Legal Notes by Arvind Datar: Governments must speak with one voice

An essential part of good governance is that manufacturers and traders have clarity on their regulatory and tax liabilities. It often happens that one department of the State or Central government may announce a policy which grants benefits and concessions, but another department takes a contrary stand damaging them, without any concern about the inconsistency or contradiction.

The Supreme Court has clearly laid down that governments must speak with one voice. This principle requires that once a policy decision has been taken by a particular ministry, another department cannot take a contrary stand. 

Three cases illustrate this principle and underscore the need for consistency and uniformity. In Vadilal Chemicals v. State of Andhra Pradesh (2005), the Department of Industries had granted an eligibility certificate that entitled small-scale units to claim sales tax exemption for products manufactured by them. Vadilal Chemicals, a small unit, availed this exemption from 1994 to 1999. It is important to note that it was also paying excise duty, which automatically meant that it was engaged in a manufacturing activity. However, the Sales Tax Department issued revision notices denying the exemption on the ground that the activity of Vadilal Chemicals did not amount to manufacture and, therefore, was not eligible for any sales tax incentives. 

Reversing the High Court decision, which was in favour of the Department, the Supreme Court deprecated the stand of the Sales Tax Department to deny the exemption, when the Department of Industries and Commerce had granted the eligibility certificate after due enquiry. This eligibility certificate could not be questioned by the Deputy Commissioner of Sales Tax. The Sales Tax Department was not entitled to embark upon a fresh enquiry with regard to the eligibility of Vadilal Chemicals for sales tax benefit. Ruma Pal, J held:

“The State, which is represented by the Departments, can only speak with one voice. Having regard to the language of the 1993 GO, it was the view expressed by the Department of Industries which must be taken to be that voice."

Unfortunately, there is no accountability or any cost or adverse consequence to any department if it takes a contrary stand and makes a company fight up to the Supreme Court to get what is due. 

In Lloyd Electric and Engineering Limited v. State of Himachal Pradesh, (2016), the facts were different. The Council of Ministers decided to extend the concession granted to industrial units from April 1, 2009 to March 31, 2013. These concessions were initially granted by the Industrial Policy of 2004 for a five-year period which would lapse on March 31, 2009.  Although this decision was taken by the Council of Ministers, the Excise and Taxation Department issued a notification granting exemption only on June 18, 2009. It was then argued that sales tax was payable from April 1, 2009 till June 18, 2009, as there was no exemption till the notification was issued. 

The Supreme Court once again reversed the decision of the High Court and held that the State government cannot speak in two voices. Once the Cabinet had taken a policy decision to extend the exemption/concession from April 1, 2009, for a further period of four years, the Excise and Taxation Department cannot deny these benefits merely because its notification came into effect on June 18, 2009.

The decision in Lloyds Electrics was later followed in Central Warehousing Corporation v. Adani Ports and Special Economic Zone Ltd (2022). In this case, contrary stands were taken by the Ministry of Commerce and Industry on the one hand and the Ministry of Consumer Affairs, Food and Public Distribution on the other. Adani Ports SEZ was allotted a large extent of land to form a special economic zone. The Central Warehousing Corporation (CWC) was in occupation of a part of this land. It requested the private entity to apply for denotification of 34 acres of land from the SEZ. This plea was rejected by the Ministry of Commerce and Industry, which said that there was no power to do so. On the other hand, the Ministry of Consumer Affairs took the stand that such a denotification was indeed possible and certain other areas were denotified at the request of Adani Ports.

The Supreme Court remarked that this was a case where two ministries had taken diagonally opposite stands. The Ministry of Commerce and Industry took the plea that denotification was not possible, while the other ministry took the stand this was permissible and had pointed to precedents where denotification was done. The Court remarked that it did not augur well for the Union of India to speak in two contradictory voices.

Apart from the issue of two ministries taking contradictory stands, the larger issue is the need for predictability and certainty. In CT Sivanandan v. State of Kerala (2024), a Constitution Bench pointed out that the essential feature of the rule of law was predictability, transparency and certainty. It held:

“The principles of good administration require that the decisions of public authorities must withstand the test of consistency, transparency, and predictability to avoid being regarded as arbitrary and therefore violative of Article 14.”

If two departments take contrary steps, it will seriously affect the ease of doing business. Despite these Supreme Court rulings, one still finds departments denying benefits, in complete contradiction to the stand taken by another ministry or another department. The exemption given by one ministry is frequently sought to be taken away by another on some pretext or the other. In such cases, the above principles laid down must be followed and a policy decision, particularly when taken by the Cabinet, has to be followed and complied with.

Arvind Datar is a Senior Advocate of the Supreme Court of India.