Case: State Of Punjab  Vs. M/S.Nestle India Ltd.&amp;Anr

1. All the respondents before us have factories in the State of Punjab where they produce various milk products. For the purpose of their business, they purchase milk from villages, each respondent from a particular milk shed area which covers several hundred villages in and around such respondents 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. 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.  2. On the basis that the State had wrongly raised demands for purchase tax on milk on the respondents for the period, 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.  3. 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 abolished purchase tax on milk and milk products in the State. This announcement was given wide publicity in several newspapers in the State.  4. The Second circumstance was the speech given by the Finance Minister of the State while presenting the budget for the year. Like all other budget speeches, it consisted of a review of achievements and delineation of future economic measures proposed to be taken for the development of the State. It was said:5. 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 year.  6. The next circumstances was a memo of the Financial Commission dated 26.4.96 addressed to the Excise and Taxation Commissioner, the relevant extract of which reads as follows:"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 thed in connection with Milk Day at Milk Plant, Ludhiana relating to exemption of purchase tax 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.  On the basis of the above decision, you are also requested to issue necessary instructions to the field officers."7. In response to this memo, a circular dated 26th April, 1996 was issued by the Excise and Taxation Commissioner, Punjab to all the Deputy and Assistant Excise and Taxation Commissioner 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, kumkun, kirpan, pens ands from the levy of sales tax. It has also decided to reduce rate 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.  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."8. 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 1996 by the concerned officials of the Department. The fact of exempting milk and 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 has been circulated to the field officers to charge the tax as per the decision of the Government. The issuance of the 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.  9. On 27th June, 1996, a meeting was held under the chairmanship of the Chief Minister which was attended by the Finance Minister, the Excise and Taxation Minister and various Financial Commissioners. At the 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.  10. On 18th July 1996/24th 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 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 of the decision at its meeting on 21st August, 1996.  11. 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. 1st April 1996 and the Sales Tax Authorities have taken the consequential action by issuing circulars. Consequently, thek producers did not pay the purchase tax along with their returns for the years7 as required under the Rules framed under the Act. Along with each return, 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 and Taxation Commissioner, Patiala and Assistant Commissioner, Moga wherein we were informed that sales tax return will be accepted on the basis of tax exemption on ground of purchase of milk". The returns were not rejected by the tax authorities.  12. According to the respondents, the benefit which arose from the exemption of purchase tax was passed on by them to the farmers and milk producers. Details of this expenditure have been mentioned in the writ petitions filed.  13. None of the facts which we have narrated earlier have been denied by the respondents. In fact even after the end of the financial year15. 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 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.

Reasoning:
18. The respondents are admittedly dealers within the meaning of the definition of the word under Section 2(d) of the Act. Every dealer is required to pay tax in the manner prescribed under Section 10 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 liable to pay penalty of a sum upto one and and a half times of the tax payable undern (6) of Section 10. The substance of section 10 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 registered dealer 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 of assessment on such return under Section 11 unless he is satisfied that the returns are not correct and complete19. 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 altogether23. The pleas raised by the parties for and against the operation of the doctrine of promissory estoppel are to be considered against the background of these statutory provisionsAlthough 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 years during which period no revenue had been paid to or claimed by the Government30. As for its strengths it was said: that the doctrine was not limited only the cases where there was some contractual relationship or otherg 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 statutory43. Although the view expressed by two Judges in Jitrams case (supra) has been disapproved in Godfrey Phillips (supra), it was ostensibly resuscitated in ITC Bhadrachalam Paperboards vs. Mandal Revenue Officer, A.P. 1996(6) SCC 634. In that case the State Government had the power to remit assessment under section 7 of the Andhra Pradeshl 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 to the Legislature Assembly. The Court construed the provisions of the State Act and came to the conclusion that the nature of power under Section 11 did not amount to delegated legislation but conditional legislation48. The 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 of the exemption to milk. It was found that the overall benefit to the states 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 Government now to resile from its decision to exempt milk and demand the purchase tax with retrospective effect from 1st April 1996 so that the respondents cannot in any eventt 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 1987 decision of the Cabinet49. In the case before us, the power in the State Government to grant exemption under the Act is coupled with the word maysignifying the discretionary nature of the power. We are of the view that the State Governments refusal to exercise its discretion to issue the necessary notification abolishing or exempting the tax on milk was not reasonably exercised for the same reasons that we have upheld the plea of promissory estoppel raised by the respondents.