Government; Manuelsons Hotels Vs. State of Kerala [Supreme Court of India, 11-05-2016]

Building Tax Act, 1975 (Kerala) – Section 3A – Power to make Exemption – Promissory Estoppel – 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 – the statement of objects and reasons for introducing Section 3A expressly states that the said Section was introduced in order to fulfill one of the promises contained in the G.O. dated 11.7.1986 – the appellants, having relied on the said G.O. dated 11.7.1986, had, in fact, constructed a hotel building by 1991 – therefore, that 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 estoppel – 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 – no other consideration of overwhelming public interest exists in order that the Government be justified in resiling from its promise.

Government Taxes



(A.K. Sikri) and (R.F. Nariman) JJ.

May 11, 2016






R.F. Nariman, J.

1. 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”. The fallout of this G.O. was 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.

2. 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.

3. 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 appellants replied that they relied upon the G.O. dated 11th July, 1986 and stated that they were under no obligation to furnish any return under the said Act as they were exempt from payment of building tax.

4. 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. The Objects and Reasons for said amendment act read as follows:-


The Government has declared tourism as an industry with a view to develop tourism in the State and announce various concessions to tourism related activities as per GO (P) 224/86/GAD dated 11.07.1986. One of the concessions declared by Government was to exempt the buildings constructed in relation to tourism from the provisions of the Kerala Building Tax Act, 1975. For achieving the above said purpose the Kerala Building Tax Act, 1975 has to be amended suitably and the Government have decided to amend the Kerala Building Tax Act 1975 for the purpose. As the above proposal had to be given effect to immediately and as the Legislative assembly was not in session the Kerala Building Tax (Amendment) Ordinance, 1990 (Ordinance No.8 of 1990) was promulgated by the Governor of Kerala on the 2nd day of November, 1990, and published in the Kerala Gazette Extraordinary dated 6th day of November, 1990. The Bill seeks to replace the said ordinance by an Act of Legislature. (Published in KG Ex No.1159 dt 7.12.1990)”

5. In pursuance of the said object, Section 3A was added, which reads as under:-

“3A.(1) Power to make exemption

The Government may, if they consider it necessary so to do for the promotion of tourism, by notification in the Gazette make exemption from the payment of building tax under the Act in respect of any building or buildings the construction of which is completed during such period and in such areas as may be specified in the notification and having such specifications as may be prescribed in the rules in this behalf.”

Also, to effectuate the said exemption provision, Rule 14A was added in the Kerala Buildings Tax Rules, 1974 as under:-

“Rule 14A

(1) The exemption contemplated in Section 3A of the Kerala Building Tax Act, 1975 shall be applicable to the buildings having the following specifications in such Tourism sector and the construction of which is completed during such period as may be specified in the notifications:-

(i) Classified hotels (1 to 5 stars)

(ii) Motels(which conform to the specification of the Department of Tourism of Kerala/ Central Government)

(iii) Restaurants (approved by Classification committee of the Government of India)

(iv) Amusement parks and research centres approved by the Government.

(v) Ropeways at tourist centres.

(vi) Construction of structures like Koothambalam/Auditorium etc by schools/institutions teaching Kalaripayattu and traditional art forms of Kerala.

(vii) Institutions teaching surfing, sking, gliding, trekking and similar activities which will promote tourism;

(viii) Ayurvedic centres with tourism potential;

(ix) Exclusive handicrafts with emporia (approved by the State/Central Department of Tourism)

(2) The area so notified shall be approved Tourist Centres and such other locations certified by a Committee consisting of Secretary to Government, Tourism Department, Secretary to Government Taxes Department and Director, Department of Tourism.

(3) The period of exemption shall be 10 years or such shorter period in respect of specific areas as may be notified in the Gazette based on the recommendation of the Committee.”

6. By a Writ Petition filed in 1989, the appellants challenged the notice dated 5th September, 1988. This resulted in a judgment of the Kerala High Court dated 30th August, 1995 by which the appellants were relegated to 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.

7. 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.

8. Pursuant to the aforesaid letter dated 6th February, 1997, 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 in the light of the judgment of the Supreme Court in