Citation Codes

Equivalent Citations

citation codes

Case Number

O.P No. 1740 of 1976-F

Advocates

For the Appellant: S. Nariman, R.N. Banerji, M. Ramachandran, U.K. Ramakrishnan, T.K. Jayaram, Advocates.
For the Respondent: M.M. Abdulkhadar, Advocate.

Judges

V.P Gopalan Nambiyar
A.C.J
V. Balakrishna Eradi, J.

Acts

subsection (3) of section 10 of the Kerala General Sales Tax Act, 1963 (15 of 1963),
I, Section iv.Government of Kerala Taxes B DepartmentNotification
sub-section (3), under section 20 of the Kerala General Clauses Act
section 10 of the Kerala General Sales Tax Act, 1963 (15 of 1963),
Import Trade Control Hand Book of Rules and Procedure, 1971).
Import Trade Control Hand Book of Rules and Procedure.
Section 10 of the General Sales Tax Act, 1963,
section 10(1) of the General Sales Tax Act.
ARTICLE 226 CONSTITUTION OF INDIA
Bengal Finance (Sales Tax) Act, 1941,
Kerala General Sales Tax Act, 1963,
section 6(2) of the Bengal Act,
COMPANIES ACT 1956
Sales Tax Act

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Smart Summary

Judgment Summary — V.P. Gopalan Nambiyar, A.C.J.

Factual and Procedural Background

Forty-six petitioners, who are cashew processors owning or operating cashew factories, challenged sales (purchase) tax assessments relating to their purchases of raw cashew nuts imported from African countries and allotted to them through the Cashew Corporation of India (the "corporation"). Prior to 1 September 1970 imports operated under an open general licence regime and processors were required to re-export processed nuts. From 1 September 1970 the import and distribution of African raw nuts were canalised through the corporation, which obtained import licences and issued letters of authority to allottees permitting completion of import formalities; the letters and practices included provisions treating property in the goods as belonging to the allottee at the time of importation (including transfers of bills of lading before customs clearance).

The petitioners alleged that they had been given assurances (including at a meeting on 25 April 1971) that purchases of canalised African nuts would not attract sales tax; the Government issued a notification (exhibit A) dated 12 October 1973 exempting such purchases for the period 1 September 1970 to 30 September 1973, but shortly thereafter cancelled that notification by exhibit B dated 9 November 1973. The petitioners sought declarations that such purchases were not taxable under the Kerala General Sales Tax Act, 1963, or were exempt under article 286(1)(a) or (b) of the Constitution, and sought quashing of assessment orders and provisional assessments for the assessment years 1970-71 through 1974-75.

Many of the challenged assessment orders were subject to statutory appeals and, at the time of the judgment, numerous appeals were pending before the Sales Tax Appellate Tribunal and Deputy Commissioners (Appeals).

Legal Issues Presented

Whether purchases of imported raw cashew nuts allotted through the Cashew Corporation of India are liable to purchase (sales) tax under the Kerala General Sales Tax Act, 1963, or are exempt under article 286(1)(a) (outside sales) or article 286(1)(b) (sales in the course of import/export) of the Constitution.
Whether exhibit B (notification cancelling the earlier exemption, exhibit A) issued under section 10(3) of the Kerala General Sales Tax Act, 1963, was valid and whether the earlier exemption granted by exhibit A could be withdrawn in respect of the period for which it purported to operate.
Whether the petitioners can invoke equitable estoppel against the State/Government in respect of alleged assurances that purchase tax would not be levied.
Whether the High Court should exercise its jurisdiction under article 226 to quash assessment orders at this stage, given that statutory appeals are pending before the appropriate tax tribunals/authorities.

Arguments of the Parties

Petitioners' Arguments

The purchases of canalised African raw nuts were in the course of import and export (or, alternatively, were "outside" sales), and therefore exempt from state sales/purchase tax under article 286(1)(a) or (b) of the Constitution.
The Government and corporation had given assurances (including at a 25 April 1971 meeting) that sales/purchases of African nuts through the corporation would not attract sales tax; exhibit A (12 October 1973) embodied these assurances and the industry acted to its prejudice in reliance on them.
The doctrine of equitable estoppel should prevent the Government from cancelling the exemption (exhibit B) because petitioners fixed prices and incurred commitments relying on the assurances and exhibit A, and they were led to believe no tax would be levied.
The cancellation (exhibit B) was invalid because it was retrospective, not in public interest, in contravention of assurances, gave no reasons and afforded no opportunity to the industry.

Respondents' (State/Government) Arguments

The High Court should not interfere under article 226 because the assessment proceedings and appeals are pending before statutory appellate authorities (Sales Tax Appellate Tribunal and appellate officers), who should in the first instance determine factual questions such as the nature of the transactions (inside/outside or in course of import).
The power under section 10(3) of the Kerala General Sales Tax Act to cancel or vary notifications is a legislative power; legislative measures cannot generally be the subject of equitable estoppel and need not satisfy judicial standards of procedural fairness applicable to administrative actions.
The cancellation (exhibit B) was valid: taxation measures are presumed to be in public interest and petitioners failed to rebut that presumption; absence of stated reasons for cancellation is not fatal to a legislative measure; and exhibit A (which purported to give retrospective exemption) may itself have been invalid, meaning cancellation corrected that illegality.
Even if exhibit A had been acted upon by petitioners, they could not rely upon that to defeat the State's exercise of its legislative power to cancel an exemption; precedent supports decline to interfere under article 226 in such circumstances.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Shankari Prasad v. Union of India (A.I.R. 1951 S.C. 458)	Cited by petitioners in the context of arguing estoppel/assurance by Government.	The judgment was noted among authorities relied upon by petitioners; the court did not treat the citation as sufficient to establish estoppel against the State.
Municipal Corporation of Bombay v. Secretary of State (1904 I.L.R. 29 Bom. 580)	Cited by petitioners in support of equitable estoppel/assurances argument.	Not treated as establishing an estoppel against the Government in the circumstances of this case.
Union of India v. Anglo Afghan Agencies (A.I.R. 1968 S.C. 718)	Authorities cited in submissions concerning estoppel and State conduct.	Considered by the court as part of citations but did not support applying estoppel to bar cancellation under section 10(3).
Century Spinning & Manufacturing Co.'s case (1970 1 SCC 582)	Cited among authorities relevant to arguments on estoppel and State conduct.	Referred to but not treated as displacing the principle that estoppel is limited against the State in its governmental capacity.
Ramanatha Pillai's case (1973 2 SCC 650)	Quoted for the principle that estoppel against the State is limited and an exception arises only to prevent fraud or manifest injustice.	The court relied on the principle to reject the plea of equitable estoppel in the present facts, finding no manifest injustice.
Oil and Natural Gas Commission's case ([1975] 47 F.J.R 214 S.C)	Holds that rules and regulations framed by statutory authorities are subordinate legislation and have the force of law; no substantial difference between rules and regulations.	The court relied on this reasoning to characterise notifications under section 10 as legislative in nature, supporting the view that estoppel does not readily lie against such measures.
S.I. Syndicate Ltd. v. Union of India	Price fixation under statutory orders is in the nature of legislative action and may not give rise to complaints of denial of natural justice.	The court accepted the Advocate-General's reliance on the case to support the legislative character of the power exercised under section 10 and that absence of procedural safeguards (like reasons) is not fatal.
Narinder Chard's case	Referred to for the proposition that the power to tax is a legislative power.	Cited in support of the Advocate-General's submission that taxation measures are legislative and attract corresponding presumptions (e.g., public interest).
Bhikusa Yamasa Kshatriya v. Sangarrmer Akola Taluka Bidi Kamgar Union	Cited as authority on the legislative character of the power to grant exemptions.	Relied upon to support the conclusion that the power to grant or cancel exemptions is legislative and not readily subject to estoppel.
Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd.'s case	Full Bench ruling that there can be no equitable estoppel against legislative power.	The court treated this decision as supporting the proposition that equitable estoppel cannot be invoked to restrain legislative action; it observed this part of the decision was sustained on appeal.
State of Kerala v. G.R. Silk Mfg. Co.	Noted as sustaining the part of the Full Bench decision rejecting estoppel against the State.	Used by the court to reinforce rejection of the estoppel plea.
Achuthan Pillai v. State of Kerala	Cited on the principle limiting estoppel against governmental/legislative action.	Referred to as supporting authority for refusing to apply estoppel against the State in its sovereign capacity.
N. Ramanatha v. State of Kerala	Noted as confirmation by the Supreme Court of principles in Ramanatha Pillai's case concerning estoppel.	Accepted as confirming the principle that estoppel against the State is exceptional; court relied on that principle.
State of Madras v. Nataraja Mudaliar, and Atiabari Tea Co. Ltd.'s case	Cited for the proposition that taxation measures are presumed to be in public interest.	The court accepted these authorities as supporting the presumption that cancellation of exemptions (a taxation measure) is in the public interest unless rebutted.
Lachmi Narain v. Union of India	Held that a specific statutory procedure (three months' notice) required by the Bengal statute made cancellations invalid where the statute so provided.	The court distinguished this case because the Bengal statute's express procedural requirement did not exist in the Kerala provision under consideration.
Indian Sugar and Refineries v. Amarvathi Service Co-operative Society	Discussed procedural safeguards and need to hear interested parties where grant/cancellation of exemption affects third-party rights under a control order.	The court found this decision distinguishable on facts and statutory context and did not treat it as controlling for the present case.
Nilkanth Prasad v. State of Bihar	Applied for the proposition that courts may decline interference under article 226 where impugned administrative/appealable decisions, though open to complaint, produced no manifest injustice.	The court relied on this reasoning to decline to quash exhibit B by way of extraordinary writ where petitioners had taken benefit of the earlier notification; thus the court upheld exhibit B.
Mani v. Kerala Electricity Board (Full Bench)	Full Bench principle referenced where relief by writ was declined in comparable circumstances.	Invoked in support of the approach to decline interference under article 226 where alternative remedies/appeals exist and petitioners had acted on the impugned measure.
Venkateswara Rao v. Government of Andhra Pradesh	Referenced as part of authorities laying down similar principles about administrative action and judicial interference.	Used to support the court's approach declining writ interference in the circumstances described.
Sales Tax Officer v. Shiv Ratan and Bhopal Sugar Industries	Principle that investigation of facts (e.g., nature of transactions) is to be carried out by taxing authorities in the first instance and not appropriated by the High Court under article 226.	The court relied on this principle to refuse to determine in the first instance whether the transactions were "outside sales" or sales in the course of import/export and left that question to the tax authorities/tribunal.

Court's Reasoning and Analysis

The court proceeded in a structured fashion:

Jurisdictional threshold: The court first considered whether it should interfere under article 226 given parallel statutory appeal remedies. The Advocate-General argued that the statutory appellate authorities should be permitted to decide factual and legal questions, especially the nature of the transactions. Initially the court recognised this objection as important.
Necessity to rule on validity of cancellation: Despite the pendency of appeals, the court held it was proper to examine the validity of exhibit B (cancellation under section 10(3)) because that issue concerns the scope of the exemption and the scope of the Government's power under section 10. The court therefore analysed section 10 of the Kerala General Sales Tax Act.
Interpretation of section 10: The court quoted section 10(1) and section 10(3) and observed that subsection (3) expressly provides power to cancel or vary notifications issued under subsection (1). On the facts, the court concluded that the cancellation by exhibit B was not, in truth, retrospective; it was a lawful exercise of the power to cancel an exemption that had been granted a few days earlier. Thus, petitioners could not retain the benefit of exhibit A if, on legal analysis, the sales were otherwise taxable.
Equitable estoppel: The petitioners' plea of equitable estoppel (based on assurances and exhibit A) was examined. The court emphasised authoritative principles that estoppel operates only limitedly against the State in its governmental capacity and an exception arises only to prevent fraud or manifest injustice. Relying on cited authorities, the court concluded there was no manifest injustice here and that the legislative character of section 10(3) meant estoppel would not lie to restrain cancellation. Accordingly, the estoppel plea was rejected.
Presumption of public interest and absence of reasons: The court accepted the Advocate-General's submission that taxation measures attract a presumption of public interest and petitioners had not rebutted that presumption. The court also held that, because the cancellation was legislative in nature, the absence of explicit reasons or detailed procedural steps did not invalidate the cancellation.
Retrospectivity challenge to exhibit A: The respondents argued exhibit A may itself have been illegal to the extent it purported to grant retrospective exemption. The court found force in this but, without pronouncing finally on whether the State could plead invalidity of its own notification, held that petitioners who had taken the benefit of exhibit A could not now invoke that to impugn exhibit B. On that basis, the court upheld exhibit B.
Declining to determine nature of transactions: On the critical question whether the transactions were "outside sales" or sales in the course of import/export (article 286 issues), the court refused to decide these factual and mixed questions of law at first instance. It relied on established authority that taxing authorities are to investigate and find the facts and make the initial determinations. The court observed some deficiencies in the manner in which appellate authorities had addressed the preliminary questions but did not appropriate the fact-finding task.
Direction to appellate tribunal and interim measures: Rather than quash assessments, the court directed the Sales Tax Appellate Tribunal to dispose of pending appeals on the basis that exhibit B is valid, and prescribed a timetable for production of documents by petitioners (within two months) and by Government (one month thereafter), with disposal within four months after production. The court addressed the petitioners' bank guarantee position: the existing guarantee would be discharged but petitioners were ordered to furnish a fresh guarantee for one-third of the discharged amount within ten days; the court did not prohibit coercive steps but expressed expectation that such steps would not be taken pending the Tribunal's adjudication.

Holding and Implications

Holding:

Petitions dismissed.

Explicit legal outcomes and immediate consequences:

The court upheld exhibit B (notification cancelling exhibit A) and held that the Government had power under section 10(3) to cancel or vary exemptions granted under section 10(1); the cancellation was not treated as an unlawful retrospective nullification in the circumstances of this case.
The court rejected the plea of equitable estoppel against the State in these circumstances, finding no manifest injustice and emphasising the legislative character of the power to grant/cancel exemptions.
The court declined to decide, at first instance, whether the transactions were exempt under article 286(1)(a) or (b), holding that the statutory appellate authorities (particularly the Sales Tax Appellate Tribunal) should determine the fact-intensive questions concerning the nature of the transactions.
The Sales Tax Appellate Tribunal was directed to dispose of the pending appeals on the basis that exhibit B is valid, with a timetable for production of documents and for disposal; the court gave directions on the petitioners' bank guarantees (discharge and furnishing fresh guarantee for one-third of the amount) and did not grant a blanket stay of coercive steps but expected restraint pending tribunal adjudication.
Costs: The writ petitions were dismissed with no order as to costs.

Broader precedential implication: The court applied and reaffirmed established principles limiting the application of equitable estoppel against the State in matters involving legislative powers, and reiterated that courts should generally avoid supplanting fact-finding and initial adjudication properly assigned to tax authorities and tribunals. The judgment did not purport to create a new legal rule or novel precedent beyond applying these established principles to the facts before it.

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Bakul Cashew Company And Others v. The Sales Tax Officer (R), Special Circle, Quilon, And Others

The Judgment of the Court was delivered by

V.P Gopalan Nambiyar, A.C.J:— The 46 petitioners in this writ petition are cashew processors owning and/or working cashew factories. Nearly 80 per cent of the raw nuts processed in their factories are imported from African countries and processed along with nuts of indigenous variety. Some of the petitioners are companies registered under the Companies Act, 1956, some are partnership firms and/or proprietary concerns. The petition prays to declare that the transactions of purchase of imported raw nuts through the Cashew Corporation of India are not liable to purchase tax under the Kerala General Sales Tax Act, 1963, and/or are exempt from the said tax under article 286(1)(a) or (b) of the Constitution; and a writ of certiorari quashing the assessment orders, the provisional assessment orders and orders in appeal for the assessment years 1970-71, 1971-72, 1972-73, 1973-74 and 1974-75.

2. In brief, the case of the petitioners as stated in the petition is as follows: Prior to 1st September, 1970, the import and export of cashew could be had under licences issued by the trade authorities under the “open general licence scheme”. The petitioners were under an obligation to re-export the processed cashew-nuts and earn foreign exchange. Therefore, the purchases of nuts were in the course of import and export and, therefore, subject to article 286(1)(b) of the Constitution. Alternatively, or by way of an additional ground of challenge, they would contend that, for reasons and on the facts to be noticed hereinafter, the transactions in question were “outside sales” and, for that reason again, exempt from taxation under article 286(1)(a) of the Constitution. From and after 1st September, 1970, the import and export of nuts were canalised through the Cashew Corporation of India (hereinafter referred to as the “corporation”). Under the scheme of canalisation, the corporation is a functionary or agent of the Government of India whose function was to import raw nuts from African countries and distribute the same to actual users like the petitioners. The petitioners in their turn are, under the conditions of allotment, required to export the processed nuts. The purchase of nuts by the petitioners from the corporation is said to be in accordance with the policy enunciated by the Central Government under the provisions of the Import and Export Control Order and the yearly Import Trade Policy, announced in what is generally known as the “Red Book”. The import licences are issued in the name of the corporation, and the letters of authority in favour of individual allottees are issued to enable persons like the petitioners to complete the process of importation. For the years 1970-71 and 1971-72 the letters of authority were issued by the Chief Controller of Imports and Exports in the form prescribed in appendix XXV to the Import Trade Control Hand Book of Rules and Procedure. In deference to representations, the form of the letter of authority was modified stipulating that the property in the goods shall be the property of the holder of the letter of authority. The then chairman of the corporation and its managing director are said to have assured the petitioners when the scheme of canalisation was introduced in September, 1970, that the purchase of nuts would not be liable to sales tax. At a meeting on 25th April, 1971, it is stated that the representatives of the industry were assured by the Chief Minister of the State, Shri C. Achutha Menon, the then Industries Minister, Shri N.E Balaram, and the then Revenue Minister, Shri Baby John, that no tax would be levied under the Sales Tax Act on the turnover of African nuts. In pursuance of the policy enunciated and the assurance conveyed, for three years no steps for assessment of the petitioners were taken and the petitioners were led to believe that their purchases of the nuts were not liable to tax. On the faith of these, the petitioners have quoted prices for exports and incurred heavy commitments. The assurances conveyed to the petitioners found tangible reflection in exhibit A notification dated 12th October, 1973, published in the Kerala Gazette dated 23rd October, 1973 (copy exhibit A), issued under section 10(1) of the General Sales Tax Act. The same exempted the cashew manufacturers in the State from sales (purchase) tax on the purchase turnover of cashew-nuts imported from outside India through the corporation for the period from 1st September, 1970, to 30th September, 1973. But the petitioners were aggrieved when exhibit A notification was cancelled by exhibit B notification dated 9th November, 1973, withdrawing the exemption (copy exhibit B). This is the gist of the pleadings on the basis of which they have sought the reliefs prayed for.

3. In paragraph 13 of the petition the petitioners have stated that the corporation explained the nature of the transaction between itself and individual allottees and evolved the procedure for allotment, which was communicated to the first petitioner by letter dated 4th November, 1970, (reproduced in paragraph 13 of the petition). The said letter recalled that the consignment of nuts was being shipped against one bill of lading and that the sale had already been effected to the 1st petitioner for the quantities allotted, when the goods were on the high seas before the arrival of the vessel. The petitioners have produced exhibit E letter dated 31st July, 1971, by which the corporation treated the goods as having been sold to the first petitioner on the high seas. Exhibit J dated Mth February, 1972, is an endorsement of the insurance policy by the corporation in favour of the allottee. It also contains the bill of entry which shows that the delivery order of the steamer agent M/s. Harrisons & Crosfield Ltd., Quilon, is before the goods arrived at Quilon which was on 26th February, 1972. Exhibit C dated 20th March, 1973, is the reply by the corporation to the Secretary of Taxes of the Government of the State stating that none of the sales of imported raw nuts made by the corporation would attract purchase tax as the sales are in the course of import. The mechanics of the transactions was explained in the letter, under seven heads, in the course of which it was stated that the sales were effected to the local buyers by transfer of the bills of lading before the goods crossed the customs frontiers of India. Exhibit A, the notification granting exemption from tax, is said to be only in recognition of the real nature of the transactions and the course of dealings between the parties; and exhibit B which represented a reversal of the Government's stand is attacked as being a complete and unjustified volte face on the part of the Government. Clause 5(3) of the Imports (Control) Order, 1955, enacts:

“It shall be deemed to be a condition of every such licence that:—

(i) no person shall transfer and no person acquire by transfer any licence issued by the licensing authority except under and in accordance with the written permission of the authority which granted the licence or of any other person empowered in this behalf by such authority.

(ii) that the goods for the import of which a licence is granted shall be the property of the licensee at the time of import and thereafter up to the time of clearance through customs:

Provided that the conditions under items (i) and (ii) of this sub-clause shall not apply in relation to licences issued to the State Trading Corporation of India, the Minerals and Metals Trading Corporation of India and other similar institutions or agencies owned or controlled by the Central Government and which are entrusted with canalisation of imports.

(iii) the goods for the import of which a licence is granted shall be new goods, other than disposal goods, unless otherwise stated in the licence.”

4. Appendix XXV, which gives the form of the letter of authority is in accordance with the provisions of the above clause of the Imports (Control) Order (see page 432 of the Import Trade Control Hand Book of Rules and Procedure, 1971). The petitioners would contend that for the years 1970-71, 1971-72 and 1972-73 the letters of authority were issued in this form. But thereafter a new form of letter of authority was introduced a copy of which is exhibit L. Condition No. 3 of the letter reads as follows:

“The goods for the import of which this letter of authority has been granted shall be the property of the holder of the letter of authority at the time of import and thereafter up to the time of clearance through customs.”

5. The said condition is sanctioned by the Red Book for the year 1971 (see para 268 at page 180).

6. Despite what the petitioners would claim to be the clear effect, implications and inferences to be gathered from the nature of the transactions and the course of dealings as evidenced by the aforesaid documents, the petitioners' complaint is that the sales tax authorities have been taking a wrong view of the law and demanding sales tax from the petitioners in respect of purchases of raw nuts imported through the corporation and allotted by the said corporation to the petitioners. This has occasioned the filing of this writ petition.

7. The contentions urged by the petitioners are that there was an expectation induced in the cashew industry by the assurances conveyed that purchase tax would not be levied regarding the import of raw nuts canalised through the corporation, that this assurance was acted upon to the prejudice of the industry as the price for the nuts were fixed without reference to the element of purchase tax; that on their side, the departmental authorities also were satisfied of this position and, therefore, did not initiate proceedings for escaped assessment for the years 1970-71 or 1971-72; and the position was also recognised by the Government in exhibit A notification dated 12th October, 1973. On these were founded a plea of equitable estoppel. Next, it was contended that the exemption having been granted could not be revoked or cancelled at all and exhibit B notification cancelling the same was invalid, (a) as it was retrospective and not made in public interest; (b) as it was in contravention of the assurances given; (c) as no reasons are given for the cancellation; and (d) as no opportunity was afforded to the industry before the cancellation was ordered. Above all, it was argued that there was no jurisdiction even on the sales tax authorities to assess sales by the canalising agents to the petitioners after 1st September, 1970, as they were not “inside” sales but “outside” sales, exempt from taxation under article 286(1)(a) of the Constitution.

8. Whatever be the merits of these contentions, the difficulty for the petitioners, and, indeed, the serious objection raised against them by the learned Advocate-General on behalf of the respondents, is that the court would not be justified in interfering under article 226 of the Constitution of India at this stage, and in quashing the assessment orders as prayed for. It was contended that the assessment proceedings are pending in appeal before one or the other of the appellate authorities under the statute, and in many, if not most, cases before the Sales Tax Appellate Tribunal. It was for these authorities to determine, in the first instance, the nature of the transactions, namely, whether they are sales in the course of import, or “outside” or “inside” sales. Even the question of the validity of the cancellation of the exemption, it was said, could be decided by them.

9. We shall proceed to consider these contentions. We do not think that it would be proper to leave it to the authorities constituted under the Act to deal with the question of the scope of the exemption and its cancellation under section 10 of the Act. We, therefore, consider it necessary to deal with this part of the objection. Section 10 of the General Sales Tax Act, 1963, in so far as it is relevant, reads as follows:

“10. Power of Government to grant exemption and reduction in rate of tax.—(1) The Government may, if they consider it necessary in the public interest, by notification in the Gazette, make an exemption or reduction in rate, in respect of any tax payable under this Act—

(i) on the sale or purchase of any specified goods or class of goods, at all points or at a specified point or points in the series of sales or purchases by successive dealers, or

(ii) by any specified class of persons, in regard to the whole or any part of their turnover……

(3) The Government may, by notification in the Gazette, cancel or vary any notification issued under sub-section (1).”

10. Exhibit A dated 12th October, 1973, issued under section 10(1) of the Act reads:

“Kerala Gazette No. 42 dated 23rd October, 1973, Part I, Section iv.

Government of Kerala Taxes ‘B’ Department

Notification G.O Ms. No. 127/73.TD

Dated, Trivandrum, 12th October, 1973.

S.R.O No. 648/73.—In exercise of the powers conferred by section 10 of the Kerala General Sales Tax Act, 1963 (15 of 1963), the Government of Kerala, having considered it necessary in the public interest so to do, hereby make an exemption in respect of the tax payable under section 5 of the said Act by the cashew manufacturers in the State on the purchase turnover of cashew-nuts imported from outside India through the Cashew Corporation of India, for the period from the 1st September, 1970, to the 30th September, 1973.

By order of the Governor,

V. Venkitanarayanan,

Secretary………………”

(We are omitting the explanatory note to the notification which is not relevant for our purpose.)

Exhibit B, which cancelled exhibit A, is as follows:

“Government of KeralaReg. No. K. 107.

Kerala Gazette Extraordinary

Published by Authority

Vol. XVIII Trivandrum, Friday, 9th November, 1973 No. 1158 18th Karthika 1895

Government of Kerala Taxes ‘B’ Department

Notification G.O Ms. No. 143/73.TD

Dated, Trivandrum, 9th November, 1973.

S.R.O No. 686/73.—In exercise of the powers conferred by subsection (3) of section 10 of the Kerala General Sales Tax Act, 1963 (15 of 1963), the Government of Kerala hereby cancel the notification issued in G.O Ms. No. 127/73.TD dated the 12th October, 1973, and published as S.R.O No. 648/73 in Part I of the Kerala Gazette No. 42 dated the 23rd October, 1973.

By order of the Governor,

V. Venkitanarayanan,

Secretary to Government……”

(Explanatory note omitted.)

11. It was argued that the exemption once having been granted under section 10(1) of the Act cannot be cancelled at all under sub-section (3) in respect of the period for which it was already granted. We are unable to accept this argument. The exemption was granted on 12th October, 1973, in respect of the period from 1st September, 1970, to 30th September, 1973. The cancellation followed on 9th November, 1973, within a few days of the notification granting exemption. In pursuance of the exemption, and acting on the same, no return had been filed by the petitioners and no assessment proceedings had even been initiated by the sales tax authorities before the cancellation. The language of clause (3) of section 10 indicates that there is power in the Government to nullify or vary the exemption granted under sub-section (1). On the facts and circumstances disclosed, we think that the cancellation of the exemption was really not retrospective; and that with it, the petitioners lost the privilege of getting the sales in question exempt from tax on the basis of exhibit A, if the sales were otherwise taxable in law, for the period for which exhibit A notification was issued.

12. The doctrine of equitable estoppel was pressed into service to support the plea that the assurances given to the petitioners and to the cashew industry had been acted upon to the prejudice of persons like the petitioners, that exhibit A notification was only the culmination and the embodiment of these assurances, and that the Government should not be allowed to go back on the assurances and on the exemption by the cancellation notification, exhibit B. Attention was called to the judgment of Chandrasekhar Aiyar, J., in Shankari Prasad v. Union of India A.I.R 1951 S.C 458., to the decision in Municipal Corporation of Bombay v. Secretary of State 1904 I.L.R 29 Bom. 580., and to the decisions of the Supreme Court in Union of India v. Anglo Afghan Agencies A.I.R 1968 S.C 718 at 726 and 728., Century Spinning & Manufacturing Co.'s case 1970 1 SCC 582 and to Ramanatha Pillai's case 1973 2 SCC 650. It was stressed that the allegation in paragraph 10 of the petition that at the meeting on 25th April, 1971, the representatives of the industry were assured by the Chief Minister Shri C. Achutha Menon, by the then Industries Minister Shri N.E Balaram, and by the then Revenue Minister Shri Baby John that no tax would be levied under the Act on the turnover of African raw nuts, stood uncontroverted. It seems to us of little consequence whether these allegations have been denied or not. They fall for short of covering the entire gamut of the petitioners' arguments. We are not prepared to believe that the assurances referred to were unsolicited presents to the cashew processors. It appears too much, in such circumstances, to build up a case of estoppel by representation. That apart, as rightly pointed out by the learned Advocate-General, the power under section 10(3) of the Act is a power of subordinate legislation, whether it be delegated legislation or conditional legislation. It was ruled recently by the Supreme Court in Oil and Natural Gas Commission's case [1975] 47 F.J.R 214 S.C, that rules and regulations framed by the Oil and Natural Gas Commission, the Life Insurance Corporation of India and the Industrial Finance Corporation have the force of law. In paragraph 33 of the judgment, Ray, C.J, observed:

“There is no substantial difference between a rule and a regulation inasmuch as both are subordinate legislation under powers conferred by the statute. A regulation framed under a statute applies uniform treatment to every one or to all members of same group or class. The Oil and Natural Gas Commission, the Life Insurance Corporation and Industrial Finance Corporation are all required by the statute to frame regulations inter alia for the purpose of the duties and conduct and conditions of service of officers and other employees. These regulations impose obligation on the statutory authorities. The statutory authorities cannot deviate from the conditions of service. Any deviation will be enforced by legal sanction of declaration by courts to invalidate actions in violation of rules and regulations.”

13. The learned Advocate-General further submitted that the power to tax is a legislative power and referred to the decision in Narinder Chard's case in support of his submission. He also relied on S.I Syndicate Ltd. v. Union of India, where it was held that price fixation under the provisions of the Sugar Control Order was more in the nature of a legislative measure and could not therefore give rise to a complaint that rules of natural justice had not been followed in fixing the price (vide paragraph 13). We agree that the power under section 10(3) is a legislative power. In Ramanatha Pillai's case, the following passage from American Jurisprudence 2nd, at page 783, paragraph 123, was approved:

“‘Generally, a State is not subject to an estoppel to the same extent as in an individual or a private corporation. Otherwise, it might be rendered helpless to assert its powers in Government. Therefore as a general rule the doctrine of estoppel will not be applied against the State in its governmental, public or sovereign capacity. An exception however arises in the application of estoppel to the State where it is necessary to prevent fraud or manifest injustice.’ The estoppel alleged by the appellant Ramanatha Pillai was on the ground that he entered into an agreement and thereby changed his position to his detriment. The High Court rightly held that the courts exclude the operation of the doctrine of estoppel, when it is found that the authority against whom estoppel is pleaded has owed a duty to the public against whom the estoppel cannot fairly operate.”

14. The principle that the power of granting exemption is legislative, follows also from the decision in Bhikusa Yamasa Kshatriya v. Sangarrmer Akola Taluka Bidi Kamgar Union. We cannot see any manifest injustice to attract the exception as stated in American Jurisprudence. The Advocate-General further contended that there can be no estoppel, whether equitable or otherwise, against the provisions of law or statute. He relied on the Full Bench ruling of this Court in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd.'s case, where it was ruled (vide paragraph 14) that there can be no equitable estoppel against legislative power. The decision was, no doubt, reversed by the Supreme Court on the main question dealt with by it, namely, the constitutionality of the provisions of the Act there considered. But this part of the judgment rejecting the plea of equitable estoppel was sustained: see State of Kerala v. G.R Silk Mfg. Co. The principle was also stated by this court in Ramanatha Pillai's case and in Achuthan Pillai v. State of Kerala. The decision in Ramanatha Pillai's case was confirmed by the Supreme Court in N. Ramanatha v. State of Kerala noticed earlier. In the light of the principles in the above cases we would reject the plea of equitable estoppel.

15. It was stated that exemption can be granted under section 10(1) only in public interest and, therefore, the same can be cancelled under sub-section (3) only in public interest. Exhibit A notification granting exemption expressly recites that it was done in public interest; and exhibit B, which followed closely in its wake, significantly omits any mention of any public interest which actuated its promulgation. Indeed, the proximity of time between the two notifications, it was stated, would negative any consideration of public interest having actuated the cancellation. The requirement of public interest which is embodied in sub-section (1) is not to be expressly found in sub-section (3). Whether it can be implied in sub-section (3), under section 20 of the Kerala General Clauses Act or otherwise, is not free from doubt. The petitioners' counsel would contend that no allegation of public interest had been disclosed in the counter-affidavit filed on behalf of the Government. We do not wish to express a final opinion whether the cancellation under section 10(3) can only be in public interest. Assuming that the element of public interest should be satisfied before cancellation, the learned Advocate-General submitted that the power to tax has to be presumed to be in public interest, and as the cancellation of the exemption would result in subjecting the exempted categories to taxation, the test of public interest would stand satisfied. He relied on the decision in State of Madras v. Nataraja Mudaliar, and Atiabari Tea Co. Ltd.'s case in support of his submission. The observations in these decisions lend support to the contentions of the learned Advocate-General. We accept them as authorities for the proposition submitted for acceptance. The presumption of public interest for a measure of taxation, as laid down in these decisions would put the State in a position of vantage, and require the petitioners to rebut the presumption. This has not been done. From that point of view it appears to us that the petitioners' contention that the cancellation was not in public interest must fail.

16. There is little force in the contention that no reasons at all have been given in exhibit B for cancellation of the exemption. Being a legislative measure, there can be no complaint about the absence of reasons or violation of natural justice: vide S.I Syndicate Ltd. v. Union of India. Counsel for the petitioners cited the decision in Lachmi Narain v. Union of India. There, certain notifications granting exemption under the Bengal Finance (Sales Tax) Act, 1941, were cancelled, and the validity of the cancellation was attacked. It was held by the Supreme Court that the exemption can be granted only after not less than three months' notice of the intention to do so had been notified, and that the notification to that effect was not proper or valid. The conclusion flowed directly from the language of section 6(2) of the Bengal Act, which is quoted at page 956 of the Reports (page 271 of 37 S.T.C), as follows:

…………………………………

(2) The State Government after giving by notification in the official Gazette not less than 3 months' notice of its intention so to do, may by like notification add to or omit from or otherwise amend the schedule and thereupon the schedule shall be deemed to be amended accordingly.

(Emphasis* supplied).”

17. On the express language of the statute considered by the Supreme Court, the cancellation could only be by a “like notification”. The decision is of no avail to the petitioners.

18. For the same reason we think that the decision, in Indian Sugar and Refineries v. Amarvathi Service Co-operative Society, cited by the petitioners is also distinguishable. In paragraphs 17 and 18 of the judgment, it was observed:

“17. The provision for granting exemption is part of the procedure prescribed by clause 6 of the 1966 Control Order. The power to grant exemption cannot be said to be independent of the provisions under clause 5 of the Order. The object of the 1966 Control Order is to promote sugar industry and to eliminate unnecessary impediments in the production of sugar. It also ensures a fair deal to the growers of sugarcane. The provisions of the Control Order are intended to maintain harmony between the growers of sugarcane and the producers of sugar and to enable both of them to share profits reasonably. Therefore, the power conferred on the Government is required to be exercised having regard to the view points of the growers of sugarcane as well as the producers of sugar. It is necessary to give opportunity to the growers of sugarcane as well as the producers of sugar to be heard when the Government exercises powers under the 1966 Control Order for determining the additional price and granting exemption from payment of additional price.

18. The grant of exemption from payment of price affects rights and interests of the growers of sugarcane. The Control Order contains elaborate machinery for fixation of additional price having regard to all relevant factors. The additional price fixation authority afforded opportunity to both the growers of sugarcane as well as the producers of sugar to be heard in the determination of the additional price. The subsequent order by the Government granting exemption to the factories for payment of additional price takes away rights which had accrued in favour of the growers of sugarcane.”

19. The above observations clearly emphasise the nature of the provisions considered by the court and the principle underlying the decision. The provision in the present case and the background against which it has to be viewed are quite different.

20. We should now notice one of the contentions of the learned Advocate-General. It was argued that there was no power under section 10(1) or (3) to issue a notification with retrospective effect. Therefore, it was said that exhibit A in so far as it granted the exemption in October, 1973, in respect of an antecedent period from 1st September, 1970, to 30th September, 1973, was illegal; and, exhibit B having only corrected the illegality, was not liable to be quashed under article 226, as, to do so would result in reviving exhibit A, and perpetuating the illegality in its promulgation. There is force in the submission thus made by the learned Advocate-General. Having taken the benefit of a notification granting exemption on 12th October, 1973, in respect of a period prior to the date of the notification, the petitioners now contend that the cancellation of the exemption cannot take effect in respect of the period for which the exemption had already been granted. The proposition submitted by the learned Advocate-General is supported by the decision of the Supreme Court in Nilkanth Prasad v. State of Bihar, where despite the finding that the appeal in which the impugned order was passed was incompetent, interference under article 226 was declined, as the decision on the merits, by the impugned order was just and proper and had not occasioned any manifest injustice. The same was the principle of the decision of a Full Bench of this Court in Mani v. Kerala Electricity Board. Attention was called to a few more decisions laying down the same principle (see for instance Venkateswara Rao v. Government of Andhra Pradesh). In the circumstances, without pronouncing on the question whether the State can plead the invalidity of its own notification, we would decline interference under article 226 on the ground that the petitioners having taken the benefit of the exemption notification exhibit A in respect of a period prior to its promulgation, cannot be heard in these proceedings to contend that the cancellation of the exemption in similar fashion is illegal. In the result, we would uphold the validity of exhibit B notification.

21. The two other principal points stressed by counsel for the petitioners were that the transactions in question were “outside sales” and/or sales in the course of import or export and, therefore, exempt under article 286(1)(a) and (b) of the Constitution. We do not think that it is either fair or proper or even within our jurisdiction, in the first instance to pronounce on these aspects of the case. It has been repeatedly laid down by the Supreme Court that the investigation of facts, in regard, for instance, to the nature of the transaction, has to be left to be found, in the first instance, by the taxing authorities, and that it is not for the High Court to appropriate to itself this task under article 226: see Sales Tax Officer v. Shiv Ratan and Bhopal Sugar Industries case. The petitioners' counsel contended that in the light of the documents and the nature of the course of dealings in which we have already referred in the course of this judgment, the nature of the transactions had to be carefully considered and determined. This, it was complained, had not been done by the sales tax authorities. In support of this submission counsel drew our attention to the order exhibit H passed by the appellate authority on the preliminary point raised before it as to the real nature of the transactions. There is force in the complaint made by the petitioners' counsel that the order has not got to grips with the real questions which were highlighted by the counsel for the petitioners. It was submitted by the learned Advocate-General that the petitioners must take the blame for any perfunctoriness in the discussion of the appellate authority, as all the documents now produced before this court and stressed before us were not placed before the sales tax authorities. This was denied by the petitioners. We do not wish to go into this controversy. As requested by us, the counsel for the petitioners and the learned Advocate-General submitted statements showing the position in which the assessment proceedings for the years in question in respect of each of the petitioners stood. It is seen from the statements filed by the learned Advocate-General that in 39 cases the appeals are pending before the Sales Tax Appellate Tribunal, Trivandrum, and in 37 cases before the Deputy Commissioner (Appeals), Quilon, and in one case before the Deputy Commissioner (Appeals), Ernakulam. The petitioners have also filed a statement indicating the position in respect of the assessments of the petitioners.

22. We feel it would be best to direct the Sales Tax Appellate Tribunal to dispose of the appeals pending before it in respect of the assessment proceedings of the petitioners. It would do so on the basis that exhibit B is valid. The petitioners would tender within two months from today before the Tribunal all the documents and records on which they rely in support of their contentions. The Government would be at liberty to produce the records and materials, if any, in rebuttal and/or in support of its case within one month thereafter. The Tribunal will consider and decide the question of receiving these documents, and will deal with the appeals and dispose of the same within four months after the production of records by both sides within the stipulated time. We have little doubt that the decision of the Tribunal in regard to the nature of the transactions and the other matters relating to the assessment would be respected and followed by the assessing authorities before whom the proceedings are pending, where these involve identical or similar facts. The petitioners have furnished bank guarantee in respect of the tax due from them at the stage of the assessment. Their counsel intimated that they are prepared to make available one-third of the bank guarantee so far furnished by them to cover their approximate tax liability, and that the rest of the bank guarantee be released to them. We think this is a reasonable request. The bank guarantee furnished will be discharged; but the petitioners will within ten days after such discharge of the bank guarantee, furnish fresh bank guarantee for one-third of the amount covered by the guarantee discharged under this order. We are not directing that there should be no coercive steps against the petitioners till the Tribunal gives its decision, as indicated by us, and the other authorities before whom the assessment proceedings are pending in one form or other, follow up in the wake of the Tribunal's decision. We expect that such steps will not be precipitated till then. A declaration on the lines indicated in this paragraph will issue in favour of the petitioners; and subject as above, this writ petition will stand dismissed with no order as to costs. Issue carbon copies to all counsel.

23. Petitions dismissed.

Bakul Cashew Company And Others v. The Sales Tax Officer (R), Special Circle, Quilon, And Others

Judgment Summary — V.P. Gopalan Nambiyar, A.C.J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' Arguments

Respondents' (State/Government) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Bakul Cashew Company And Others v. The Sales Tax Officer (R), Special Circle, Quilon, And Others

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