Facts of the Case
The State Government announced an industrial policy granting sales tax exemption to newly established industries with the objective of promoting industrial growth and investment within the State. Relying on this assurance, a company set up a new industry, made substantial financial investments, and commenced production. Subsequently, the State Government withdrew the sales tax exemption scheme before the promised period expired. Aggrieved by the withdrawal, the company challenged the government action, contending that it had altered its position relying upon the government’s promise and that the withdrawal was arbitrary and contrary to the doctrine of promissory estoppel.
Issues in the Case
- Whether the State Government is bound by its promise of sales tax exemption.
- Whether the doctrine of promissory estoppel applies against the Government.
- Whether the withdrawal of exemption is arbitrary and violative of Article 14.
- Whether public interest can justify withdrawal of a fiscal incentive already promised.
Legal Principles Covered to Support Case Proceedings and Judgements
The doctrine of promissory estoppel prevents a party from going back on a promise when the other party has relied upon it and altered its position. This doctrine applies against the Government as well, subject to public interest.
In Motilal Padampat Sugar Mills v. State of Uttar Pradesh (1979), the Supreme Court held that where the Government makes a representation intending to create legal relations and the promisee acts upon it, the Government is bound by such promise and cannot withdraw it arbitrarily.
Similarly, in Union of India v. Anglo Afghan Agencies (1968), it was held that executive promises are enforceable even in the absence of a formal contract under Article 299.
However, in Kasinka Trading v. Union of India (1995), the Court clarified that promissory estoppel will not apply if withdrawal is justified by overriding public interest or statutory compulsion.
Possible Judgement
The court is likely to examine whether the company altered its position irreversibly relying on the promise and whether the withdrawal was justified by compelling public interest. If no overriding public interest is proved, the State Government will be estopped from withdrawing the sales tax exemption, and the company will succeed. However, if the State demonstrates genuine public interest or statutory necessity, the withdrawal may be upheld. In the absence of such justification, the withdrawal would be declared arbitrary and invalid.
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