Adivision bench of the Supreme Court rendered a split verdict while deciding whether a tax exemption could be granted on the basis of the doctrine of legitimate expectation. In the matter of M/s KB Tea Product Pvt Ltd & Anr v Commercial Tax Officer, Siliguri & Ors 2023, the appellant-manufacturer was engaged in manufacturing blended tea and was exempted from paying sales tax for two years under section 39 of the West Bengal Finance Act, 1994. This section prescribed an incentive to newly set up small-scale industrial units in the form of a tax holiday for sales of manufactured goods.
The act was amended in 2001 and the words “blending of tea” were removed from the definition of “manufacture”. The issue before the court was whether the doctrine of legitimate expectation applied since the appellant-manufacturer had set up industrial units on the basis of the government-granted tax holiday.
Justice MR Shah dismissed the appellant’s contention and held that nobody could claim exemption from sales tax as a matter of right. He said the decision to grant the exemption, or to continue or withdraw the exemption, fell within the domain of the state government and was a policy decision. He also observed the appellant ceased to be a manufacturer from the date the act’s amendment took effect.
Therefore, once the appellant ceased to be a manufacturer, he was not entitled to the tax exemption. Justice Shah opined that there could not be any promissory estoppel against the statute.
Justice Krishan Murari, on the other hand, allowed the appeal and held that a legitimate expectation was created in the appellant’s mind and should be protected. Noting that the appellant was granted a certificate of eligibility under section 39 of the 1994 act for a period of seven years, Justice Murari held that the originally-given benefits must be made applicable for the period promised by the public authority.
Justice Murari said it was due to the tax exemption that the appellant-manufacturer set up the small-scale industrial unit, and this created a legitimate expectation. In this way, the appellant was lured into pouring money into setting up small-scale industrial units and, if a legitimate expectation was being taken away by way of a modification to an existing policy on grounds of public interest, such public interest must be demonstrated by the modification. The chief justice will now form an appropriate bench to hear the matter.
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