# M/S. K.B. TEA PRODUCT PVT. LTD. & ANR v. COMMERCIAL TAX OFFICER, SILIGURI & ORS

- **Citation:** [2023] 8 S.C.R. 828
- **Court:** Supreme Court of India
- **Decided:** 2023-05-12
- **Case number:** Civil Appeal No. 2297 of 2011
- **Bench:** M. R. Shah, Krishna Murari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-k-b-tea-product-pvt-ltd-anr-v-commercial-tax-officer-siliguri-ors-37832
- **Pages:** 29

## Headnote

Doctrines/Principles - Doctrine of legitimate expectation -
West Bengal Sales Tax Act, 1994 - ss.2(17), 17(3)(a)(xi), 39 - West
Bengal Finance Act, 2001 - West Bengal Sales Tax Rules, 1995 -
r.52 - Bengal Finance (Sales Tax) Act, 1941 - s.2(dd) - Whether
despite s.2(17) of the 1994 Act which was amended w.e.f.
01.08.2001, omitting "tea blending" from the definition of
"manufacture", the appellants shall still be entitled to the exemption
from payment of sales tax - Held: Per M.R. Shah, J. Nobody can
claim the exemption as a matter of right - To grant/continue/
withdraw the exemption is a policy decision - Unless withdrawal is
found to be so arbitrary, the Court would be reluctant to interfere -
Prior to 2001, as per s.2(17), 1994 Act, the activity of "tea blending"
was included in the definition of "manufacture" - Therefore, being
in the activity of "tea blending", the appellants were entitled to the
exemption from payment of sales tax as manufacturers - However,
consequent to the amendment, when the activity of "tea blending"
was excluded from the definition of "manufacture", the appellants
ceased to be the manufacturers and thus, on and from 01.08.2001,
they were not entitled to the exemption - There cannot be any
promissory estoppel against the statute - This is not a case of "vested
right" but of "existing right", which can be varied or modified and/
or withdrawn - View taken by the Tribunal and the High Court
agreed with - Per Krishna Murari, J. [Dissenting (on the
applicability of the doctrine of legitimate expectation)] The tax
holiday granted by way of an amendment to small scale industries
involved in the manufacture and blending of tea, created a legitimate
expectation in favour of the appellants - This legitimate expectation
was broken when a subsequent amendment was brought removing
"blending of tea" from the definition of "manufacture" - To justify
such a shift in policy, and snatch away the legitimate expectation
created in favour of the appellants, the public authority must
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828
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demonstrate the reasons for such a shift - However, no such
appropriate justification was provided - A mere claim of change of
policy not sufficient to discharge the burden of proof vested in the
government - Respondents to extend the benefits of the original
amendment to the appellants, till the expiry of such benefit as per
the original amendment - In view of divergence of opinion, matter
to be placed before the Hon'ble the Chief Justice of India for
appropriate orders - State Scheme of Incentives for Cottage and
Small-Scale Industries, 1993 - West Bengal Incentive Scheme, 1999.
Manuelsons Hotels Private Limited v. State of Kerala &
Ors. (2016) 6 SCC 766 : [2016] 3 SCR 718; MRF Ltd.,
Kottayam v. Assistant Commissioner (Assessment) Sales
Tax & Ors. (2006) 8 SCC 702 : [2006] 6 Suppl. SCR
417; Motilal Padampat Sugar Mills Co. Ltd. v. State of
Uttar Pradesh & Ors. (1979) 2 SCC 409 : [1979] 2
SCR 641; State of Jharkhand & Ors. v. Brahmputra
Metallics Ltd. Ranchi & Anr. Civil Appeal Nos. 38603862 of 2020; Dai-ichi Karkaria Ltd. v. Union of India
& Ors. (2000) 4 SCC 57 : [2000] 2 SCR 1254 - held
not applicable.
Directorate of Film Festivals & Ors. v. Gaurav Ashwin
Jain & Ors. (2007) 4 SCC 737 : [2007] 5 SCR 7 -
referred to.
Sub-Committee on Judicial Accountability v. Union of
India and Ors. (1991) 4 SCC 699 : [1991] 2 Suppl.
SCR 1 - followed.
State Of Kerala & Ors. v. K.G. Madhavan Pillai & Ors.
(1988) 4 SCC 669 : [1988] 3 Suppl. SCR 94; Navjyoti
Coop. Group Housing Society & Ors. v. Union of India
& Ors. (1992) 4 SCC 477 : [1992] 1 Suppl. SCR 709;
Food Corporation Of India v. Kamdhenu Cattle Feed
Industries (1993) 1 SCC 71 : [1992] 2 Suppl. SCR 322;
M. P. Oil Extraction & Anr. v. State Of M.P. & Ors.
(1997) 7 SCC 592 : [1997] 1 Suppl. SCR 671; MRF
Ltd. Kottayam v. Assistant Commissioner Sales Tax &
Ors. (2006) 8 SCC 702 : [2006] 6 Suppl. SCR 417;
Howrah Municipal Corporation & Ors. v. Ganges Rope
M/

## Text

_Characters 0–39,750 of 68,334. This is a partial read: ask again with offset=39750 for what follows._

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828
SUPREME COURT REPORTS
[2023] 8 S.C.R.
M/S. K.B. TEA PRODUCT PVT. LTD. & ANR.
v.
COMMERCIAL TAX OFFICER, SILIGURI & ORS.
(Civil Appeal No. 2297 of 2011)
MAY 12, 2023
[M. R. SHAH AND KRISHNA MURARI, JJ.]
Doctrines/Principles - Doctrine of legitimate expectation -
West Bengal Sales Tax Act, 1994 - ss.2(17), 17(3)(a)(xi), 39 - West
Bengal Finance Act, 2001 - West Bengal Sales Tax Rules, 1995 -
r.52 - Bengal Finance (Sales Tax) Act, 1941 - s.2(dd) - Whether
despite s.2(17) of the 1994 Act which was amended w.e.f.
01.08.2001, omitting "tea blending" from the definition of
"manufacture", the appellants shall still be entitled to the exemption
from payment of sales tax - Held: Per M.R. Shah, J. Nobody can
claim the exemption as a matter of right - To grant/continue/
withdraw the exemption is a policy decision - Unless withdrawal is
found to be so arbitrary, the Court would be reluctant to interfere -
Prior to 2001, as per s.2(17), 1994 Act, the activity of "tea blending"
was included in the definition of "manufacture" - Therefore, being
in the activity of "tea blending", the appellants were entitled to the
exemption from payment of sales tax as manufacturers - However,
consequent to the amendment, when the activity of "tea blending"
was excluded from the definition of "manufacture", the appellants
ceased to be the manufacturers and thus, on and from 01.08.2001,
they were not entitled to the exemption - There cannot be any
promissory estoppel against the statute - This is not a case of "vested
right" but of "existing right", which can be varied or modified and/
or withdrawn - View taken by the Tribunal and the High Court
agreed with - Per Krishna Murari, J. [Dissenting (on the
applicability of the doctrine of legitimate expectation)] The tax
holiday granted by way of an amendment to small scale industries
involved in the manufacture and blending of tea, created a legitimate
expectation in favour of the appellants - This legitimate expectation
was broken when a subsequent amendment was brought removing
"blending of tea" from the definition of "manufacture" - To justify
such a shift in policy, and snatch away the legitimate expectation
created in favour of the appellants, the public authority must
 [2023] 8 S.C.R. 828
828
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demonstrate the reasons for such a shift - However, no such
appropriate justification was provided - A mere claim of change of
policy not sufficient to discharge the burden of proof vested in the
government - Respondents to extend the benefits of the original
amendment to the appellants, till the expiry of such benefit as per
the original amendment - In view of divergence of opinion, matter
to be placed before the Hon'ble the Chief Justice of India for
appropriate orders - State Scheme of Incentives for Cottage and
Small-Scale Industries, 1993 - West Bengal Incentive Scheme, 1999.
Manuelsons Hotels Private Limited v. State of Kerala &
Ors. (2016) 6 SCC 766 : [2016] 3 SCR 718; MRF Ltd.,
Kottayam v. Assistant Commissioner (Assessment) Sales
Tax & Ors. (2006) 8 SCC 702 : [2006] 6 Suppl. SCR
417; Motilal Padampat Sugar Mills Co. Ltd. v. State of
Uttar Pradesh & Ors. (1979) 2 SCC 409 : [1979] 2
SCR 641; State of Jharkhand & Ors. v. Brahmputra
Metallics Ltd. Ranchi & Anr. Civil Appeal Nos. 38603862 of 2020; Dai-ichi Karkaria Ltd. v. Union of India
& Ors. (2000) 4 SCC 57 : [2000] 2 SCR 1254 - held
not applicable.
Directorate of Film Festivals & Ors. v. Gaurav Ashwin
Jain & Ors. (2007) 4 SCC 737 : [2007] 5 SCR 7 -
referred to.
Sub-Committee on Judicial Accountability v. Union of
India and Ors. (1991) 4 SCC 699 : [1991] 2 Suppl.
SCR 1 - followed.
State Of Kerala & Ors. v. K.G. Madhavan Pillai & Ors.
(1988) 4 SCC 669 : [1988] 3 Suppl. SCR 94; Navjyoti
Coop. Group Housing Society & Ors. v. Union of India
& Ors. (1992) 4 SCC 477 : [1992] 1 Suppl. SCR 709;
Food Corporation Of India v. Kamdhenu Cattle Feed
Industries (1993) 1 SCC 71 : [1992] 2 Suppl. SCR 322;
M. P. Oil Extraction & Anr. v. State Of M.P. & Ors.
(1997) 7 SCC 592 : [1997] 1 Suppl. SCR 671; MRF
Ltd. Kottayam v. Assistant Commissioner Sales Tax &
Ors. (2006) 8 SCC 702 : [2006] 6 Suppl. SCR 417;
Howrah Municipal Corporation & Ors. v. Ganges Rope
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX
OFFICER, SILIGURI
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SUPREME COURT REPORTS
[2023] 8 S.C.R.
Company Ltd. & Ors. (2004) 1 SCC 663 : [2003] 6
Suppl. SCR 1212; Madras City Wine Merchants
Association & Anr. v. State Of Tamil Nadu & Anr. (1994)
5 SCC 509 : [1994] 2 Suppl. SCR 281 - referred to.
R v. Inland Revenue Commissioners, exparte M.F.K.
Underwirting Agents Limited [1982] AC 617;
R. (Bancoult) v. Secretary of State for Foreign and
Commonwealth Affairs) [1990] 1 WLR 1545; Schmidt
v. Secretary of State for Home Affairs [1969] 2 WLR
337; O'Reilly v Mackman [1983] 2 AC 237; Council of
Civil Service Unions v. Minister for the Civil Service
[1984] 3 WLR 1174; R v. North and East Devon Health
Authority, ex parte Coughlan [2001] Q.B. 213;
Nadarajah v. Secretary of State for the Home
Department [2005] EWCA Civ 1363 - referred to.
Case Law Reference
In the judgment of M.R. Shah, J.
[2016] 3 SCR 718
held not applicable
Para 4.6
[2006] 6 Suppl. SCR 417
held not applicable
Para 4.6
[1979] 2 SCR 641
held not applicable
Para 4.6
[2000] 2 SCR 1254
held not applicable
Para 4.7
[2007] 5 SCR 7
referred to
Para 5.7
In the judgment of Krishna Murari, J.
[1991] 2 Suppl. SCR 1
followed
Para 13
[1988] 3 Suppl. SCR 94
referred to
Para 21
[1992] 1 Suppl. SCR 709
referred to
Para 22
[1992] 2 Suppl. SCR 322
referred to
Para 23
[1997] 1 Suppl. SCR 671
referred to
Para 24
[2006] 6 Suppl. SCR 417
referred to
Para 26
[2003] 6 Suppl. SCR 1212
referred to
Para 27
[1994] 2 Suppl. SCR 281
referred to
Para 27
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2297
of 2011.
From the Judgment and Order dated 18.03.2008 of the High Court
of Calcutta in W.P. T.T. No. 479 of 2006.
With
Civil Appeal Nos. 2301, 2305, 2298, 2300, 2299, 2302, 2303 and
2304 of 2011.
Ms. Kavita Jha, Shammi Kapoor, Aditeya Bali, Advs. for the
Appellants.
Ms. Madhumita Bhattacharjee, Adv. for the Respondents.
The Judgments of the Court were delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Calcutta at Calcutta in respective
writ petitions by which the Division Bench of the High Court has
dismissed the said writ petitions preferred by the appellants herein -
original writ petitioners, the original writ petitioners have preferred the
present appeals.
2. As common question of law and facts arise in this set of appeals,
all these appeals are being decided and disposed of together by this
common judgment and order. For the sake of convenience, Civil Appeal
No. 2297 of 2011 arising out of impugned judgment and order passed by
the High Court in Writ Petition No. 479 of 2006 be treated as the lead
matter. The facts leading to the present appeal in nutshell are as under:-
2.1 That Section 2(dd) of the erstwhile Bengal Finance (Sales
Tax) Act, 1941 (hereinafter referred to as "Act, 1941") defined the term
"manufacture" and "blending of any goods" was included within the
said definition. That the Act, 1941 came to be replaced by the West
Bengal Sales Tax Act, 1994 (hereinafter referred to as the "Act, 1994")
and in the month of April, 1998, the definition of "manufacture" provided
under section 2(17) of the Act, 1994 was amended and as a result of
which, "blending of any goods" was omitted from the definition of
"manufacture" but "blending of tea" continued to be included in the said
definition.
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX
OFFICER, SILIGURI
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SUPREME COURT REPORTS
[2023] 8 S.C.R.
2.2 By virtue of the amendment made in the definition of
"manufacture" provided under section 2(17) of the Act, 1994, tax holiday
was granted to new small scale industrial units for a specified period
under section 39 of the Act, 1994 read with section 17(3)(a)(xi) of the
Act, 1994 with Rule 52 of the West Bengal Sales Tax Rules, 1995
(hereinafter referred to as "Rules, 1995").
2.3 Subsequently, the State Scheme of Incentives for Cottage
and Small-Scale Industries, 1993 (1993 Scheme) was amended by the
Governor of West Bengal in the year 1999, thereby, implementing the
West Bengal Incentive Scheme, 1999 (hereinafter referred to as "1999
Scheme"), effective for a period of five years, i.e., from 01.04.1999 till
31.03.2004, for the purpose of providing incentives and promotion of the
large, medium and small-scale industrial units in the State of West Bengal.
2.4 As per the provisions of the 1999 Scheme, the new industrial
units which were established after complying with all the requirements
provided under the 1999 Scheme were given an exemption from payment
of sales tax for a specified period upon the purchase of raw materials
required for carrying the manufacturing activity in said units.
2.5 It is the case on behalf of the appellants that relying upon the
said Scheme and the amendment made in the definition of "manufacture"
under section 2(17) of the Act, 1994, at the relevant time, the appellants
had set up a new small scale industrial unit for the purpose of carrying
on the business of manufacturing blended tea.
2.6 As per the provisions of the 1999 Scheme, the small-scale
industrial units to claim exemption from payment of sales tax, were
required to get themselves registered as small-scale industrial unit and
obtain an eligibility certificate from the Sales Tax Department as per
Section 39 read with Rule 55 of the Rules, 1995. The Deputy
Commissioner granted the eligibility certificate to the appellants for a
period of seven years from the date of first sale of the manufactured
product. The appellants enjoyed the benefit of exemption from payment
of sales tax as provided under Section 2(17) and Section 39 of the Act,
1994 for a period of two years till Section 2(17) came to be amended by
the West Bengal Finance Act, 2001. Section 2(17) of the Act, 1994
came to be amended by the West Bengal Finance Act, 2001 w.e.f.
01.08.2001, whereby the words "blending of tea" were omitted from the
definition of "manufacture" provided under section 2(17) of the Act,1994.
Consequently, the exemption from payment of sales tax, which was
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granted to the appellants came to be stopped and even the eligibility
certificate was required to be modified.
2.7 The aforesaid action / order was challenged before the Tribunal
first and thereafter before the High Court. The Tribunal dismissed the
application, which has been confirmed by the High Court by the impugned
judgment and order. The impugned judgment and order passed by the
High Court is the subject matter of present appeals, claiming the
exemption from payment of sale tax as per earlier 1999 Scheme.
3. Ms. Kavita Jha, learned counsel has appeared on behalf of the
appellants and Ms. Madhumita Bhattacharjee, learned counsel has
appeared on behalf of the respondents - State.
4. Learned counsel appearing on behalf of the appellants had made
the following submissions:-
4.1 That the appellants had been allured by the State of West
Bengal Government to set up new industrial unit in expectation of getting
benefit of tax for a period on fulfilment of certain requirements and once
on the basis of such requirements such industrial unit is given such benefit,
subsequently, by way of amendment such right cannot be taken away.
4.2 That the State authority has in a blanket manner simply
removed the word "blending of tea" from the definition of "manufacture"
under Section 2(17) of the Act, 1994 without taking into account the fact
that the appellants had received eligibility certificate for a period of seven
years and had already availed the benefit of the scheme for a particular
period. The appellants' rights were crystalised from the day eligibility
certificate had been granted under the Act, 1994 and the only justifiable
manner in which the State could have rescinded this benefit was to
show overarching public interest. In the present case as well, no
overarching public interest has been demonstrated by the respondents in
order to justify the amendment made to Section 2(17).
4.3 That the doctrine of legitimate expectation can be invoked
where the amendment under the provision of law is not made in
consonance with public interest. It is submitted that in the present case,
the respondents have failed to showcase any public interest in rescinding
the benefits.
4.4 It is submitted that since in this case, the appellants were
denied benefit on account of amendment made in the definition of
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX
OFFICER, SILIGURI [M. R. SHAH, J.]
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SUPREME COURT REPORTS
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"manufacture" under Section 2(17) of the Act, 1994 which is an arbitrary
move by the State without showing any accompanying public interest
involved. Therefore, any decision taken in an arbitrary manner contradicts
the principle of legitimate expectation, if taken without specifically showing
the public interest involved in the matter.
4.5 It is submitted that the State action in this case, fails to meet
the test of reason and relevance, as no explanation has been given by
the State for rescinding the benefits.
4.6 It is further submitted that the appellants had altered their
position to avail the benefit under the Scheme and incurred additional
cost such of almost Rs. 18,12,967/- and procured loan for almost Rs.
65,00,000/- in the K.B. Tea Products Pvt. Ltd. and since, the appellants
had made substantial expenses for availing the benefits under the Scheme,
the State cannot take away such benefits unless some overriding public
interest is involved. The said act done by the State is unfair and abuse of
power against the appellants. Reliance is placed on the following decisions:
Manuelsons Hotels Private Limited Vs. State of Kerala &
Ors., (2016) 6 SCC 766; MRF Ltd., Kottayam Vs. Assistant
Commissioner (Assessment) Sales Tax & Ors., (2006) 8
SCC 702 and Motilal Padampat Sugar Mills Co. Ltd. Vs.
State of Uttar Pradesh & Ors., (1979) 2 SCC 409.
4.7 Learned counsel appearing on behalf of the appellants has
also relied upon the decision of this Court in the case of State of
Jharkhand & Ors. Vs. Brahmputra Metallics Ltd., Ranchi & Anr.
[Civil Appeal Nos. 3860-3862 of 2020] and in the case of Dai-ichi
Karkaria Ltd. Vs. Union of India & Ors., (2000) 4 SCC 57 in
support of the submission on the legitimate expectation.
4.8 Making above submissions and relying upon the above
decisions, it is prayed to allow the present appeals.
5. Learned counsel appearing on behalf of the State while opposing
the present appeals has vehemently submitted that in the facts and
circumstances of the case, the appellants shall not be entitled to the
exemption as claimed.
5.1 It is submitted that in the year 1999, the appellants were granted
a certificate of eligibility for Tax Holiday under Section 39 of the Act,
1994 for a period of seven years from the date of first sale of the
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manufactured product, i.e., 18.05.1999, since at that point of time the
definition of "manufacture" in Section 2(17) of the Act, 1994 included
'blending of tea'.
5.2 It is submitted that subsequently, the definition of "manufacture"
under Section 2(17) of the Act, 1994 came to be amended by the West
Bengal Finance Act, 2001 and "blending of tea" came to be omitted
from the definition w.e.f. 01.08.2001. It is submitted that therefore, the
appellant company ceased to be a manufacturer under the Act, 1994
and, therefore, was ineligible to avail the benefit under Section 39 of the
Act, 1994. It is submitted that therefore, the Commercial Tax Officer,
Siliguri Charge sought to amend the Registration Certificate of the
appellant company in terms of the amendment.
5.3 It is submitted that earlier the exemption was granted to the
small-scale industrial units engaged in manufacturing activities. It is
submitted that at the relevant time, pre-01.08.2001, and as per Section
2(17) of the Act, 1994, "blending of tea" was included in the definition of
"manufacture". It is submitted that therefore, being manufacturers, the
appellants were allowed the exemption. It is submitted that however,
thereafter, in view of the amendment to Section 2(17) of the Act, 1994
w.e.f. 01.08.2001, "blending of tea" was excluded from the definition of
"manufacture" and, therefore, the appellants ceased to be the
manufacturers. It is submitted that once the appellants ceased to be the
manufacturers, the appellants shall not be entitled to the exemption as
the exemption was available only to the small-scale industrial units
engaged in manufacturing activities and to manufacturer under the Act,
1994.
5.4 It is submitted that when the legislature in its wisdom, excluded
"tea blending" from the definition of "manufacture", therefore, "tea
blending" cannot be regarded as a manufacturing activity entitled to
enjoy exemption as provided by Section 39 of the Act, 1994. It is submitted
that the submission on behalf of the appellants on legitimate expectation
and that by amending Section 2(17) "vested right" in favour of the
appellants could not have been taken away, has no substance.
5.5 It is submitted that as rightly observed and held by the High
Court, this is not a case of "vested right" but a case of "existing right".
It is submitted that therefore, the existing right can be taken away. It is
submitted that there cannot be any legitimate expectation against a
statute.
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX
OFFICER, SILIGURI [M. R. SHAH, J.]
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SUPREME COURT REPORTS
[2023] 8 S.C.R.
5.6 It is further submitted that to grant the exemption or not is a
policy decision and nobody can claim the exemption as a matter of right.
It is submitted that therefore, both the learned Tribunal as well as the
High Court have rightly refused to grant the appellants any exemption
from payment of sales tax which the appellants were being granted
prior to 01.08.2001 being the manufacturers of "tea blending".
5.7 It is further submitted that this is not the case of retrospective
operation, but it is a case of prospective withdrawal of an existing
continuing right to get exemption of sales tax. It is submitted that when
the legislature in its wisdom amended the definition of "manufacture"
contained in Section 2(17) and the "tea blending" came to be excluded
from the definition of "manufacture" and which resulted in withdrawing
the exemption, which the appellants were availing prior to 01.08.2001 as
manufacturer, being a policy decision, the same is not subject to judicial
review. Reliance is placed on the decision of this Court in the case of
Directorate of Film Festivals & Ors. Vs. Gaurav Ashwin Jain &
Ors., (2007) 4 SCC 737.
5.8 Making above submissions, it is prayed to dismiss the present
appeals.
6. Heard the learned counsel for the respective parties at length.
7. The short question, which is posed for the consideration of this
Court is:
"Whether despite Section 2(17) of the West Bengal Sales Tax
Act, 1994 which came to be amended w.e.f. 01.08.2001 vide
West Bengal Finance Act, 2001, omitting "tea blending" from the
definition of "manufacture", still the appellants shall be entitled to
the exemption from payment of sales tax?
8. The main submission on behalf of the appellants is that as prior
to 01.08.2001, the appellants were availing the benefit of sales tax
exemption, the said right could not have been taken away by virtue of
amendment to Section 2(17) of the Act, 1994 on the ground of legitimate
expectation as well as by promissory estoppel. Thus, it is the case on
behalf of the appellants that as on 01.08.2001, under the Act, 1994, when
Section 2(17) of the Act, 1994 came to be amended, the appellants had
a "vested right" and therefore, the amendment to Section 2(17) of the
Act, 1994 shall not affect such "vested right" of exemption from payment
of sales tax, which the appellants were availing prior to 01.08.2001.
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8.1 However, it is required to be noted that this is a case of claiming
exemption from payment of sales tax. As per the settled position of law,
nobody can claim the exemption as a matter of right. The exemption is
always on the fulfilment of the conditions for availing the exemption and
the same can be withdrawn by the State. To grant the exemption and/or
to continue and/or withdraw the exemption is always within the domain
of the State Government and it falls within the policy decision and as per
the settled position of law, unless withdrawal is found to be so arbitrary,
the Court would be reluctant to interfere with such a policy decision.
8.2 In the present case, prior to 2001, as per Section 2(17) of the
Act, 1994, the activity of "tea blending" was included in the definition of
"manufacture". Therefore, being in the activity of "tea blending", the
appellants were entitled to the exemption from payment of sales tax as
manufacturers. It cannot be disputed that being the manufacturer in the
activity of "tea blending" the appellants would have always been entitled
to the exemption from payment of sales tax. Being a manufacturer, being
in the activity of "tea blending", the appellants were availing the sales
tax exemption. However, thereafter, the definition of "manufacture" as
contained in Section 2(17) of the Act, 1994 came to be amended w.e.f.
01.08.2001 vide West Bengal Finance Act, 2001 and the activity of "tea
blending" came to be excluded from the definition of "manufacture".
Consequently, the appellants ceased to be the manufacturers. Once the
appellants ceased to be the manufacturers, the appellants shall not be
entitled to the exemption from the payment of sales tax, which was
available to the appellants as a manufacturer being in the activity of "tea
blending". Therefore, on and from 01.08.2001, "tea blending" activity
ceased to be the manufacturing activity and the appellants ceased to be
the manufacturers and therefore, on and from 01.08.2001, the appellants
shall not be entitled to the exemption from payment of sales tax. Thus,
the withdrawal of exemption from payment of sales tax would be
prospective and not retrospective. So long as the appellants continue to
be the manufacturers as per Section 2(17) of the Act, 1994 prevailing
prior to 01.08.2001, the appellants can be said to be entitled to the benefit
of exemption from payment of sales tax as manufacturers being in the
activity of "tea blending". The moment, "tea blending" activity ceases to
be the manufacturing activity, on and from that day, the appellants shall
not be entitled to the exemption from payment of sales tax.
8.3 Now, so far as the submission on behalf of the appellants on
legitimate expectation and/or promissory estoppel and the submission on
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX
OFFICER, SILIGURI [M. R. SHAH, J.]
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behalf of the appellants that the "vested right" cannot be taken away is
concerned, the aforesaid has no substance. There cannot be any
promissory estoppel against the statute as per the settled position of law.
As rightly observed and held by the High Court, this is not a case of
"vested right" but a case of "existing right", which can be varied or
modified and/or withdrawn. In the present case, as per amendment in
the definition contained in Section 2(17) of the Act, 1994 w.e.f. 01.08.2001
by which "tea blending" activity is excluded from the definition of
"manufacture" and therefore, on and from that day itself, the appellants
ceased to be the manufacturers and shall not be entitled to the benefit of
exemption from payment of sales tax as was available to them as
manufacturers.
8.4 At this stage, it is also required to be noted that as per Section
39 of the Act, 1994, under which the appellants are claiming the exemption
from payment of sales tax, no tax shall be payable by a dealer for such
period as may be prescribed in respect of his sales - goods manufactured
by him. Therefore, the word "manufacture" is very relevant and is a
condition sine qua non to be satisfied. Therefore, the definition of
"manufacture" is really relevant. Therefore, if a dealer ceased to be the
manufacturer, he shall not be entitled to the benefit of exemption under
Section 39. The relevant portion of Section 39 reads as under:-
"39. Tax holiday for new small-scale industrial units- (1)
Subject to such conditions and restrictions as may be prescribed,
no tax shall be payable by a dealer for such period as may be
prescribed in respect of his sales of goods manufactured by him
in his newly set up small-scale industrial unit situated in the
prescribed area, and in calculating his taxable turnover of sales
under sub-section (3) of section 17, that part of his gross turnover
of sales which represents the turnover of sales of such goods
shall be deducted from his gross turnover of sales under subclause (viii) of clause (a) of sub-section (3) of that section.
XXXXXXXXXXXXXXXX"
 8.5 Under the circumstances, the decisions relied on behalf of
the appellants referred to hereinabove, shall not be applicable to
the facts of the case on hand.
9. In view of the above and for the reasons stated above, I am in
complete agreement with the view taken by the learned Tribunal as well
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as the High Court that on and after 01.08.2001 and in view of the
amendment to Section 2(17) of the Act, 1994, by which the definition of
"manufacture" is amended and "tea blending" is excluded from the
definition of "manufacture", the appellants shall not be entitled to the
exemption from payment of sales tax.
Under the circumstances, all these appeals fail and the same
deserve to be dismissed and are accordingly dismissed. However, in the
facts and circumstances of the case, there shall be no order as to costs.
KRISHNA MURARI, J.
1. I have had the advantage of reading the judgment proposed by
my esteemed brother, Hon'ble Mr. Justice M.R. Shah. However, I am
unable to agree with the reasoning as well as the result arrived at by my
esteemed brother, and thus separately pen down my conclusion.
2. In brief, Section 2(dd) of the erstwhile Bengal Finance (Sales
Tax) Act, 1941 defined the term "manufacture", under the definition of
which, "blending of any goods" was also included. The said act was
then replaced by the West Bengal Sales Tax Act, 1994, under which, the
definition of "manufacture" was changed, and the term "blending of any
goods" was omitted, however, "blending of tea" was still included under
the definition of "manufacture". Further, by virtue of the said amendment,
a tax holiday was granted to new small scale industrial units for a specified
period.
3. Subsequent to the amendments, the State scheme of Incentives
for Cottage and Small-Scale Industries, 1993 was amended, for the
purpose of providing incentives and promotion of large, medium and
small scale industrial units.
4. Subsequent to this tax holiday being granted, and on the basis
of such tax holiday, the Appellants herein set up small-scale industrial
units for the purpose of carrying on the business of manufacturing blended
tea. After the setting up of the unit by the appellants, by way of an
amendment, the term "blending of tea" was omitted from the definition
of "manufacture", leading to the appellant's exclusion from claiming the
said tax holiday. It is against this exclusion and omission that the appellants
have filed the present batch of civil appeals.
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5. A detailed factual matrix of the present case at hand has been
rendered by my esteemed brother in his opinion, and for the sake of
brevity, I am not replicating the same herein.
ANALYSIS
6. Learned counsel appearing on behalf of both the parties were
heard in great detail.
7. Through the present batch of civil appeals, two substantial
questions of law have been raised, and for a ready reference, the two
issues are being mentioned hereunder:
I.Whether the appellants herein have a vested right in
claiming exemption from payment of sales tax under the
Act, since the vested right was accrued upon the appellants
before the amendment was made under Section 2(170) of
the Act?
II. Whether the doctrine of legitimate expectation is
applicable in the present case since the appellants had set
up their industrial units on the basis of the allurement of a
tax holiday granted by the Government?
8. I am in agreement with the conclusion arrived at by my
esteemed brother on the first issue, and hence, my dissent is limited only
to the second question posed before this Court.
RULE OF LAW
9. The doctrine of rule of law, as an ideal, denotes that a state
must be governed, not by men, but by law. This concept finds its origins
in the work of Aristotle, where he remarks that in a state that functions
on the principles of justice and equality, rule of law must be supreme,
and the state as an institution must not be subject to the whims and
fancies of its ruler.
10. While the origins of rule of law date back to ancient Greece,
the modern conception of rule of law, which is the bedrock for most
democratic constitutions across the world, finds its roots in the book
"The Law of the Constitution" authored by professor A.V. Dicey.
11. Professor Dicey, in his conception of the doctrine of rule of
law, while echoing the thoughts of Aristotle, states that all individuals
and entities must be subject to law, and that no one, not even the
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government or its officials, are above the law. For such a functioning of
the law, Dicey points out that the law must be clear, unambiguous, and
must apply to all equally. To further such a conception and bring clarity
on the same, Professor Dicey elucidated on three principles that
characterize a smooth application of the law.
12. The first principle, which is most relevant to the context of the
present case, is the ideal that the law is supreme, and no entity can be
above it. A reading of this principle would also mean that for law to be
supreme, it must be applicable to all, it cannot be arbitrary, and nor can it
take away anything conferred by it in an arbitrary manner. In simpler
terms, for law to be supreme, it must be clear, and it must stay true to
itself, without falling prey to other powers inside or outside of it.
13. This principle of rule of law, in the context of our nation, has
found refuge within the basic structure of our constitution. In the case of
Sub-Committee on Judicial Accountability vs. Union Of India and
Ors.1, while expounding on the importance of the independence of the
judiciary, a Constitution Bench of this Court held that rule of law is a part
of the basic structure of the constitution of India, the relevant observations
made in this regard are as under:
"Before we discuss the merits of the arguments it is necessary
to take a conspectus of the constitutional provisions
concerning the judiciary and its independence. In interpreting
the constitutional provisions in this area the Court should
adopt a construction which strengthens the foundational
features and the basic structure of the Constitution. Rule of
law is a basic feature of the Constitution which permeates the
whole of the constitutional fabric and is an integral part of
the constitutional structure."
14. It is from this principle of rule of law, does the doctrine of
legitimate expectation flow. The doctrine of legitimate expectation, as
described in detail below, is closely linked with, and is essential for the
functioning of the rule of law. This is because both, the rule of law and
legitimate expectation form the bedrock for fairness and predictability
of the legal system. The doctrine of rule of law ensures that laws are
applied equally and consistently, while the doctrine of legitimate
expectation ensures that public authorities act reasonably and consistently
1 (1991) 4 SCC 699
M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX
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in their decision-making processes. Together, these principles promote
transparency and accountability in government actions, and they help to
maintain the trust of the people in the legal system.
DOCTRINE OF LEGITIMATE EXPECTATION
15. The doctrine of legitimate expectation, in simple terms, is a
legal principle that arises when a public authority makes a promise or
acts in a manner that leads an individual or a group to expect a particular
outcome. This doctrine , which flows from the doctrine of rule of law, is
based on the idea of fairness and consistency in the decision-making
processes of public authorities.
16. When a legitimate expectation of a specific outcome is created
by a public authority, the said public authority is required to take into
account such expectation created by it when making a decision that
affects the interests of the individual or group concerned. If the public
authority fails to do so, the individual or group has a right to challenge the
decision and seek a remedy, such as an order to enforce the legitimate
expectation, as is the situation in the case at hand.
17. In Halsbury's Laws of England, Fourth Edition, Volume I(I)
151,the concept of legitimate expectation has been elucidated on, and
for the sake of convenience, the same is being extracted herein:
Legitimate expectations. A person may have a legitimate
expectation of being treated in a certain way but an
administrative authority even though he has no legal right in
private law to receive such treatment. The expectation may
arise either from a representation or promise made by the
authority, including an implied representation, or from
consistent past practice. The existence of a legitimate
expectation may have a number of different consequences; it
may give locus standi to seek leave to apply for judicial review;
it may mean that the authority ought not to act so as to defeat
the expectation without some overriding reason of public policy
to justify its doing so; or it may mean that, if the authority
proposes to defeat a person's legitimate expectation, it must
afford" him an opportunity to make representations on the
matter. The Courts also distinguish, for example in licensing
cases, between original applications, applications to renew
and revocations; a party who has been granted a licence may
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have a legitimate expectation that it will be renewed unless
there is some good reason not to do so, and may therefore be
entitled to greater procedural protection than a mere applicant
for a grant.
18. The Courts of United Kingdom, while conceptualizing the
doctrine of legitimate expectation, have adopted other key aspects of
judicial review such as Wednesbury unreasonableness in the case of
R vs. Inland Revenue Commissioners, exparte M.F.K. Underwirting
Agents Limited2 and abuse of power in the case of R. (Bancoult) vs.
Secretary of State for Foreign and Commonwealth Affairs)3 to justify
the existence and the protection of legitimate expectations.
19. The term legitimate expectation was first used in the case of
Schmidt v Secretary of State for Home Affairs4 by the UK Courts.
The doctrine however, was not applied to the facts therein. Subsequently,
in the case of O'Reilly v Mackman5, the doctrine of legitimate
expectation was recognized as a ground for judicial review, allowing
individuals to challenge the legality of decisions on the grounds that the
decision-maker "had acted out with the powers conferred upon it".
20. Further in the cases of Council of Civil Service Unions v
Minister for the Civil Service6 and R v North and East Devon Health
Authority, ex parte Coughlan7, the boundaries of the doctrine were
further elaborated upon. Notwithstanding efforts of the Courts, some
ambiguity as to when legitimate expectations arise persisted, and in
response, Lord Justice of Appeal, John Laws proposed the aspiration of
"good administration" as a justification for the protection of legitimate
expectations in the case of Nadarajah v. Secretary of State for the
Home Department8.
21. The doctrine of legitimate expectation was first introduced to
Indian jurisprudence in the case of State Of Kerala & Ors. vs. K.G.
Madhavan Pillai & Ors.9. In the aforesaid case, the government had
2 [1982] AC 617
3 [1990] 1 WLR 1545
4 [1969] 2 WLR 337
5 [1983] 2 AC 237
6 [1984] 3 WLR 1174
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8 [2005] EWCA Civ 1363
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M/S. K.B. TEA PRODUCT PVT. LTD. v. COMMERCIAL TAX
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issued a sanction in favour of the respondent therein to open a new
school and to upgrade certain already existing schools. However,
subsequent to the abovementioned sanction, a new direction was given
by the government to keep the said sanction in abeyance. This Court,
while deciding the said issue, was of the opinion that the original sanction
given by the government gave rise to a legitimate expectation in the
minds of the respondents. This legitimate expectation was however
breached by the subsequent direction for abeyance, and hence there
was a violation of the principles of natural justice. The relevant
observations in this regard from the said judgment are being reproduced
hereunder:
"...In other words once the Government approves an
application for opening a new unaided school or a higher
class in an existing unaided school and passes an order under
Rule 2-A(5), then the successful applicant acquires a right of
legitimate expectation to have his application further
considered under Rules 9 and 11 for the issue of a sanction
order under Rule 11 for opening a new school or upgrading
an existing school. It is no doubt true, as pointed out by the
Division Bench, that by the mere grant of an approval under
Rule 2-A(5), an applicant will not acquire a right to open a
new school or to upgrade an existing school but he certainly
acquires a right enforceable in law to have his application
taken to the next stage of consideration under Rule 11. The
Division Bench was therefore, right in taking the view that
the general power of rescindment available to the State
Government under Section 20 of the Kerala General Clauses
Act has to be determined in the light of the "subject matter,
context and the effect of the relevant provisions of the statute".
22. In Navjyoti Coop. Group Housing Society & Ors. vs. Union
Of India & Ors.10, the original policy for allotment of land to housing
societies therein was based on the principle of seniority, and seniority
under the said policy was decided on the basis of the date of registration.
Subsequently, a change was made to the original policy, wherein the
criteria for deciding seniority was changed from the date of registration
to the date of approval of the final list. The said deviation from the
original policy was challenged on the touchstone of legitimate expectation
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by the petitioners therein. This Court, while deciding on the said challenge,
held that the original policy, as well as the past practice of allotting land,
gave rise to a legitimate expectation to the parties therein of a predictable
pattern of allotment, and the new change in policy broke such legitimate
expectation. This interpretation by way of the abovementioned judgment,
expanded the width of the doctrine of legitimate expectation further, and
extended it to not just an explicit guarantee, but also to expectations
arising out of past practice.