Date of the Judgment: 1 December 2020
Citation: (2020) INSC 895
Judges: Dr. Dhananjaya Y. Chandrachud, J, Indu Malhotra, J.
Can a state government renege on its policy promises, especially when businesses have relied on them? The Supreme Court of India recently addressed this critical question in a case concerning electricity duty exemptions in Jharkhand. The court examined whether the State of Jharkhand could deny a promised rebate on electricity duty to industrial units, emphasizing the importance of promissory estoppel and legitimate expectations in governance. The judgment was authored by Dr. Justice DY Chandrachud, with Justice Indu Malhotra concurring.

Case Background

The case revolves around Brahmputra Metallics Ltd., which established a captive power plant for its sponge iron and mild steel billet manufacturing unit. The company commenced commercial production on 17 August 2011. The State of Jharkhand, in its Industrial Policy 2012, promised a 50% exemption on electricity duty for captive power plants for a period of five years. This policy was notified on 16 June 2012. However, the state government failed to issue the necessary notification for the exemption within the stipulated one month period. The notification was eventually issued on 8 January 2015, but made effective only from the date of its issuance, thereby denying the benefit of the exemption for the period prior to this date. Brahmputra Metallics Ltd. sought the benefit of the exemption from the date of commencement of production.

Timeline

Date Event
17 August 2011 Brahmputra Metallics Ltd. commences commercial production.
22 November 2011 Certificate of registration granted to the respondent under Rule 4 of the Bihar (Jharkhand) Electricity Duty Rules 1949.
16 June 2012 Jharkhand Industrial Policy 2012 is notified, promising electricity duty exemption.
31 May 2013 Certificate of commencement of commercial production granted to the respondent.
9 December 2014 Assessment order passed for FY 2011-12.
8 January 2015 State government issues notification for electricity duty exemption, effective prospectively.
3/4 February 2015 High Court of Jharkhand decides WP (T) No. 6008 of 2014 filed by Usha Martin Limited.
18 December 2015 Assessment order passed for FY 2012-13.
16 December 2016 Assessment order passed for FY 2013-14.
August 2019 Brahmputra Metallics Ltd. files writ petition before the High Court of Jharkhand.
11 December 2019 High Court of Jharkhand rules in favor of Brahmputra Metallics Ltd.
1 December 2020 Supreme Court upholds the High Court’s decision with modifications.

Course of Proceedings

The High Court of Jharkhand, relying on the doctrine of promissory estoppel, ruled in favor of Brahmputra Metallics Ltd. The High Court struck down the prospective clause of the notification dated 8 January 2015, and ordered that the notification should be deemed to be in effect from 1 April 2011, when the Industrial Policy 2012 was enforced with retrospective effect. The High Court held that the denial of the exemption by the State government for FYs 2011-12, 2012-13 and 2013-14 was contrary to the doctrine of promissory estoppel. The State of Jharkhand appealed this decision to the Supreme Court.

Legal Framework

The case primarily involves the interpretation and application of the following legal provisions:

  • Section 9 of the Bihar Electricity Duty Act 1948: This section empowers the State Government to grant exemptions from electricity duty. The section states, “The State Government shall have power to exempt any person or class of persons notified in this behalf from the duty payable under this Act and such exemptions, may be subject to such conditions and exemptions if any, as may be mentioned in the said notification.”
  • Jharkhand Industrial Policy 2012: This policy, notified on 16 June 2012, included Clause 32.10 which promised a 50% exemption from electricity duty for captive power plants for a period of five years. The policy also included Clause 35.7(b) which stated that the entitlement would ensue from the financial year following the Date of Production (DoP). Clause 38(b) stipulated that notifications enforcing the terms of the industrial policy would be issued within a period of one month by the Departments of the State government.
  • Rule 6 of the Bihar (Jharkhand) Electricity Duty Rules 1949: This rule mandates every assessee to pay the duty within two calendar months of the month to which it relates.
  • Rule 9 of the Bihar (Jharkhand) Electricity Duty Rules 1949: This rule requires the submission of a return in Form-III within a period of two calendar months from the expiry of the month to which the return relates.

The Supreme Court also considered the doctrine of promissory estoppel, which is an equitable principle that prevents a party from going back on a promise when another party has relied on that promise to their detriment. The court also discussed the doctrine of legitimate expectation, which is based on the principles of fairness in government dealings.

Arguments

State of Jharkhand’s Arguments:

  • The respondent did not claim the exemption in its returns, and only sought a rebate towards “auxiliary consumption”.
  • The respondent paid the electricity duty without protest.
  • The returns filed by the respondent were belated, and a penalty was levied.
  • The notification under Section 9 of the Bihar Act 1948 was issued on 8 January 2015, and the respondent was not prejudiced by the delay.
  • The respondent is not entitled to claim a rebate for FY 2011-12 as per Clause 35.7(b) of the Industrial Policy 2012.
  • The High Court’s decision in a similar case should operate erga omnes.
  • The writ petitions were instituted to overcome the period of limitation.
  • The judgements in State of Madhya Pradesh vs Bhailal Bhai [AIR 1964 SC 1006] and Suganmal vs State of Madhya Pradesh [AIR 1965 SC 1740], which state that a claim for refund could be made only within the period of limitation prescribed under the general law, should be followed.
  • There is a presumption that the amount claimed as a rebate has already been passed on to the customers, resulting in unjust enrichment.
  • The respondent had an alternative statutory remedy of appeal under Section 9A of the Bihar Act 1948.
  • The doctrine of promissory estoppel cannot be extended backwards as the unit commenced commercial production before the Industrial Policy 2012.

Brahmputra Metallics Ltd.’s Arguments:

  • The State government’s action of making the exemption notification prospective is a violation of the promise held out in the Industrial Policy 2012.
  • The benefit of the rebate could not have been claimed in the returns for FYs 2011-12, 2012-13 and 2013-14, as the exemption notification was issued only on 8 January 2015, and that too with prospective effect.
  • The respondent has received a rebate only for the period 8 January 2015 to 31 March 2015 and for FY 2015-16.
  • The issue of delay was not raised by the State government before the High Court or in the Special Leave Petition.
  • Delay by itself may not defeat the claim unless the position of the opposite party has been altered.
  • The decisions in Bhailal Bhai [AIR 1964 SC 1006] and Suganmal [AIR 1965 SC 1740] are distinguishable as they relate to a writ petition seeking a refund of illegally collected tax.
  • The respondent is entitled to the benefit of a rebate for a period of five years as held out in clause 32.10 of the Industrial Policy 2012.
  • The period of five years may commence from 17 August 2011, from FY 2012-13 or from 8 January 2015.
See also  Supreme Court Disallows Business Loss Claim on Confiscated Silver: Commissioner of Income Tax vs. Prakash Chand Lunia (2023)

Submissions Table

Main Submission Sub-Submissions (State of Jharkhand) Sub-Submissions (Brahmputra Metallics Ltd.)
Claim for Exemption
  • No claim in returns, only for auxiliary consumption.
  • Duty paid without protest.
  • Belated returns with penalty.
  • Exemption could not be claimed due to lack of notification.
  • Received rebate only from 8 Jan 2015.
Validity of Notification
  • Notification issued on 8 Jan 2015, respondent not prejudiced.
  • No vested right to claim earlier implementation.
  • Making notification prospective violates the promise.
Delay in Filing Writ Petition
  • Writ petitions filed in 2019 to overcome limitation.
  • Issue of delay not raised earlier.
  • Delay does not defeat claim unless position altered.
Applicability of Precedents
  • Relied on Bhailal Bhai [AIR 1964 SC 1006] and Suganmal [AIR 1965 SC 1740] regarding limitation.
  • Distinguished Bhailal Bhai [AIR 1964 SC 1006] and Suganmal [AIR 1965 SC 1740] as cases of refund of illegally collected tax.
Unjust Enrichment
  • Amount passed on to customers, resulting in unjust enrichment.
  • Burden of electricity duty not passed on to customers.
Alternative Remedy
  • Statutory remedy of appeal under Section 9A of the Bihar Act 1948 was available.
  • Not applicable.
Promissory Estoppel
  • Cannot be extended backwards as unit commenced before the policy.
  • The State is bound by its promise in the Industrial Policy 2012.

Issues Framed by the Supreme Court

The main issue before the Supreme Court was:

  1. Whether the respondent is entitled to claim a rebate or deduction of 50 per cent of the amount assessed towards electricity duty for FYs 2011-12, 2012-13 and 2013-14.

Treatment of the Issue by the Court

Issue Court’s Decision Brief Reasons
Whether the respondent is entitled to claim a rebate or deduction of 50 per cent of the amount assessed towards electricity duty for FYs 2011-12, 2012-13 and 2013-14. Partially Affirmed The Court held that the respondent was not entitled to a rebate for FY 2011-12, but was entitled to a rebate for FYs 2012-13 and 2013-14. The court reasoned that as per clause 35.7(b) of the Industrial Policy 2012, the entitlement ensues from the financial year following the commencement of production.

Authorities

The Supreme Court considered the following authorities:

Authority Court Legal Point How it was used by the Court
Motilal Padampat Sugar Mills Co. Ltd. vs State of UP [ (1979) 2 SCC 409] Supreme Court of India Promissory Estoppel The Court relied on this case to emphasize that promissory estoppel is a principle in equity and is not hampered by the doctrine of consideration.
State of Bihar vs Kalyanpur Cement Limited [(2010) 3 SCC 274] Supreme Court of India State’s Obligation to Implement Policy The Court used this case to highlight that the State cannot rely on its own lapses in implementing its policy to defeat a valid claim.
Manuelsons Hotels Private Limited vs State of Kerala [(2016) 6 SCC 766] Supreme Court of India Promissory Estoppel The Court referred to this case to emphasize that the non-exercise of discretionary power is vitiated by the doctrine of promissory estoppel.
Crabb vs Arun DC [1976] 1 Ch 179 Court of Appeal Promissory Estoppel The Court used this case to trace the genesis of promissory estoppel in equity.
Combe vs Combe [1951] 2 K.B. 215 Court of Appeal Promissory Estoppel The Court discussed this case to highlight the traditional view that promissory estoppel cannot be used as a ‘sword’.
R vs North and East Devon Health Authority, ex p Coughlan [2001] QB 213 English Court Legitimate Expectation The Court used this case to explain the doctrine of substantive legitimate expectation.
Regina (Bibi) vs Newham London Borough Council [2002] 1 W.L.R. 237 Court of Appeal Legitimate Expectation The Court used this case to highlight that detriment is not necessary for the doctrine of legitimate expectation.
National Buildings Construction Corporation vs S. Raghunathan [(1998) 7 SCC 66] Supreme Court of India Legitimate Expectation The Court referred to this case to emphasize that the government is expected to honor its statements of policy.
Monnet Ispat and Energy Ltd. vs Union of India [(2012) 11 SCC 1] Supreme Court of India Promissory Estoppel vs Legitimate Expectation The Court discussed this case to highlight the different considerations that underlie the doctrines of promissory estoppel and legitimate expectation.
Union of India vs Lt. Col. P.K. Choudhary [(2016) 4 SCC 236] Supreme Court of India Legitimate Expectation The Court discussed this case to highlight that the doctrine of legitimate expectation cannot be claimed as a right in itself.
Food Corporation of India vs Kamdhenu Cattle Feed Industries [(1993) 1 SCC 71] Supreme Court of India Legitimate Expectation and Article 14 The Court used this case to highlight that the doctrine of legitimate expectation is a facet of Article 14.
NOIDA Entrepreneurs Assn. vs NOIDA [(2011) 6 SCC 508] Supreme Court of India Legitimate Expectation and Article 14 The Court referred to this case to emphasize that State actions must be non-arbitrary and justified on the touchstone of Article 14.
High Court of Judicature of Patna vs Madan Mohan Prasad [(2011) 9 SCC 65] Supreme Court of India Delay in Writ Petitions The Court used this case to highlight that the issue of delay must be raised before the High Court.
Dayal Singh vs Union of India [(2003) 2 SCC 593] Supreme Court of India Delay in Writ Petitions The Court used this case to highlight that once the writ court has exercised its jurisdiction despite delay, it is not for the Supreme Court to set aside the order on that ground alone.
Hindustan Petroleum Corporation Ltd. vs Dolly Das [(1999) 4 SCC 450] Supreme Court of India Delay in Writ Petitions The Court used this case to highlight that delay may not defeat a claim unless the position of the opposite party has been altered.
Mafatlal Industries Ltd. vs Union of India [(1997) 5 SCC 536] Supreme Court of India Unjust Enrichment The Court discussed this case to explain the doctrine of unjust enrichment.
Indian Council for Enviro-Legal Action vs Union of India [(2011) 8 SCC 161] Supreme Court of India Unjust Enrichment The Court used this case to define unjust enrichment.
See also  Supreme Court Upholds Seniority of Judicial Officer: Uttam Kumar Shaw vs. Partha Sarathi Sen & Ors. (2022)

Judgment

How each submission made by the Parties was treated by the Court?

Submission How it was treated by the Court
State’s submission that the respondent did not claim the exemption in its returns. The Court rejected this submission, noting that since no exemption notification had been issued, the assessing officer was bound to enforce the terms of the notification.
State’s submission that the respondent paid the electricity duty without protest. The Court did not find this submission to be significant as the respondent was challenging the terms of the exemption notification.
State’s submission that the returns filed by the respondent were belated. The Court did not find this submission to be significant.
State’s submission that the notification under Section 9 of the Bihar Act 1948 was issued on 8 January 2015, and the respondent was not prejudiced by the delay. The Court rejected this submission, noting that the prospective clause of the notification deprived the respondent of the full benefit of the exemption.
State’s submission that the respondent is not entitled to claim a rebate for FY 2011-12 as per Clause 35.7(b) of the Industrial Policy 2012. The Court accepted this submission and held that the respondent was not entitled to a rebate for FY 2011-12.
State’s submission that the High Court’s decision in a similar case should operate erga omnes. The Court did not find this submission to be significant.
State’s submission that the writ petitions were instituted to overcome the period of limitation. The Court rejected this submission, noting that the issue of delay was not raised before the High Court or in the Special Leave Petition.
State’s submission that the judgements in Bhailal Bhai [AIR 1964 SC 1006] and Suganmal [AIR 1965 SC 1740] should be followed. The Court distinguished these cases, noting that they related to a petitioner seeking a refund of illegally collected tax.
State’s submission that there is a presumption that the amount claimed as a rebate has already been passed on to the customers, resulting in unjust enrichment. The Court rejected this submission, noting that the respondent had specifically asserted that the burden of differential amount of electricity duty was not passed on to its customers.
State’s submission that the respondent had an alternative statutory remedy of appeal under Section 9A of the Bihar Act 1948. The Court did not find this submission to be significant as the respondent was challenging the terms of the exemption notification.
State’s submission that the doctrine of promissory estoppel cannot be extended backwards. The Court rejected this submission, noting that the State had made a representation to the respondent under the Industrial Policy 2012.
Respondent’s submission that the State government’s action of making the exemption notification prospective is a violation of the promise held out in the Industrial Policy 2012. The Court accepted this submission and held that the State was bound by its promise in the Industrial Policy 2012.
Respondent’s submission that the benefit of the rebate could not have been claimed in the returns for FYs 2011-12, 2012-13 and 2013-14. The Court accepted this submission.
Respondent’s submission that the issue of delay was not raised by the State government before the High Court or in the Special Leave Petition. The Court accepted this submission.
Respondent’s submission that delay by itself may not defeat the claim unless the position of the opposite party has been altered. The Court accepted this submission.
Respondent’s submission that the decisions in Bhailal Bhai [AIR 1964 SC 1006] and Suganmal [AIR 1965 SC 1740] are distinguishable. The Court accepted this submission.
Respondent’s submission that the respondent is entitled to the benefit of a rebate for a period of five years as held out in clause 32.10 of the Industrial Policy 2012. The Court partially accepted this submission, holding that the respondent was entitled to the benefit of a rebate for FYs 2012-13 and 2013-14.

How each authority was viewed by the Court?

  • Motilal Padampat Sugar Mills Co. Ltd. vs State of UP [(1979) 2 SCC 409]: The Court relied on this case to emphasize that promissory estoppel is a principle in equity and is not hampered by the doctrine of consideration.
  • State of Bihar vs Kalyanpur Cement Limited [(2010) 3 SCC 274]: The Court used this case to highlight that the State cannot rely on its own lapses in implementing its policy to defeat a valid claim.
  • Manuelsons Hotels Private Limited vs State of Kerala [(2016) 6 SCC 766]: The Court referred to this case to emphasize that the non-exercise of discretionary power is vitiated by the doctrine of promissory estoppel.
  • Crabb vs Arun DC [1976] 1 Ch 179: The Court used this case to trace the genesis of promissory estoppel in equity.
  • Combe vs Combe [1951] 2 K.B. 215: The Court discussed this case to highlight the traditional view that promissory estoppel cannot be used as a ‘sword’.
  • R vs North and East Devon Health Authority, ex p Coughlan [2001] QB 213: The Court used this case to explain the doctrine of substantive legitimate expectation.
  • Regina (Bibi) vs Newham London Borough Council [2002] 1 W.L.R. 237: The Court used this case to highlight that detriment is not necessary for the doctrine of legitimate expectation.
  • National Buildings Construction Corporation vs S. Raghunathan [(1998) 7 SCC 66]: The Court referred to this case to emphasize that the government is expected to honor its statements of policy.
  • Monnet Ispat and Energy Ltd. vs Union of India [(2012) 11 SCC 1]: The Court discussed this case to highlight the different considerations that underlie the doctrines of promissory estoppel and legitimate expectation.
  • Union of India vs Lt. Col. P.K. Choudhary [(2016) 4 SCC 236]: The Court discussed this case to highlight that the doctrine of legitimate expectation cannot be claimed as a right in itself.
  • Food Corporation of India vs Kamdhenu Cattle Feed Industries [(1993) 1 SCC 71]: The Court used this case to highlight that the doctrine of legitimate expectation is a facet of Article 14.
  • NOIDA Entrepreneurs Assn. vs NOIDA [(2011) 6 SCC 508]: The Court referred to this case to emphasize that State actions must be non-arbitrary and justified on the touchstone of Article 14.
  • High Court of Judicature of Patna vs Madan Mohan Prasad [(2011) 9 SCC 65]: The Court used this case to highlight that the issue of delay must be raised before the High Court.
  • Dayal Singh vs Union of India [(2003) 2 SCC 593]: The Court used this case to highlight that once the writ court has exercised its jurisdiction despite delay, it is not for the Supreme Court to set aside the order on that ground alone.
  • Hindustan Petroleum Corporation Ltd. vs Dolly Das [(1999) 4 SCC 450]: The Court used this case to highlight that delay may not defeat a claim unless the position of the opposite party has been altered.
  • Mafatlal Industries Ltd. vs Union of India [(1997) 5 SCC 536]: The Court discussed this case to explain the doctrine of unjust enrichment.
  • Indian Council for Enviro-Legal Action vs Union of India [(2011) 8 SCC 161]: The Court used this case to define unjust enrichment.
See also  Supreme Court restores conjugal rights, overturns divorce decree based on unsubstantiated cruelty allegations: Mangayakarasi vs. M. Yuvaraj (2020)

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

  • Breach of Promise: The court emphasized that the State of Jharkhand had made a clear promise in its Industrial Policy 2012 to provide a 50% exemption on electricity duty for captive power plants. The State’s failure to issue the necessary notification within a reasonable time, and then making it prospective, was seen as a breach of this promise.
  • Promissory Estoppel: The court reiterated the principle of promissory estoppel, stating that the State cannot go back on its promise when the respondent had relied on that promise. The court viewed promissory estoppel as a principle in equity that is not hampered by the doctrine of consideration.
  • Legitimate Expectation: The court recognized that the respondent had a legitimate expectation that the State would honor its policy. The court highlighted that the doctrine of legitimate expectation is based on fairness in government dealings and is a facet of Article 14 of the Constitution.
  • Fairness and Equity: The court emphasized the need for fairness and equity in government actions. The court held that the State cannot rely on its own lapses in implementing its policy to defeat a valid claim.
  • Delay: The court noted that the issue of delay was not raised by the State before the High Court, and that delay by itself may not defeat a claim unless the position of the opposite party has been altered.
  • Unjust Enrichment: The court rejected the State’s argument of unjust enrichment, noting that the respondent had specifically asserted that the burden of differential amount of electricity duty was not passed on to its customers.
  • Interpretation of Policy: The court interpreted Clause 35.7(b) of the Industrial Policy 2012 to mean that the entitlement to the exemption would ensue from the financial year following the commencement of production.

Ratio Decidendi

The ratio decidendi of the case is that a State government is bound by the promises it makes in its industrial policies, and it cannot deny the benefit of those promises to those who have relied on them. The court held that the doctrine of promissory estoppel and the principle of legitimate expectation are applicable to government actions and that the government cannot act arbitrarily or unfairly. The court also held that the State cannot rely on its own lapses to defeat a valid claim and that unjust enrichment cannot be presumed.

Ratio Table

Principle Description
Promissory Estoppel State is bound by promises made in industrial policies, especially when relied upon by businesses.
Legitimate Expectation Businesses have a legitimate expectation that the State will honor its policies fairly.
Fairness and Equity State actions must be fair and equitable, and the State cannot benefit from its own delays.
Unjust Enrichment Unjust enrichment cannot be presumed and must be proven.
Policy Interpretation Entitlement to benefits starts from the financial year following the commencement of production, as per policy clauses.

Obiter Dicta

The obiter dicta in this case include the following observations:

  • The court emphasized that the doctrine of promissory estoppel is a principle in equity and is not hampered by the doctrine of consideration.
  • The court highlighted that the State cannot rely on its own lapses in implementing its policy to defeat a valid claim.
  • The court stated that the non-exercise of discretionary power is vitiated by the doctrine of promissory estoppel.
  • The court explained the doctrine of substantive legitimate expectation.
  • The court observed that detriment is not necessary for the doctrine of legitimate expectation.
  • The court emphasized that the government is expected to honor its statements of policy.
  • The court highlighted the different considerations that underlie the doctrines of promissory estoppel and legitimate expectation.
  • The court stated that the doctrine of legitimate expectation cannot be claimed as a right in itself.
  • The court observed that the doctrine of legitimate expectation is a facet of Article 14.
  • The court emphasized that State actions must be non-arbitrary and justified on the touchstone of Article 14.
  • The court observed that the issue of delay must be raised before the High Court.
  • The court highlighted that once the writ court has exercised its jurisdiction despite delay, it is not for the Supreme Court to set aside the order on that ground alone.
  • The court stated that delay may not defeat a claim unless the position of the opposite party has been altered.
  • The court explained the doctrine of unjust enrichment.
  • The court defined unjust enrichment.

Flowchart of the Case

Brahmputra Metallics Ltd. commences commercial production
↓
Jharkhand Industrial Policy 2012 notified, promising electricity duty exemption
↓
State government fails to issue exemption notification within stipulated time
↓
State government issues notification with prospective effect, denying past exemptions
↓
Brahmputra Metallics Ltd. files writ petition before the High Court of Jharkhand
↓
High Court rules in favor of Brahmputra Metallics Ltd., applying promissory estoppel
↓
State of Jharkhand appeals to the Supreme Court
↓
Supreme Court upholds High Court’s decision with modifications, partially affirming the exemption

Conclusion

The Supreme Court’s judgment in the case of State of Jharkhand vs. Brahmputra Metallics Ltd. is a significant ruling that reinforces the principles of promissory estoppel and legitimate expectation in the context of government policies. The court held that the State government is bound by its promises and cannot deny the benefits of those promises to those who have relied on them. The court’s decision emphasizes the importance of fairness and equity in government actions and serves as a reminder that the State cannot act arbitrarily or unfairly. The case also highlights the need for State governments to implement their policies in a timely and effective manner, and that they cannot rely on their own lapses to defeat valid claims.

Source: State of Jharkhand vs. Brahmputra Metallics Ltd.