The Division Bench of the Supreme Court yesterday granted an exemption to the tourism promotional activities under Rule 14A of Kerala Building Tax Rules from the liability of paying building tax by holding that non-issuance of notification to be remedied by the doctrine of promissory estoppels. The Court was deciding the appeal filed by Manuelsons Hotels Pvt Ltd Company against the State of Kerala & Ors. The Brief facts of the case are given below.
On 11th July, 1986, the State Government, by a Government Order (G.O.), accepted the recommendations of the Government of India suggesting that tourism be declared an “industry” with a view that this would enable those engaged in tourism promotional activities to become automatically eligible for concessions/incentives as applicable to the industrial sector from time to time. Apart from various other concessions that were granted, exemption from Building Tax levied by the Revenue Department was one such concession. It was stated in the said G.O. that action to amend the Kerala Building Tax Act, 1975 will be taken separately. The G.O. went on to state that persons eligible for such concessions will, among others, be classified hotels i.e. from 1 to 5 stars. A Committee was set up consisting of three government officers to oversee the aforesaid scheme.
Vide a letter dated 25th March, 1987, the Government of India approved the hotel project of the appellants, being a 55 double room 3 star hotel project to be set up in the city of Calicut. Pursuant to the aforesaid G.O. dated 11th July, 1986 and the aforesaid approval, the appellants began constructing the hotel building, which was completed in the year 1991. Notice for filing returns under the Kerala Buildings Tax Act was issued to the appellants on 5th September, 1988. The appellant on a reasonable apprehension that they are exempted from liability replied that they were under no obligation to furnish any return in this regard.
In pursuance of the said G.O. dated 11th July, 1986, the Kerala Buildings Tax Amendment Act of 1990 was passed with effect from 6th November, 1990 granting exemption to the buildings constructed in relation to tourism. The appellants challenged the notice dated 5th September, 1988 through a writ petition. The High court through its decision directed the appellants to approach the Committee set up under the 1986 G.O. to pursue their claim. Till final orders were passed by the Committee, the judgment stated that the respondents would not take any coercive steps to recover any building tax assessed on the building constructed by the appellants.
By a letter dated 6th February, 1997, the exemption promised by the G.O. of 1986 was denied to the appellants stating that as Section 3A had been omitted w.e.f. 1st March, 1993, the power to grant exemption had itself gone and, therefore, no such exemption could be given to the appellants. a notice dated 28th April, 1997 was issued by the authorities asking the appellants to submit the necessary statutory return under the Kerala Buildings Tax Act. This notice was, in turn, challenged in O.P. No. 9601 of 1997, which culminated in a judgment dated 20th July, 1998. Vide this judgment, the High Court allowed the original petition and directed the Committee to consider the matter afresh.
Vide an order dated 4th February, 1999, the authorities once again rejected the appellant’s application for exemption from property tax. This order was challenged in Writ Petition No. 9820 of 1999 which has led to the impugned judgment dated 5th December, 2006. The High Court essentially rejected the aforesaid Writ Petition on two grounds. First, it stated that as no exemption Notification had, in fact, been issued under Section 3A when it was in existence in the statute book, no claim for exemption from payment of building tax would be allowed. It further held that the mere promise to amend the law does not hold out a promise of exemption from payment of building tax. And finally, the High Court held that the question of now exempting the appellants from building tax would not arise as Section 3A itself had been omitted w.e.f. 1st March, 1993. The appellant, therefore, preferred an appeal before the Supreme Court.
The Court, after hearing the both sides found that Section 3A was enacted by the Kerala legislature by suitably amending the Kerala Buildings Tax Act, 1975 on 6.9.1990 in order to give effect to the representation made by the G.O. dated 11.7.1986. The said provision continued on the statute book and was deleted only with effect from 1.3.1993. This would make it clear that from 6.9.1990 to 1.3.1993, the power to grant exemption from building tax was statutorily conferred by Section 3A on the Government. Therefore, the non-issuance of a notification under Section 3A was an arbitrary act of the Government which must be remedied by application of the doctrine of promissory estoppels.
In the words of Justice R.F. Nariman, “In fact, we must never forget that the doctrine of promissory estoppels is a doctrine whose foundation is that an unconscionable departure by one party from the subject matter of an assumption which may be of fact or law, present or future, and which has been adopted by the other party as the basis of some course of conduct, act or omission, should not be allowed to pass muster. And the relief to be given in cases involving the doctrine of promissory estoppels contains a degree of flexibility which would ultimately render justice to the aggrieved party”.
He added that the ministerial act of non issue of the notification cannot possibly stand in the way of the appellants getting relief under the said doctrine for it would be unconscionable on the part of Government to get away without fulfilling its promise. On the basis of this, the High Court order was quashed.
Read the full text of the Judgment here.
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