Holding

The State Government is estopped from demanding purchase tax on milk for the period in question as the essential elements of promissory estoppel are satisfied and no overriding public interest warrants rescission of the promise.

Summary

The respondents, manufacturers of milk products, stopped paying purchase tax on milk for the period 1‑April‑1996 to 4‑June‑1997, relying on a series of public statements by the Punjab Government that the tax had been abolished. The State later issued demands for the tax and appealed the High Court’s order quashing those demands. The Supreme Court examined whether the doctrine of promissory estoppel could be applied to a State Government when it had made a clear, unequivocal promise to exempt a taxable commodity, even though the statutory procedure for exemption (a formal notification) had not been completed. The Court held that the State possessed the discretionary power to exempt milk, that the representations were made by authorised officials, and that the respondents had acted to their detriment, making it inequitable for the State to revert to its original position. No overriding public interest was shown to justify rescinding the promise, and the estoppel was therefore enforceable. Consequently, the State’s appeals were dismissed and the High Court’s quashing of the tax demands upheld.

Issues considered

Whether the doctrine of promissory estoppel is enforceable against a State Government in respect of a statutory tax exemption.
Whether the absence of a formal exemption notification defeats the applicability of promissory estoppel.
Whether the State's discretionary power to exempt milk was exercised unreasonably or contrary to public interest.
Whether the representations made by the Chief Minister, Finance Minister and Council of Ministers constitute a clear promise sufficient for estoppel.
Whether any overriding public interest justifies the State's demand for purchase tax retrospectively.

Legislation cited

Punjab General Sales Tax Act, 1948s. 10, s. 2(d), s. 2(ff), s. 2(jj), s. 30, s. 30-A, s. 31, s. 4, s. 4(B), s. 6

Subjects

promissory estoppeltax exemptionPunjab General Sales Tax Actdiscretionary powerpublic intereststate liabilityequitystatutory interpretation

Judgment

STATE OF PUNJAB A
v.
MIS. NESTLE INDIA LTD. AND ANR.

MAY 5, 2004

[RUMA PAL AND P. VENKATARAMA REDD!, JJ.] B
Punjab General Sales Tax Act, 1948-Ss. 2(jJ), 4(B), 6, JO, II,
13(A), 31-Punjab General Sales Tax Rules, 1949-Rules 20 to 25 & 69:

Levy ofpurchase tax on milk abolished by the State Government for
certain period-Subsequently raising of demands for the same period by C
the State-Challenged by the assessee-Demand quashed by High Court
holding that the State Government estopped from raising the demand
because of its promise exempting tax on milk-On appeal, Held : State
Government could have been estopped for the promise made by it provided
necessary ingredients ofpromissory estoppel established-State possesses D
discretionary power to exempt tax on milk-Discretionary power not
properly exercised by it as necessary notification not issued-However, it
failed to establish any overriding public interest which would make it
inequitable to enforce the estoppel against it-Hence, estoppel could be
. invoked against the State-High Court rightly quashed the demands of tax
for the stated period. E
Estoppel-Enforceability against the State Government-Scope of-
Discussed.

Words and Phrases :
F
'dealers '-Meaning of in the context of Punjab General Sales Tax
Act.

Respondents-Producers of milk products were registered as dealers
under the Punjab Sales Tax Act and they have been paying vurchase
tax on milk in terms of the provisions of the Act except for the period G
1.4.1996 to 4.6.1997. The traders did not pay the tax on the ground that
the State Government had abolished the tax on milk for the said
period. However, the State had raised demands for the same period.
The respondents filed writ petitions and the High Court quashed the
demands. Hence the present appeals, H
135
136 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A Appellant-State contended that the State Government's decision
of not abolishing purchase tax on milk was taken in public interest;
that there could be no estoppel against the State; and that since the
requisite exemption Notification was not issued, the respondents could
not refuse to pay the tax on the ground of promissory estoppel.

B Dismissing the appeals, the Court

HELD: 1.1. The incidence of taxation has been provided for under
Section 4 of the Punjab General Sales Tax Act under which every dealer
dealing in goods not declared tax fee under Section 6 and whose gross
C turnover exceeds the taxable <1uantum is liable to pay tax on the sales
effected or the purchases mad1~. Certain goods have been made tax free
under Section 6(1) read with Schedule' B' to the Act. Section 6(2) at the
material time provided that the State Government "after giving by
Notification not less than twenty days notice of its intention so to may
D by like Notification add to or delete from Schedule B and thereupon
Schedule B shall be deemed to be amended accordingly." The State
Government had the power to exempt or abolish milk as a taxable
commodity. There was nothing in law which prohibited it from doing so.
The representation to exempt milk was made by persons who had the
E power to implement the representation. Of course, the Government
cannot rely on a representation made without complying with the
procedure prescribed by the relevant statute, but a citizen may and can
compel the Government to do so if the factors necessary for founding
a plea of promissory estoppel are established. Such a proposition would
not fall foul of the constitutional scheme and public interest. The
F appellants have been unable to establish any overriding public interest
which would make it inequitable to enforce the estoppel against the State
Government. The representation was made by the highest authorities
including the Finance Minister in his Budget Speech after considering
the financial implications of the grant ol examination to milk. It was
G found that the overall benefit to the State's economy and the public
would be greater if the exemption was allowed. The respondents have
passed on the benefit of that exemption by providing various facilities
and concessions for the upliftment of the milk producers. It would, in
the circumstances, be inequitable to allow the State Government to resile
H from its decision to exempt milk and demand the purchase tax with
STATE v. NESTLE INDIA LTD. 137

/ retrospective effect from 1st April, 1996 so that the respondents cannot A
in any event re-adjust the expenditure already made. The High Court
was right in holding that the operation of the estoppel would come to an
end with the decision of the Cabinet in the year 1997.
(143-A-8-C; 151-8-C; 154-H; 155-A, G; 156-A-8)

B
Collector ofBombay v. Municipal Corporation ofthe City ofBombay,
(1952) SCR 42; Union of India & Ors. v. Mis. Indo-Afghan Agencies Ltd.,
(1968) 2 SCR 366; Mis. Motilal Padampat Sugar Mills Co. Ltd. v. State
of Uttar Pradesh & Ors., (1979] 2 SCC 409; Century Spinning &
Manufacturing Company Ltd & Anr. v. The Ulhasnagar Municipal Council C
& Anr., (1970) 3 SCR 854; Union ofIndia & Ors. v. Godfrey Philips India
Ltd. Etc. Etc., (1985) 4 SCC 369 and Baku/ Cashew Co. v. Sales Tax
Officer, Qui/on Q, (1986) 2 SCC 365, relied on.

Jit Ram Shiv Kumar & Ors. Etc. v. State of Haryana & Anr. Etc.,
(1980) 3 SCR 689; Surya Narain Yadav & Ors. v. Bihar State Electricity D
Board, [1985) 3 SCC 38; State ofMadhya Pradesh v. Orient Paper Mills,
[1990) 1 SCC 161; Delhi Cloth and General Mills v. Union of India,
(1998] l SCR 383; Sharma Transport v. Govt. ofA.P., (2002] 2 SCC 188;
State ofOrissa v. Mangalam Timber Products, (2004] l SCC 139 and ITC
Bhadrachalam Paperboards v. Manda/ Revenue Officer, A.P., (1996] 6 E
sec 634, referred to.
Amrit Banaspati Co. Ltd. v. State of Punjab, (1992) 2 SCC 411,
distinguished.

1.2. The power of the State Government to grant exemption under
F
the Act is coupled with the word "may" - signifying the discretionary
nature of the power. Since the State Government's refusal to exercise
its discretion to issue the necessary notification "abolishing" O!"
exempting the tax on milk was not reasonably exercised, the plea of
promissory estoppel raised by the respondents is upheld. (156-C-D) G

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6449 of
1998.

From the Judgment and Order dated 18.5.98 of the Punjab and H
138 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A Haryana High Court in C.W.P. No. 9974 of 1997.

WITH

C.A. Nos. 5826, 6451 and 6450 of 1998.

B
P.N. Misra, F.S. Nariman, Anil B. Diwan, Bimal Roy Jad, Ajay
Bansal, Ms. Sunita Pandit, R.M. Patnaik, R.S. Suri, Ms. Sonu Bhatnagar,
Ms. Sushma Sharma, Sanjiv Dahiya, Ms. Meghalee Barthakur, Rajan
Narain, B.K. Sood, Ms. Indra Sawhney, H.K. Puri, Ujjwal Banerjee, S.K.
C Puri and Shiv Gupta for the appearing parties.

The Judgment of the Court was delivered by

RUMA PAL, J. : All the respondents before: us have factories in the
State of Punjab where they produce various milk products. For the purpose
D of their business, they prnrchase milk from villages, each respondent from
a particular "milk shed area" which covers several hundred villages in and
around such respondent's factory. As registered dealers under the Punjab
General Sales Tax Act, 1948, the respondents had been and are at present
paying purchase tax on milk in terms of Section 4(B) of the State Act.
E However, for one year i.e. for the period 1.4.96 to 4.6.97, none of the
respondents paid the purchase tax. They did not do so because they say
that the Government had decided to abolish purchase tax on milk for the
period in question and was estopped from contending to the contrary.

F On the basis that the State had wrongly raised demands for purchase
tax on milk on the respondents for the period 1996-97, the respondents
filed separate writ petitions before the High Court. The High Court allowed
the writ petitions and quashed the demands raised. Aggrieved by the
decision of the High Court, these appeals have been preferred by the State
Government.
G
The circumstances under which the respondents had approached the
Court chronologically commenced with an announcement made by the
then Chief Minister of Punjab on 26th February 1996 while addressing
dairy farmers at a state level function, that the State Government had
H
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 139

abolished purchase tax on milk and milk products in the State. This A
announcement was given wide publicity in several newspapers in the
State.

The second circumstance was the speech given by the Finance
Minister of the State while presenting the budget for the year 1996-97. Like B
all other budget speeches, it consisted of a review of achievements and a
delineation of future economic measures proposed to be taken for the
development of the State. It was said:

"In a package of measures, special relief was given to the farming C
community which is the backbone of the State's economy ....
Furthermore, last month the Chief Minister has abolished the
purchase tax on milk. While this would reduce the inflow of tax
revenue to the extent of Rs. 6.93 crores, it will assist the milk
producers, and also the milk co-operatives."
D
The budget speech also noted that despite the fact that the State
Government had given a large number of tax concessions during the year
which reduced the inflow of revenue, the collections under the sales tax,
excise and other taxes had increased by about 100 crores for the current
~ E
The next circumstar1ce was a memo of the Financial Commissioner
dated 26.4.96 addressed to the Excise and Taxation Commissioner, the
relevant extract of which reads as follows:
F
"Pursuant to the announcements made by the Finance Minister,
Punjab, on the floor of the House and the announcement made by
the Chief Minister, Punjab on 26.2.1996, while addressing a
public function organised by the Milk-fed in connection with Milk
Day at Milk Plant, Ludhiana relating to exemption of purchase tax G
on milk, it has been decided in principle, to abolish the purchase
tax on Milk w.e.f. 1.4.1996. You are requested to send proposal
along with the financial implication involved therein, immediately.

H
140 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A On the basis of the above decision, you are also requested to issue
necessary instructions to the field officers."

In response to this memo, a circular dated 26th April 1996 was
issued by the Excise and Taxation Commissioner, Punjab to all the Deputy
B and Assistant Excise and Taxation Commissioners and the Deputy Directors
(Enforcement) in the State. The circular requires quotation:

"The Government have decided to abolish purchase tax on milk
and to exempt dhoop-agerbati, kumkun, kirpan, pens and ball-
pens from the levy of sales tax. It has also decided to reduce rate
C of tax on stainless steel utensils from 10% to 4% on tractor parts
from 8% to 2% and on bullion from 2% to 0.5% all these
exceptions/reductions will be effective from 1.4.1996.

2. To implement these decisions, necessary notifications are
under process and likely to be issued shortly
D
3. This position may be brought to the notice of all the officers/
officials for information and necessary action.

4. The receipt of this communication may please be
acknowledged''.
E
It is averred in the writ petitions and not disputed by the appellants
that the representatives of the respondents companies were informed about
the instructions contained.in the above circular dated 18th May 1 996 by
the concerned officials of the Department. The fact of exempting milk and
F milk products from purchase tax was also recorded in a letter written by
the Excise and Taxation Commissioner to the Financial Commissioner in
which it is also said that in compliance with the directions of the
Government, instructions had been circulated to the field officers to charge
the tax as per the decision of the Government. The issuance of the
G necessary notification to implement the decision of the Government was
urged, to avoid any "legal complications or audit objection''. That such
instruction has been issued is also recorded in a series of letters between
the Financial Commissioners which are not referred to in detail here.

On 27th June 1996, a meeting was held under the chairmanship of
H the Chief Minister which was attended by the Finance Minister, the Excise
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 141

and Taxation Minister and various Financial Commissioners. At the A
meeting, the decision to abolish purchase tax on milk was reiterated and
it was decided to issue a formal notification "in a day or two".

On 18th July I 996/24th July 1996 the Finance Minister made an
announcement that with a view to encourage milk producers and for
granting relief to the common people, traders and industrialists, the B
Government had abolished tax on milk. The Finance Department formally
approved the proposal of the Administrative Department to abolish purchase
tax on milk and the Council of Ministers gave its formal approval to the
decision at its meeting on 21st August 1996.
c
Therefore, it appears that the Chief Minister, the Council of Ministers
and the Finance Department had all decided to abolish purchase tax on milk
w.e.f. I st April 1996 and the Sales Tax Authorities have taken the
consequential action by issuing c.irculars. Consequently, the respondents-
milk producers did not pay the purchase tax along with their returns for D
the year 1996-97 as required under the Rules framed under the Act. Along
with each tetum, it was expressly stated that "purchase tax on milk is not
being deposited from 1.4.96 due to various Press statements/letters/
circulars issued by Department and the issue has been discussed with the
Excise and Taxation Commissioner, Patiala and Assistant Commissioner,
Moga wherein we were informed that sales tax return will be accepted on E
the basis of tax exemption on ground of purchase of milk". The returns
were not rejected by the tax authorities.

According to the respondents, the benefit which arose from the
exemption of purchase tax was passed on by them to the farmers and milk F
producers. Details of this expenditure have been mentioned in the writ
petitions filed.

None of the facts which we have narrated earlier have been denied
by the respondents. In fact even after the end of the financial year 1996-
97, the Government published advertisements claiming credit for having G
abolished purchase tax on milk.

For the first time, on 4th June 1997, the Council of Ministers held·
a meeting to consider various items on the agenda. One of the items related
to the abolishing of purchase tax on milk. The minutes cryptically record H
142 SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.

A that the decision to abolish purchase tax on milk was not accepted.
Consequently on 3rd July 1977 the Excise and Taxation Officer issued
notices to the respondents requiring them to pay the. amount of purchase
tax for the whole of the year 1996-97.

B In this background, the High Court held that the State Government
was bound by its promise/representation made to the respondents to abolish
purchase tax. According to the High Court, "the absence of a formal
notification was no more than a ministerial act" which remained to be
performed. The respondents had acted on the representation made and
C could not be asked to pay the purchase tax w.e.f. 1.4.96 but would be liable
after the decision of the Government for the subsequent period i.e. from
4.6.97.

The appellants have not seriously questioned the fact that the
Government had by a series of actions on its part, in effect, made
D representations regarding the non-levy of purchase tax w.e.f. 1.4.1996 nor
is it denied that the respondents had acted on the representations so made.
The only question raised by the appellant is that the principle of promissory
estoppel would not arise when the relevant statute prescribes a particular
mode for the grant of relief in respect of which the representation has been
E made. The relevant statute is the Punjab General Sales Tax Act, 1948. It
is said by the appellants that there can be no estoppel against the statute
and since no notification had been issued as required by the statute, the
respondents could not refuse to pay the tax on any principle of promissory
estoppel. According to the appellants the decision not to abolish purchase
F tax on milk was taken in the public interest.

The Punjab General Sales Tax Act, 1948 (hereafter referred to as 'the
Act') provides for the levy of tax on the sale and purchase of certain goods
in the State of Punjab. Rules have been framed under Section 27 of the
Act known as the Punjab General Sales Tax Rules, 1949 (referred to as
G "the Rules"). We are concerned with the purchase tax which is payable
under Section 4 read with Section 2(ff) on the acquisition of goods
mentioned in Schedule 'C' to the Act, milk when purchased for use in the
manufacture of goods (other than tax free goods) for sale is one of the items
in Schedule 'C'. The Excise and Taxation Commissioner (who has featured
H in the various statements and correspondence referred to earlier) is
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 143
> appointed under Section 3(1) as the Taxing Authority. The Excise and A
Taxation Commissioner has overall superintendence and control over the
administration and the collection of tax leviable under the Act as well as
control on all officers empowered under the Act(Rule 69). The incidence
of taxation has been provided for under Section 4 of the Act under which
every dealer dealing in goods not declared tax free under Section 6 and B
whose gross turnover exceeds the taxable quantum is liable to pay tax on
the sales effected or the purchases made. Certain goods have been made
tax free under Section 6(1) read with Schedule 'B' to the Act. Section 6(2)
at the material time provided that the State Government "after giving by
notification not less than twenty days notice of its intention so to do may C
by like notification add to or delete from Schedule B and thereupon
Schedule B shall be deemed to be amended accordingly".

The respondents are admittedly dealers within the meaning of the
definition of the word under Section 2( d) of the Act. Every dealer is D
required to pay tax in the manner prescribed under Section I 0 which
requires furnishing of returns/declarations by the dealer together with the
receipt showing that the full amount of tax due from the dealer under the
Act according to such returns had been paid in the prescribed manner. If
there is failure to pay the tax in the manner prescribed, the dealer may be E
liable to pay penalty ofa sum upto one and a halftimes of the tax payable
under sub-section (6) of Section I 0. The substance of section IO has been
detailed in Rules 20 to 25 of the Rules. Rule 20 provides for the furnishing
of returns either quarterly or monthly. Rule 24 provides for the form in
which such returns are to be filed. Rule 25 provides that all returns which
are required to be furnished under the Rules "shall be signed by the F
registered deaier or the agent, and shall be sent to the appropriate assessing
authority .....together ,with the treasury or bank receipt in proof of payment
of the tax due". The Assessing Authority then passes an order ofassessment
on such return under Section 11 unless he is satisfied that the returns are
not correct and complete. G

Apart from the power to treat goods otherwise leviable to tax under
the Act as tax free under Section 6(2), the State Government has the power
under Section 31 to amend Schedule "C' itself and thereby remove goods
from imposition of tax altogether. It provides: H
144 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A "The State Government after giving by notification not less than
twenty days notice of its intention so to do, may by notification
add to, or delete from, schedule C any goods, and thereupon
Schedule C shall be deemed to be amended accordingly."
(emphasis added)
B
In addition, the State Government has the power to exempt the
payment of tax under Section 30 which reads:

"Power to exempt

c (I) The State Government, if satisfied that it is necessary or
expedient so to do in the interest of cottage industries, may
by notification exempt any class of co-operative societies, or
persons from the payment of tax under this Act on the
purchase or sale of any goods subject to such conditions as
D may be specified in such notification.

(2) ***********
(3) Every notification made under sub-section (I) shall as soon
E as may be after it is made, be laid before the State Legislature."
(emphasis added)

Section 30-A also gives the State Government the power to exempt
certain industries from payment of tax. It provides:

F "The State Government may, if satisfied that it is necessary or
expedient so to do in the interest of industrial development of the
State, exempt such class of industries from the payment of tax,
for such period and subject to such conditions, as may be
prescribed .............................................................................."
G
The authority of the State Government to exempt in exercise of the
powers conferred on it by statute has not been disputed before us.

The pleas raised by the parties for and against the operation of the
H doctrine of promissory estoppel are to be considered against the background
STATE v. NGSTLE INDIA LTD. [RUMA PAL, J.) 145

of these statutory provisions. A
J
But first recapitulation of the law on the subject of promissory
estoppel. The foundation of the doctrine was laid in the decision of
Chandrasekhar Aiyar, J. in Collector of Bombay v. Municipal Corporation
of the City of Bombay (1952 SCR 42). There, in 1865, the Government B
of Bombay had passed a resolution authorising the grant of an area to the
municipality rent free for the purpose of setting up a market. Although
possession of the site was made over to the then Municipal Commissioner
no formal grant was in fact executed as required by the applicable statute.
Acting on the resolution, the Corporation spent considerable sums of
money in building and improving the market and was in possession for 70 C
years during which period no revenue had been paid to or claimed by the
Government. At this stage, a demand was sought to be raised on account
of rent under the Bombay City Land Revenue Act, 1876. The Corporation
impugned the demand by filing a suit. The suit was dismissed. An appeal
was preferred betore the High Court. The High Court reversed the decision D
of the Trial Court and held that the Corporation was entitled to hold the
land for ever without payment of any rent and the Government had no right
to assess the premises. The Collector preferred an appeal before this Court.
There was no dispute that by reason of non-compliance. with the statutory
formalities, the Government resolution of 1865 was not a factual grant E
passing title in the land to the Corporation. There was also no dispute that
there was no enforceable contract between the State Government and the
Municipal Corporation. Of the three Judges, Das, J. held that the possession
of the Corporation not being referrable to any legal title was adverse to
the legal title of the Government and the right acquired by the Corporation F
to hold the land in perpetuity included an immunity from payment of rent.
Patanjali Sastry, J differed. Chandrasekhara Aiyar, J., concurred with the
conclusion of Das, J but based his reasoning on the fact that by the
resolution, representations had been made to the Corporation by the
Government and the accident that the grant was invalid did not wipe out
the existence of the representation nor the fact that it was acted upon by G
the Corporation. What has since been recognised as a signal exposition of
the principle of promissory estoppel, Chandrasekhara Aiyar, J. said:

" .... The invalidity of the grant does not lead to the obliteration of
the representation ...................·.......................... Can the Government H
146 SUPREME COURT REPORTS [2004) SUPP. 2 S.C.R.

A be now allowed to go back on the representation, and if we do
so, would it not amount to our countenancing the perpetration of
what can be compendiously described as legal fraud which a court
of equity must prevent being committed. If the resolution can be
read as meaning that the grant was of rent-free land, the case
would come strictly within the doctrine of estoppel enunciated in
B
section 115 of the Indian Evidence Act. But even otherwise, that
is if there was merely the holding out of a promise that no rent
will be charged in the future, the Government must be deemed
in the circumstances of this case to have bound themselves to fulfil
it. ........ Courts must do justice by the promotion of honesty and
c good faith, as far as it lies in their power".

In other words, promissory estoppel long recognised as a legitimate
defence in equity was held to found a cause of action against the
Government, even when, and this needs to be emphasised, the representation
D sought to be enforced was legally invalid in the sense that it was made in
a manner which was not in conformity with the procedure prescribed by
statute.

This principle was built upon in Mis Union of India & Ors. v. Mis
E Inda-Afghan Agencies Ltd., [1968) 2 SCR 366 where it was said (at p. 385):
"Under our jurisprudence the Government is not exempt from
liability to carry out the representation made by it as to its future
conduct and it cannot on some undefined and undisclosed ground
of necessity or expediency fail to carry out the promise solemnly
F made by it, nor claim to be the judge of its own obligation to the
citizen on an ex parte appraisement of the circumstances in
which the obligation has arisen:.

However, the superstructure of the doctrine with its pre-conditions,
strengths and limitations has been outlined in the decision of Mis Motilal
G Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Others,
[ 1979) 2 SCC 409. Briefly stated the case related to a representation made
by the State Government that the petitioners factory would be exempted
from payment of sales .tax for a period of three years from the date of
commencement of production. It was proved that the petitioners had, as
H a consequence of the representation, set up the factory in the State. But
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 147

the State Government refused to honour its representation. It claimed sales A
tax for the period it had said that it would not. When the petitioners went
to Court, the State Government took the pleas :

(I) In the absence of notification under Section 4-A, the State
Government could not be prevented from enforcing the B
liability to Sales Tax imposed on the petitioners under the
provisions of the Sales Tax Act;

(2) That the petitioners had waived its right to claim exemption
and;
c
(3) That there could be no promissory estoppel against the State
Government so as to inhibit it from formulating and
implementing its policies in public interest.

This Court rejected all the three pleas of the Government. It reiterated D
the well-known preconditions for the operation of the doctrine.

(I) a clear and unequivocal promise knowing and intending that
it would be acted upon by the promisee;

(2) such acting upon the promise by the promisee so that it E
would be inequitable to allow the promisor to go back on
the promise.

As for its strengths it was said: that the doctrine was not limited only
to cases where there was some contractual relationship or other pre-existing F
legal relationship between the parties. The principle would be applied even
when the promise is intended to create legal relations or affect a legal
relationship which would arise in future. The Government was held to be
equally susceptible to the operation of the doctrine in whatever area or field
the promise is made, contractual, administrative or statutory. To put it in
the words of the Court: G
"The law may, therefore, now be taken to be settled as a result
of this decision, that where the Government makes a promise
knowing or intending that it would be acted on by the promisee
and, in fact, the promisee, acting in reliance on it, alters his H
148 SUPREME COURT REPORTS [2004) SUPP. 2 S.C.R.

A position, the Government would be held bound by the promise
and the promise would be enforceable against the Government at
the instance of the promisee, notwithstanding that there is no
consideration for the promise and the promise is not recorded in
the form of a formal contract as required by Article 299 of the
Constitution. (p. 442) ...................................................................... .
B
Equitii will, in a given case where justice and fairness demand,
prevent a person from insisting on strict legal rights, even where
they arise, not under any contract, but on his own title deeds or
under statute. (p. 424) ................... Whatever be the nature of the
function which the Government is discharging, the Government
c is subject to the rule of promissory estoppel and if the essential
ingredients of this rule are satisfied, the Government can be
compelled to carry out the promise made by it." (p. 453)
(emphasis added)

So much for the strengths. Then come the limitations. These are:
D
(!) since the doctrine of promissory estoppel is an equitable
doctrine, it must yield when the equity so requires. But it is only
if the Court is satisfied, on proper and adequate material placed
by the Government, that overriding public interest requires that
E the Government should not be held bound by the promise but
should be free to act unfettered by it, that the Court would refuse
to enforce the promise against the Government.
(p. 443)

(2) No representation can be enforced which is prohibited by law
F in the sense that the person or authority making the representation
or promise must have the power to carry out the promise. If the
power is there, then subject to the preconditions and limitations
noted earlier, it must be exercised. Thus, if the statute does not
contain a provision enabling the Government to grant exemption,
G it would not be possible to enforce the representation against the
Government, because the Government cannot be compelled to
act contrary to the statute. But if the statute confers power on
the Government to grant the exemption, the Government can
legitimately be held bound by its promise to exempt the
promisee from payment of sales tax. (p. 387-388)
H
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 149

The remaining decisions are illustrative of various aspects of the A
framework set up by the Court in the decision in MP. Sugar Mills. For
example Century Spinning & Manufacturing Company Ltd. & Anr. v. The
Ulhasnagar Municipal Council & Anr., [1970] 3 SCR 854 emphasised the
strengths defined earlier:
B
" If the representation is acted upon by another person it may,
unless the statute governing the person making the representation
provides otherwise, result in an agreement enforceable at law ; if
the statute requires that the agreement shall be in a certain fonn,
no contract may result from the representation and acting thereupon C
but the law is not powerless to raise in appropriate cases an equity
against him to compel performance of the obligation arising out
of his representation". (p. 859)

An apparently aberrant note was struck in Jit Ram Shiv Kumar & D
Ors. Etc. v. State of Haryana and Anr. Etc., (1980] 3 SCR 689 where
despite all the factors of promissory estoppel being established, the Court
held:

"The plea of estoppel is not available against the State in the
exercise of its legislative or statutory functions". (P. 699) E

Of course, it was also found that the representator had no authority

- to make the representation it had. To that extent the decision could not be
said to have deviated from the earlier pronouncements of the law.
F
The discordant note struck by Jitram 's case was firmly disapproved
by a bench of three Judges in Union of India & Ors. v. Godfrey Philips
India Ltd. Etc. Etc., [1985] 4 SCC 369. It was affirmed that:

"There can therefore be no doubt that the doctrine of promissory G
estoppel is applicable against the Government in the exercise of
its governmental, public or executive functions and the doctrine
of executive necessity or fTeedom of fut'Jre executive action
cannot be invoked to defeat the applicability of the doctrine of
promissory estoppel". (p. 387) H
150 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A It was held that irrespective of the nature of power wielded the
Government is bound to wield that power provided it possessed such power
and has promised to do so knowing and intending that the promisee would
act on such promise and the promisee has done so:

"We think that the Central Government had power under Rule 8
B
sub-rule (I) of the Rules to issue a notification excluding the cost
of corrugated fibreboard containers from the value of the cigarettes
and thereby exempting the cigarettes from the part of the excise
duty which would be attributable to the cost of corrugated
fibreboard containers. So also the Central Board of Excise and
c Customs ha.d power under Rule 8 sub-rule (2) to make a special
order in the case of each of respondents granting the same
exemption, because it could legitimately be said that, having
regard to the representation made by the Cigarette Manufactures'
Association, there were circumstances of an exceptional nature
D which required the exercise of the power under sub-rule (2) of
Rule 8. The Central Government and the Central Board of Excise
and Customs were therefore clearly bound by promissory estoppel
to exclude the cost of corrugated fibreboard containers from the
value of the goods for the purpose of assessment of excise duty
E for the period May 24, 1976 to November 2, 1982". (p. 389)
(emphasis added)

The limitations to the doctrine delineated in MP. Sugar Mills
(supra}, however, were also reaffirmed when it was said:

F "........ that there can be no promissory estoppel against the
Legislature in the exercise of its legislative functions nor can the
Government or public authority be debarred by promissory
estoppel from enforcing a statutory prohibition. It is equally true
that promissory estoppel cannot be used to compel the Government
G or a public authority to carry out a representation or promise
which is contrary to law or which was outside the authority or
power of the officer of the Government or of the public authority
to make. We may also point out that the doctrine of promissory
estoppel being an equitable doctrine, it must yield when the equity
H so requires; if it can be shown by the Government or public
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 151

authority that having regard to the facts as they have transpired, A
it would be inequitable to hold the Government or public authority
to the promise or representation made by it, the Court would not
raise an equity in favour of the person to whom the promise or
representation is made and enforce the promise or representation
against the Government or public authority". (pp. 387-388) B

In all these decisions, Chandrasekhar Aiyar, J.'sjudgment was quoted
with approval. In the case before us, the State Government had the power
to exempt or abolish milk as a taxable commodity. There was nothing in
law which prohibited it from doing so. The representation to exempt milk C
was made by persons who had the power to implement the representation.
Can it not be said that there are such circumstances in this case which
required the State Government to exercise its powers to exempt milk from
the burden of purchase tax, a power which it undoubtedly had? Before we
determine the answer to this question, we may consider the ~.~maining
decisions cited to determine whether the principles relating to promissory D
estoppel as culled out from these earlier. cases still hold the field.

The decision in Baku/ Cashew Co. v. Sales Tax Officer, Qui/on Q,,
[ 1986] 2 sec 365 was a case dealing with the preconditions on the
fulfilment of which a plea of promissory estoppel can be raised viz., that E
the representation must not only be definite but must be satisfactorily
established. The alteration of the petitioner's position acting upon such
representation must also be pleaded with particularity and sufficiently
supported with material. The Court found that it had not been established
that any prejudice had been suffered by the petitioner. As we have noted F
earlier, each of the respondents in these appeals has given a detailed
account of how the monies which were otherwise payable on account of
purchase tax have been expended on the milk shed areas and producers
of milk. No dispute has been raised by the appellants to this.

The doctrine of promissory estoppel has also been extended to service G
law. In Surya Narain Yadav and Others v. Bihar State Electricity Board,
[1985] 3 SCC 38, It was found as a fact that the Bihar State Electricity
Board had made representations that graduates who would be taken as
training engineers would be regularised against appropriate posts and the
submission that such appointments would be contrary to statutory rules of H
152 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A the Board was brushed aside and the Court directed the Board, following
Chandrasekhara Aiyar, J's opinion in Collector of Bombay v. Municipal
Corporation (supra) as well as the decisions Union ofIndia v. Inda-Afghan
Agtmcies (supra) and Century Spinning & Manufacturing Co. Ltd. v.
Ulhasnagar Municipal Council (supra) and Motilal Padampat Sugar Mill
B Co. Ltd. v. State of U.P. (supra), to act in tenns of the representation made.
Indeed the principles of promissory estoppel have been applied time and
again by this Court and it is unnecessary to burden our decision by referring
to ;:ill the cases except to note that the view expressed by Chandrasekbara
Aiyar, J in 1952 still holds good. [See: State ofMadhya Pradesh v. Orient
C Paper Mills, [1990] 1 SCC 161; Delhi Cloth and General Mills v. Union
of India, [1998] 1 SCR 383; Sharma Transport v. Govt. of A.P., [2002]
2 SCC 188; State of Ori.m; v. Mangalam Timber Products, [2004] 1 SCC
139]

The case of Kasinka Trading v. Union of India, [1995] 1 SCC 274,
D cited by the appellants is an authority for the proposition that the mere
issuance of an exemption notification under a provision in a fiscal statute
such as Section 25 of the Customs Act, 1962, could not create any
promissory estoppel because such an exemption by its very nature is
susceptible to being revoked or modified or subjected to other conditions.
E In other words there is no unequivocal representation. The seeds of
equivocation are inherent in the power to grant exemption. Therefore, an
exemption notification can be revoked without falling foul of the principle
of ~romissory estoppel. It would not, in the circumstances, be necessary
for the Government to establish an over-riding equity in its favour to defeat
F the petitioner's plea of promissory estoppel. The Court also held that the
Government oflndia had justified the withdrawal of exemption notification
on relevant reasons in the public interest. Incidentally, the Court also
noti¢ed the lack of established prejudice to the promises when it said:

"The burden of customs duty etc. is passed on to the consumer
G and therefore the question of the appellants being put to a huge
loss is not understandable".

[See also Shrijee Sales Corporation v. Union of India, [1997] 3 SCC 398;
Sales Tax Officer v. Shree Durga Oil Mills, [1998] 1 SCC 572. We do not
H see the relevance of this decision to the facts of this case. Here the
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 153

representations are clear and unequivocal. A

Amrit Banaspati Co. Ltd. v. State of Punjab, [1992] 2 SCC 411 is an
example of where despite the petitioner having established the ingredients
of promissory estoppel, the representation could not be enforced against
the Government because the Court found that the Government's assurance B
was incompetent and illegal and "a fraud on the Constitution and a breach
of faith of the people". This principle would also not be applicable in these
appeals. No one is being asked to act contrary to the statute. What is being
sought is a direction on the Government to grant the necessary exemption.
The grant of exemption cannot be said to be contrary to the statute. The C
statute does not debar the grant. It envisages it.

Although the view expressed by two Judges in Jitram 's case (supra)
has been disapproved in Godfrey Phillips (supra), it was ostensibly
resuscitated in ITC Bhadrachalam Paperboards v. Manda! Revenue Officer,
A.P., [1996] 6 sec 634. In that case the State Government had the power D
to remit assessment under section 7 of the Andhra Pradesh Non-Agricultural
Lands Assessment Act, 1963. Section 11 of that Act provided for exemption
to be made by an order of the State Government which was required to
be published in the Andhra Pradesh Gazette prior to which the order had
to be laid on the table of the Legislative Assembly. The Court construed E
the provisions of the State Act and came to the conclusion that the nature
. of the power under Section 11 did not amount to delegated legislation but
conditional legislation. It was held that

"If the statute requires that a particular act should be done in a F
particular manner and ifit is found, as we have found hereinbefore,
that the act done by the Government is invalid and ineffective for
non-compliance with the mandatory requirements oflaw, it would
be rather curious if it is held that notwithstanding such non-
purpose of invoking the rule of promissory/equitable estoppel.
Accepting such a plea would amount to nullifying the mandatory G
requirements oflaw besides providing a licence to the Government
or other body to act ignoring the binding provisions of law. Such
a course would render the mandatory provisions of the enactment
meaningless and superfluous. Where the field is occupied by an
enactment, the executive has to act in accordance therewith, H
154 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A particularly where the provisions are mandatory in nature. There
is no .room for any administrative action or for doing the thing
ordained by the statute otherwise than in accordance therewith.
Where, of course, the matter is not governed by a law made by
a competent legislature, the executive can act in its executive
capacity since the executive power of the State extends to matters
B
with r~pect to which the legislature of a State has the power to
make laws (Article 162 of the Constitution). The proposition
urged by the learned counsel for the appellant falls foul of our
I
constitutional scheme and public interest. It would virtually mean
that the rule of promissory estoppel can be pleaded to defeat the
c provisions of law where the said rule, it is well settled, is not
available against a statutory provision. The sanctity oflaw and the
sanctity of the mandatory requirement of the law cannot be
allowed to be defeateg by resort to rules of estoppel. None of the
decisions cited by the learned counsel say that where an act is
D done in violation of a mandatory provision of a statute, such act
can still be made a foundation for invoking the rule of promissory/
equitable estoppel. Moreover, when the Government acts outside
its authority, as in this case, it is difficult to say that it is acting
within its ostensible authority".
E (p. 657-658)

It would appear that these observations are in conflict with the earlier
and subsequent pronouncements of the law on promissory estoppel.
Chandrasekhara Aiyar, J. had held that the representation was enforceable
F despite the "accident" that the grant was invalid inasmuch as it was
contrary to statute. MP. Sugar Mills (supra) had said that the promise was
enforceable against the Government despite the requirement of Article 299
of the Constitution. Similarly, Century Spinning (supra) held that despite
the requirement of the statute prescribing the manner and form to grant
exemption from payment of octroi, a promise not made in that manner or
G form could be enforced in equity. Then again in Godfrey Philips (supra),
the Court directed an exemption to be granted on the basis of the principles
of promissory estoppel even though Rule 8 of the Central Excise Rules
1944 required exemption to be granted by notification.

H Of course, the Government cannot rely on a representation made
STATE v. NESTLE INDIA LTD. [RUMA PAL, J.] 155
-t- without complying with the procedure prescribed by the relevant statute, A
but a citizen may and can compel the Government to do so if the factors
necessary for founding a plea of promissory estoppel are established. Such
a proposition would not "fall foul of our constitutional scheme and public
interest". On tile other hand, as was observed in Motilal Sugar Mills case
and approved in the subsequent decisions: B
"It is indeed the pride of constitutional democracy and rule oflaw
that the Government stands on the same footing as a private
individual so far as the obligation of the law is concerned : the
former is equally bound as the latter. It is indeed difficult to see
on what principle can a Government, committed to the rule oflaw, C
claim immunity from the doctrine of promissory estoppel."

None of these decisions have been considered in ITC Bhadrachalam
Paperboards v. Manda! Revenue .Officer (supra) except for a brief
reference to Chandrasekhara Aiyar, J's judgment which was explained D
away as not being an authority for the proposition that even where the
Government has to and can act only under and in accordance with a
statute--an act done by the Government in violation thereof can be treated
as a presentation to found a plea of promissory estoppel. But that is exactly
what the learned Judge had said.
E
In any event judicial discipline requires us to follow the cjecision of
the larger Bench 1• The facts in the present case are similar to those of
prevailing in Godfrey Philips (supra). There too, as we have noted earlier,
the statutory provisions require exemption to be granted by notification.
Nevertheless, the Court having found that the essential pre-requisites for F
the operation of promissory estoppel had been established, directed the
issuance of the exemption notification.

The appellants have been unable to establish any overriding public
interest which would make it inequitable to enforce the estoppel against G
the State Government. The representation was made by the highest
authorities including the Finance Minister in his Budget Speech after
considering the financial implications of the grant of the exemption to milk.

I. General Manager, Telecom v. A. Srinivasa Rao and Ors., (1997] 8 SCC 767;
Commissioner of Income Tax, Bihar v. Trilok Nath Mehrotra and Ors., (1998) 2 H
sec 289.
156 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A It was found that the overall benefit to the state's economy and the public
would be greater if the exemption were 'allowed. The respondents have
passed on the benefit of that exemption by providing various facilities and
concessions for the upliftment of the milk producers. This has not been
denied. It would, in the circumstances, be inequitable to allow the State
B Government now to resile from its decision to exempt milk and demand
the purchase tax with retrospective effect from I st April 1996 so that the
respondents cannot in any event re-adjust the expenditure already made.
The High Court was also right when it held that the operation of the
estoppel would come to an end with the 1997 decision of the Cabinet.

c In the case before us, the power in the State Government to grant
exemption under the Act is coupled with the word "may"- signifying the
discretionary nature of the power. We are of the view that the State
Government's refusal to exercise its discretion to is~ue the necessary
notification "abolishing" or exempting the tax on milk was not reasonably
D exercised for the same reasons that we have upheld the plea of promissory
estoppel mised by the respondents. We, therefore, have no hesitation in
affirming the decision of the High Court and dismissing the appeals without
costs.

E S.K.S. Appeals dismissed.

..