Supreme Court: In an appeal against the Calcutta High Court judgment and order, wherein the Court has dismissed the writ petitions preferred by the appellants claiming the exemption from payment of sale tax as per earlier West Bengal Incentive Scheme, 1999 (‘1999 Scheme’), the division bench of MR Shah* and Krishna Murari**, JJ. has upheld the impugned judgment of the High Court that on and after 01-08-2001 and in view of the amendment to Section 2(17) of the West Bengal Sales Tax Act, 1994 (‘Act, 1994’) by which the definition of “manufacture” is amended and “tea blending” is excluded from the definition of “manufacture”, the appellants shall not be entitled to the exemption from payment of sales tax. However, on the second issue the Justice Murari while giving the dissenting view, opined that the Authority must be held accountable to the legitimate expectation created by it, and therefore, directed the respondents to extend the benefits of the original amendment to the appellants, till the expiry of such a benefit as per the original amendment.
Hi Section 2(dd) of the erstwhile Bengal Finance (Sales Tax) Act, 1941 (‘Act, 1941’) defined the term “manufacture”, and “blending of any goods” was included within the said definition. The Act, 1941 came to be replaced by the Act, 1994 and in 1998, the definition of “manufacture” provided under Section 2(17) of the Act, 1994 was amended and because of which, “blending of any goods” was omitted from the definition of “manufacture” but “blending of tea” continued to be included in the said definition.
By virtue of the amendment made in the definition of “manufacture”, tax holiday was granted to new small scale industrial units for a specified period under Section 39 of the Act, 1994 read with Section 17(3)(a)(xi) of the Act, 1994 with Rule 52 of the West Bengal Sales Tax Rules, 1995 (‘Rules, 1995’). Subsequently, the State Scheme of Incentives for Cottage and Small-Scale Industries, 1993 (‘1993 Scheme’) was amended by the Governor of West Bengal in the year 1999, thereby, implementing the 1999 Scheme, effective for a period of five years, for the purpose of providing incentives and promotion of the large, medium and small-scale industrial units in the State of West Bengal.
As per the provisions of the 1999 Scheme, the new industrial units which were established after complying with all the requirements provided under the 1999 Scheme were given an exemption from payment of sales tax for a specified period upon the purchase of raw materials required for carrying the manufacturing activity in said units.
It is the case of the appellants that relying upon the said Scheme and the amendment made in the definition of “manufacture” under Section 2(17) of the Act, 1994, at the relevant time, the appellants had set up a new small scale industrial unit for the purpose of carrying on the business of manufacturing blended tea. As per the provisions of the 1999 Scheme, the small-scale industrial units to claim exemption from payment of sales tax, were required to get themselves registered as small-scale industrial unit and obtain an eligibility certificate from the Sales Tax Department as per Section 39 read with Rule 55 of the Rules, 1995. The Deputy Commissioner granted the eligibility certificate to the appellants for a period of seven years from the date of first sale of the manufactured product. The appellants enjoyed the benefit of exemption from payment of sales tax for a period of two years. After the amendment, the exemption from payment of sales tax, which was granted to the appellants came to be stopped and even the eligibility certificate was required to be modified.
• Whether despite Section 2(17) of the West Bengal Sales Tax Act, 1994 which came to be amended w.e.f. 01-08-2001 vide West Bengal Finance Act, 2001, omitting “tea blending” from the definition of “manufacture”, still the appellants shall be entitled to the exemption from payment of sales tax?
The Court reiterated that nobody can claim the exemption as a matter of right. The exemption is always on the fulfilment of the conditions for availing the exemption and the same can be withdrawn by the State. To grant the exemption and/or to continue and/or withdraw the exemption is always within the domain of the State Government and it falls within the policy decision and, unless withdrawal is found to be so arbitrary, the Court would be reluctant to interfere with such a policy decision.
The Court noted that on and from 01-08-2001, “tea blending” activity ceased to be the manufacturing activity and the appellants ceased to be the manufacturers and therefore, on and from 01-08-2001, the appellants shall not be entitled to the exemption from payment of sales tax. Thus, the withdrawal of exemption from payment of sales tax would be prospective and not retrospective. Thus, as long as the appellants continue to be the manufacturers as per Section 2(17) of the Act, 1994 prevailing prior to 01-08-2001, the appellants can be said to be entitled to the benefit of exemption from payment of sales tax as manufacturers being in the activity of “tea blending”. The moment, “tea blending” activity ceases to be the manufacturing activity, on and from that day, the appellants shall not be entitled to the exemption from payment of sales tax.
The Bench also said that the definition of “manufacture” is relevant. Therefore, if a dealer ceased to be the manufacturer, he shall not be entitled to the benefit of exemption under Section 39 of the Act, 1994
• Whether the doctrine of legitimate expectation is applicable in the present case since the appellants had set up their industrial units based on the allurement of a tax holiday granted by the Government?
Concerning the argument of the appellants on legitimate expectation and/or promissory estoppel and that the “vested right” cannot be taken away, Justice MR Shah said that there cannot be any promissory estoppel against the statute as per the settled position of law. The High Court has rightly held that this is not a case of “vested right” but a case of “existing right”, which can be varied or modified and/or withdrawn.
Justice Krishna Murari disagreed with the view of Justice MR Shah on this issue.
Justice Murari said that the doctrine of rule of law ensures that laws are applied equally and consistently, while the doctrine of legitimate expectation ensures that public authorities act reasonably and consistently in their decision-making processes. Together, these principles promote transparency and accountability in government actions, and they help to maintain the trust of the people in the legal system. Further, he stated that doctrine of legitimate expectation and the doctrine of promissory estoppel are two separate principles, and as such, the blanket ban on promissory estoppel against a statute cannot be applicable to the doctrine of legitimate expectation.
He said that subsequent to such a tax holiday being granted, the appellants, relying upon the assurance and faith made by the government, set up small scale industrial units, and got the necessary authorisations to certify them. However, by the said amendment in the West Bengal Finance Act, 2001 the appellants became ineligible to claim benefit under the tax holiday. The tax holiday, granted by way of an amendment to small scale industries involved in the manufacture and blending of tea, created a legitimate expectation in favour of the appellants. Such a legitimate expectation, created by way of an amendment, lured the appellants to pour their hard-earned money into setting up small scale industrial units, under the assumption that the authority would hold true to its promise, act in a fair manner and abide by the decision made by it. This legitimate expectation, created by the appropriate authority, was broken when a subsequent amendment was brought in, wherein the words “blending of tea” was removed from the definition of “manufacture”.
Thus, the public authority must demonstrate the reasons for such a shift, and while giving its justifications, must take into consideration the rights of the affected persons, and why such change is essential for the state to advance public interest.
Thus, Justice Murari opined that the Authority must be held accountable to the legitimate expectation created by it, and therefore, directed the respondents to extend the benefits of the original amendment to the appellants, till the expiry of such a benefit as per the original amendment.
[K.B. Tea Product (P) Ltd. v. CTO, Siliguri, 2023 Scc Online Sc 615, decided on 12-05-2023]
*Judgment Authored by: Justice MR Shah
*Disagreement on second issue by: Justice Krishna Murari