Factual Background 

In the matter of KB Tea Product Pvt Ltd & Anr vs Commercial Tax Officer Siliguri and ors. appeals against a decision of the Calcutta High Court that affirmed the elimination of the petitioners’ exemption from paying sales tax based on the 1994 law, as revised by the West Bengal Finance Act in 2001. Due to the latter, the appellants were barred from receiving the advantages of the tax exemption they had been entitled to for two years.

Relevant provisions 

According to the Doctrine of legitimate expectation, an entity may legitimately expect to be treated a certain way by administrative authorities even though no such legal right exists.

Issue 

whether the idea of genuine expectation can be used to challenge changes to tax exemption laws 

Supreme court verdict 

The subject of the doctrine of legitimate expectation exempt from tax was decided inconclusively by the Supreme Court divisional bench consisting of Justice Krishna Murari and Justice MR Shah. The courts did, however, concur that businesses do not have a vested right to request tax exemptions.

The contention from both judges

According to Justice MR Shah, the theory would be in effect when industrial units are established with the promise of temporary tax exemption. Furthermore, he argued that no adequate justification for the change in the law had been offered. The benefits provided initially must be made available to the appellants in this case for the duration promised by the respondent authority, and the legitimate expectation formed in their minds must be safeguarded; nevertheless, it was decided that this does not apply to statutes.

Furthermore, he argued that the appellants’ right to any benefit terminated the moment the amendment eliminated tea-blending from the list of manufacturing activities that qualified for sales tax exemption. No one may assert the exemption as a matter of right, according to the established legal position. The exemption is always contingent upon meeting the requirements to receive it, and the state has the right to revoke it. According to the established legal position, the State Government will always have the authority to grant the exemption. Unless the withdrawal is deemed to be particularly arbitrary, the Court will be unwilling to interfere with such a policy choice.

Justice Murari first discussed the ramifications of the rule. An individual or group has the right to appeal a public authority’s judgement and request a remedy, such as an order to compel the fulfilment of the legitimate expectation, as is the case in the present instance. The notion, he continued, is a part of Article 14’s defence against the taint of capricious state conduct and the abuse of power. Furthermore, as the doctrine depends on the principle of public interest, the restriction against using it when it pertains to public interest must be lifted. A change must show that it was made in the public interest to assert a prohibition against realistic expectations, he continued. It would be the antithesis of the rule of law to let revisions of the type that are the subject of the dispute successfully elude the doctrine.

In opposition to Justice Shah’s argument, he emphasised that no domestic or foreign investor would ever invest in local businesses and ventures because any legitimate expectation based on a statute would only be a façade. After all, such a benefit could be taken away arbitrarily at any time. Therefore, any interpretation of the notion of legitimate expectation that is counter to this would result in immense chaos and would only harm people’s rights and society as a whole.