Relief to Punjab dairy firms, Nestle

State bound by its promise on purchase tax exemption: Supreme Court

Giving relief to dairy firms in Punjab, the Supreme Court has ruled that the state was bound by its promise to exempt companies, including Nestle, from paying tax on purchase of milk for 1996-97 and cannot resile from it a year later saying no notification was issued.

Noting that the dairy companies had passed on the benefit to the farmers and milk producers, an apex court Division Bench comprising Justice Ruma Pal and Justice PV Reddi said "it would be inequitable to allow the state government now to resile from its decision to exempt milk and demand purchase tax with retrospective effect."

On February 26, 1996, the then Punjab chief minister while addressing dairy farmers at a state-level function had announced that the state government had abolished purchase tax on milk and milk products.

The state finance minister, in his Budget speech that year, recalled the announcement of the chief minister, and said though this would reduce the inflow of tax revenue to the extent of Rs 6.93 crore, it would assist the milk producers, and also the milk co-operatives.

A series of press notes tom-toming the decision of the government were issued and the state excise department also issued circulars to the same effect.

However, on June 4, 1997, the council of ministers met to consider various issues, including the abolition of purchase tax on milk.

"The minutes cryptically record that the decision to abolish purchase tax on milk was not accepted. Consequently, on July 3, 1997, the excise and taxation officer issued notices to respondents requiring them to pay the amount of purchase tax for 1996-97," the Bench noted.

Nestle India Ltd and other dairy companies challenged the decision to recover the purchase tax before the Punjab and Haryana High Court which held that the state government was bound by its promise/representation made to the respondents to abolish purchase tax.

Appealing against the high court order, the state contended before the apex court that there could be no estoppel against the statute and since no notification had been issued as required by the statute, the respondents could not refuse to pay the tax on principle of promissory estoppel.

Rejecting the state's contention, Justice Pal, writing for the Bench, said it had been unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against the State government.

"We are of the view that the state government's refusal to exercise its discretion to issue necessary notification 'abolishing' or exempting the tax on milk was not reasonably exercised for the same reasons that we have upheld the plea of promissory estoppel raised by the respondents," it said upholding the high court order.

Promises be kept

• On February 26, 1996, the Punjab government had announced abolition of the purchase tax on milk and milk products.
• The state excise department also issued circulars about the abolition of the purchase tax
• The state contended before the apex court that there could be no estoppel against the statute and since no notification had been issued