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CORRECTED REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6478 OF 2009

DEVI MULTIPLEX & ANR.       …. Appellants

Versus

STATE OF GUJARAT & ORS              …. Respondents

WITH

CIVIL APPEAL NOs.6479/2009, 6480/2009,  6481/2009,  6482/2009, 6483/2009, 6484/2009, 6485/2009, 6487/2009,

6488/2009, 6489/2009, 6490/2009 AND 6491/2009

J U D G M E N T  

Uday Umesh Lalit, J.

1. Civil Appeal 6478 of 2009 is directed against  the judgment and

order  dated  26.06.2009   passed  by  the  High  Court  of  Gujarat  at

Ahmedabad in Special Civil  Application No.18692 of 2005  to the

extent it dismissed the challenge to the order passed by  respondent

no. 3 dated 20.07.2005 rejecting the application of the appellants for

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extension   of  time  under  Clause  10  of  New  Package  Scheme  of

Incentives for Tourism Projects, 1995-2000. Similar challenge stands

raised in other civil appeals against Orders  rejecting their applications

for extension of time.  Since Civil Appeal No.6478 of 2009was taken

as  the  lead  matter,  facts  relating  thereto  are  dealt  with  in  detail

hereafter.

2. On  20.12.1995  Government  of  Gujarat  announced  policy

named  “New Package  Scheme of  Incentives  for  Tourism Projects,

1995-2000” (hereafter referred to as the Scheme) with a view to make

available all fiscal and non fiscal incentives, reliefs and concessions

enjoyed by industries to ‘Tourism’ which was accorded the status of

an industry, in order to give a boost to tourism sector by attracting

higher investment in the areas with tourism potential and to generate

employment  opportunities.  Under  Clause  2,  the  Scheme came into

operation on 1.8.1995 and was to remain in force for a period of five

years upto 31.07.2000. Under Clause 3, to be eligible, a new tourism

unit  ought  to  be  registered  after  1.8.1995.  Clause  4.7  dealt  with

effective  steps  which  such  unit  was  expected  to  undertake.  Under

Clause 5, after taking initial effective steps a tourism unit could apply

to the Director of Tourism for registration. All projects had to conform

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to the specifications and requirements spelt out in Appendix B which

Appendix dealt with various categories of tourism units and Item 22

thereof pertained to Entertainment Complexes including multi cinema

theater complexes or multiplexes. Clause 7 categorised  tourism units

in  four  categories,  namely, Prestigious  Tourism Units,  Large  Scale

Tourism Units,  Small Scale Tourism Units and Tiny Tourism Units

with minimum fixed capital investment of Rs. 10 Crore, 90 lakhs, 10

lakhs  and  less  than  10  lakhs  respectively.  Clause  8  dealt  with

incentives  and  stated  that  a  tax  holiday  of  5-10  years  would  be

available in respect of exemptions from (i) Sales Tax (ii) Turnover Tax

(iii) Electricity Duty (iv) Luxury Tax and (v) Entertainment Tax, upto

100% of  capital  investment.   In  clause  8.1  it  was  stated  that  the

quantum  of  incentives  would  not  exceed  100% of  eligible  capital

investment and it further stated the period of eligibility in respect of

Prestigious Tourism Unites, Large Scale Tourism Units, Small Scale

Tourism Units and Tiny Tourism Units to be 10 years, 8 years, 6 years

and  5  years  respectively.   Clause  9  dealt  with  composition  of

sanctioning  authority  whereunder  State  Level  Committee  was

competent to issue eligibility certificate in respect of Prestigious and

Large Units while District Level Committee was to issue eligibility

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certificate for all Small Scale and Tiny Tourism Units.  The procedure

for registration tourism units for incentives was detailed in Clause 10.

3. Clauses 4.7 and 10 of the Scheme  are quoted hereunder:-

“4.7  EFFECTIVE STEPS

The effective steps shall comprise

(a) initial effective steps which shall include:  

i)   Effective possession of land by an eligible unit free from all encumbrances.

ii)  Registration  in  respect  of  company/Cooperative Society/Trust in respect of a partnership firm, evidence of execution  of  partnership  deed  and  filling  of  requisite application with payment of necessary registration fees with the Registrar of Firms.

iii)   Submission of project report specifically mentioning the  category  of  tourism  activity  (coverage)  and  the incentive  that  are  proposed  to  be  availed  of  by  the eligible unit with all relevant details.

iv)  Copy  of  application  duly  acknowledged  by  all statutory  and  executive  authorities  from  which permission is required.

(b)  final effective steps shall mean and include:

i)     Clearance,  if  any, from Central/State Government and  other  authorities  concerned  for  implementing  the project.

ii)   Tying up of the means of finance for the project to the satisfaction of the incentive sanctioning authority.

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iii)   Acquisition of  fixed assets  at  site to the extent of 10% of the total fixed assets as envisaged for the project, and  

iv)   Evidence  regarding  expenditure  on  the  project, including  advances  and  pre-operative  expenses  paid, aggregating  to  at  least  25  percent  of  the  capital  cost envisaged for the project.

10. PROCEDURE  FOR  REGISTRATION  OF TOURISM UNITS FOR INCENTIVES: All tourism units eligible for the Scheme will apply to the Director of Tourism in a prescribed Form.   The Directors of Tourism will scrutinizes the application and will issue temporary  and  permanent  registration  adopting  the following procedure:

a)  Director of Tourism shall give provisional registration in the first instance upto 2 years to the eligible unit after scrutinizing  the  application  received  by him under  the Scheme.

b)  If such a unit is not in a position to start commercial operation during the initial validity period the unit will have to apply with the progress report to the State Level Committee which is authorized to grant extension upto six months at  a time or a total  period of 2 years after examining the difficulties experienced by the individual unit  in  implementing  the  project  and  also  record  the reasons thereof in writing.

c)   The units which are unable to go into operation after it  has  been given extension  under  para  (b)  above will have to apply to Government the reasons for the delay. Such  application  will  have  to  be  forwarded  by  the director  of  tourism,  who  will  carry  out  physical inspection  of  projects  and  report  to  government  for decision.  If the director of tourism is satisfied that the

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steps  to  implement  the  project  are  adequate  he  shall inform the Government about the same.

d)  The State Government on examination of  details made available by the director of tourism may decide to extend or reject the registration depending upon the merit of each case.  The decision of Government in this regard will be final and binding on the party.

e)   The unit will become eligible to apply for provisional or  temporary  registration  only  after  taking  initial effective steps as stipulated in para 4(7)(a).

f)  The eligible unit will be registered permanently only after  the  commencement  of  commercial  operation  and completion of the project.”

4. The State Government, in exercise of powers conferred upon it

under Section 29 of the Gujarat Entertainment Tax Act, 1977 (Act 16

of 1977), issued Notification dated 14.02.1997 which was published

in the Government Gazette  of  even date.   The relevant part  of  the

Notification was as under:

“Whereas the Government of  Gujarat  has introduced a New Package Scheme of incentives for Tourism Projects 1995-2000,  under  the  “New  Package  Scheme  for incentives  for  Tourism  Projects  1995-2000,  under  the “New  Tourism  Policy,  1995”  vide  Government Resolution,  Information,  Broadcasting  and  Tourism Department  No.NTP-1095-1983-C,  dated  the  20th December,  1995  (hereinafter  referred  to  as  “the  aid resolution”):

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And whereas the Government of Gujarat considers it necessary so to do in the public interest:

Now, therefore, the exercise of powers conferred by  sub-sec.  (1)  of  Section  29  of  the  Gujarat Entertainment  Tax  Act,  1977  (Guj.  16  of  1977), (hereinafter  refrred  to  as  “the  said  Act”)  and  in supersession  of  Government  Notification,  Information, Broadcasting and Tourism Department No. (GHT.91.45) MNR-1391-285-E,  dated  the  24th December,  1991  the Government of Gujarat hereby exempt wholly the tax on the entertainment which fulfils the criteria laid down in Appendix-B of the said resolution (hereinafter referred to as the eligible entertainment) during the eligible period or upto  the  period  of  expiry  of  the  limits  of  incentives, whichever is earlier, to the extent referred to in para 8.1 of the said resolution…………………………………….. …………………………………………………………… ……………………………………………………..”   

Paragraph  17  of  the  Notification  stated  that  the  exemption

under said Notification would be subject to all terms and conditions

referred to in Government Resolution dated 20.12.1995 in the Scheme

and further conditions stipulated in the Notification.

5. The  appellants  being  desirous  of  setting  up  a  multiplex  and

avail the incentives under the Scheme took effective steps as stated in

the  Scheme and the  Notification  dated  14.02.1997 and applied  for

Temporary  Registration  Certification  (TRC  for  short).   Said

application was examined by the concerned authorities and TRC was

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granted on 17.09.1999 and the same was sent to the appellants under

covering letter dated 04.11.1999.  In pursuance thereof the appellants

started constructing the multiplex in accordance with the Scheme.  

6.  On 28.06.2000 Government Resolution No.NTP/1098-3219/C

was  issued  by  the  State   Government  seeking  to  clarify

incidental/ancillary  aspects  as  regards  treatment  of  certain  cases

covered under the Scheme.  Clause A of the Resolution stated that an

application for TRCs under the existing policy would be accepted till

31.07.2000 and TRCs would be issued provided initial effective steps

were taken on or before 31.07.2000.  Clause B of the said Resolution

was as under:

“B. ADHOC/FINAL ELIGIBILITY ERTIFICATE:

(1) All the units to whom TRC has already been issued under the guidelines of Tourism Policy 1995-2000, shall apply for the Eligibility certificate within 180 days  from  the  date  of  commencement  of commercial activities.

(2) All the units to whom TRC has been issued & have not commenced commercial activities on or before 31.07.2000 shall be considered as pipelines case.

(3) The  units  falling  under  the  pipeline  cases  shall complete  the  respective  project  within  the time-limit given below.

a) Tiny Project 1 year w.e.f. 31/7/2000

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b) Small Project 1 year w.e.f. 31/7/2000 c) Prestigious Project 2 year w.e.f. 31.7.2000 d) Large project 2 year w.e.f. 31.7.2000

No  further  extension  or  relaxation  shall  be available to pipeline cases.

(4) The unit falling under the pipeline cases who fails to  complete the project  as  stipulated above shall not be eligible for any incentive Adhoc or Final as per tourism Policy 1995-2000.

(5) No  investment  made  after  operative  period  or Scheme,  i.e.  31.7.2000  shall  be  considered  as eligible investment.  However, in case of projects not completed and commissioned up to 31.7.2000 the  investment  made  during  extended  period mentioned  above  shall  be  considered  while computing eligible investment.

(6) The validity period of  the TRC issued under the existing policy 1995-2000 shall be two years from date  of  issue  or  expiry  of  operative  period  or policy, i.e. 31.7.2000 whichever is earlier.

(7) The  pipeline  cases,  once  rejected  shall  not  be eligible  to  apply  again  for  incentives  under  the Tourism Policy 1995-2000.”

The  Scheme  was  extended  upto  30.09.2000  and  later  upto

30.11.2000  vide  Resolutions  dated  31.07.2000  and  30.09.2000

respectively issued by the State Government.

7. On 26.01.2001 a  massive  earthquake took place in  the State

resulting  in  collapse  of  number  of  buildings  and  structures.   This

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caused suspension of the process of issuing development permissions,

for  the  purposes  of  maintaining  structural  safety  standards  in

Development Control Regulations under the provisions of the Gujarat

Town Planning and Urban Development Act, 1976.  On 27.03.2001 it

was  directed  by  the  State  Government  that  all  development

permissions  must  adhere  to  structural  safety  norms  as  stated  in

annexure to said order dated 27.03.2001 and that even with respect to

the  existing  development  permissions,  necessary  certification

regarding structural stability and strengthening ought to be issued by

Structural  Engineers  having  requisite  qualifications.  The  appellants

submitted building plans along with the requisite structural stability

certificate.  The approval was accorded by the Municipal Corporation

in October 2001 and the appellants resumed construction work.  Since

more than a year was lost because of subsequent changes in building

norms, the appellants applied on 11.12.2001 for grant of extension for

completing the project pointing out the aforesaid difficulties.  It was

stated that as on the date, the appellants had incurred expenditure to

the tune of  Rs.91.25 lakhs for  which a certificate  of  the Chartered

Accountant was enclosed.  Photographs of the completed civil works

were also enclosed.

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8. Around 26.02.2002 large scale communal riots took place in the

State and Naroda (where the project of the appellant is located) was

one of the worst affected areas.  Normal civil life was disrupted for a

considerable time, the labour force had left the site and accordingly, as

per the appellants, no construction could take place for more than four

months.  On 04.04.2002 in its  12th meeting,  State  Level  Committee

considered  the  application  dated  11.12.2001  preferred  by  the

appellants. It clarified that the date of TRC in case of the appellants

shall  be  4.11.1999.  Keeping  in  view  the  delay  in  continuation  of

operation due to  earthquake and so  also  the  progress  made by the

appellants, the Committee granted extension in validity period of TRC

by six months which decision was communicated on 15.04.2002.  The

appellant wrote on 24.02.2002 stating that though the extension was

granted by the State Level Committee, the appellants could effectively

get only 17 days out of the extension of six months.  The appellants

informed that the civil work was complete and the electrification and

air-conditioning work was in progress.  It was further stated that as on

that date Rs.1.11 crores were spent on various items of capital work,

as supported by certificate from the Chartered Accountant and prayed

for  further  extension  of  four  months.   By  subsequent  letter  dated

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19.08.2002 it was stated that the civil work and the electrification was

complete and the ducting and air-conditioning work was on the verge

of completion. The status of investment as on that date was said to be

more than Rs.3.21 crores,  as  supported by the certificate  from the

Chartered Accountant.  The appellants then requested for extension of

six months instead of four months as was prayed earlier vide request

dated 29.04.2002.   

9. The  State  Level  Committee  in  its  13th meeting  held  on

21.09.2002 discussed the provisions of extension in validity period of

TRCs as per the policy.  It  felt  that  the implementation of various

projects  was affected  on account of  the earthquake and subsequent

finalisation of  Development  Control  Rules  and Regulations  for  the

earthquake resistant building structures.   As regards the application of

the appellants, the Committee found that the delay in commencing the

operation due to earthquake and in completing the operation due to

riots was justifiable and that the physical progress of the project was

satisfactory.  However, it  took the view that  extending the validity

period would result in extension beyond 31.07.2002 and as such the

matter was required to be deferred till the Government took a decision

on modification of GR dated 28.06.2000.

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10. The  appellants  vide  letter  dated  30.10.2002  reiterated  their

request for extension which was repeated by letters dated 13.12.2002

and  22.04.2003.   On  20.06.2003  the  Commissioner  of  Tourism

informed that a proposal for amendment of GR dated 28.06.2000 was

sent and the matter was being considered at the governmental level.  It

was stated that the eligibility as per TRC issued to the appellants was

in  force  and  that  their  project  was  still  eligible.   The  appellants

commenced  commercial  operations  on  11.07.2003  and  applied  for

grant of appropriate eligibility certificate on 04.11.2003.

11. In  June  2004  Multiplex  Association  of  Gujarat  filed  Special

Civil Application No.5574 of 2004 on behalf of its members in the

High  Court  seeking  appropriate  directions  for  grant  of  eligibility

certificate  to  its  members.   The  High  Court  by  its  order  dated

22.06.2004  directed  the  State  Government  to  decide  the

applications/representations  for  extension  of  time.   Thereafter,  on

22.07.2004 the Commissioner of Tourism issued a show cause notice

calling upon the appellants why their application dated 04.11.2003 for

grant of eligibility certificate should not be rejected.  Relying on the

GR dated 28.06.2000, it was stated that the project was not completed

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by  31.07.2002  and  as  such  the  appellants  did  not  qualify  for  the

benefit of the Scheme dated 20.12.1995.  The show cause notice was

replied by the appellants. On 20.07.2005 the application for grant of

eligibility certificate was rejected stating the following reasons:

“1. Sufficient  time extension has already been given for starting commercial activities of the project.

2. Further  extension  of  time  limit  would  lead  to undue burden on the State’s Exchequer.

3. Multiplicity of multiplexes beyond the requirement in the State.”

12. The aforesaid order dated 20.07.2005 was challenged by the

appellants by filing Special Civil Application No.18692 of 2005 in the

High Court  seeking declaration that  period for  starting commercial

operation as envisaged in the Scheme stood extended upto 11.07.2003

and that the appellants were entitled to be issued eligibility certificate

and  to  all  incentives  under  the  Scheme.   The  High  Court  while

rejecting the submissions  observed that  the operative period of  the

Scheme came to an end on 30.11.2000 by which time the appellants

had  not  commenced  commercial  operation  and  that  the  appellants

were not entitled to any benefits or incentives under the Scheme. It

found that the time for completing the project and commencing the

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commercial  operation  would  stand  extended  as  a  result  of

Government Resolution dated 28.06.2000 only upto 31.07.2002 and

upto 30.11.2002 in view of Government Resolutions dated 31.07.2000

and 30.09.2000, that there could be no further extension of time limit

and that since the commercial operations had not commenced even

within  such extended time period,  the claim of  the  appellants  was

rightly rejected. It observed that in the facts and circumstances of the

case  there  could  be  no  application  of  the  principles  of  Promisory

Estoppel.  The present appeal by Special Leave seeks to challenge the

view so taken by the High Court. During the pendency of the matter

this Court had directed the appellants and similarly situated multiplex

theatre owners to keep paying the current  taxes and to deposit  the

outstanding dues as on 31.07.2009 in six equal quarterly installments

with interest @ 9 per cent on reducing balance.

13.    Appearing for the appellants, Mr. Rakesh Dwivedi, learned

Senior Advocate submitted that the incentives provided in Clauses 8

and 8.1,  and the procedure prescribed for registration in Clause 10

formed the core of promise and representation on part of the State

Government  based  on  which  eligible  units  including  that  of  the

appellants  had altered their  position and made huge investments  in

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Large Scale Tourism Units.  He submitted that such units could not

now be told that the non fiscal benefits of extension of validity period

would not  be granted  to  them despite  they have been fulfilled  the

conditions  of  satisfactory  progress.  It  was  further  submitted  that

Clause  10(b)  and  more  particularly  the  expressions  “in  the  first

instance” and “initial validity period” in said Clause 10 (b) promised

an over  all  validity  period of  four  years;  the initial  validity  period

being  two  years  granted  straight  away  under  TRC  while  the

subsequent period of two years could be granted depending upon the

progress  report  and  difficulties  experienced.  He  submitted  that  the

notification dated 14.2.1997 was issued under Section  29 of Act 16 of

1977 incorporating  the terms and conditions of  the Scheme dated

20.12.1995  and  as  such  Clause  10  of  the  Scheme had  acquired  a

statutory status. In his submission, G.R. dated 28.06.2000 was a mere

resolution not being translated into similar notification under Section

29,  and  therefore  said  GR  dated  28.06.2000  could  not  detract  or

derogate from statutory notification dated 14.2.1997.  On merits,  it

was  submitted  that  the  reasons  in  the  letter  of  rejection  dated

20.07.2005 were incorrect and irrelevant.  He stated that out of 108

TRCs issued under the Scheme, only in 22 or 23 cases the projects

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were completed and commercial operations had started. Evidently, the

State Government must have considered that the burden with respect

to  108  TRCs  could  comfortably  be  borne,  keeping  in  mind  the

advantages flowing from establishment of the projects.  Further, three

projects  had  shut  down  after  they  became  operational.   In  the

circumstances, the reasons regarding undue burden on the Exchequer

and requirement of Multiplexes in the State as stated, were absurd and

baseless.

14.     Mr. Pritesh Kapur learned Advocate  appearing for  the State

submitted that the Scheme  was to  remain in force up to 31.07.2000

which  period  was  further  extended  up  to  30.11.2000  and  that  the

Scheme including Clause 10  in its  entirety ceased to be operative

thereafter. In the submission of the learned counsel, the right to seek

an extension  of  the  validity  period beyond the  cut  off  date  would

survive only if such right was an accrued right, which was not so in

the  present  case.  He  further  submitted  that  GR  dated  28.06.2000,

rather than detracting from the Scheme granted further extension to

such units and as such cases for extension after the period of operation

of the Scheme had come to an end must and ought to be governed by

G.R.  dated  28.06.2000  alone  and  that  since  said  G.R.  did  not

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contemplate any extension, the State Level Committee was right in

not exercising any powers for  grant  of extension.  The Government

was also right in his submission,  in taking a policy decision in not

granting any further extensions.

15.    Mr.  Rakesh  Dwivedi  learned  Senior  Advocate  in  rejoinder

submitted that incentives under Clause 8 which span beyond 5 years

and up to 10 years, were designed to survive even after expiry of the

Scheme. He further submitted that in a case where TRC was granted

towards  the  end  of  the  operative  period  of  the  Scheme,  the  final

effective steps would necessarily have to be taken after the expiry of

the Scheme and thus the Scheme itself contemplated that the actions

under various clauses would continue to be undertaken even after the

expiry  of  the  Scheme.  In  his  submission  the  concept  of  “accrued

right” is to be seen in the context of Section 6 of the General Clauses

Act which may not strictly apply in the present case. It was submitted

that  in  any case  positive  acts  in  the form of  huge investments  for

setting  up  the  projects  having  been   undertaken  during  the  initial

validity  period  of  the  Scheme,  the  entitlement  to  claim benefit  of

consideration of case for extension under the Scheme was an “accrued

right”.  

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16. Reading  of  the  Scheme  shows  that  to  be  eligible  for  the

incentives under the Scheme, a new project ought to have obtained

registration  after  1.8.1995  and  taken  initial  effective  steps  under

Clause 4.7(a) which inter alia included effective possession of land

free from all encumbrances and submission of Project Report.  It is

only  thereafter  that  an  intending  unit  could  apply  and  be  given

provisional registration under Clause 10(a).  Said clause indicates that

such provisional registration “in the first instance” would be up to two

years. If the unit was not in a position to start commercial operation

during this initial validity period of two years, it would be entitled to

apply with progress report to the State Level Committee for extension,

which could be granted up to six months at a time or a total period of

two  years  after  examining  the  difficulties  experienced  in

implementing  the  project.  This  first  level  of  extensions  for  a  total

period of two years could be granted by the State Level Committee

and even if a unit was unable to go into operation after availing such

extensions,  it  could  still  apply  to  the  Government  for  further

extension.  Clauses  8  and  8.1  dealt  with  incentives  and  period  of

eligibility which would go up to ten years after a unit was found to be

fully  eligible.  These  clauses  clearly  show  that  such  stages  or

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eventualities  would  survive  even  after  the  expiry  of  period  of  the

operation of the Scheme. The reading of the Scheme further shows

that no fresh application and TRCs could be granted after the period

of operation but those who had crossed the threshold and were given

TRC, could have the full benefit of the stages contemplated in Section

10.  In our considered view, it would be incorrect to say that all the

clauses including Clause 10 would cease to operate after the period of

operation had come to an end. It being the clear intent that such stages

and eventualities ought to survive even after the expiry of the Scheme,

we reject the submission advanced on behalf of the State.

17. Clause  7  of  the  Scheme  classifies  projects  in  different

categories and for  a Large Scale Tourism Unit,  with which we are

presently  concerned,  fixed  capital  investment  was  required  to  be

more than Rs.90 lakhs.   The Scheme definitely promised an initial

period for completion of the project under Clause 10 (a) as two years

after the initial effective steps were under taken by the concerned unit.

Clause 10 (b) further promised an extension for two years subject to

State  Level  Committee  being  satisfied  that  an  individual  unit  had

experienced  difficulties  in  implementing  the  project.   A unit  was

therefore promised the availability of an opportunity, depending upon

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the individual fact situation, to pray for extension up to two years.

Clause 10(C) further entitled such unit to approach the State Govt.

even  after  the  aforesaid  aggregate  period  of  four  years  for  further

extension. In our view, Clause 10 was one of the core features of the

Scheme based on which eligible units were invited to make capital

investment of more than Rs. 90 Lakhs with a promise of incentives

under  Clause  8.  Having  given  such  promise,  based  on  which  the

appellants  incurred  capital  expenditure,  the  question  now arises  as

regards applicability of  doctrine of Promissory Estoppel.

18.   The law on the subject of Promissory Estoppel was recapitulated

and succinctly dealt with by this Court in State of Punjab Vs. Nestle

India Ltd.1 It found the foundation of the doctrine laid in the decision

in Collector of Bombay Vs. Municipal Corporation of the City of

Bombay2,  the  principle  built  upon  in  Union  of  India  Vs.  Anglo

Afghan  Agencies3 and  the  superstructure  of  the  doctrine,  with  its

pre-conditions,  strengths and limitations outlined in the decision in

Motilal  Padampat  Sugar Mills  Co.  Ltd.  Vs.  State  of  UP4.  This

Court  then dealt  with the discordant note in  Jit Ram Vs.  State of

1 2004(6) SCC 465 2 1952 SCR 43 3 1968(2) SCR 366 4 1979(2)SCC 409

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Haryana5 and how that was firmly disapproved in Union of India Vs.

Godfrey Philips India Ltd.6 by a bench of three judges. We deem it

appropriate to quote paras 27, 28, 29, 34, 35 and 36 from the decision

in State of Punjab Vs. Nestle India Ltd. (Supra):-

“27. However,  the  superstructure  of  the  doctrine with its preconditions, strengths and limitations has been  outlined  in  the  decision  of  Motilal  Padampat Sugar Mills Co. Ltd. v. State of U.P.3 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 a consequence of the representation, set up the factory  in  the  State.  But  the  State  Government refused to honour its representation. It claimed sales tax for the period it had said that it would not. When the petitioners went to court, the State Government took the pleas:

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

(2)  that  the  petitioners  had  waived  their  right  to claim exemption; and

(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.

5 1981(1)SCC 11 6 1985(4) SCC 369

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

(1)  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 would be inequitable to allow the promisor to go back on the promise.

29. 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  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:

“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 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. (SCC p. 442, para 24) * * *

[E]quity  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. (SCC p. 425, para 8)

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* * *

Whatever  be the nature of  the function which the Government  is  discharging,  the  Government  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.” (SCC p. 453, para 33)

 34. The discordant note struck by Jit Ram case5 was firmly  disapproved  by  a  Bench  of  three  Judges  in Union of India v.  Godfrey Philips India Ltd.6 It was affirmed that: (SCC p. 387, para 12) “12.  There  can  therefore  be  no  doubt  that  the doctrine of promissory estoppel is applicable against the Government in the exercise of its governmental, public  or  executive  functions  and  the  doctrine  of executive necessity  or freedom of  future executive action cannot be invoked to defeat the applicability of the doctrine of promissory estoppel.”   35. 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: (SCC p. 389, para 14)

“We think that the Central  Government had power under  Rule  8 sub-rule  (1)  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 that part of the excise duty which would be attributable to the cost of corrugated fibreboard containers. So also the Central  Board  of  Excise  and  Customs  had  power under Rule 8 sub-rule (2) to make a special order in the  case  of  each  of  the  respondents  granting  the same  exemption,  because  it  could  legitimately  be said that, having regard to the representation made by  the  Cigarette  Manufacturers’  Association,  there were circumstances of an exceptional nature which required the exercise of  the power under  sub-rule (2)  of  Rule  8.  The  Central  Government  and  the

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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 for the period 24-5-1976 to 2-11-1982.”

36. The  limitations  to  the  doctrine  delineated  in

Motilal  Padampat  Sugar  Mills3 however, were  also reaffirmed when it was said: (SCC pp. 387-88, para 13)   “[T]hat 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  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 so requires; if it can be shown by the Government or public  authority that having regard to the facts as they have transpired, 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.”

19.       Coming to the facts of the present case, we find that the

Scheme definitely promised incentives in the form of Tax holiday of

5-10 years in respect of exemptions from Sales Tax, Turnover Tax,

Electricity Duty, Luxury Tax and Entertainment Tax upto 100 per cent

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of capital investment if a new unit was registered after 1.8.1995 and

appropriate  investment  in  fixed  capital  assets  was  made.  It  also

promised an initial period of two years for going operational in the

first  instance,  extendable by further  period of  two years  subject  to

satisfactory progress to be found by the State Level Committee. Even

thereafter,  the  Unit  could  still  approach  the  State  Government  for

further  extension.  This  was part  of  the core of  the Scheme,  which

invited investment in tourism units promising tax holiday as stated

above.  Based on such representation, various units including  that of

the  appellants  having  come forward  and  altered  their  position,  the

State  Government  would  certainly  be  bound  by  the  principles  of

Promissory Estoppel.  The State Government was thus estopped from

going back on the promise so made in the Scheme and could not have

curtailed the period and the opportunity specifically made available

within which the project could be completed so as to avail the benefits

under the Scheme.

We find nothing in the present case on the basis of which there

could possibly be room to say that it would be inequitable to hold the

State Government to its promise. Out of 108 TRCs issued under the

Scheme, the burden that the Government was well aware and thought

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that  it  could  comfortably  bear,  only  19  or  20  units  have  been

established and are functional.  In any case, the impact of incentives

so offered under the Scheme and the consequential burden must have

been weighed carefully when such promise was made and the Scheme

was formed.  We may respectfully refer to the following observations

of this  Court  in  S.V.A.  Steel  Re-  Rolling Mills  Ltd.  and others  v.

State of Kerala and others7 to which one of us (Anil R. Dave, J.) was

a party:   

“30. Before laying down any policy which would give benefits to its subjects, the State must think about pros and cons of the policy and its capacity to give the benefits. Without proper appreciation of all the relevant  factors,  the  State  should  not  give  any assurance,  not  only  because  that  would  be  in violation of the principles of promissory estoppel but it  would be unfair  and immoral on the part of the State not to act as per its promise.”  

20.     Furthermore, the Scheme as framed on 20.12.1995  formed the

basis of a statutory notification under Section 29 of Act 16 of 1977

and  as  such  the  core  components  of  the  Scheme  had  acquired  a

statutory status. By virtue of said Section 29, the notification dated

14.2.1997 was required to be laid for not less than 30 days before the

State Legislature. If the State Government was desirous of amending,

7 (2014) 4 SCC 186

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varying  or  rescinding  said  notification  dated  14.2.1997,  the

subsequent G.R.  dated 28.06.2000 ought to have been translated in a

statutory notification under Section 29 of the Act 16 of 1977.  In the

absence of such steps having been undertaken, G.R. dated 28.06.2000

could not in any way detract from or dilute the effect of the Scheme

which had acquired statutory status.   

21. We therefore hold that the appellants were entitled to have full

benefit and advantage of Clause 10 of the Scheme and the curtailment

of the period and opportunity available under said Clause 10 of the

Scheme  by  subsequent  G.R.  dated  28.06.2000  was  bad  and

ineffective.

22.      The record indicates that the progress of the project of the

appellants was greatly hampered as a result of major earth quake in

the State on 26.01.2001 and large scale communal riots in the State in

February  2002.  The  State  Level  Committee  was  satisfied  that  the

commencement and continuation of the project was so affected as a

result of these major difficulties and had granted initial extension of

six months but the appellants had benefit of only few days out of such

extension.  The subsequent  request  for  further  extension which was

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backed  with  relevant  certificate  from  the  Chartered  Accountant

certainly persuaded the State Level Committee to find that the facts

justified grant of further extension but it felt it had lost the power to

grant such extension because of G. R. dated 28.06.2000.  In the light

of the view that we have taken, the State Level Committee was still

competent to consider the request for grant of extension.

23. In  the  circumstances,  we allow the  appeal  and  set  aside  the

decision of the High Court in so far as it held that the operative period

of the Scheme came to an end on 30.11.2000 and that there could be

no further extension of time limit. Since the appellants have already

commenced commercial operations, it now needs to be assessed by

the  State  Level  Committee  whether  in  the  facts  of  the  case  the

appellants could justifiably have claimed extension under Clause 10

of the Scheme. We direct the State Level Committee to make such

assessment  in  accordance  with  Clause  10,  in  three  months  of  the

receipt of this decision. Needless to say, if such assessment is found in

favour of the appellants, they shall be entitled to the incentives and

benefits under the Scheme.

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24. All the connected matters raise identical issues and challenge

rejection of their applications for extension of time.  In each case the

Order  passed  by  the  concerned  authority  is  similarly  worded  and

passed on 20.07.2005, i.e. the same date.  These connected appeals are

also allowed with similar direction.

25.    The appeals stand allowed in terms as stated above.  No order

as to costs.

………………………..J. (Anil R. Dave)

………………………..J. (Uday Umesh Lalit)

New Delhi, May 13, 2015

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