# EXCISE COMMISSIONER, U.P., ·ALLAHABAD v. RAM KUMAR

- **Citation:** [1976] Supp. 1 S.C.R. 532
- **Court:** Supreme Court of India
- **Decided:** 1976-05-05
- **Bench:** A. N. Ray, R. S. Sarkaria, P. N. Shinghal, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/excise-commissioner-u-p-allahabad-v-ram-kumar-7169
- **Pages:** 10

## Headnote

Evidence Act-Estoppe/ against Government in exercise of legislative, sovereign or executive powers-U.P. Excil"e Act 1910-Sec. 24, 28, 31, 33, 40 fllld 41Whet!zer excise duty can be levied on unlifted stock of liquor.
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U.P. Sales Tax Act 1948, Sec. 3A and 4-Whether exemption fronl payme11t
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of sales tax can be withdrawn-Estoppel.
The State of Uttar Pradesh bas under the U.P. Excise Act, 1910, the exclusive right or privilegoe· of manufacturing and selling liquor in that
State.
Section 24 of the Act provides that subject to the provisions of s. 31 the Excise
Commissioner may grant to any persOn a licence for the exclU5ive privilege
of manufacturing or of supplying any country liquor etc.
Section 31 provides
for the conditions for the grant of licence. Section 33 invests the
authority
granting a licen~e to require the grantee to execute a counterpart agreement in
conformity with the tenor of the licence.
Section 28 authorises imposition of
an excise duty or a countervailing duty by the local Government on any excisable article. Sections 40 and 41- of the Act empower the State Government and
the Excise Commissioner subject to the previous sanction of the Government tomake rules.
Para 38 of the Excisei Manual which contains the rules made under
the Act shows that there are 4 licence fee systems in vogue. One of such
sySterns is the auction fee system uRder which the amount of licence fee is
determined by competition amongst bidders at an auction. The respondents
were the highest bidders at various auctions. Before holding the auctions, the
rates of excise duty and prices of different varieties of country liquor and also
the conditions of licence were announced. No announcement was made as to
whether the exemption from sales tax in respect of sale of country liquor
granted by the notification dated 6-4-1959 was or was not likely to be withdrawn.
One of the conditions of the licences was that the licensee shall lift each month
certain quota of liquor and on the failure to lift the monthly quota the licensee
shall be liable, to pay compensation to the State Government calculatffi at the
rate of duty per litre on the uhlifted quota. On the day following the day
when the licences were granted, the Government of U.P. issued a notification
under s. 3A and 4 of the U.P. Sales Tax Act, 1948, superseding the earlier
notification exempting the: payment of sales tax and imposing sales tax on the
turnover in respect of country spirit at the rate~ of 10 P. per rupee. The respondents having failed to lift and sell the minimum quotas of liquor the appellant
called upon them to pay by
way of compensation the amounts of excise duty
on the shortfalls.
Aggrieved by the. demand, the -respondents mo\'ed the High Court under
Art. 226 of the Constitution for issue of appropriate· writ or direction restraiaing
the appellants from recovering the aforesaid amounts. The respondents
in
~pecial appeals also challenged the notification issued under the Sates Tax Act
on the Q'round that the State Government did not announce at the time of the
auction that the earlier notification was likely to be withdrawn and that the appellant informed the respondents at the time of the auction that there was no sales
tax on the sale of country liquor. The appe11allts were, therefore, estopped from
making the demand in respect of the sales tax and recoverihg the same from them.
The High Court allowed all the petitions in toto.
On appeal by s~cial leave,
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EXCISE COMMR. V. RAM KUMAR
533
HELD : (I) Neither s. 28 nor s. 29 nor any other provisions of the Act
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authorise the levy_ of the, amounts SQUght to be recovered from the tespoIL".lents.
The demand made by the appellant though disguised .,. compensatton is in
reality a demand for excise du,ty on unlift<d quantity of liqu<ir which is not
authorised by the provisions of the /'Ct. [538A-E]
Bimal Chandra Banerjee v. State of Madhya Pradesh, [1971] I S.C.R. 844,
followed.
Panna Lal and Ors. etc. v

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EXCISE COMMISSIONER, U.P., ·ALLAHABAD
v.
RAM KUMAR
May 5, 1976
[A. N. RAY, C.J., R. S. SARKARIA, P. N. SHINGHAL
AND JASWANT SINGH, JJ.J
Evidence Act-Estoppe/ against Government in exercise of legislative, sovereign or executive powers-U.P. Excil"e Act 1910-Sec. 24, 28, 31, 33, 40 fllld 41Whet!zer excise duty can be levied on unlifted stock of liquor.
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U.P. Sales Tax Act 1948, Sec. 3A and 4-Whether exemption fronl payme11t
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of sales tax can be withdrawn-Estoppel.
The State of Uttar Pradesh bas under the U.P. Excise Act, 1910, the exclusive right or privilegoe· of manufacturing and selling liquor in that
State.
Section 24 of the Act provides that subject to the provisions of s. 31 the Excise
Commissioner may grant to any persOn a licence for the exclU5ive privilege
of manufacturing or of supplying any country liquor etc.
Section 31 provides
for the conditions for the grant of licence. Section 33 invests the
authority
granting a licen~e to require the grantee to execute a counterpart agreement in
conformity with the tenor of the licence.
Section 28 authorises imposition of
an excise duty or a countervailing duty by the local Government on any excisable article. Sections 40 and 41- of the Act empower the State Government and
the Excise Commissioner subject to the previous sanction of the Government tomake rules.
Para 38 of the Excisei Manual which contains the rules made under
the Act shows that there are 4 licence fee systems in vogue. One of such
sySterns is the auction fee system uRder which the amount of licence fee is
determined by competition amongst bidders at an auction. The respondents
were the highest bidders at various auctions. Before holding the auctions, the
rates of excise duty and prices of different varieties of country liquor and also
the conditions of licence were announced. No announcement was made as to
whether the exemption from sales tax in respect of sale of country liquor
granted by the notification dated 6-4-1959 was or was not likely to be withdrawn.
One of the conditions of the licences was that the licensee shall lift each month
certain quota of liquor and on the failure to lift the monthly quota the licensee
shall be liable, to pay compensation to the State Government calculatffi at the
rate of duty per litre on the uhlifted quota. On the day following the day
when the licences were granted, the Government of U.P. issued a notification
under s. 3A and 4 of the U.P. Sales Tax Act, 1948, superseding the earlier
notification exempting the: payment of sales tax and imposing sales tax on the
turnover in respect of country spirit at the rate~ of 10 P. per rupee. The respondents having failed to lift and sell the minimum quotas of liquor the appellant
called upon them to pay by
way of compensation the amounts of excise duty
on the shortfalls.
Aggrieved by the. demand, the -respondents mo\'ed the High Court under
Art. 226 of the Constitution for issue of appropriate· writ or direction restraiaing
the appellants from recovering the aforesaid amounts. The respondents
in
~pecial appeals also challenged the notification issued under the Sates Tax Act
on the Q'round that the State Government did not announce at the time of the
auction that the earlier notification was likely to be withdrawn and that the appellant informed the respondents at the time of the auction that there was no sales
tax on the sale of country liquor. The appe11allts were, therefore, estopped from
making the demand in respect of the sales tax and recoverihg the same from them.
The High Court allowed all the petitions in toto.
On appeal by s~cial leave,
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EXCISE COMMR. V. RAM KUMAR
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HELD : (I) Neither s. 28 nor s. 29 nor any other provisions of the Act
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authorise the levy_ of the, amounts SQUght to be recovered from the tespoIL".lents.
The demand made by the appellant though disguised .,. compensatton is in
reality a demand for excise du,ty on unlift<d quantity of liqu<ir which is not
authorised by the provisions of the /'Ct. [538A-E]
Bimal Chandra Banerjee v. State of Madhya Pradesh, [1971] I S.C.R. 844,
followed.
Panna Lal and Ors. etc. v. State of Rajasthan and others, [1976] 1 S.C.R.
219, distinguished.
Appeals dismissed.
(2) Sections 3A and 4 of the U.P. Sales Tax Act clearly authorise the State
Government to impOSe sales tax. The fact that sales of country liquors had
been exempted from sales tax by the earlier notification could not operate as
estoppel against the State Government and preclude it from subjecting the sales
to ta.~ if it felt impeiled to do so iu. the il).terest of' the revenues of dre State.
There can be no question of estOppel against the Government in exercise of its
legislative, sovereign or executive powers (case Jaw reviewed). The Government
cannot divest itself of the right incidental to its office by conduct which in the
case of a private pefS'On would amount to estoppel. The six appeals therefore,
are partly allowed.
CIVIL APPELLATE JURISDiCTION : CIVIL APPEALS Nos : 276-395
AND 397-404 OF 1975
Appeals by Special Leave from the Judgments and Orders dated
21.2.72., 8.3.72., 21.2.72., 10.3.72., 21.3.72·, 16.12.71., 24.3.72.,
21.3.72., 21.3.72., 22.3.72., 25.2.72., 8.3.72., 21.2.72., J0.3.72., 8.3.72.,
J0.3.72., J0.3.72., 18.2.72., 16.12.71., 9.3.73., 8.3.72.,25.2.72., 16.12.71.,
25.3.72., 15.3.72., 25.3.72., 25.2.72.,
25.3.72., 25.2.72., 14.3.72.,
14.3.72., 21.3.72., 14.3.72., 14.3.72. 21.3.72., 21·3.72.,14.3.72., 25.3. 72.,
25.3.72., 21.3.72., 21.3.72., 21.3.72, 21.3.72.,24.3.72, 24.3.72, 24 3.72.,
24.3.72., 25.3.72., 213.72, 3.4.72., 21.3 72., 3.4.70. 24.3.72., 24.3.72
24.3.72, 24.3.72., 24.3.72., 24.3.72, 25.3.72., 25.3.72., 25.3.72 25.3.72
25.3.72., 25.3.72., 3.4.72., 3.4.72., 3.4.72., 3.4.72., 3.472' 14-3.72.
3.9.71., 3.9.71.,
16.7.71., 14.3.71., 29.3.72., 14.3.72., 14.3.72,
14.3.72.,
5.4.72.,
5.4.72.,
5.1.72.,
5.4. 72.,
18-2-72., 23.2. 72.,
10.3.72., 20.1.72., 9.1.72., 31.1.72., 31.1.72., 31.1.72., 31.1.72.,
8.3.72., 2.2.72 3.2.72., 25.2.72., 2.2.72., 10.3.72., 4.2.72., 25.9.72.,
25.9.72.,
6.10.72.,
1.2 73.,
13.2.73.,
30.1.73.,
9.4.73., 13.2.73,
14.2.72.,
13.3.72.,
13.3.72., 243 72.,
18.7.72., 4 9.73 ' 25.2.72,
17.5.71., 21.3.72.,
3.4172.,
21.3.72., 16.7.71.,
5.4.72, In Special
Appeal Nos. 616, 643, 617, 644/74 and Civil Misc
Writ Nos
2268, 448, 2280, 2254, 2255/69 and Special Appeal Nos. 730, 752,
647, 615, 611, 648, 645605. 610/71 and Civil Misc. Writ No. 449/68
and Special Appeal No. 86, 796, 775/71 an~ W.P. No. 450,169 and
C Misc. Writ No. 451, 2183, 5706, 2915/69, S. A. No. 690/71 C. Misc
Writ No.3037/69 and S. A. No. 613171 and-C. Misc. Writ No. 2090/
69 and Civil Misc. Writ Noo. 2094, 2119, 2122, 2172, 2188, 2189
-92, 2180-2182, 2187, 2256, 2273, 2274,2276-2279, 2282-2284, 2334
2347, 2576, 2608-2611, 2649 2690, 2742-2743, 2759, 2760, 2811, 2850,
2916, 2918, 2919, 3075, 3400/69 and 543-546, 786, 1039, 1246, 1248,
2169, 3881, 4035, 4428, 4563, 4821, 211, 250, 256, 7253, 607, 614,
618, 628, 7655, 691-694, 729, 732, 751, 776, 787, 799, 805/71 and
Civil Misc . .Writ No. 1525, 1529,3387, 7051, 7253, 7588, 7575, 7980
and Special Appeal Nos. 6, 102, 115, 166, 309/72 and 1902/73 and
Special Appeal No. 774/71 and Civil Misc. Writ No. 2121}69, 2194/69
547 /70, 3375/69 and writ Petition No. 3627 /70, 260/71 respectively.
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534
SUPREME COURT REPORTS
(1976) SUPPLEMENTARY
B. Sen and 0. P. Rana for the Appellant.
Yogeswar Prasad, S. K. Bagga and (Mrs.) S. Bagga, for the Respondent in CA 399/75 and 400-405/15.
(Miss) Kamlesh Bansal, for Respondent in CAs. 310 312
238
403, 357 and 313/75.
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L. C. Goyal, for Respondent in CA No. 396/75.
The Judgment of the Court was delivered by
_JASWAN1: SINGH, J.-This batch of 127 appeals by special leave
which are directed against various judgments rendered by the High
Court of Judicature at Allahabad in writ petitions and special appeals
and rela:e to enforcement of certain obligations of licensees for retail
vend of country liquor shall be disposed of by this judgment.
The facts leading to these appeals are : The State of Uttar Pradesh
has,. under the U.P. Excise Act 1910 (Act No. IV 0£ 1910) (hereinafter referred to as 'the Act') which contains provisions relating to
all aspects and manifestations of intoxicating liquors and intoxicating
drugs, that is to say, their import, export, .transport, manufactw:e, sale
and possession, the exclusive right or privilege of manufacturing and
selling liquor in that State.
Section 24 of the Act Jays down that
subject to the provisions of section 31, the Excise Commissioner may
grant to any person a licence for the exclusive privilege-
( I) of manufacturing or of
supplying by wholesale, or
of
both, or
(2) of selling by wholesale or by retail, or
(3) of manufacturing or of supplying by wholesale, or of both
and or selling by retail any country liquor or intoxicating
drug within any local area.
Section 31 provides that every licence, permit or pass granted
under the Act shall be granted-
( a) on payment of such fees (if any);
(b) subject to such _restrictions and on such conditions;
(cl shall be in such form and contain such particulars,, as t~e
Excise Commissioner may direct either generally or m
any particular instance in this behalf; and
( d) shall be granted for such period as the State Government
may, in like_ manner, direct.
Section 33 of .the Act invests the authority granting a licence und~r
the Act to require the grantee to execute a counterpart agree~ent 1n
conformity with the tenor of his licence and to give such se:ur.1ty ~or
the performance of such. agreemen.t or to make such deposit m lteu
of security as such authonty may thmk fit.
Section 28 of the Act which deals with imposition of excise duty
or countervailing duty reads :-
"28. ( 1) Duty on excisable article.-An excise duty or a
countervailing duty, as the case may be at such rate or rates as
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EXCISE COMMR v. RAM KUMAR (Jaswant Singh, !.)
535
the Local Government shall direct, may be imposed, either
generally or for
specified local
area, on any excisable
article-
(a) imported in accordance with the provisions of section 12(1); or
(b) exported in accordance with the provisions of section
13; or
·
( c) transported; or
(d) manufactured, cultivated or collected under any
licence granted under section 1 7; or
(e) manufactured in any distillery established, or any distillery or brewery licensed, under section 18 .... "
Section 29', of the Act lays down the manner in which the duty
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may be levied.
One of the ways provided in the section for levy of
the duty is by payment upon issue for sale from a warehouse established or licensed nnder section 18 ( d) of the Act.
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Sectiol1S 40 and 41 of the Act empower. the State Government and
the Excise Commissioner (subject to the previous sanction of
the
Government) to make rules for the purposes set out therein.
These
rules are con,tained in the Excise Macual, Uttar Pradesh (Volume I).
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Paragraph 3 8 of the Excise Manual shows that there are four
t licence-fee systems in vogue in the State of Uttar Pradesh. One of
such symems is 'The auction fee system' under which the amount of
licence fees inter alia for the retail sale of country spirit under the
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distillery system and for the manufacture and retail sale of country
spirit under the outstill system is determined by competition among
bidders. According to paragraph 332 licences for the wholesale and
retail ".en"d of intoxicants are usually granted for the excise year which
commences from April 1 and lasts upto March 31.
In accordance with the requirements of the auction system, auctions were held throughout Uttar Pradesh during the months of February and March, 1969 on various dates and at various places for the
grant of licences to sell country spirit by retail at the specified shops
during the excise year 1969-70.
B~fore holding the auctions, rates of excise duty and prices of
different varieties of country liquor as also the conditions of licences
for sale of country spirit for 1969-70 were announced.
No announcement was, however, made as
to whether the exemption from sales
tax in respect of sale· of country liquor granted vi de Notification
No. ST 1149/X-802(33)-51 dated April 6,, 1959, issued under section 4. of the U.P. Sales Tax Act, 1948 was or was not likely to be
withdrawn.
The respondents herein 1participated in the
aforesaid
auctions and being the highest bidders were granted licences 'for
retail sale of country spirit for the period beginning from April I,
1969 to the end of March,, 1970.
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536
SUPREME COURT REPORTS
[1976] SUPPLEMENTARY
Each one of these licence!; contained inter alia the following coudition :-
·
"3. (a) The licensee shall lift each month the proportionate
quota for the n;ionth, if any, fixed for his vend and deposit still,..
head d~ty rea!JSable th.ereon. On his failure to lift the monthly
proportion~te quota m any month, he shall be liable to pay
compensation. to the State Government at the rate equal to
the rate of s!11lhead duty per litre of spiced spirit and stillhead dutx per litre of plain spirit as may be in the
area in which the shop is situated on the quantity falling
short of such monthly proportionate quota and such compens~tion shall be paid by the 7th of the month following
the month to which such shortfall relates.
(b) He shall be bound to sell the
whole quantity of
country spirit obtained for the shop from the warehouse.
On his failure to do so, he shall be liable to pay to the State
Government compensation at the rate equal to the rate of
stillhead duty per litre of spiced spirit and stillhead duty per
litre of plain spirit as may be in force in the area in which
the shop is situ<>'.ed on the unsold quantity of country spirit
during. the period of the contract to which.
the
licence
relates.
( c) In the evmc of the licensee being required to pay
compensation to State Government under the aforesaid coodition due to the short lifting of the quota or non-deposit of
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such compensation, the amount of said compensation may be
realised from the amount of security deposited by him. The
resultant deficiency in the amount of security shall be made
gocd by the licensee within seven days of such adjustment.
In case the short Ji£ting oC proportionate monthly quota or
short deposit of compensation continues for two conseeutive
months or the licensee fails to make up the deficiency in the
amount of security within the prescribed
period of seven
days his Jicenc«_ may be cancelled in addition to the recovery
of the deficiency in payment of compensation as arrears of
I and revenue."
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On the day following the commencement of the aforesaid licences
i.e. on April 2, 1969, the Government of Uttar P'.adesh issued Noti-
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fication No. ST-1603/X-900 (12)/67 under section 3-A and 4 of -
the U.P. Sales Tax Act, l 948, superseding the earlier
Notification
No. ST 1149/X•802(33)-51 dated April 6, 1959, issued under section 4 of the U.P. Sales Tax Act, 1948, and imposing sales tax on the
turnover in respect of country spirit at the rate of ten paise per rupee
a'. the point of retail sale with immediate effect.
The respondents herein having failed to lift and se'.l the minimum
quotas of liquor prescribed in their licences were reqmrcd by the excise authorities of the State to -pay, by way of compe_nsation,
t~e
amounts of excise duty leviable on .the short-falls. Aggneve<;l by this
demand, the respondents moved the High Court under Articles 226
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EXCISE COMMR. v. RAM KUMAR (Jaswanl Singh, J.)
537
of the Constitution for issue of· apporpriate writ or directions rei$-
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training the• appellants herein from recovering the aforesaid amounts
contending inter alia that the condition of their licences on the basis
of which the demand was made was invalid, unconstitutional
and
u.nenforceable.
The respondents in six appeals Nos. 399 to 404 of
1975 also challenged Notification
No. ST-1608/X-900( 12)/67
(dated April 2, 1969) (supra) which superseded the earlier Notification No. ST 1149/X-802(33)51 dated April 6, 1959 and imposed
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sales tax on the turnover in respect of the country liquor at the rate
of ten paise per rupee at the point of retail sale by the vendor with
effect from April 2, 1969 on the ground that since the state Government did not announce at the time of the aforesaid auction that Notification No. ST l 149/X-802t33)51 dated
April 6,
1959, was
likely to be withdrawn and the sales of country liquor were likely to
he subjected to the levy of sales tax during the excise year and in reply
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to the query made by them at the time of the auction they were told
by the authorities that there was no sales tax on the sale of country
liquor, the appellants herein were estopped from making the demand
in respect of sales tax and recovering the same from them.
TI1e
High Court allowed all these petitions in toto. Having failed to
secure certificates of fitness from
the High Court, the appellants
applied for and obtained special leave to appeal from this Court.
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The common question of law that arises for determination in all
these appeals is whether the condition incorporated in the licences of
the respondents that they would lift the fixed minimum quantity of
liquor and sell the same at their allotted shops and in c~se of their
default or failure to do so, they would be liable to pay compensation
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eq:ic! to t!cc mccou!lt of the excise duty leviable on the lll1lifted quantity
is valid and enforceable. This point is no longer res integra. In
Bimal Chandra Banerjee v. State of Madhya Pradesh(') this Court held
that :
"No tax can be imposed by any bye-law or rule or regulation unlegs the statute under which the subordinate legislation
is made specially authorises the imposition. In the pre":nt
case, the legislature has levied excise duty or counten·ailing
duty on the excisable articles which have been either imported.
exported, transported, manufactured, cultivated or collected
under any licence granted under section 13, or manufactured
in any distillery or brewery established or licensed under the
Act; and the State Government has not been empowered to
le\'Y any duty on liquor which the contractors failed to lift
Therefore. the State Government was exercising a power
which it did not possess and hence the rule imposing the condition in the licences and the demand notices are invalid."
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Thus the aforesaid question arising for determinatio.n by us stands
already settled by the ratio of the decision of this Court in
Bimal
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Chandra Banerjee's case (supra.)
0) [1971] I S.C.R. 844.
538
SUPREME COURT REPORTS
(1976] SUPPLEMENTARY
A
It will also be noticed that neither section 28 nor section 29 nor aay
other provision of the Act authorises the levy of the amounts sought to
be recovered from the respondents.
B
The decision of this Court in Panna Lal and Ors. etc. etc. v. State
of Rajasthan and Ors.(') which is sought to be relied upon on behalf
of the appellants is clearly distinguishable.
In that case, the contractual obligation of the appellants to pay the guaranteed sum or the
stipulated sum mentioned in the licences was not dependent on the
quantum of liquor sold by them and no excise duty was charged or
chargeable on undrawn liquor under the licences. The excise duty
there was collected only in relation to the quantity and quality of the
country liquor whiah was drawn.
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We have, therefore, not the lightest hesitation in holding that the
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deaiand made by the appellants though disguised as compensation,
is in reality a demand for excise duty on the unlifted quantity of liquor
which is not authorised by the pcovisions of tho Act.
This being the
sole point involved in appeals other than Appeals Nos. 399 to 404 of
1975, the former Appeals cannot succeed.
In the result they are
dismissed with costs.
Appeals Nos.
399 to 404 of 1975 which raise another point
as well viz. the validity of the appellants' demand from the respondents
in respect of sales tax at the rate of ten paise per rupee on the retail
sales of country spirit made by the latter with effect from April 2,
1969 stand on a slightly different footing.
Section 3-A and 4 of the
U.P. Sales Tax Act, 1948 clearly authorise the State Government to
impose sales tax.
The fact that sales of country liquor had been
exempted from sales tax vide Notification No. ST 1149/X-802(33)-
51 dated April 6, 1959 could not operate as an estoppel against the
State Government and preclude it from subjecting the sales to tax if
it felt impelled to do so in the interest of the Revenues of the State
which are required for execution of the plans designed to meet !he
ever ir.creasing pressing needs of the developing society.
It is now
well settled by a catena of decision that there can be on question of
estoppel against the Government in the exercise of its legislative,
sovereign or executive po\vers.
While speaking for the Court in M. Ramanathan Pillai v. State of
Kera/a(') the learned Chief justice quoted with approval the following
statement contained in
American Jurisprudence
2d. at page 783
paragraph 123 :-
"In American Jurisprudence 2d at page 783 paragraph 123
it is stated "Generally, a state is not subject to an estoppel
to the same extent as 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 governmentat public or sovereign cattacity."
(I) [1976] l S.C.R. 219.
(2) [1973! 2 s.c.c. 650.
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EXCISE COMMR. v. RAM KUMAR (laswan! Singh, l.)
539
In State of Kerala and Anr. v. The Gawalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. Ltd.(') where the respondent company
established itself in the State of Kerala for production of rayon cloth
pulp on an understanding that the Government would bind itself to
supply raw J1Jaterial and later the Government on finding that it was
not able to supply the material undertook not to legislate for the
acquisition of the pi:ivate forests for
a period of 60 years if the
company purchas<;d forest lands for the purpose of its supply of raw
material and accordingly, the company did purchase 30,00 acres of
private forests from an estate for Rs. 75 lakhs for the afores11id purpose
but the Government enacted Act 26 of 1971 expropriating vast forest
areas without paying compensation as a measure of agrarian reform
whereupon the respondent company sought to invoke the doctrine of
equitable estoppel against the Government, Palekar, J. delivering the
majority judgment observed :-
"We do not see how an agreement of the Government can
preclude legislation on the subject.
The High Court !has
rightly pointed out that the surrender by the Government of its
legislative powers to be used for public good cannot avail
the company or operate against the Government as equitable
estoppel."
Approving the
decision
of the
House of Lords in Howell v.
Falmouth Boat Construction Co. Ltd.(') where the observations of
Lord Denning in Robertson v. Minister of Pensions (') that the action
of the War Office which was an agent of the Crown in assuming
authority over the matter and assuring the appellant who had been
•
<- serving in the army that his disability had been accepted as attributable
to military service bound the Crown and through the Crown
the
Minister of Pensions,
who while administering ~he Royal warrant
issued by the Crown has to honou~ all assurances given by or on behalf
of the Crown were unequivocally disapproved by observing that the
character of an act done by an officer of a Government, however high
or low in the hierarchy in face of a statutory prohibition, is not affected
by the fact that it had been induced by a misleading assumption of
authority and neither a Minister nor any subordinate officer of the
Crown can, by conduct or representation,
bar the Crown from
enforcing a statutory prohibition.
It was held by Bench of this Court
in Assistant Ciistodian Exacuee Property and Ors. v. Brij Kishore
A garwala and Ors.(') that the Evacuee Department was not bound
'
•
by the reply given by the Assistant Custodian to the first respondent's
enqniry that the property in question was not an evacuee property .
Following the above decision, the High Court of Jammu & Kashmir
has in Malhotra and Sons and Ors. v. Union of India and Ors(').
rightly held that :-
"The courts will only bind the Government by its promises
to prevent manifest injnstice or frand and will not make the
Government a slave of its policy for all times to come when
(1) [1971]2 s.c.c. 713.
(2) (1951] A.C. 817.
(3) [·1949]1K.B.227.
(4) [1975] I S.C.C. 21.
(5) A.LR. 1976 J. & K. 41.
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
540
SUpREME COURT REPORTS
[1976] SUPPLEMENTARY
the Government acts in its Governmental, public or sovereign
capacity."
We may as well refer here to the celebrated decision of tbe
Supreme Court of th,e. United States in Federal Crop Insurance Corporation v. Morrill('). In that case where the agents 6f the petitioner
a wholly Government owned Corporation, created by the Federal Crop
Insurance Act to insure producers of wheat against Joss in yields due
to unavoidable causes including drought, advised the respo.:idents in
ignorance of and contrary to the duly promulgated controlling re~ula
tion which expressly precluded insurance cm·erage of sprir.g wheat
re-seeded
on winter Wheat acreage that their entire 460 acres of
spring wheat crop including the spring wheat which had been reseeded on winter wheat acreage in ihe 1945 crop year was insurable
by the Corporation and recommended to the Corporation'-; branch
office acceptance of the respondent's
formal
applicatio·1
which,
however, did not disclose that any part of the insured CrD? was reseeded and the Corporation
accepted the application and a
few
months later, most of the responden.l'S' crop was destroyed by drought,
and the Corporation on the loss being notified to them rdu';ed to pay
the loss on the ground that the wheat crop insurance regulations
expressly prohibited the insurance of spring wheat which was re-seeded
on winter wheat acreage, fhe Court by majority held thac though a
private insurance Corporation would be bound on similar '.oc'.s, the
same was not true of a Government Corporation engaged in the
insurance field and the latter was not estopped from repudiating the
liability.
The following observations made by the court in Federal Crop
Insurance Corporation v. Marrill (supra) are worth quotin.g :-
"It is too late in the day to urge that the Govemm~nt is
just another private litigant, for purposes of charging it
with liability, whenever it takes over a business theutofore
conducted by private enterprise or engages in competition
with private ventures. . . . . . Whatever the form in which
the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained
that
he who
purports to act
for the
Government stays within the bounds of his authority.
Anet this is so even though, as here, the agent himself may
have been unaware of the limitations
upon his authority .... "Men mnst turn sqnare corners when they deal with
the Government", does not reflect a callous outlook. It
merely expresses the
duty
of all courts to
observe the
conditions defined by Congress for
charging
the public
treasury."
In his Treatise on the Law of Estoppel, Melville M. Bigelow has
stated that in State v. Williams,( 2 ) State v. Bevars,(') and Wallace v.
Maxwell( 4 ) it has been held that estoppel does not operate against the
Government or its assignee.
·--------
(!) 332 U.S. 380-92 Led. 10.
12) 94 N. Car. 891.
(J) 86 N. Car. 588.
(4) 10 !rd. 110.
•
·-
--
....!....
-{
EXCISE COMMR. v. RAM KUMAR (lasivant Singh, J.)
541
The High Court was, therefore, clearly in error in ignoring that the
A
Go.vernment cannot divest itself of the right incidental to its office by
conduct which, in the case of a private person, would amount to
estoppel and in characterizing the demand for sales tax made by the
aJ'pel!ants as illegal. Accordingly Appeals Nos. 399 to 404 of 1975
are partly allowed, and it is held that the demand made by the appellants from the respondents in these appeals in respect of sales tax
on the turnover of sales of country spirit made by them between April
B
2, 1969 and March 31, 1970 was valid and could not be struck down.
The parties in these six appeals shall pay and bear their own costs.
,
P.H.P.
Appeals partly aJlowed .