Promissory Estoppel Would Not Apply Against The Exercise Of Legislative Powers Of The State : Supreme Court

The Supreme Court observed that the doctrine of promissory estoppel would not apply against the exercise of legislative powers of the State.

In this case, the High Court of Delhi, dismissed writ petitions filed by Hero Motocorp and Sun Pharma Laboratories Ltd. who claimed 100% budgetary support in lieu of the pre-existing 100% outright excise duty exemption for ten years from the date of the commencement of commercial production, as provided for by the said O.M. of 2003 issued by the Government of India.

O.M. of 2003 provided that, for the States of Uttaranchal and Himachal Pradesh, new industrial units and existing industrial units on their substantial expansion would be entitled to exemption of 100% outright excise duty for 10 years from the date of commencement of commercial production. The said O.M. of 2003 also provided that there shall be 100% income tax exemption for such units initially for five years and thereafter 30% for companies and 25% for other companies for a further period of five years, from the date of commencement of commercial production. Various other incentives were also provided vide the said O.M. of 2003.

Later in 2017, Under clause (c) of sub-section (2) of Section 174 of the Central Goods and Services Tax Act, 2017, a Notification was issued by the Union of India by which the exemption notifications through which tax exemptions were granted as an incentive against the investment came to be rescinded on or after the appointed day, i.e. 1st July 2017. As a result, the tax exemption which was granted by 7 the said O.M. of 2003 ceased to continue with effect from 1st July 2017.

In appeals, the issue raised was whether, despite a subsequent statute specifically providing for rescinding the benefits granted under an earlier statute, the Union Government can be compelled to stand by the representation made by it through the earlier notification.? In other words, the issue was whether doctrine of promissory estoppel could operate against a statute?

Referring to various  judgments on this issue, the bench of Justices BR Gavai and BV Nagarathna observed thus:

"A common thread in all these judgments that could be noticed is that all these judgments consistently hold that there can be no estoppel against the legislature in the exercise of its legislative functions. The Constitution Bench in the case of M. Ramanatha Pillai (supra) has approved the view in American Jurisprudence that the doctrine of estoppel will not be applied against the State in its governmental, public or sovereign capacity. It further held that the only exception with regard to applicability of the doctrine of estoppel is where it is necessary to prevent fraud or manifest injustice. The analysis of all the judgments of this Court on the issue would reveal that it is a consistent view of this Court, reiterated again in Godfrey Philips India Ltd. (supra), that there can be no promissory estoppel against the legislature in the exercise of its legislative functions."

The court noted that the proviso to Section 174(2)(c) provides that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded.

"We are, therefore, of the considered view that even on the ground of change of policy, which is in public interest or in view of the change in the statutory regime itself on account of the GST Act being introduced as in the instant case, it will not be correct to hold the Union bound by the representation made by it, i.e. by the said O.M. of 2003. Further, this would be contrary to the statutory provisions as enacted under Section 174(2)(c) of the CGST Act.", the court added.

The court observed that though the appellants' claim based on promissory estoppel is without substance, but the claim is not wholly without any substance. They do have a legitimate expectation that their claim deserves due consideration. Therefore the bench permitted the appellants to make representations to the respective State Governments as well as to the GST Council.

Case details

Hero Motocorp Ltd vs Union of India | 2022 LiveLaw (SC) 852 | CA 7405 OF 2022 | 17 October 2022 | Justices BR Gavai and BV Nagarathna

Counsel : Sr. Adv S. Ganesh, Sr. Adv V. Sridharan for appellants, ASG N. Venkatraman for the respondent-Union of India

Headnotes

Promissory Estoppel - There can be no promissory estoppel against the legislature in the exercise of its legislative functions - Only exception with regard to applicability of the doctrine of estoppel is where it is necessary to prevent fraud or manifest injustice. (Para 54)

Constitution of India, 1950; Article 226 - Mandamus - A writ of mandamus can be issued where the Authority has failed to exercise the discretion vested in it or has exercised such a discretion malafidely or on an irrelevant consideration

Central Goods and Services Tax Act, 2017 ; Section 174(2)(c) -  Whether the Union of India can be directed to adhere to the representation as made by it in the Office Memorandum dated 7th January 2003 even after the enactment of the CGST Act ? - Proviso to Section 174(2)(c) provides therein that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded - If the contention is accepted, it will amount to enforcing a representation made in the said O.M. of 2003 and 2003 Notification contrary to the legislative incorporation in the proviso to Section 174(2)(c) of the CGST Act.

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