Promissory Estoppel No Protection

One of the reasons for delay in the value-added tax (VAT) is lack of unanimity regarding the practicality and legality of pruning of exemptions, enjoyed by industry in the sales tax regime.

Multiplicity of exemptions, often on the competitive basis, was more for political reasons than economic ones.

One of the consensus reached at the empowered panel of states was that there should be fewer exemptions, or the same exemptions.

This was a good decision because the VAT chain of input credit is snapped if there is an exemption and competition in wooing industries by offering exemptions is not good for economy.

 

If there are no exemptions or the same exemption, there will be a level-playing field for the allocation of resources.

It will be determined on the basis of productivity and other market conditions rather than the tax liability. In the language of economists, it will be a neutral tax and will not cause any distortion.

Now two questions of legal implication will arise. Many industries are harping on the promissory estoppel.

The principle is, if the government promises some benefit to a citizen it cannot back out, provided the promise is not against the statute.

In the hey days of this dictum, many withdrawals of benefits enshrined in notifications or schemes were disallowed by courts on the grounds of promissory estoppel (Indo-Afghan AIR 1968 SC 718).

But after judgments in the Kasinka case, 1994(74) ELT 782 SC, and the Godhwani case, 2000 (121) ELT 16 SC, the government was empowered to withdraw exemptions even before the expiry of the promised period, provided it was in the public interest.

Public interest is the second issue. There have been many cases alleging that the tax was excessive when the concession was withdrawn.

Courts have consistently held that the fiscal policy is not to be decided by the judiciary but by the legislature. That is to say it is not justiciable.

The Supreme Court judgement in the recent Balco Employees Union vs Union of India case, where the public sector undertaking