., KOIT AYAM v. ASSISTANT COMMR. (ASSESSMENTS) SALES TAX 42 J

2.2. The finding recorded by the High Court that "there is no factual A
foundation" for the plea of promissory estoppel are contrary to the averments
made in the writ petition filed in the High Court. The averments made in the
write petition clearly .show that the promissoiy estoppel and legitimate
expectation have been specifically pleaded. I431-8, CJ

3, State Government has no power to make a retrospective amendment B
to SR9 1729/93 affecting rights already accrued to appellant thereunder.
Section 10(3) does not confer the power to withdraw an exemption with
retrospecth'e effect. Effect of this is that the amendment notification SRO 38/
98 has to be read so as not to take away or disturb any manufacturer's pre-
existing accrued right of exemption for a period of 7 years. If SRO 38/98 is C
construed as contended by the respondent, then the inevitable consequence
would be that SRO 38/98 would itself be rendered ultra vires Section 10(3) of
the Act, and therefore, illegal, bad in law and null and void.
1444-F-H; 445-A-B)

S.L Srinivasa Jute Twine Mills (P) Ltd v. Union of India & Anr., [2006). D
2 sec 740, relied on.

MM Nagalingam Nadar Sons v. State of Kera/a, (1993) 91 STC 61
and Dy. Commissioner (Law). Board of Revenue (Taxes) v. MRF Ltd., (1998)
109 STC 306, approved.

4.1 On a co-joint reading of SRO 1729/93, SRO 38/98 and SRO 1092/ E
99 the intentiOn of the Government does not seem to take away the benefits of
exemption in respect of manufactured products including compound rubber
after 15.1.1998 (the date on which SRO 38/98 was issued) where commercial
production had commenced prior to that date. By virtue of the certificate of
eligibility and by virtue of the exemption order granted pursuant to SRO 1729/ F
93 dated 3.11.1993, appellant had acquired the right to avail of tax exemption
for a fixed period of 7 years from 30.12.1996 to 29.12.2003, in respect of
products manufactured from raw rubber, including compound rubber. In the
.eligibility certificate and in the exemption order the date of commencement
of commercial production of all manufactured products, including compound
rubber is stated to be 30.12.1996. The Government had itself recognized that G
the benefit of tax exemption for the fixed period of 7 years would remain
available to the units which have fulfilled the prescribed conditions, and have
obtained the eligibility certificate etc. and have commenced commercial
production before the date of any amendment to SRO 1729/93. This had been
stated by the State of Kera la in its counter affidavit before the High Court. H
[432-E, F, G, H; 433-AI
422 SUPREME COURT REPORTS (2006[ SUPP. 6 S.C.R.

A 4.2. The Division Bench misread SRO 1092/99. The observations made
by the High Court that clause (2) of SRO 1092/99 would not come to the
rescue of the appellant is wrong. It is clearly stated in clause (2) of SRO
1092/99 that the industrial unit which had commenced production before the
1st day of January. 2000 shall continue to enjoy the concession for the full
B period covered by the order of exemption deferment. SRO 1092/99 has not
been withdrawn or modified till this date. [433-D, G, HI

4.3. Appellant's accrued right to exemption was not taken away or in
any way affected by the amending notification SRO 38/98; which merely
applied to those units which were established or expanded after 15.1.1998. If
C an industrial unit had been set up prior to 15.1.1998 and had also commenced
commercial production prior to 15.1.1998 then the amending notification SRO
38/98 would have no retrospective application at all. The notification SRO
38/98 is prospective in operation which is evident by its mere reading.
(434-A-BI

D 5.1. It cannot be said that the subsequent notification was clarificatory
in nature or that it only removed the doubt which had arisen with reference
to "compound rubber" in the SRO 1729/93. Making of"compound rubber"
had been accepted to be "manufacture" in the Memorandum of Undertaking
entered between appellant and the Government on 6.10.1993 and the addendum
E dated 10.4.1996 to the Memorandum of Undertaking dated 6.10.1993. It is
further recognized in the eligibility certificate issued by the Director of
Industries and Commerce after investigation and due verification and the
exemption certificate issued by the Board of Revenue. (445-B-q

5.2. In any case the doubt, if any, was set at rest by the Government
F itself when, in Gazette Notification SRO 1092/99 dated 31.12.1999, it was
stated that the benefit of exemption under SRO 1729/93 would not be available
after 1.1.2000 with a saving clause to the effect that industrial unit which
had been sanctioned exemption/deferment as per notification SRO 1729/93
before the 1st day of January, 2000 shall continue to enjoy the concession
G for the full period covered by the order of exemption/deferment. (433-C, DI

6. The view that SRO 38/98 did not affect appellant's pre-existing and
accrued right to enjoy tax exemption from the full period of 7 years w.e.f.
30.12.1996 to 29.12.2003 was accepted and recognized by the assessing
authority himself which can be seen from the order of the assessing authority
H
MRF LTD., KOHA YAM 1·. ASSISTANT COMMR. (ASSESSMENTS) SALES TAX [BHAN, J .j 423

dated 1.3.2000 whereby the proposal to deny tax exemption was "dropped as A
the expansion has been completed on 30.12.1996".1435-H; 436-AI

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1610 of2006.

From the Judgment and Order dated 15.11.2005 of the High Court of
Kerala at Ernakulam in W.A. No. 628/2003. B
F.S. Nariman, S. Ganesh, S. Sukumaran and Subhash Sharma for K.
Rajeev for the Appellants.

T.LV. Iyer, P.V. Dinesh and M.P. Vinod for the Respondents.

The Judgment of the Court was delivered by c
. BHAN, J. The writ petitioner in the High Court has filed this appeal
against the order passed by the Division Bench of the High Court of Kerala.
The Division Bench by the impugned order has affirmed the decision of the
Single Judge in dismissing the writ petition filed by the appellant herein D
(hereinafter referred to as the "MRf").

FACTS

MRF is a company incorporated under the Companies Act, 1956 and its
registered office i.s at 124, Greams Rol)d, Chennai. One of its industrial units
is located at Vadavathoor near Kottayam in the State of Kerala. MRF is E
engaged in the manufacture of automotive tyres, tubes, compound rubber,
tread rubber, flaps, pre-cured tread rubber etc. at its industrial unit at
Vadavathoor.

The Government of Kerala has from time to time declared and introduced F
several incentives to promote industrial growth and expansion in the State of
Kerala by granting exemptions, concessions or reduction in sales tax, electricity
duty and electricity tariff etc. to new industries as well as to existing industrial
units undertaking substantial expansion, diversification or modernization.
Accordingly, the Government of Kerala has been issuing notifications from
time to time to give effect to its declared policy for industrial promotion. G
Acting on the incentives, concessions and benefits held out by the
Government of Kerala, MRF approached the Government of Kerala with its
proposal to make substantial expansion and diversification of its industrial
unit ac Vadavathoor. A Memorandum of Understanding was entered between
MRF and the State of Kerala on 6.10.1993, which provided that the MRF had H
424 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R.

A d~cided to make substantial investment of Rs.50 crores for expansion/
diversification of its existing industrial unit at Kottayam for the manufacture
of various products and that the immediate plan of MRF was to expand in
the compound rubber manufacture and diversity into new products like tyres,
pre-cured tread rubber, flaps etc. The said Memorandum of Understanding
expressly provided that MRF shall be entitled to tax exemptions available for
B · existing industries undertaking expansion/diversification.
On 3.11.1993 Government of Kerala issued a Notification SRO No. 1729/
93 (relevant parts extracted below) in exercise of its powers under Section 10
of Kerala General Sales Tax Act, 1963 (for short "the Act") providing for tax
C exemption to industrial units going in for expansion/diversification/
modernization in the State of Kerala:-

"(a) SRO No. 1729/93 In exercise of the powers conferred by Section
JO of the Kerala General Sales Tax Act, 1968, (Act 15 of 1963) and in
supersession of the notifications mentioned in the Schedule the
D Government of Kerala having considered it necessary in public interest
so to do hereby make the following tax exemption to industrial units
and/or reduction in the rate of tax payable on the sale or purchase,
as the case may be, of goods by such industrial units, subject to the
conditions and restrictions specified herein namely:-

E

(b) 5. In the case of Existing Medium and Large Scale Industrial Units
which undertake diversification, expansion or modernization on or
after the 1st April, 1993, there shall be an exemption for a period of
F
seven years from the date on which such diversification, expansion
or modernization has been completed.

(a) In respect of the tax payable under the Kerala General Sales Tax
Act, 1963-
G (i) On the turnover of sale of goods, manufactured in excess of full
rated capacity of the 1111it prevailing immediately prior to such
diversification, expansion or modernization, and sold by them ·-
within the State; and
(ii) On the turnover of goods taxable at the point of last purchase
H in the State, which are used by such units for manufacturing the
MRF LTD., KOTI AYAM r. ASSISTANT COM MR. (ASSESSMENTS ) SALES TAX [BHAN, J] 425

goods referred to in sub clause (i) above for sale within the State A
or inter-State; and

(c) 10. Conditions and Restrictions - B
(i)

(iv) In the case of Existing, Medium and Large Scale Industrial
Units, other than Public Sector undertakings, which undertake C
expansion, modernization or diversification, the aggregate
exemption in respect of sales tax, purchase tax, surcharge and
central sales tax shall not exceed I00% of the additional fixed
capital investment made for such expansion, modernization or
diversification.
D

. 10. (b) Eligibility certificate for medium and large scale industries
assisted by the Kerala State Industrial Development Corporation
or the Kerala Financial Corporation will be issued by the E
Corporation which render assistance and in other cases by the
Director of Industries and Commerce, on application by such
units, and orders of exemption will be issued by the Secretary,
Board of Revenue (Taxes), Thiruvananthapuram.
(c) Eligibility certificate and orders on exemption will be issued by the F
authorities mentioned in Sub-clause (b) above, if the unit is eligible
for exemption or deferment of taxes and the unit satisfies the conditions
for the exemptions or deferment of taxes.

(d) The eligibility certificate referred to in Sub- Clause (b) above shall
contain the date of commencement of commercial production and the G
monetary limit of exemption the unit is eligible for. The eligibility
certificate issued in respect of existing medium and large scale industrial
units which undertake expansion, modernization or diversification shall
also contain the date of commencement as well as the date of completion
of such expansion, modernization or diversification.
H
426 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A (d) 11. Explanation For the purposes of this notification,
(i)

(ix) 'Manufacture' shall mean the use of raw materials and production
B of goods commercially different from the raw materials used but
shall not include mere packing of goods, polishing, cleaning,
grading, drying, blending or mixing different varieties of the same
goods, sawing, garbling, processing one form of goods into
another fonn of the same goods by mixing with chemicals or gas,
fumigation or any other process applied for preserving the goods;
c in good condition or for easy transportation. The process of
producing desiccated coconut out of coconut, shall be deemed
to be 'manufacture' for the purpose of this notification."

With the object to ensure that the State of Kerala would get the relevant
D proportion of excise duty, i.e., about 40% of the excise duty paid within the
State, amended SRO No. 1729/93 by issuing SRO No. 271/96 dated 13.3.1996
requiring the manufacturer claiming tax exemption under SRO No. 1729/93 to
pay central excise duty in the State of Kerala on its manufactured products.

On I0.4.1996 an addendum to the Memorandum of Understanding dated
E 6.10.1993 was executed between MRF and Government of Kerala which
specifically confinned that MRF Limited, a tyre manufacturing company within
the State is entitled to tax incentives and exemptions provided under SRO No.
1729/93 dated 3.11.1993 as amended by SRO No. 271196 dated 13.3.1996 in
respect of rubber based goods like tyres, flaps, pre-cured tread rubber etc.
manufactured under diversified facilities and rubber based goods manufactured
F pursuant to the expansion of the existing facility.

Pursuant to the Memorandum of Understanding entered into between
MRF and the State of Kerala and the SRO No. 1729/93 the MRF invested Rs.
80 crores and carriec! out substantial expansion of its existing industrial unit
and set up new unit for manufacture of diversified products.
G
In accordance with the provisions of SRO No. 1729/93 the eligibility
certificate evidencing the MRF's entitlement to the exemption and benefits
was to be issued by the Director of Industries and Commerce, Government
of Kerala. MRF applied for the said eligibility certificate and the Director of
H Industries and Commerce, inspected the factory and verified the manufacturing
MRF LTD., KOlTAYAMv. ASSISTANTCOMMR. (ASSESSMENTS )SALES TAX[BHAN. J.] 427

process of goods for which expansion and diversification was undertaken by A
the MRF. After considering the application and all relevant facts and materials,
and, on being satisfied that the MRF was entitled to the exemption,
concessions and benefits under SRO No. 1729/93 issued the eligibility certificate
on 10.11.1997. Eligibility certificate in Form 4 set out the details offixed capital
investment ofMRF of the aggregate amount ofRs. 74,12,77,528.51.-MRF B
commenced its production on 31.12.1996. Director of Industries and Commerce
forwarded the eligibility certificate and his report to the Board of Revenue for
its consideration for issuance of certificate of exemption. The Board of Revenue
vide exemption order No. C 4/40588/97 /Tx MRF dated 30.6.1998 having found
the MRF eligible for sales tax exemption under SRO No. 1729/93 gra11ted tax
exemption of7 years in the aggregate amount of Rs. 74,12,77,529.00 specifying C
the period of exemption to be from 30.12.1996 to 29.12.2003.

On 15.1.1998 the Government ofKerala issued SRO No. 38/98 (read with
SRO No. 491/98) amending SRO No. 1729/93 by adding new sub-clause (h)
to clause 11 (ix) which provided that certain processes shall not be deemed
to be manufacture for the purpose of SRO No. 1729/93. Sub"clause (h) reads D
as under:-

"(h) Conversion of rubber latex into centrifugal latex; raw rubber
sheet, ammoniated latex, crepe rubber, crumb rubber, or any other item
falling under entry 110 of the First Schedule to the Kerala General
Sales Tax Act, 1963 or treating the raw rubber in any form with E
chemicals to form a compound of rubber by whatever name called."

By notification SRO No. 1092/99 dated 31.12.1999 the State of Kera la
modified SRO No. 1729/93 so as to withdraw tax exemption with effect from
1.1.2000 but with a proviso that:-
F
"2. Indus/rial Unit which had been sanctioned exemption/deferment
as per'notificalion SRO No. 1729193 before /st day of Januaty, 2000
sha!I co/1/inue lo enjoy the concession for the full period covered by
lhe order of exemplion/deferme/1/. "

[Emphasis supplied] . G

(This notification has not been withdrawn or modified till date.)

Assistant Commissioner (Assessment) Issued a notice on 17.1.2000
proposing to levy purchase tax on the footing that exemption under SRO No.
1729193 dated 3.11.1993 was not available with effect from 15.1.1998 by reason H
428 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R.

A of amendment by SRO No. 38/98 dated 15.1.1998 and stated:-
'"Thus you have filed incorrect returns and evaded payment of tax
due. You are therefore directed to show cause why action should not
be initiated to assess provisionally and u/s 45A for the offence of
filing incorrect returns, within 7 days of receipt of this notice. You are
B also given an opportunity to be heard in person on that day, or at 11
a.m. on 27 .1.2000."

MRF sent its reply to the above said notice on 14.2.2000 pointing out
that MRF has already completed expansion/diversification and had commenced
commercial production on 30.12.1996 and was thereafter entitled to tax exemption
C for the full period of 7 years with effect from 31.12.1996 to 29.12.2003. The
proceedings initiated by the Assistant Commissioner were dropped by
Assistant Commissioner's letter/order stating that:-

"Ref: I. This Office Notice dated 17.1.2000.

D Reply No. M.199/SGMK/A 1204/4.2.2000.
Referring to the above I am to inform that further action in this
matter is dropped as the expansion has been completed on 30.12.96."

This order was never revoked or withdrawn.

E Assistant Commissioner of Sales Tax, Kottayam issued another set of
notices dated 19.12.2001 proposing to impose penalty under Section 45A of
the Act for availing of purchase tax exemption under SRO No. 1729/93 and
for not paying the purchase tax. MRF sent its reply on I0.1.2002 raising its
objection regarding the jurisdiction of the Assistant Commissioner of Sales
F Tax to issue such notice in view of the earlier order passed by the Assistant
Commissioner dropping the proceedings initiated and in view of the eligibility
certificate issued by the Director of Industries and Commerce and the exemption
order passed by the Board of Revenue (Taxes). The Assistant Commissioner
vide order dated 17.1.2002 rejected the objections raised by the MRF.

G MRF thereafter filed Writ Petition No. 3343 of 2000 in the High Court
of Kerala challenging the aforesaid notices issued as being contrary to the
eligibility certificate and exemption order. It was prayed in the writ petition
that a writ of mandamus be issued to the respondents, restraining them from
taking any proceedings against MRF contrary to the eligibility certificate
H dated I0.11.1997 issued by the Director of Industries and Commerce and
MRFLTD.• KOIT AYAM•. ASSISTANT COM MR. (ASSESSMENTS) SALES TAX [BHAN, J.] 429

exemption order issued by the Secretary, Board of Revenue dated 30.6.1998. A
The Single Judge before whom the writ petition came up for hearing dismissed
the same and remanded the matter back to the Sales Tax Authorities. Being
aggrieved, the MRF filed the writ appeal which has been dismissed by the
order impugned in this appeal.

Mr. F.S. Nariman, learned senior counsel appearing for the appellant has B
submitted that the High Court has erred on facts as well as in law in dismissing
the appeal filed by the appellant. It is contended by him that the Division
Bench of the High Court has erroneously stated that "there is no factual
foundation" for the plea of promissory estoppel. The averments of the writ
petition clearly show that the plea of promissory estoppel and legitimate C
expectation have been specifically taken in the writ petition. Further, the
finding of the High Court that "there is nothing to show that the petitioner
MRF had effected huge investments" is also factually incorrect. This is
evident from the MOU dated 6.10.1993 between MRF and the State
Government; the addendum dated I0.4.1996 to the MOU entered into between
MRF and the State Government wherein it is admitted by the State of Kera la D
that the goods like tyres, flaps, pre-cured tread rubber etc. were manufactured
by the appellant under diversified facilities pursuant to the expansion of the
existing facilities; the eligibility certificate dated I0.11.1997 as well as the
exemption order dated 30.6.1988 wherein it is stated that the appellant had
invested Rs. 74, 12,77,529/-. That the High Court is further erred in holding that E
the notification being statutory and "no plea of estoppel will lie against a
statutory notification". The doctrine of promissory estoppel has been
repeatedly applied in the courts in India including the Supreme Court in
respect to statutory notification. In support of this submission he cited case
laws as well. It is further submitted that plea of promissory estoppel is in the
nature of an equitable plea and must be determined in the facts and F
circumstances of each case. That the principle underlying legitimate expectation
is based on Article 14. Any action taken by the State which. goes against the
rule of fairness is liable to be struck down. Any administrative or executive
action of the State which is arbitrary or unjust cannot be sustained as it
violates Article 14 of the Constitution of India. It is also contended that in G
any event the State Government did not have the power to make a retrospective
amendment to SRO 1729/93 affecting the rights already accrued to the appellant
under the said notification. It is further contended by him that the High Court
has misconstrued and misunderstood the true purpose and meaning of the
Notifications bearing No. SRO 1729/93, SRO 38/98 and SRD 1092/99. Lastly,
it is contended that in any event it is well settled principle that the authorities H
430 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R.

A under the Act could not sit in judgment over or ignore the order granting
exemption from payment of sales tax by the highest tax authority, i.e .. the
Board of Revenue, especially when the order passed by the Board of Revenue
granting exemption to the appellant has never been amended or withdrawn.

As against this Shri T.L.V. Iyer, learned senior counsel appearing for the
B State of Kerala has contended that having regards to the facts of the case,
no question of promissory estoppel. legitimate expectation or violation of
Article 14 of the Constitution of India can arise. SRO 1729/93 itself has
specifically provided that the state will have the power to add to the negative
list. The appellant was therefore well aware that the benefit of SRO 1729/93
C was a precarious one liable to be cancelled or varied at any time. In addition,
Section I0(3) of the Act also enables the State to withdraw or cancel any
exemption though prospectively. Therefore, according to him, there has been
no arbitrary action on the part of the State in issuing SRO 38/98 with prospective
effect. It was well within their powers under Section I0(3) as well as under
clause (g) of the negative list in SRO 1729/93. Referring to the decisions of
D this Court in Kasinka Trading v. Union of India, [1995) I SCC 274 and Sales
Tax Officer v. Shree Durga Oil Mills, [1998) 1 SCC 572 it is contended that
where public interest is involved, no rule of promissory estoppel can bind the
Government. That the promissory estoppel does not operate against a statute.
That in view of the defeasible nature of the right granted by SRO 1729/93,
E no right came to be vested in the appellant by reason thereof to justify the
invocation of the principle of promissory estoppel; nor could they have any
legitimate expectation that the exemption would be continued. That SRO 38/
98 was issued in public interest. Elaborating the submission, it is contended
by him that SRO 38/98 was issued to clarify the doubt which had arisen with
reference to compound rubber in SRO 1729/93. A comparison of SRO 1729/
F 93 and SRO 38/98 will show that the making of compound rubber was not
"manufacture" even under SRO 1729/93; nevertheless, the state has granted
the exemption till after the doubt was clarified on 15.1.1998 by SRO 38/98.
Since no right could have vested in the appellant because of the precarious
nature of the exemption granted by SRO 1729/93, it cannot be said that SRO
G 38/98 has taken away any vested right, more particularly because it is made
expressly prospective. Regarding the Board of Revenue order dated 30.6.1998
it is submitted that the same has to be read in conjunction with SRO 1729/
93 as amended by SRO 38/98.. That the Board of revenue could not have
granted a benefit which was not otherwise available to the appellant under
the prevailing notifications.
H
MRFUD, KonAy AM I'. ASSISTANT COMMR. (ASSESSMENTS ) SALES TAX [BHAN, J.] 431

According to him, so far as SRO 1092/99 is concerned, it did not confer A
any new right. It only preserved the existing right. By the said order what the
Government did was to change the industrial policy and to do away with
exemptions which were otherwise being given to new/existing industrial units,
which was taken away w.e.f. l. l .2000. At the same time, the units which had
been set up pursuant to the incentives granted by the earlier notifications had B
to be protected and accordingly it was provided that such units will continue
· to enjoy the incentives for their full term: ·

· The finding recorded by the High Court that "there is no factual
foundation" for the plea of promissory estoppel is contrary to the averments
made in the writ petition filed in the High Court. The averments made in the C
writ petition clearly show that the promissory estoppel and legitimate
expectation have been specifically pleaded. Paras 3, 4, 6 and grounds (D) and
(F) of the writ petition clearly demonstrate that the appellant had taken the
plea of promissory estoppel against the State as well as legitimate expectation
in iis favour. In para 3 of the writ petition it was pleaded that the appellant
acting on the promises, assurances and undertaking made by the State of D
Kerala had invested more than Rs. 90 crores and carried out substantial
expansion of its existing industrial unit. In Ground (F) of the writ petition the
appellant has clearly stated that "the respondents are barred by the rule and
principle of promissory estoppel to deprive or deny exemption to the petitioner
from tax on the purchase turnover or rubber used in the manufacture of E
compound rubber in any manner." Further, in the same paragraph it was
pleaded by the appellant that "respondents are barred and precluded from
taking any such proceedings by virtue of the principle of promissory estoppel
as well as legitimate expectation." The finding recorded by the High Court
that the appellant had not taken the plea of promissory estoppel being
contrary to the facts of the case is set aside. F
The finding recorded by the Division Bench that there was nothing to
show that the MRF had effected huge investments is also factually incorrect.
The MOU dated 6.10.1993 between MRF and the State Government and the
addendum dated I0.4.1996 to the MOU dated 6. I0.1993 clearly show that the
appellant had made huge investment. The eligibility certificate dated 10.11.1997 G
issued under SRO 1729/93 by the Director of Industries and Commerce after
investigation specified the details of the capital investment made by the
appellant and the capacities added to the MRF to the tune of Rs. 74, 12, 77 ,529.
The exemption Order dated 30.6. 1998 also issued under SRO 1729/93 by the
Board of Revenue again specifically stated the capacities added and the total H
432 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R.

A amount of eligible investment made by the MRF. According to the exemption
certificate the appellant had made additional fixed capital investment on
expansion-cum-diversification to the tune of Rs. 74, 12,77,529/- and its annual
installed capacity increased manifolds. The difference of the annual installed
capacity before and after expansion-cum-diversification as shown in the order
B granting exemption as under:
SI. Items Before expansion- After expansion-
No. cum-diversification cum-diversification
I. Compound rubber 33984 MT 77760 MT
2. Tubes 5640MT 11400 MT
c ~
.). Repair materials 876MT 1620 MT
4. Tread rubber 5040MT 8IOOMT
5. Tyres 636000Nos.
6. Flaps 780000Nos.
7. Precured tread rubber 10440MT
D
In exemption order dated 30.6.1998 the appellant was found eligible for
sales tax exemption to the tune of Rs. 74,12,77,529/-forthe period of7 years
from 30.12.1996 to 29.12.2003. The finding thus recorded by the High Court
that the appellant had not made any investment is erroneous in the teeth of
E the facts, enumerated above. The appellant had made additional fixed capital
investment on expansion-cum-diversification entitling him to seek exemption
under SRO 1729/93.

On a co-joint reading of SRO 1729/93, SRO 38/98 and SRO I092/99 the
intention of the Government does not seem to take away the benefits of
F exemption in respect of manufactured products including compound rubber
after 15.1.1998 (the date on which SRO 38/98 was issued) where commercial
production had commenced prior to that date. By virtue of the certificate of
eligibility and by virtue of the exemption order granted pursuant to SRO 1729/
93 dated 3.11.1993, MRF Ltd. had acquired the right to avail of tax exemption
G for a fixed period of 7 years from 30.12.1996 to 29.12.2003, in respect of
products manufactured from raw rubber, including compound rubber. In the
eligibility certificate and in the exemption order the date of commencement of
commercial production of all manufactured products, including compound
rubber is stated to be 30.12.1996. The Government had itself recognized that
the benefit of tax exemption for the fixed period of 7 years would remain
H available to the units which have fulfilled the prescribed conditions, and have
MRFLTD., KOITAYAM r. ASSISTANT COM MR. (ASSESSMENTS) SALES TAX [BHAN, J.] 433

obtained the eligibility certificate etc. and have commenced commercial A
production before the date of any amendment to SRO 1729/93. This had been
stated by the State of Kerala in its counter affidavit before the High Court.
The relevant portion of which reads:

"As per letter No. 21002/B2/GD dated 28.08.93 the Government had
clarified that the eligibility of an industrial unit for exemption has to B
be decided with reference to the notification existing on the date of
commencement of commercial production. The petitioner had
commenced commercial production under the expansion/diversification
and modernization programme on 30.12.1996."

In any case the doubt, if any, was set at rest by the Government itself C
when, in Gazette Notification SRO I092/99 dated 3 1.12.1999, it was stated that
the benefit of exemption under SRO 1729/93 would not be available after
1.1.2000 with a saving clause, reproduced earlier, to the effect that industrial
unit which had been sanctioned exemption/deferment as per notification SRO
1729/93 before the 1st day of January, 2000 shall continue to enjoy the D
concession for the full period covered by the order of exemption/deferment.

The Division Bench misread SRO 1092/99. The High Court had recorded
the following finding in regard to this in para 14 qf the judgment, which reads:

"But it has been specifically stated that in the case of units which E
have already commenced commercial production or taken upon effective
steps to set up industrial units prior to 1.1.2000 will be allowed benefit
of exemption or deferment granted as per notification SRO 1729/93.
Petitioner therefore would get only the benefits available under SRO
1729/93 and nothing more and nothing less. Ext. P-5 in our view would
not come to the rescue of the petitioner even by the application of F
clause 2 of SRO 1092/99. We reiterate the order passed by the Board
of Revenue cannot override the statutory notification issued by the
Government."

The observations made by the High Court that clause (2) of SRO 1092/
99 would not come to the rescue of the appellant is wrong. It is clearly stated G
in clause (2) of SRO 1092/99 that the industrial unit which had commenced
production before the Ist day of January, 2000 shall continue to enjoy the
concession for the full period covered by the order of exemption/deferment.
SRO I092/99 has not been withdrawn or modified till this date.
H
434 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A In any case MRF's accrued right to exemption was not taken away or
in any way affected by the amending notification SRO 38/98; which merely
applied to those units which were established or expanded after 15.1.1998. If
ann industrial unit had been set up prior to 15.1.1998 and had also commenced
commercial production prior to 15.1.1998 then the amending notification SRO
B 38/98 would have no retrospective application at all. The notification SRO 38/
98 is prospective in operation which is evident by its mere reading as it
specifically mentioned therein that:

"notification shall be deemed to have come into force with effect from
the 1st day of January. 1998."
c The provisions of the Act or notification are always prospective in
operation unless the express language renders it otherwise making it effective
with retrospective effect. This Court in S.L. Srinivasa Jute Twine Mills (P)
Ltd v. Union of India & Anr., (2006] 2 SCC 740, has held that it is a settled
principle of interpretation that:
D "retrospective operation is not taken to be intended unless that
intention is manifested by express words or necessary implication;
there is a subordinate rule to the effect that a statute or a section in
it is not to be construed so as to have larger retrospective operation
than its language renders necessary.''
E
In the aforesaid case, the Employees Provident Fund Act (as amended
in 1988) provided that the Act would not apply "to a newly set up establishment
for a period of three years from the date on which such establishment is set
up." Section 16 (I )(d) w11s deleted by the Amending Act w.e.f. 22.9.1997 and
the question was whether the initial exemption from application of the Act
F would continue for the full period of three years from the date of its
establishment, even beyond 22.9.1997. Rejecting the contention, as pointed
out earlier, it was held that retrospective operation is not taken to be intended
unless that intention of the Legislature is projected by express words or
necessary implication. Setting aside the order of the High Court it was held:

G "18. It is a cardinal principle of construction that every statute is
prima facie prospective unless it is expressly or by necessary
implication made to have retrospective operation. (See Keshvan
Madhavan Memon v. State of Bombay, [ 1951] SCR 228). But the rule
in general is applicable where the object of the statute is to affect
H vested rights or to impose new burdens or to impair existing obligations.
MRFLTD., KOlTAYAM 1•. ASSISTANT COM MR. (ASSESSMENTS) SALES TAX [BHAN, J.) 435

Unless there are words in the statute sufficient to show the intention A
of the Legislature to affect existing rights, it is deemed to be prospective
only 'nova constitutio ji1t11ris formam imponere debet non praeteritis '.
In the words of Lord Blansburg,

"provisions which touch a right in existence at the passing of the
statute are not to be applied retrospectively in the absence of B
express enactment of necessary intendment." (See Delhi Cloth &
General Mills Co. Lid. v. CIT, AIR (1927) PC 242 at p. 244).
"Every statute, it has been said", observed Lopes, L.J.,

"which takes away or impairs vested rights acquired under existing C
laws, or creates a new obligation or imposes a new duty, or
attaches a new disability in respect of transactions already past,
must be presumed to be intended not to have a retrospective
effect." (See Amireddi Raja Gopala Rao v. Amireddi
Sitharamamma, (1965) 3 SCR 122.
As a logical corollary of the general rule, that retrospective operation
D
is not taken to be intended unless that intention is manifested by
express words or necessary implication, there is a subordinate rule to
the effect that a statute or a section in it is not to be construed so
as to have larger retrospective operation than its language renders
necessary. (See Reid v. Reid (1886) 31 Ch D 402). In other worc1s close E
attention must be paid to the. language of the statutory provision for
determining the scope of the retrospectivity intended by Parliament.
(See Union ofIndia v. Raghubir Singh, [1989] 2 SCC 754). The above
position has been highlighted in Principles of Statutory Interpretation
by Justice G.P. Singh. (10th Edition, 2006 at pp 474 and 475).
F

20. Above being the legal position, the judgments of the High Court
are indefensible and are set aside. The appellants shall be entitled to
the protection as had accrued to them prior to the amendment in 1997
for the period of 3 years starting from the date the establishment was G
set up irrespective of repeal of the. provision for such infancy
protection."

The view that SRO 38/98 did not affect MRF's pre-existing and accrued
right to enjoy tax exemption from the full period of 7 years w.e.f. 30.12.1996
to 29.12.2003 was accepted and recognized by the assessing authority himself H
436 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R.

A which can be seen from the order of the assessing authority dated 1.3.2000
whereby the proposal to deny tax exemption was "dropped as the expansion
has been completed on 30.12.1996". This order was passed in respect of
notice dated 17 .1.2000 issued to the appellant whereby the proposal to continue
tax was dropped. This order has been reproduced in the earlier part of the
B judgment.
High Court in its judgment has recorded a finding that the notifications
being statutory "no plea of estoppel will lie against a statutory notification".
This finding of the High Court is erroneous. The doctrine of promissory
estoppel has been repeatedly applied by this Court to statutory notifications.
C Reference may be made to Pournami Oil Mills v. State of Kera/a, [1986]
Supp. SCC 728. In the said case the Government of Kerala by an order dated
11.4.1979 invited small scale units to set up their industries in the State of
Kerala and with a view to boost industrialization, exemption from sales tax and
purchase tax was extended as a concession for a period of five years, which
was to run from the date of commencement of production. By a subsequent
D notification dated 29.9.1980, published on Gazette on 21.10. ! 980, the State of
Kerala withdrew the exemption relating to the purchase tax and confined the
exemption from sales tax to the limit specified in the proviso of the said
notification. While quashing the subsequent notification, it was observed:

"If in response to such an order and in consideration of the
E concession made available, promoters of any small-scale concern
have set up their industries within the State of Kera/a, they would
certainly be entitled to plead the rule of estoppel in their favour
when the State ofKera/a purports to act differently. Several decisions
of this Court were cited in support of the stand of the appellants that
F in similar circumstances the plea of estoppel can be and has been
applied and the leading authority on this point is the case of MP.
Sugar Mills v. State of UP. On the other hand, reliance has been
placed on behalf of the State on a judgment of this Court in Baku/
Cashew Co. v. Sales Tax Officer, Qui/on, [1986) 2 SCC 365.1n Baku/
Company's (supra) case this Court found that there was no clear
G material to show any definite or certain promise had been made by the
Minister to the concerned persons and there was no clear material
also in support of the stand that the parties had altered their position
by acting upon the representations and suffered any prejudice. On
facts, therefore, no case for raising the plea of estoppel was held to
have been made out. Th is Court proceeded on the footing that the
H
MRF LTD., KOTIAYAM v. ASSISTANT COMMR. (ASSESSMENTS) SALES TAX [BHAN, J.] 437

notification granting exemption retrospectively was not in accordance A
with Section JO of the State Sales Tax Act as it then stood, as there
was no power to grant exemption retrospectively. By an amendment
that power has been subsequently conferred. In these appeals there
is no question of retrospective exemption. We also find that no
reference was made by the High Court to the decision in MP. Sugar
Mills' case, [1979] 2 sec 409. In our view, to the facts of the present B
case, the ratio ofM.P. Sugar Mills' case directly applies and the plea
of estoppel is unanswerable.

Xxxxxxx

... Such exemption would continue for the full period of five years from C
the date they started production. New industries set up after 21.10.1980
obviously would not be entitled to that benefit as they had noticed of the
curtailment in the exemption before they came to set up their industries."

[Emphasis supplied] D
This decision was followed by a three-Judge Bench in the case of State
of Bihar v. Usha Martin Industries Ltd., [1987] Supp. SCC 710 where it was
stated that the matter stands concluded by the decision in Pournami Oils
Mill's case (supra). In Shri Baku/ Oil Industries v. State of Gujarat, AIR
(I 987) SC 142, it was observed in para 11: E
" ....The exemption granted by the Government, as already stated, was
only by way of concession for encouraging entrepreneurs to start
industries in rural and undeveloped areas and as such it was always
open to the State Government to withdraw or revoke the concession.
We must, however, observe that the power of revocation or withdrawal F
would be subject to one limitation viz. the power cannot be exercised
in violation of the rule of Promissory Estoppel. In other words, the
Government can withdraw an exemption granted by it earlier if such
withdrawal could be done without offending the rule of Promissory
Estoppel and depriving an industry entitled to claim exemption from G
payment of tax under the said rule. If the Government grants exemption
to a new industry and if on the basis of the representation made by
the Government an industry is established in order to avail the benefit
of exemption, it may then follow that the new industry can legitimately
raise a grievance that the exemption could not be withdrawn except
H
438 SUPREME COURT REPORTS (20061 SUPP. 6 S.C.R.

A by means of legislation having regard to the fact that Promissory
Estoppel cannot be claimed against a statute" .....

Answering the question as to whether the Board is restrained from
withdrawing the rebate prematurely before the completion of three/five years
period by virtue of doctrine of promissory estoppel, this Court in Pawan
B Alloys & Casting Pvt. ltd. v. U.P. State Electricity Board, [1997] 7 SCC 251,
held:

"I 0. It is now well settled by a series of decisions of this Court that
the State authorities as well as its limbs like the Board covered by the
sweep of Article 12 of the Constitution of India being treated as
c 'State' within the meaning of the said Article, can be made subject to
the equitable doctrine of promissory estoppel in cases where because
of their representation the party claiming estoppel has changed its
position and if such an estoppel does not fly in the face of any
statutory prohibition, absence ofpower and authority of the promisor
D and is otherwise not opposed to public interest, and also when
equity in javour of the promisee does not outweigh equity in favour
of the promisor entitling the latter to legally get out of the promise.

Xxx xxxx

24...... We, therefore, agree with the finding of the High Court on
E
lssul! No. I that bj these notifications the Board had clearly held out
a promise to these new industries and as these new industries had
admittedly got established in the region where the Board was operating,
acting on such promise, the same in equity would bind the Board.
Such a promise was not contrary to any statutory provision but on
F the contrary was in compliance with the directions issued under
Section 78A of the Act. These new industries which got attracted to
this region relying upon the promise had altered their position
irretrievably. They had spent "large amounts of money for establishing
the infrastructure, had entered into agreements with the Board for
supply of electricity and, therefore, had necessarily altered their
G position relying on these representations thinking that they would be
assured of at least three years' period guaranteeing rebate of I0% on
the total bill of electnc;ty to be consumed by them as infancy benefit
so that they could effectively compete with the old industries operating
in the field and their products could effectively compete with their
H
MRF LTD., KOTIAYAM "· ASSISTANTCOMMR.(ASSESSMENTS )SALES TAX[BHAN, J.] 439

products. On these well-established facts the Board can certainly be A
pinned down to its promise on the doctrine of promissory estoppel."

[Emphasis supplied]

In a recent judgment in the case of Mahabir Vegetable Oils (P) Ltd.
v. State of Haryana, [2006] 3 SCC 620, this Court in para 25 observed that "it B
is beyond any cavil that the doctrine of promissory estoppel operates even
in the legislative field." This was in connection with a statutory notification
under the Haryana General sales Tax Act.

In Kasinka Trading's case (supra) and Rom Industries v. State ofJammu
& Kashmir, [2005] 7 SCC 348, on which reliance has been placed by the C
learned counsel for the respondent do not disturb the settled position in law
that where a right has already accrued, for instance, the right to exemption
of tax for a fixed period and the conditions for that exemption have been
fulfilled, then the withdrawal of the exemption during that fixed period cannot
effect the already accrued right. Of course, overriding public interest would D
prevail over a plea based on promissory estoppel, but in the present case
· there is not even a whisper of any overriding public interest or equity.
1~otification SRO 38/98 was an amendment and not a clarification of SRO 1729/
93 and was expressly made prospective w.e.f. 15.1.1998.

Besides, a plea of promissory estoppel is in the nature of an equitable E
plea and must be determined in the facts and circumstances of each case
where it is raised. In the case of Rom Industries (supra) the deciding factor
was that the exemption notification in question had been itself held to be
unconstitutional in an earlier case as violative of Articles 30 I and 304 of the
Constitution of India and, therefore, could not form the basis of any right. The
observation made in para 8 of that judgment have to be read in that context. F
Besides, the State Government in that case had no option except to withdraw
the notification. It is so observed in that judgment in para 9:

"... The State Government, in view of the decision of this Court had
no other option but to place edible oils in the Negative List. The G
questions whether Shree Mahavir Oil Mills, [1996] 11 SCC 39 has
,. been rightly decided or not and whether it is in conflict with the
principles enunciated in Video Electronics, [1990] 3 SCC 87, are moot.
But while the decision stands, the State Government is bound to
comply with it."
H
440 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A In Kasinka Tading 's case (supra), th.: notification in question was a
customs exemption Notification for a fixed period. The judgments in Pournami
Oils Mills 's case (supra) and Shri Baku/ Oil Industries 's case (supra) were
distinguished in the said case on the ground that the notifications in those
cases were incentive notifications. It was observed in para 27:

B ·• Again in Baku/ Oil Industries (supra) it was the incentive to set up
industries in a confonning area that the exemption had been granted
and the Court held that the Government could withdraw an exemption
granted by it earlier only if such withdrawal could be made without
offending the rule of promissory estoppel and without depriving an
industry entitled to claim exemption for the entire specified period
c for which exemption had been promised to it at the time of giving
incentive. Both these cases therefore cannot advance the case of the
appellant and are distinguishable on facts because the exemption
notification under Section 25 of the Act which was issued in this
case did not hold out any incentive for setting up of any induslly to
D use PVC resins and on the other hand had been issued in exercise
of the statutory powers, in public interest and subsequently withdrawn
in exercise of the same powers again in public interest. In our
opinion, no justifiable prejudice was caused to the appellants in the
absence of any unequivocal promise by the Government not to act
and review its policy even if the necessity warranted and the "public
E interest" so demanded. Thus, in the facts and circumstances of these
cases, the appellants cannot invoke the doctrine of promissory
estoppel to question the withdrawal notification issued under Section
25 of the and Act."

[Emphasis supplied]
F
The decision in Kasinka Trading (supra) has been distinguished in the
later decision by this Court in State of Punjab v. Nestle India ltd, [2004] 6
sec 465, on the ground of the inherent nature of an exemption notification
issued under Section 25 of the Customs Act. Even in respect of a notification
G under Section 25 of the Customs Act this Court has taken the view that the
withdrawal even of such a notification must not be "arbitrary" or
"unreasonable" (see Dai-lchi Karkaria Ltd. v. Union of India, [2000] 4 SCC
57).

The principle underlying legitimate expectation which is based on Article
H 14 and the rule of fairness has been re-stated by this Court in Bannari Amman
MRF LTD., KOTI AYAM''· ASSISTANT COMMR. (ASSESSMENTS) SALES TAX [BHAN, J.] 44 J

Sugars ltd. v. Commercial Tax Officer, [2005] I SCC 625. It was observed in A
paras 8 and 9:

- "A person may have a 'legitimate expectation' of being treated 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, B
including an implied representation, or from consistent past practice.
The doctrine 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 note that a
legitimate expectation can provide a sufficient interest to enable one C
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 to be
confined mostly to right of a fair hearing before a decision which
results in negativing a promise or withdrawing an undertaking is D
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 such legitimate expectation does not
require the fulfillment of the expectation where an overriding public
interest requires otherwise. In other words, where a person's legitimate E
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. (See Union ofIndia and Ors.
v. Hindustan Development Corporation and Ors., AIR ( 1994) SC 988).
9. While the discretion to change the policy in exercise of the executive F
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 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 G
the State is an accepted tenet. The basic requirement of Article 14 is
fairness in action by the State, and non-arbitrariness in essence and
substance is the heart be'.lt 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. H
442 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R.

A The meaning and true import and concept of arbitrariness is more
easi(~· visualized than precise(v defined. 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
B satisfy the test of reasonableness. "

[Emphasis supplied]

MRF made a huge investment in the State of Kerala under a promise
held to it that it would be granted exemption from payment of sales tax for
C a period of seven years. It was granted the eligibility certificate. The exemption
order had aiso been passed. It is not open to or permissible for the State
Government to seek to deprive MRF of the benefit of tax 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
D 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 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
E the Constitution of India. The action of the State cannot be permitted to
operate if it is arbitrary or unreasonable. This Court in E.P. Royappa v. State
of Tamil Nadu, (1974] 4 SCC 3, 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
F party as a result of a representation made by the State is 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 1or more than 5 years out of a total period of 7 years,
in our opinion, is highly arbitrary, unjust and unreasonable and deserves to
be quashed. In any event the State Government has no power to make a
G retrospective amendment to SRO 1729/93 affecting rights already accrued to
MRF thereunder.

Section I0 of the Act provides the power to the Government to grant
exemption and reduction in rate of tax. Section JO reads:

H ''I 0. Power of Government to grant exemption and reduction in rate
MRF LTD., KOIT AYAM r. ASSISTANT COM MR. (ASSESSMENTS ) SALES TAX [BHAN, J.] 443

of tax.-{ I) The Government may, if they consider it necessary in the A
public interest, by notification in the Gazette, make an exemption or
reduction in rate, either prospectively or retrospectively in respect of
any tax payable under this Act,

(i) on the sale or purchase of any specified goods or class of goods,
at all points or at a specified point or points in the series of sales or B
purchases by successive dealers, or

(ii) by any specifi~d class of persons in regard to the whole or any
part of their turnover.

(2) Any exemption from tax, or reduction in the rate of tax, notified C
under Sub-section (1),-

(a) may extend to the whole State or to any specified area or areas
therein,

(b). may be subject to such restrictions and conditions as may be D
specified in the notification.

(3) The Government may by notification· in the Gazette, cancel or vary
any notification issued under Sub-section ( 1).

Under Section I0( 1) of the Act the State Government has the power to
make an exemption or reduction in rate either prospectively or retrospectively E
in respect of any tax payable under this Act. However, the power of Government
under Section I0(3) by notification in the Gazette to cancel or vary any
notification issued under Section 10(3) cannot be exercised retrospectively.
This is the view taken by the Kerala High Court in MM Nagalingam Nadar
Sons v. State of Kera/a, (1993) 91 STC 61, where the learned Single Judge of F
the High Court has stated as under:

"Power is thus given under sub-section (I) to make an exemption or
reduction in rate either prospectively or retrospectively in respect of
any tax payable under the Act. Sub-section (3) enables the Government
to ·cancel or vary any such notification issued under sub-section ( 1). G
Significantly, sub-section (3) is. silent about retorpsectivity for any
notification issued under it. Thus while sub-section (/) authorizes the
grant of an exemption or reduction in rate with retrospective effect
in respect of any tax payable under the Act, sub-section (3) does not
provide for. any cancellation or variation retrospectively. In issuing
H
444 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A notifications under Section JO, the Government is exercising only
delegated powers. While the legislature has plenary powers to
legislate prospectively and retrospectively, a delegated authority
like the Government acting under the powers conferred on it by the
enac;lment concerned, can exercise on~v those powers which are
specifically conferred. Therefore, if it is intended to confer on the
B Government a power to cancel/withdraw/vary an exemption or
reduction in rate of tat, with retrospective effect, such a power has
to be specifically conferred, and in t~e absence of any such specific
conferment ofpower in sub-section (3) ofSection JO, the Government
cannot issue notifications there under affecting a vested right or
c imposing an obligation to act retrospectively. I have already
mentioned that this provision is significantly silent on such a power.
Equally, the Government has also no power to levy a tax with
retrospective effect. The retrospective cancellation/ withdrawal of an
exemption or a reduction in rate tantamounts to levy of a tax, or tax
at a higher rate from a date in the past, for which the Government has
D no power under sub-section (3 )."

[Emphasis supplied]

This judgment of the learned Single Judge was approved by a Division
Bench of the Kerala High Court in Dy. Commissioner (law), Board of Revenue
E (Taxes) v. MRF ltd., (1998) (109) STC 306, by observing thus:

"We are in full agreement with the view taken by the learned Single
Judge in MM Nagalingam Nadar Sons v. State of Kera/a, (1993) 91
STC 61 (Ker) th~t Government has no power under Section 10(3) of
the Act to issue a notification with retrospective effect."
F
Before this Court the State of Kerala did not dispute the above finding
(See [2000) 9 SCC 286) where the State's appeal was dismissed. That Section
I0(3) of the Kera! General Sales Tax Act did not confer the power to withdraw
an exemption with retrospective effect was not challenged by the State
G Government and accordingly the finding regarding the meaning and effect of
Section I0(3) of the Act has become final. In any event, the appeal preferred
by the State of Kerala was dismissed and the judgment of the High Court has
therefore become final. Accordingly, it was held that Section 10(3) does not
confer the power to withdraw an exemption with retrospective effect. Effect
of this is that the amendment notification SRO 38/98 has to be read so as not
H to take away or disturb any manufacturer's pre-existing accrued right of
MRFLTD., KOITAYAM v. ASSISTANT COM MR. (ASSESSMENTS) SALES TAX [BHAN, J .) 445

exemption for a period of7 years. IfSRO 38/98 is construed as now contended A
by the respondent, then the inevitable consequence would be that SRO 38/
98 would itself be rendered ultra vires Section I0(3) of the Act, and therefore,
illegal, bad in law and null and void.

We do not agree with the submission made by the learned counsel for
the respondent/State that subsequent notification was classificatory in nature. B
That it only removed the doubt which had arisen with. reference to "compound
rubber" in the SRO 1729/93. Making of"compound rubber" had been accepted
to be "manufacture" in the Memorandum of Undertaking entered between
MRF and the Government on 6.10.1993 and the addendum dated 10.4.1996 to
the Memorandum of Undertaking dated 6.10.1993. It is further recognized in C
the eligibility certificate issued by the Director of Industries and Commerce
after investigation and due verification and the exemption certificate issued
by the Board of Revenue.

For the reasons stated above, the appeal is accepted, order of the High
Court is set aside. Writ of mandamus is issued restraining the respondents D
from taking any proceedings against MRF Ltd. contrary to or inconsistent
,,. with the eligibility certificate dated I0.1.1997 and the exemption order dated
10.6.1998. Parties shall bear their own costs.

v.s. Appeal allowed.
E