Effective governance requires that manufacturers and traders have a clear understanding of their regulatory and tax obligations. However, it is not uncommon for different departments within the State or Central government to issue conflicting policies, leading to confusion and detrimental effects. The Supreme Court of India has emphasized the necessity for governments to communicate with a single, unified voice. This principle dictates that once a ministry has made a policy decision, other departments should not contradict it.
Supreme Court Cases Demonstrating the Need for Consistency
Several legal cases illustrate this principle, highlighting the importance of consistency and uniformity in government communications. In the case of Vadilal Chemicals v. State of Andhra Pradesh (2005), the Department of Industries issued an eligibility certificate allowing small-scale units to claim sales tax exemptions for their manufactured products. Vadilal Chemicals, a small entity, benefited from this exemption from 1994 to 1999 while also paying excise duty, confirming its manufacturing status. Despite this, the Sales Tax Department issued notices negating the exemption, contending that Vadilal Chemicals’ activities did not qualify as manufacturing.
The Supreme Court overturned the High Court’s decision, which favored the Sales Tax Department, criticizing their stance. It ruled that the Sales Tax Department had no right to re-evaluate the eligibility of Vadilal Chemicals after the Department of Industries had already conducted a thorough investigation and issued the eligibility certificate. Justice Ruma Pal stated, “The State, represented by its Departments, must speak with one voice. The view expressed by the Department of Industries should be regarded as the authoritative voice.”
The issue of accountability remains, as departments face no repercussions for taking contradictory positions, forcing businesses to seek justice in the Supreme Court.
The Importance of Unified Government Decisions
In another case, Lloyd Electric and Engineering Limited v. State of Himachal Pradesh (2016), the Council of Ministers decided to extend industrial concessions from April 1, 2009, to March 31, 2013. These concessions, initially granted under the 2004 Industrial Policy, were set to expire on March 31, 2009. Despite the Council’s decision, the Excise and Taxation Department only issued a notification on June 18, 2009. As a result, it was argued that sales tax was payable between April 1 and June 18 due to the absence of a formal exemption notification.
The Supreme Court again overturned the High Court’s decision, ruling that the State government cannot present two conflicting positions. Once the Cabinet decided to extend the exemption from April 1, 2009, the Excise and Taxation Department could not deny benefits just because their notification was delayed.
This ruling was reinforced in the Central Warehousing Corporation v. Adani Ports and Special Economic Zone Ltd (2022) case, where the Ministry of Commerce and Industry and the Ministry of Consumer Affairs, Food and Public Distribution took opposing stands on land denotification within a Special Economic Zone. The Supreme Court criticized the contradictory positions of the ministries, noting that such discrepancies do not reflect well on the Union of India.
Ensuring Predictability and Certainty
Beyond the issue of contradictory departmental actions, the broader concern is the need for predictability and certainty. In C T Sivanandan v. State of Kerala (2024), a Constitution Bench emphasized that the rule of law relies on predictability, transparency, and certainty. The bench stated, “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.”
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When government departments take conflicting actions, it can severely impact the ease of doing business. Despite Supreme Court rulings, some departments still deny benefits in direct contradiction to another ministry’s position. It is critical that these principles are adhered to and that policy decisions, especially those made by the Cabinet, are followed consistently.
Arvind Datar is a Senior Advocate at the Supreme Court of India.
