The Courts should not bind the government in its policy decision. [State Of Haryana & Ors vs M/S.Mahabir Vegetable Oils Pvt. Ltd. ]

State Of Haryana & Ors vs M/S.Mahabir Vegetable Oils Pvt. Ltd. 

Before the Supreme Court of India

Bench: Mukundakam Sharma, Anil R. Dave

Author of the judgement: M Sharma

Decided on: 21 February, 2011

Brief Facts and procedural history:

The State enacted the Haryana General Sales Tax Act, 1973 (for short “the Act”). Section 64 of the Act provides for rule-making power. The said provision was amended by inserting sub-section (2-A) therein which reads as to provide retrospective effects to the rules made thereunder with a condition that such retrospective rules made shall not prejudicially affect the interest of any person to whom such rules may be applicable.

Pursuant to or in furtherance of the said rule-making power, the State made rules known as the Haryana General Sales Tax Rules, 1975 (for short “the Rules”). Rule 28-A occurring in Chapter IV-A of the Rules provide for the class of industries, period and other conditions for exemption/deferment from payment of tax as envisaged both under Sections 13-B and 25-A of the Act.

The state of Haryana announced an industrial policy for the period 1-4-1988 to 31-3-1997 wherein inter alia incentive by way of sales tax exemption was to be given for the industries set up in backward areas in the State.

Schedule III appended to the Rules provides for a negative list of the industries and/or class of industries which were not to be included therein. At the initial stage, the Solvent extraction plant was admittedly not included in the negative list. Amendments in the terms of the said draft rules were notified whereby and whereunder the solvent extraction plant was included therein.

 It is only after the notice dated 3.1.1996 that the respondent Mahabir Vegetable Oils (P) Limited set up a solvent extraction plant. It also obtained registration under the provisions of the Act and theCentral Sales Tax Act, 1956 on 6-9-1996. On 13-8-

1996 it applied for a no-objection certificate from the Haryana State Pollution Control Board which is a condition precedent for setting up a solvent extraction plant. No Objection certificate was granted on 22-11-1996.

In the later stage, the respondent company was not given the tax benefit by the state government.

In the 2006 judgement delivered by the supreme court, it applied the Doctrine of Promissory Estoppel and held that the promises/representations made by way of a statute, continued to operate in the field. Th Court noted that it may be true that the Respondent altered their position only from August 1996 but it has neither been denied nor disputed that during the relevant period, namely, August 1996 to 16-12-1996 not only have they invested huge amounts but also the authorities of the State sanctioned benefits, granted permissions.

The Court further noted that an entrepreneur who sets up an industry in a backward area unless otherwise prohibited is entitled to alter his position pursuant to or in furtherance of the promises or representations made by the State.

However the Court, at that stage, did not interfere with the issue of the quantum of exemption which can be granted to the Respondent and the said issue was kept open and the matter was remanded to the Director Industries for fresh adjudication. The Writ Petition filed by the Respondent under Article 32 was also disposed of.

Ratio of the court in the earlier decision:

It is beyond any cavil that a subordinate legislation can be given a retrospective effect and retroactive operation if any power in this behalf is contained in the main Act. The rule-making power is a species of delegated legislation. A delegatee, therefore, can make rules only within the four corners thereof.

It is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication.  A retrospective effect to an amendment by way of a delegated legislation could be given, thus, only after coming into force of subsection (2-A) of Section 64 of the Act and not prior thereto.

By reason of Note 2, certain rights were conferred. Although there lies a distinction between vested rights and accrued rights as by reason of a delegated legislation, a right cannot be taken away. The amendments carried out in 1996 as also the subsequent amendments made prior to 2001, could not, thus, have taken away the rights of the appellant with retrospective effect. For the reasons aforementioned, the impugned judgment cannot be sustained which is set aside accordingly by the court. The appeals are allowed and the matter is remitted to the Director of Industries to consider the matter afresh.


whether the Respondent is entitled to the benefit of Sales Tax exemption on the entire investment made by them in setting up the industrial unit i.e. Solvent Extraction Plant, or on the investments made up till 16.12.1996, the date on which the exemption granted under Rule 28A of the Haryana Sales Tax Rules (“HSTR” for short) was withdrawn by the State by putting the Solvent extraction plant in the negative list.

Arguments of the appellant:

  • The exemption granted to solvent extraction plant was legally withdrawn by the State Government on 16.12.1996 as the same was deemed necessary in the public interest.
  • It is within the prerogative of the State to withdraw an exemption if the same is deemed necessary in the public interest. It was also submitted that the Respondent does not have a vested right in their favour and the exemption granted cannot go beyond the date of withdrawal by the State.
  • It was also contended that as now the benefit of exemption has been granted on the investment made up till 16.12.1996 the question of retrospective effect also does not arise.

Arguments of the respondent:

  • The respondent has taken a decision to establish its industrial unit in the said area of the State of Haryana, only on the basis and footing that the respondent would be entitled to the benefit of sales tax exemption @ 150% on the total capital investment made in that industrial unit.
  • In order to supplement the said submission, the learned Senior Counsel placed strong reliance on the doctrine of promissory estoppel and submitted that once the Respondent, based on the representation of the State has initiated the steps to establish the unit and has made substantial investment in that regard, the State now cannot turn around and deny the said benefit of exemption.


  • The judgment of this Court dated 10-3-2006 in Civil Appeal 1635 of 2006 reported at (2006) 3 SCC 620 only considered the retrospective operation of the amendments made on 16.12.1996 and subsequent amendments which sought to take away certain rights of the Respondents.
  • In the said judgment the court only held that the amendment to Rule 28A could not have any retrospective effect, in the sense that it could not affect an assessee’s pre-existing rights.
  • It is also important to note that the said judgment clearly clarified that the question of quantum of exemption to which the appellants may be entitled to be not considered. It may also be pointed out that the Court did not go into the challenge made to the validity of the Amendments made which was challenged by the Respondent by way of a Writ Petition. The reliance placed on the said Judgment is, therefore, misplaced.
  • The supreme Court rejected the argument of the respondent that benefit of the exemption is required to be advanced to them on the principle of the Doctrine of Promissory Estoppel. The doctrine of Promissory Estoppel is an equitable remedy and has to be moulded depending on the facts of each case and not straight jacketed into pigeon holes. In other words, there cannot be any hard and fast rule for applying the doctrine of Promissory Estoppel but the doctrine has to evolve and expand itself so as to do justice between the parties and ensure equity between the parties i.e. both the promisor and the promisee.
  • The principles of promissory estoppel are not applicable in the instant case as the decision to put the Solvent Extraction Plant in the negative list was taken in public interest since the industry is in the category of polluting industry. It has never been the case of the Respondent that the Solvent Extraction Plant is a non-polluting industry. There is also no allegation that the decision to put the Solvent Extraction Plant in the negative list was actuated by fraud or that the said decision was not bona fide.
  • In cases where the Government on the basis of material available before it, bona fide, is satisfied that public interest would be served by granting, withdrawing, modifying or rescinding an exemption already granted, it should be allowed a free hand to do so.
  • The withdrawal of exemption “in public interest” is a matter of policy and the Courts should not bind the government in its policy decision. The Courts should not normally interfere with the fiscal policy of the government more so when such decisions are taken in public interest and where no fraud nor lack of bona fide is alleged much less established.
  • The beneficiary of a concession has no legally enforceable right against the government to grant a concession except to enjoy the benefits of the concession during the period of its grant. The right to exemption or concession is a right that can be taken away under the very power in the exercise of which the exemption was granted.
  • Furthermore, in the fact of the instant case, it cannot be said that the Respondent had altered its position relying on the promise in as much as even before steps were taken by the Respondent for laying the Solvent Extraction Plant, the Petitioner had made its intention clear through its notice dated 3.1.1996 that it was likely to amend the law/rules in respect whereof a draft was circulated for information of persons likely to be affected thereby so as to enable them to file objections and suggestions thereto. Amendments in the terms of the said draft rules were notified on 16-12-1996 substituting Schedule III appended to the Rules whereby and where under the solvent extraction plant was included therein.
  • It cannot be denied that an investment was made by the Respondent in the said area of the State of Haryana, probably on the belief that it would be entitled to the exemption. However, the said factor alone, in the absence of any specific confirmation cannot stop the State to amend the policy and withdraw the exemption if the same is deemed necessary and expedient in the Public Interest. Moreover, the said policy which was for the period of 1-4-1988 to 31-3-1997 was nearing its end.


The appeal and the impugned judgment passed by the High Court were set aside leaving the parties to bear their own costs.


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