Withdrawing an Exemption: Promissory Estoppel Against the State

In one line

Promissory estoppel prevents a person who has made a clear promise, acted upon by another to his detriment, from going back on it, and in India it runs against the Government, but it almost never saves an importer whose exemption has been withdrawn. In exam terms: the doctrine, received from Central London Property Trust Ltd v. High Trees House Ltd, [1947] KB 130, was extended against the State in Union of India v. Indo-Afghan Agencies Ltd, AIR 1968 SC 718, and Motilal Padampat Sugar Mills Co. Ltd v. State of Uttar Pradesh, (1979) 2 SCC 409, but Kasinka Trading v. Union of India, (1995) 1 SCC 274, holds that a notification under section 25(1) is not a promise to anybody.

Why the question arises at all

Because an exemption changes commercial behaviour. An importer who is told that a machine attracts no duty for three years will buy the machine, borrow against it, and price his output accordingly. If the exemption is withdrawn in year two, he has committed capital on the strength of a statement by the Government which the Government has now resiled from.

And because the Government must be able to change policy. An exemption granted when an article was scarce becomes indefensible when it is plentiful; one granted to encourage an industry becomes a subsidy to an established one. If every exemption bound the state for its stated life, fiscal policy would be frozen by its own concessions.

The law's answer is not a compromise but a distinction, and stating that distinction accurately is what a good answer on this topic consists of.

The doctrine

Promissory estoppel holds that where one party has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations, knowing or intending that it would be acted upon by the person to whom it is made, and it is in fact so acted upon, the promise is binding on the party making it and he is not entitled to go back upon it.

Facts. In Central London Property Trust Ltd v. High Trees House Ltd, [1947] KB 130, a landlord agreed during the war to accept half rent for a block of flats which could not be fully let, and the tenant paid the reduced rent. After the war the landlord's receiver claimed the full rent, including arrears for the war years.

Held. The full rent was payable once the flats were fully let again, but the promise to accept half rent bound the landlord for the war period: a promise intended to be binding, intended to be acted upon and in fact acted upon, is binding so far as its terms properly apply, though it does not itself found a cause of action.