TaxDoctrine of Legitimate Expectation In Tax Exemption

May 19, 20230

Core Issue

As on 01.08.2001, 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

(M/s. K.B. Tea Product Pvt. Ltd. & Anr. Versus Commercial Tax Officer, Siliguri & Ors. Civil Appeal No. 2297 of 2011)

While reading this decision, which infact is a split verdict, I am containing my two cents to the Doctrine of Legitimate Expectation alone.


J M.R.Shah

He has dealt with the expression “manufacture” and effect post facto the amendment and went on to discuss on doctrine of legitimate expression in a very contained manner.

He held that legitimate expectation and/or promissory estoppel and the submission on 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High Court, this is not a case of “vested right” but a case of “existing right”, which can be varied or modified and/or withdrawn.



He concluded that 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.

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.


Differentiating View with framed Issue

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?


J Krishna Murari

Whereas, J Krishna Murari firstly framed the issue of the applicability of doctrine of legitimate expectation and then went on to deal with the same in a very detailed manner.

He went on to observe that 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 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.

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.


Evolution of Doctrine of Legitimate Expectation

He then illustrated the evolution of the doctrine of legitimate expectation in his dissenting view and started with State Of Kerala & Ors. vs. K.G. Madhavan Pillai & Ors. (1988) 4 SCC 669, which in fact was the first known jurisprudence to introduce the doctrine of legitimate expectation..

The doctrine of legitimate expectation was further elaborated in Food Corporation Of India vs. Kamdhenu Cattle Feed Industries-(1993) 1 SCC 71.

In M.P.Oil Extraction & Anr. vs. State Of M.P. & Ors.- (1997) 7 SCC 592, Supreme Court held that the doctrine of legitimate expectation operates in the sphere of public law and as such, is a substantive and enforceable right depending on the facts and circumstances of the case.

The Supreme Court in MRF Ltd. Kottayam vs. Assistant Commissioner Sales Tax & Ors.- (2006) 8 SCC 702, while analyzing the doctrine of legitimate expectation, held that legitimate expectation, as a ground for challenge, can be done away with in circumstances wherein it has been

In Howrah Municipal Corporation & Ors. vs. Ganges Rope Company Ltd. & Ors.- (2004) 1 SCC 663, it was held that no right can be claimed on the basis of legitimate expectation, when the said expectation is contrary to statutory provisions enforced in the public interest.

Whereas, Madras City Wine Merchants Association & Anr. vs. State Of Tamil Nadu & Anr.- (1994) 5 SCC 509 , It was held that the doctrine of legitimate expectation is rendered defunct in cases where the said expectation is rescinded by the public authority by way of a change in public policy because of public interest


Enshrined in Article 14

J Krishna Murari while touching the heart of this doctrine, held that it is my opinion, that the above said decision rendered by this Court, remarkably weaves in the doctrine of rule of law, the doctrine of legitimate expectation, and the doctrine of arbitrariness together, and firmly roots the doctrine of legitimate expectation within Article 14 of the Constitution Of India.

The doctrine of legitimate expectation finds its home within the doctrine of rule of law and is a limb of Article 14 that fights against the contamination of arbitrary state action and misuse of power.

In such a circumstance, wherein all limitations on the doctrine of legitimate expectation rest on the touchstone of public interest, then, in cases where public interest itself is defeated by barring the applicability of legitimate expectation, the bar on the legitimate expectation must be removed.


Doctrine of promissory estoppel and the Doctrine of legitimate expectation

He further dealt with the doctrine of promissory estoppel and the doctrine of legitimate expectation and also differentiated it to the effect that while they share a common root and a similar theme, by way of going through the rigours of common law, have developed into two distinct doctrines.

The doctrine of promissory estoppel is a remedy in private law; however, the doctrine of legitimate expectation is a remedy in public law, and as stated above, is rooted in Article 14 of the Constitution of India.


Eight Principles for the application of Legitimate Expectations

Based upon the jurisprudence evolved out of the aforesaid ruling of the Supreme Court, he justified his observation and summed up the doctrine by way of propounding eight principles as under;


I.The expectation must be reasonable,

II.The expectation must be based on a clear representation,

III. The representation must be made by an authorized person,

IV.The representation must be legitimate,

V.The public interest must be demonstrated,

VI.Public Interest must supersede change in policy,

VII. The expectation must be based on a legitimate interest,and

VIII. The expectation must be protected.


Dissenting Conclusion

He dissented and held that the “Authority must be held accountable to the legitimate expectation created by it, and therefore, a direction is liable to be issued to the respondents herein to extend the benefits of the original amendment to the appellants herein, till the expiry of such a benefit as per the original amendment”.


My Two cents

The verdict is though split but any person having aspiration to under the doctrine of legitimate expectation, when it comes to an exemption under the tax net, can very well have clarity especially with the eight principles propounded by J Krishna Murari.

With due respect, the dissenting view was not only appropriate but also enveloped the principles enshrined in Article 14 of the Constitution of India in as much the focus was on the principles of equality and justice, the state must be ruled in democracy, not by its ruler, but by the law.

J Krishna Murari’s emphasis in its concluding view wherein he has emphasised that in order to prevent such a contamination of the rule of law, the application of the doctrine of legitimate expectation becomes most important.

He categorically held that “If a state is allowed to make promises, and rescind the same without justification or explanation, it would lead to a situation wherein every action of the state would be bereft of accountability, and every person governed by the laws of this country would live in a state of fear and unrest, causing a chilling effect on the civil liberties of the people”.

It is equally important to note that out of 65 paged verdict, while J M.R.Shah concluded in 18 pages and negligibly dealt upon with the doctrine of legitimate expectation, J Krishna Murari not only dealt from page 19 onwards with the evolution of this doctrine but also while dealing with jurisprudence of the doctrine of Legitimate expectation propounded eight principles on the said doctrine.

It can be safely construed that his finding is more reasonable in its structure and logic to read the intent of Article 14 of the Constitution of India while dealing with the doctrine of legitimate expectation at any given point of time.

Authored by

Anandaday Misshra | Founder & Managing Partner | AMLEGALS


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