in the gauhati high courtghconline.nic.in/judgment/wa812011.pdf · 2. ministry of commerce &...
TRANSCRIPT
WA No.81/11 Page 1 of 34
IN THE GAUHATI HIGH COURT (THE HIGH COURT OF ASSAM:: NAGALAND::MIZORAM AND ARUNACHAL PRADESH)
WRIT APPEAL NO.81 OF 2011 M/s. Dharampal Satyapal Limited having its Registered Office at 1711 S.P. Mukherjee Marg, New Delhi – 110006 ----- Appellant (Petitioner) Vs. 1. Union of India Through Under-Secretary to the Government of India, Ministry of Finance (Department of Revenue) North Block, New Delhi. 2. Ministry of Commerce & Industry Through Secretary to the Government of India Udyog Bhawan, New Delhi. 3. The Commissioner, Central Excise, Guwahati, Assam. 4. The Deputy/Assistant Commissioner, Central Excise, Guwahati, Assam. 5. State of Assam, represented by the Commissioner and Secretary to the Government of Assam Department of Industries & Commerce
Dispur, Guwahati- 6. ----- Respondents BEFORE THE HON’BLE MR. JUSTICE T. VAIPHEI THE HON’BLE MR. JUSICE M.R. PATHAK
For the appellant : Dr. A.K. Sharaf, Sr. Advocate Mr. Amit Goyal
Mr. Santanu Tyagi Mrs. Gargi Tha Mr. Pritam Baruah, Advocates. For the respondents: Mr. S.C. Keyal, Asstt. S.G.I. Date of hearing : 03-03-2016 Date of judgment : 20-04-2016
JUDGMENT AND ORDER (CAV)
(T. Vaiphei, J.)
WA No.81/11 Page 2 of 34
The validity of the Notification No. 11/2007-CE dated 1-3-2007
issued by the Central Government in the Ministry of Finance (Department of
Revenue) taking away the benefits allowed to the appellant-firm under the
Notifications No. 32/1999-CE and 33/1999-CE both bearing dated 8-7-
1999 was challenged before the learned Single Judge, who, by the judgment
dated 10-12-2010 in WP(C) No. 750 of 2010, dismissed the writ petition.
Aggrieved by this, this appeal is NOW filed by the appellant-firm.
2. The facts giving rise to this appeal may be briefly noticed at the
outset. The appellant is a company registered under the Companies Act,
1956 and has its units in Guwahati and Agartala and is engaged in the
production of Jarda scented tobacco/pan masala containing tobacco falling
under the heading of tariff 2403 99 30 and 2403 99 10 of the First Schedule
to the Central Excise Tariff Act, 1985 (“Tariff Act” for short). In order to uplift
the North Eastern India from economic backwardness and to attract
investors’ confidence, the Central Government formulated the North Eastern
Industrial Policy dated 24-12-1997 for facilitating industrial development in
the North Eastern Region. One of the incentives being initiated was to
provide Central Excise and Income Tax Exemption on various excisable
commodities/goods including tobacco products for a period of ten years
from the date of commencement of commercial production or date of
issuance of the Notification, whichever was later. In furtherance of such
policy decision, the Central Government issued the said Notification No.
32/99-CE and 33/99-CE exempting some specified goods manufactured in
the specified areas of the North East India from, inter alia, excise duty and
additional excise duty, which were otherwise leviable on these goods.
The summary of the said two Notifications are as under:
i) The Notification No. 32/99-CE applied to all goods specified
in the First and Second Schedule to the Central Excise Tariff
Act, 1985, which were cleared from units located in the areas
specified in the said Notification. This Notification provided a
mechanism whereby the manufacturer was to submit a
WA No.81/11 Page 3 of 34
statement of the duty paid to the concerned Central Excise
authorities and after due verification, the manufacturer was
entitled to a refund of the duty paid. The exemption was
available to all industrial units which had commenced their
commercial production on or after 24-12-1997 or those
industrial units that were in existence before 24-12-1997 but
had undertaken substantial expansion by way of increase
installed capacity by not less than twenty five per cent on or
after 24-12-1997. The total period of the concession was 10
years from the date of publication of the notification or from
the date of commencement of commercial production,
whichever was later.
ii) The Notification No. 33/99-CE exempted all goods specified
in the Schedule appended to the same Notification issued
under the Central Excise Act, 1944 (“Excise Act” for short)
and cleared from units, inter alia, a unit located in the State
of Assam, Tripura or Meghalaya or Mizoram or Manipur or
Nagaland or Arunachal Pradesh. This Notification provided a
mechanism whereby the manufacturer was to submit a
statement of the duty paid to the concerned a statement of
the duty paid to the concerned Central Excise authorities
and after due verification, the manufacturer was entitled to a
refund of the excise duty paid. The exemption was available
to all industrial units which had commenced commercial
production on or after 24-12-1997 or those industrial units
that were in existence before 24-12-1997 but had
undertaken substantial expansion by way of increased in
installed capacity by not less that twenty five per cent on or
after 24-12-1997. The total period of the concession was to
be for a period of ten years from the date of publication of the
notification or from the date of commencement of commercial
production, whichever was later.
WA No.81/11 Page 4 of 34
3. It is the case of the appellant that acting on the exemption so granted
and in anticipation of the benefits so assured, it set up a total of 15
manufacturing units at Guwahati in the Industrial Estate, Bamunimaidan,
out of which 4 are involved in the manufacturing of tobacco. Three tobacco
manufacturing units were also set up at Agartala pursuance to the 1997
Industrial Policy and the Notifications issued in connection therewith.
According to the appellant, it has invested huge amounts in the North East
by providing employment to the locals and stimulating industrialization in
the region. Presently, it provides employment to about 2200 persons in its
units and has planned several new units and ventures in the North East
region on the assurance that exemption extended to them would continue
for the next ten years. According to the appellant, the details of investment
made as on 30-9-2009 are as under:
Particulars Amount in Lacs
Land : ₹45.46 Buildings : ₹432.41
Plant & Machineries : ₹1098.39 Furnitures & Fixtures : ₹66.66 Office Equipments : ₹138.21 Vehicles : ₹40.01 Stocks : ₹5089.89 Total : ₹6911.03 It is stated by the appellant that it satisfied all the requirements of the said
Notification and availed of the benefits of exemptions from payment of excise
duty made thereunder in respect of the finished goods manufactured and
cleared by them. The appellant was also availing of the benefit of exemption
under the Notification No. 33/99-CE and were claiming refund of the excise
duly deposited by it in cash during the period from 17-11-2000 to 28-2-
2001. The Excise Department after verifying the claims of the appellant was
granting refund of such duty to it during that period.
4. It is the further case of the appellant that the Central Government,
however, issued the Notification No. 45/99-CE, dated 31-12-1999 amending
the Notifications No. 32/99-CE and 33/99-CE which excluded all goods
falling under Chapter 24 or Heading No. 21.06 of the First Schedule or
WA No.81/11 Page 5 of 34
Second Schedule to the Tariff Act. This implied that all tobacco products
including pan masala containing tobacco, chewing tobacco and cigarettes
stood excluded from the ambit of such exemption provided under the said
two Notifications. Subsequently, the Central Government vide the
Notification No. 1/2000-CE dated 17-1-2000 restored the said exemption to
goods falling under Chapter 24 of the First Schedule or the Second Schedule
of the Tariff Act. However, on 22-1-2001, the Central Government issued
another notification, namely, Notification No. 1/2001-CE, removing the said
exemption. This was soon followed by another Notification bearing No.
6/2001-CE dated 1-3-2001 excluding all goods falling under Chapter 24 of
the First Schedule and the Second Schedule to the Tariff Act from the ambit
of the exemption. The Central Government, however, issued another
Notification bearing No. 69/2003-CE, dated 25-8-2003 partially restoring
the exemption that was withdrawn to the extent of 50% of the duty payable.
It was stipulated therein that the exemption would be subject to certain
conditions that it would be available only in respect of units that were
located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland or Tripura and for those units that commenced
commercial production on or after 24-12-1997 but not later than 28-2-2001
and that the units should have continued their manufacturing activities
after 28-2-2001 and should have availed of the benefits under Notification
Nos. 32/99-CE and 33/99-CE. The Notification further stipulated that the
sum of duty payable but for the exemption was to be utilized by the
manufacturer only for investment in plants and machineries in a
manufacturing unit which is located in the same 7 North East States and
the said investments had to be made before the expiry of six months from
the end of each quarter described above to a Committee consisting of the
Chief Commissioner of Central Excise, Shillong, the Principal Secretary of
the Department of Industries of the concerned State in which the unit was
located and the Principal Secretary of the Department of Industries of the
State in which the investment was made. The manufacturer was required to
prove to the satisfaction of the Committee that the investment was made for
plant and machinery in a manufacturing unit located in the concerned
State. Once the Committee was satisfied that the investment was made in
WA No.81/11 Page 6 of 34
the plant and machinery of the manufacturing unit, it was to issue a
certificate to that effect to the manufacturer within a period of one month as
above. The certificate was then to be produced by the manufacturer within a
period of two weeks from the date of issue of the said certificate to the
jurisdictional Central Excise Officer. The investment made under the said
Notification was required to be for a period of ten years from the date on
which the investment was made.
5. Subsequently, another Notification No. 8/2004-CE dated 21-1-2004
was issued by the Central Government raising the exemption limit to 100%
from 50% with similar procedural stipulations as in the Notification No.
66/2003-CE except that the investment could also be made in
infrastructure or civil works or social projects apart from the investment in
plants and machineries. Another Notification bearing No. 28/2004-CE was
issued on 9-7-2004 making a series of procedural amendments to the said
Notification No. 8/2004 wherein it was provided that the sum equal to the
excise duty that was payable, but for the exemption, would be deposited by
the manufacturer within 60 days from the end of the quarter in an Escrow
Account opened by the manufacturer for that purpose. A bond equivalent to
the exempted duty amount was also required to be executed by the
manufacturer to safeguard the revenue as instructed by the Department.
Further, it was stated that operation including withdrawal from and closure
of the said escrow account had to be made with the prior approval of the
jurisdictional Commissioner of Central Excise, taking into account the
conditions specified in the said Notification. The Notification also required
the manufacturer to invest the amount so deposited in the Escrow Account
within two years from the date of the deposits and the said amount
withdrawn from the Escrow Account was to be utilized for the purpose
specified within 60 days of its withdrawal. Condition (EA) of the said
Notification provided that if the manufacturer failed to make the deposit or
invest the amount specified within the stipulated period and in accordance
with the Notification, then the duty equivalent to that amount would be
recoverable from the manufacturer along with interest as stipulated, inter
alia, by forfeiture of amount in the said Escrow Account. To safeguard the
WA No.81/11 Page 7 of 34
revenue of the Government, measures were taken in two ways, namely, (i) by
way of execution of bond at the time duty deposition in Escrow Account and
(ii) by execution of tripartite agreement in which the manufacturer is bound
to pay in case of failure to invest the amount so withdrawn within the
prescribed time.
6. Pursuant to the said Notifications No. 8/2004-CE and No. 28/2004-
CE, the appellant executed a bond and entered into a Tripartite Escrow
Agreement with the respondent No. 3 and the State Bank of India, Guwahati
on 21-6-2005 whereby the State Bank of India was appointed as the Escrow
Agent. It was further stipulated in the agreement that operations of the
account including withdrawals from and closure of the said Escrow Account
were to be made with the prior approval of the jurisdictional Commissioner
of Central Excise, Shillong and that if the balance amount lying with Escrow
Account was not re-invested in terms of the Notification No. 28/2004-CE,
the appellant should bind itself to pay on the demand of the Deputy
Commissioner of the Central Excise or Assistant Commissioner of Central
Excise, as the case may be, to the extent of the duty which was equal to the
amount not re-invested along with interest thereon at the rate specified
under Section 11 (AB) of the Excise Act with the amount lying in balance in
the Escrow Account.
7. It is the case of the appellant that the Central Government, contrary
to the assurances made in the earlier Notifications pursuant to which it had
made huge investments in the Region, issued the Notification No. 11/2007-
CE, dated 1-3-2007 amending the said Notifications No. 08/2004-CE and
28/2004-CE respectively and withdrawing the benefits which had accrued
to it thereunder. According to the appellant, the effect of this amendment is
that the exemption contained in the said Notifications was made
inapplicable to the goods cleared after 1-3-2007. This unilateral decision of
the Central Government resulted in depriving the benefits of exemption of
excise tariff and excise duty to the extent of 50% under the Notification No.
8/2004-CE and 28/2004-CE and 100% under the Notifications No. 32/99-
CE and 33/99-CE for the said units set up by it in the years 1999, 2000,
WA No.81/11 Page 8 of 34
2001, 2002, 2003 and 2007, though the Central Government had held out
the promise that it would be entitled to the excise exemption for a period of
ten years with effect from the dates of commencement of commercial
production.
8. Subsequently, the Central Government issued the Notifications No.
21/2007-CE on 25-4-2007 amending the Notifications No. 32/99-CE and
33/99-CE and withdrawing the benefits which had accrued to the
manufacturer under the said two Notifications. Resultantly, the exemption
given in the said two Notifications became inapplicable to pan masala falling
under Chapter 21 of the First Schedule to the Tariff Act even though the
said units including the appellant had already commenced their productions
on or before 31-3-2007. Aggrieved by this, the appellant made various
representations before the respondent authorities requesting them to
withdraw the impugned Notifications No. 11/2007-CE and 21/2007-CE as
they are contrary to the Notifications No. 32/99-CE, 33/99-CE, 69/03-CE,
08/04-CE and 28/04-CE. Contending that such unilateral withdrawal is
arbitrary and unwarranted as well as defeats its legitimate expectation and
the doctrine of promissory estoppel, the appellant unsuccessfully
represented before the various authorities of the concerned Departments of
both the Governments. However, it has come to the notice of the appellant
that the Ministry of Commerce and Industries vide the Office Memoranda
dated 22. 11. 2007, 24. 1. 2008 and 23. 2. 2009 requested the Ministry of
Finance, Department of Revenue for taking a decision on the appellant’s
request for reconsideration of the withdrawal of excise duty exemption made
under the Policy 1997, but it came a cropper. It is further pointed out by the
appellant that it had faced enormous difficulties in obtaining the benefit of
such exemption notification during the subsistence of the exemption period
and that the respondents and the Central Excise officials were engaging in
numerous illegal and arbitrary actions of appropriating huge amounts of
money lying in their escrow accounts and its group companies without any
rhyme or reason. According to the appellant, the Central Excise authorities
and the Investment Appraisal Committee have been conducting their
functions under the Notifications No. 8 and 28 illegally and arbitrarily in
WA No.81/11 Page 9 of 34
denying investment certificates to it and its group companies. Aggrieved by
that, the appellant also filed WP(C) No. 591 of 2008, 1048 of 2008 and 2148
of 2008 challenging the arbitrary exercise of powers by the respondent
authorities denying it the benefit granted under the excise exemption
notifications. These writ petitions were allowed, but an appeal against the
said order was filed before the Division Bench which stayed the said order.
9. The respondents No. 1 to 4 contested the writ petition and filed two
affidavits. In the first affidavit filed on behalf of the respondent No. 2, the
promulgation of the policy of 1997 and the notifications No. 32/99-CE and
33/99-CE dated 8. 7. 1999, the incentives thereunder including central
excise holiday for a period of 10 years for the goods specified therein vis-à-
vis the industrial units identified, the entitlement of the petitioner and the
grant thereof to it were admitted. The answering respondents averred that
subsequent thereto though the Central Government issued notification No.
45 /99 dated 31. 12. 1999 under Section 5a of the Act whereby the
notifications No. 32/99-CE and 33/99-CE dated 8. 7. 99 were amended with
effect from that date excluding all tobacco related products falling under
Chapter 24 or heading No. 21. 06 of the First Schedule or Second Schedule
of the Central Excise Tariff Act, 1985, from the purview of the exemption,
the benefit was, however, restored by the notification no. 1/2000 dated 17.
1. 2000. Thereafter by Notification No. 1/2001-CE dated 22. 1. 2001 the
exemption on cigarettes was withdrawn. This was followed by the
notification No. 6/2001-CE dated 1. 3. 2001 removing the excise duty
exemption on all goods falling under Chapter 24 of the First Schedule of the
Second Schedule of the Central Excise Tariff Act, 1995 and excluding all the
goods from the purview of the notifications No. 32/99-CE and 33/99-CE
dated 8.7.99 and the Notification No. 33/99-CE dated 8-7-99. According to
the answering respondents, the Government of India, on a due consideration
of the achievements in the realm of industrial development in the North East
Region, mushroom growth of tobacco related companies and heavy refund
due to excise duty exemptions, the Government of India in public interest
amended the Finance Act, 2003 by inserting Section 154 therein and
consequently rolled back the benefit of excise duty exemption with
WA No.81/11 Page 10 of 34
retrospective effect thus effecting cessation of the benefits under Policy 1997
vis-à-vis tobacco. Reference to the determination made by the Apex Court in
R. C. Tobacco (P) Ltd. versus Union of India, (2005) 7 SCC 725
sustaining the aforementioned amendment of the Central Act, 1944 by the
Finance Act 2003 has been made to fortify their contention.
10. On a post-assessment of the arrangement so contemplated, the
Government decided against the retention of Central Excise Duty for
investment and thus issued notification No. 28/04 dated 9.7.2004
introducing Escrow Account Mechanism System and accordingly amended
the contents of the notification No. 8/2004 dated 21.1.2004. The post-
escrow period also witnessed various problems according to the answering
respondents, as the Investment Appraisal Committee detected mis-
utilisation of the investment as well as utilisation of the escrow fund. The
Government decided to not to operate the operation of the escrow account
and eventually issued the Notification No. 11/07 dated 1.3.2007 under
Section 5A(1) of the Central Excise Act, 1944 read with Section 3 of the
Additional Duties of Excise (Goods of Specific of Importance) Act, 1957 and
further amended, in public interest, the Notification No. 8/04-CE dated 21-
1-2004 clarifying that the exemption contained therein would not be
available to the goods cleared on or after the first day of March, 2007.
11. While reiterating that the promise of incentives under Policy 1997 had
ceased with the amendment vide the Finance Act, 2003 read with the Ninth
Schedule thereto excluding tobacco and other products specified therein
from the purview of the exemption, the partial respite from this levy granted
by the notification No. 69/03 dated 25. 8. 2003 and 11/07-CE dated 9.7.
2004 has been asserted to be independent of the aforementioned policy and
not by way of extension thereof. It has been stated that out of an amount of
₹100 crores represented by the appellant to have been invested during the
pre-escrow period, only an amount of ₹34 crores had been certified by the
Investment Appraisal Committee to have been genuinely applied in its plants
and machinery and social infrastructure projects. Referring to the negative
list in the Policy 2007, the answering respondents traced the root of the said
WA No.81/11 Page 11 of 34
measure to Section 154 of the Finance Act, 2003 whereby tobacco and goods
covered under Chapter 21 of the First Schedule of the Tariff Act 1985
including pan masala had been withdrawn from the purview of exemption of
the central excise duty as evidenced by the Ninth Schedule thereto. The
impugned Notification dated 25.4.2007 has been justified on this plea as
well as on the ground of public interest bearing in mind the adverse
ramifications of the use of tobacco products and the resultant health
hazards in the country. The answering respondents insisted that the
assurance of the continuance of the benefit under Policy 1997 vis-à-vis
industrial units that had commenced commercial production on or before
31.3.2007 would not apply for tobacco and tobacco based products. The
impugned notification dated 25.4.2007 has also been endorsed stating that
the grant of exemption of excise duty in respect of tobacco products did not
yield any noticeable progress or industrial development as contemplated.
12. Reiterating its pleaded assertions, the appellant highlighted the
inconsistency in the approach of the respondents in withdrawing the
exemption from central excise duty on tobacco while sustaining the income
tax exemption/rebate extended by the Policy 1997. According to it, the grant
of exemption of excise duty after the incorporation of Section 154 of the
Finance Act, 2003 by the Notification No. 69/2003-CE dated 25/8/2003
negated the case of the respondents that the promise of the said incentive
came to end by such amendment. While insisting that the Policy of 2007
saved the manufacturing units of the appellant that had commenced
production on or before 31.3.2007, it reiterated its attack against the
impugned notification dated 25.4.2007 as illegal, arbitrary and mala fide. It
submitted that it was entitled to the protection of Section 38A of the Act and
refuted the justification of public interest in issuing the impugned
notification.
13. In their additional affidavit, the respondents No. 1 to 4 besides
contending that the counter filed by the respondent No. 2 questioned the
maintainability of the writ petition on the ground of delay as the impugned
notification was dated 25.4.2007. Apart from asserting that the appellant
WA No.81/11 Page 12 of 34
even otherwise had failed to lay any factual foundation to invoke the
doctrine of promissory estoppel, they accused it of suppression of the
material fact that it had, the impugned notification notwithstanding, been
paying central excise duty for the tobacco products on the clearance of their
products in terms of normal duty as applicable till 30-6-008. As the
withholding of the said fact had a vital and decisive bearing on the grant of
interim order in its favour, the respondents pleaded that the petitioner has
thereby disentitled itself for any equitable relief from this Court.
14. Dr. A.K. Saraf, the learned senior counsel for the appellant, contends
that the learned Single Judge has patently fallen into error in holding that
under IPR 2007, the saving clause, which entitled the units established
under IPR 1997 to avail of the benefits for the remainder of the term was
applicable only to units which were into manufacturing goods other than
those listed in the negative list. Assailing the reliance placed by the learned
Single Judge upon the fact that making the industries indulging in
manufacturing of goods in the negative list would render Section 154 of the
Finance Act, 2003 redundant, the learned senior counsel submits that such
finding is misconceived inasmuch as the appellant is merely claiming the
benefits of the Notification Nos. 8/2004-CE dated 21-1-2004 and 28/2004-
CE dated 9-7-2004. It is next contended by the learned senior counsel that
if the Notifications No. 8/2004-CE and 28/2004-CE, which were issued after
the enactment of Section 154 of the Finance Act, 2003, are valid for the
purpose of granting exemption of excise duty to goods falling under Chapter
24 of Schedule I or II of CET Act, then the saving clause of IPR 2007 would
not be rendered redundant if the units manufacturing products, which are
listed in the negative list, are also given the benefit of the same. He also
contends that the withdrawal of benefits promised under the Notification No.
8/2004-CE dated 21-1-2004 and No. 28/2004-CE dated 9-7-2004 by the
Notification No. 11/2007-CE and Notification No. 21/2007-CE is arbitrary
and unreasonable inasmuch as the respondent authorities could not have
withdrawn the Excise Duty exemption when the same units are still allowed
to avail of 100% Income Tax exemption under Section 80-IB of the Income
Tax Act, 1961. He, therefore, submits that such withdrawal is without any
WA No.81/11 Page 13 of 34
application of mind and is arbitrary and, as such, the Notification No.
11/2007-CE and Notification No. 21/2007-CE cannot be sustained in law
and are liable to be quashed. In defending the impugned judgment and the
impugned Notifications, Mr. S.C. Keyal, the learned Assistant Solicitor
General of India (ASG), reiterated the same contentions urged before the
learned Single Judge and further submits that the legality of the withdrawal
of the benefit granted to the tobacco manufacturing units such as the
appellant under the 1997 Industrial Policy by Section 154 of the Finance
Act, 2003 was already upheld the Apex Court in R.C. Tobacco (P) Ltd., v.
Union of India, (2005) 7 SCC 725. He, therefore, submits that the
impugned judgment is perfectly in order and does not warrant the
interference of this Court.
15. We have perused the impugned judgment, the pleadings of the parties
and other materials on record, and have also heard both the learned counsel
appearing for the rival parties. In order to arrive at the right answer to any
question, the right question shall have to be formulated. H.M. Seervai, the
famous jurist, used to say, “Ask the right question, you will never get the
wrong answer, but ask the wrong question, you will never get the right
answer!” In this writ appeal, we are of the view that the right question to be
asked for effective adjudication is:
Whether the State-respondents are barred by the doctrine of
promissory estoppel from issuing the impugned Notification No.
11/2007-CE dated 1-3-2007 withdrawing full and partial exemption
of excise and excise tariff duty extended to the appellant made
available to it by the Notification No. 8/2004-CE dated 21-1-2004 and
the Notification No. 28/2004-CE dated 9-7-2004?
To appreciate the controversy, the text of the impugned Notification
dated 1-3-2007 is reproduced hereunder:
NOTIFICATION NO. 11/2007-Central Excise New Delhi, the 1st March, 2007 10 Phalguna, 1978 (Saka)
WA No.81/11 Page 14 of 34
G.S.R.(E) – In exercise of the powers conferred by sub-section (1) section 5A
of the Central Excise Act, 1944 (I of 1944), read with sub-section (3) of
section 3 of the Additional Duties of Excise (goods of Special Importance)
Act, 1957 (58 of 1957), and sub-section (3) of section 136 of the Finance
Act, 2001 (14 of 2001), the Central Government, on being satisfied that it is
necessary in the public interest so to do, hereby makes the following
further amendment in the Notification of the Government of India in the
Ministry of Finance (Department of Revenue), No. 8/2004-Central Excise,
dated 21st January, 2004 which was published in the Gazette of India,
/extraordinary, vide number G.S.R. 60-(E) of the same date, namely:-
In the said Notification, after paragraph 1, the following paragraph shall
be inserted, namely:-
“2. The exemption contained in this Notification shall not be
available to goods cleared on or after the 1st day of March, 2007.
Provided that for the cleared on or before 28th February, 2007 and in
respect of which the exemption has already been availed of, the conditions
specified in this Notification shall continue to apply.
( S. Bajaj)
Under Secretary to Government of India.
Note:- The principal Notification was published in the Gazette of India,
Extraordinary, vide number G.S.R.60(E), dated 21st January, 2004, and was
last amended by Notification No. 28/2004-Central Excise, dated 9th July,
2004, and published vide number G.S.R. 419(E), dated 9th Jly, 2004.”
16. A close look at the Notification No. 8/2004, dated 21-01-2004 will
show that all goods falling under sub-heading 2401.90, 2402.00, 2404.41,
2404.49, 2404.50 or 2404.50 of the First Schedule and the Second Schedule
to the Tariff Act were exempted from payment of the whole of the duties of
excise, additional duties of excise leviable under the Tariff Act, the
Additional Duties of Excise (Goods of Special Importance) Act and National
Calamity Contingent Duty leviable thereon under sub-section (1) of section
136 of the said Finance Act subject to the conditions stipulated therein. As
already noticed, all tobacco products including pan masala containing
tobacco, chewing tobacco and cigarettes were excluded from the ambit of
WA No.81/11 Page 15 of 34
exemption off and on. At this stage, it may also be noticed that these items
are enumerated in Chapter 24 of First Schedule to the Tariff Act. However,
by the impugned Notification No. 11/07-CE, the exemptions from payment
of excise and additional excise duties so leviable earlier would no longer be
available to goods cleared on or after 1-3-2007. However, in so far as goods
cleared on or before 28-2-2007 and in respect of which the exemption had
already been availed of are concerned, the condition specified in the
Notification No. 8/2004, dated 21-1-2004 would continue to apply.
17. It needs to be recapitulated that in order to implement the New
Industrial Policy in the North Eastern Region, which was launched to
promote and stimulate industrial production therein, the Government of
India (GOI) issued the Notification No. 32/1999-CE dated 8-7-1999
exempting all goods in Schedule I and II of the Central Excise Tariff Act,
1985 (“CET Act”) which were manufactured in the areas mentioned in the
notification; the notification laid down the criteria for becoming eligible to
avail of the exemption. Simultaneously, another cognate Notification dated
33/1999-CE dated 8-7-1999 was issued by the GOI exempting goods
mentioned therein from payment of excise duty leviable from the
manufacturers. Soon thereafter, the GOI vide the Notification No. 45/99-CE
dated 31-12-1999 amended the said two notifications excluding goods
falling under Chapter 24 or heading No. 21.06 of Schedule I or II of the CET
Act. However, even before the end of one month, the Notification No.
1/2000-CE dated 17-1-2000 reversed the changes made in the Notification
No. 45-99-CE making available the exemption to all the goods under
Schedule I and II. After a year or so, the GOI issued another Notification No.
1/2001-CE dated 22-1-2001 amending the said Notifications No. 32/99-CE
and 33-99-CE whereby cigarettes falling under Chapter 24 of Schedule I
CET Act was excluded from the exemption. This was followed by the
Notification No. 6/2001-CE dated 1-3-2001 amending the Notifications No.
32/99-CE and 33/99-CE whereby the goods falling under Chapter 24 of
Schedule I stood excluded. Thereafter, the Parliament passed the Finance
Act, 2003, which came into force on 1-4-2003, by, among others, enacting
Section 154 amending the said Notification No. 32/99-CE with effect from 8-
WA No.81/11 Page 16 of 34
7-1999 i.e. retrospectively providing that the exemptions notified therein
should not be applicable to: (i) cigarettes falling under Chapter 24 of the 1st
Schedule or the 2nd Schedule of the CET Act; (ii) pan masala containing
tobacco falling under sub-heading No. 2106.00 or 2404.49, as the case may
be.
18. Another Notification No. 69/2003-CE was issued on 25-8-2003
partially restoring the exemption of goods mentioned in Table 3 of the
Notification of Chapter 24 of the Schedule I (2401.90, 2402.00, 2404.41,
2404.49, 2404.50 and 2404.99) of the CET Act that was withdrawn by the
said Notification No. /2001-CE to the extent of 50% of the duty payable
which was made available only to the units located in the States of
Arunachal Pradesh, Assam, Manipur, Meghalaya, Nagaland and Tripura and
for those units which had commenced commercial production on or after
24-12-997 but not later than 28-2-2001 and the units should have
continued its manufacturing activities after 8-2-2001 and should have
availed of the benefits under the Notification No. 32/99-CE and 33/99-CE
subject, however, to their fulfilling certain conditions stipulated therein. This
was followed by another Notification No. 8/2004-CE dated 21-1-2004
exempting goods falling under the said the Notification No. 69/2003-CE
from 100% duties of excise subject certain conditions. Subsequently,
another Notification No. 28/2004-CE was issued on 9-7-2004 by the GOI
amending the said Notification No. 8/2004-CE stipulating for the first time
the mechanism of escrow account for ensuring that money earned from
exemption is re-invested in the State itself. Some three year thereafter, the
Department of Industrial Police and Promotion, Ministry of Industry and
Commerce launched the North East Industrial and Investment Promotion
Policy, 2007 containing a saving clause declaring that “industrial units
which have commercial production on or before 31-3-2007 would continue
to get benefits/incentives under NEIP, 1997”. The new Policy included a
negative list which excluded units manufacturing certain class of goods from
eligibility under new Policy related exemption. This negative list included (i)
all goods falling under Chapter 24 of 1st Schedule, CET Act which pertains
to tobacco and manufactured tobacco substitutes; (ii) Pan Masala as covered
WA No.81/11 Page 17 of 34
under Chapter 21 of the 1st Schedule to the CET Act, etc. On 1-3-2007, the
GOI issued another Notification No. 11-2007-CE amending the Notification
No. 8/2004-CE whereby the exemption granted therein was not made
available to goods cleared on or after 1st day of March, 2007. This was
followed by another Notification No. 21/2007-CE dated 25-4-2007 further
amending the Notification No. 32/99-CE which has the effect of excluding
pan masala under Chapter 21; goods falling under Chapter 24 and plastic
bags of less than 20 microns from the ambit of exemption.
19. Aggrieved by this Notification No. 11/2007-CE dated 1-3-2007, the
writ petition was filed before the learned Single Judge for quashing the same
and to issue a writ of mandamus directing the respondent authorities to
restore the benefits under the Notification Nos. 08/04-CE and 28/04-CE to
the North East Region. At this stage, it may not be out of place to reproduce
hereunder the provisions of Section 5-A of the Excise Act, which are in the
following terms:
“5-A. Power to grant exemption from duty of excise.—(1) If
the Central Government is satisfied that it is necessary in the
public interest so to do, it may, by notification in the Official
Gazette, exempt generally either absolutely or subject to such
conditions (to be fulfilled before or after removal) as may be
specified in the notification, excisable goods of any specified
description from the whole or any part of the duty of excise
leviable thereon:
Provided that, unless specifically provided in such
notification, no exemption therein shall apply to excisable
goods which are produced or manufactured—
(i) in a free trade zone and brought to any other
place in India; or
(ii) by a hundred per cent export-oriented
undertaking and [brought to any other place in
India.
WA No.81/11 Page 18 of 34
Explanation.—In this proviso, “free trade zone” and
“hundred per cent export-oriented undertaking” shall have
the same meanings as in Explanation 2 to sub-section (1)
of Section 3. (1-A) For the removal of doubts, it is hereby declared
that where an exemption under sub-section (1) in respect
of any excisable goods from the whole of the duty of excise
leviable thereon has been granted absolutely, the
manufacturer of such excisable goods shall not pay the
duty of excise on such goods.
(2) If the Central Government is satisfied that it is
necessary in the public interest so to do, it may, by special
order in each case, exempt from payment of duty of excise,
under circumstances of an exceptional nature to be stated
in such order, any excisable goods on which duty of excise
is leviable.
(2-A) The Central Government may, if it considers it
necessary or expedient so to do for the purpose of
clarifying the scope or applicability of any notification
issued under sub-section (1) or order issued under sub-
section (2), insert an explanation in such notification or
order, as the case may be, by notification in the Official
Gazette at any time within one year of issue of the
notification under sub-section (1) or order under sub-
section (2), and every such explanation shall have effect as
if it had always been the part of the first notification or
order, as the case may be.
(3) An exemption under sub-section (1) or sub-section
(2) in respect of any excisable goods from any part of the
duty of excise leviable thereon (the duty of excise leviable
thereon being hereinafter referred to as the statutory duty)
may be granted by providing for the levy of a duty on such
goods at a rate expressed in a form or method different
WA No.81/11 Page 19 of 34
from the form or method in which the statutory duty is
leviable and any exemption granted in relation to any
excisable goods in the manner provided in this sub-section
shall have effect subject to the condition that the duty of
excise chargeable on such goods shall in no case exceed
the statutory duty.
Explanation.—“Form or method”, in relation to a rate
of duty of excise means the basis, namely, valuation,
weight, number, length, area, volume or other measure
with reference to which the duty is leviable.
(4) Every notification issued under sub-rule (1), and
every order made under sub-rule (2), of Rule 8 of the
Central Excise Rules, 1944, and in force immediately
before the commencement of the Customs and Central
Excises Laws (Amendment) Act, 1988 shall be deemed to
have been issued or made under the provisions of this
section and shall continue to have the same force and
effect after such commencement until it is amended,
varied, rescinded or superseded under the provisions of
this section.]
(5) Every notification issued under sub-section (1) 9 [or
sub-section (2-A)] shall,—
(a) unless otherwise provided, come into force on
the date of its issue by the Central
Government for publication in the Official
Gazette;
(b) also be published and offered for sale on the
date of its issue by the Directorate of Publicity
and Public Relations, Customs and Central
Excise, New Delhi, under the Central Board of
Excise and Customs constituted under the
Central Boards of Revenue Act, 1963.
WA No.81/11 Page 20 of 34
(6) Notwithstanding anything contained in sub-section (5),
where a notification comes into force on a date later than the
date of its issue, the same shall be published and offered for
sale by the said Directorate of Publicity and Public Relations
on a date on or before the date on which the said notification
comes into force.”
20. It may be noted that the above Notifications for exemption were
issued by the Central Government from time to time under Section 5-A of
the Excise Act. In this state of affairs of flip-flop decisions by the Central
Government, the appellants are seeking the protection of the doctrine of
promissory estoppel. What is the doctrine of promissory estoppel is explained
in by Lord Denning in his inimitable words:
“A man should keep his word. All the more so when the
promise is not a bare promise but is made with the intention that the
other party should act upon it. Just as contract is different from tort
and from estoppel, so also in the sphere now under discussion
promises may give rise to a different equity from other conduct.
The difference may lie in the necessity of showing ‘detriment’.
Where one party deliberately promises to waive, modify or discharge
his strict legal rights, intending the other party to act on the faith or
promise, and the other party actually does act on it, then it is
contrary, not only to equity but also to good faith, to allow the
promisor to go back on his promise. It should not be necessary for the
other party to show that he acted to his detriment in reliance on the
promise. It should be sufficient that he acted on it.”
The Apex Court in Amrit Banaspati Co. Ltd. v. State of
Punjab,(1992) 2 SCC 411 also explained doctrine in the following manner:
WA No.81/11 Page 21 of 34
“3. Law of Promissory Estoppel which found its ‘most eloquent
exposition’ in Union of India v. Indo-Afghan Agencies Ltd.1
crystallised in Motilal Padampat Sugar Mills Co. (P) Ltd. v. State
of U.P.2 as furnishing cause of action to a citizen, enforceable in a
court of law, against government if it or its officials in course of their
authority extended any promise which created or was capable of
creating legal relationship, and it was acted upon, by the promisee
irrespective of any prejudice. It was reiterated in Union of India v.
Godfrey Philips India Ltd.3 and was taken further when it was held
that no duty of excise was assessable on cigarettes manufactured by
assessee by including, cost of corrugated fibreboard containers, when
it was clearly represented by the Central Board of Excise and
Customs in response to the submission made by the Cigarette
Manufacturers’ Association — and this representation was approved
and accepted by the Central Government — that the cost of
corrugated fibreboard containers would not be includible in the value
of the cigarettes for the purpose of assessment of excise duty. In
Delhi Cloth and General Mills Ltd. v. Union of India4 it was held:
“All that is now required is that the party asserting the
estoppel must have acted upon the assurance given to him. Must
have relied upon the representation made to him. It means, the
party has changed or altered the position by relying on the
assurance or the representation. The alteration of position by the
party is the only indispensable requirement of the doctrine. It is
not necessary to prove further any damage, detriment or prejudice
to the party asserting the estoppel.”
(Underlined for emphasis)
1 (1968) 2 SCR 366 : AIR 1968 SC 718 2 (1979) 2 SCC 409 : 1979 SCC (Tax) 144 : (1979) 2 SCR 641 3 (1985) 4 SCC 369 : 1986 SCC (Tax) 11 4 (1988) 1 SCC 86 : (1988) 1 SCR 383
WA No.81/11 Page 22 of 34
21. The doctrine, however, has certain limitations as held by the Apex
Court in Godfrey Philips India Ltd. (supra). This is what it said:
“13. Of course we must make it clear, and that is also laid
down in Motilal Sugar Mills case (supra) that there can be no
promissory estoppel against the Legislature in the exercise of its
legislative functions nor can the Government or public authority
be debarred by promissory estoppel from enforcing a statutory
prohibition. It is equally true that promissory estoppel cannot be
used to compel the Government or a public authority to carry out
a representation or promise which is contrary to law or which was
outside the authority or, power of the officer of the Government or
of the public authority to make. We may also point out that the
doctrine of promissory estoppel being an equitable doctrine, it
must yield when the equity so requires; if it can be shown by the
Government or public authority that having regard to the facts as
they have transpired, it would be inequitable to hold the
Government or public authority to the promise or representation
made by it, the Court would not raise an equity in favour of the
person to whom the promise or representation is made and
enforce the promise or representation against the Government or
public authority. The doctrine of promissory estoppel would be
displaced in such a case, because on the facts, equity would not
require that the Government or public authority should be held
bound by the promise or representation made by it. This aspect
has been dealt with fully in Motilal Sugar Mills case (supra) and
we find ourselves wholly in agreement with what has been said in
that decision on this point.”
22. To give a complete picture of the legal position with respect to the
doctrine of promissory estoppel, we may also refer to and reproduce
hereunder para 30 of the judgment of the Apex Court in Pawan Alloys &
Casting Pvt. Ltd., Meerut v. UP State electricity Board and others,
(1997) 7 SCC 251:
WA No.81/11 Page 23 of 34
“30. Shri Dave next invited our attention to a three-Judge
Bench judgment of this Court in the case of Shrijee Sales Corpn.
wherein A.M. Ahmadi, C.J., speaking for the Bench considered the
correctness of the aforesaid decision in Kasinka Trading10. As
the decision in Shrijee Sales Corpn.11 has laid down the
parameters of the field in which the doctrine of promissory
estoppel can apply it is necessary to closely refer to the relevant
observations found in the said judgment. It may be mentioned
that the very same customs exemption notification which was
considered by the Bench of two learned Judges in Kasinka
Trading10 was considered by a three-Judge Bench in Shrijee
Sales Corpn.11 While upholding the said notification Ahmadi,
C.J., in paras 3 and 4 of the Report observed as under:
“3. It is not necessary for us to go into a historical analysis
of the case-law relating to promissory estoppel against the
Government. Suffice it to say that the principle of promissory
estoppel is applicable against the Government but in case
there is a supervening public equity, the Government would be
allowed to change its stand; it would then be able to withdraw
from representation made by it which induced persons to take
certain steps which may have gone adverse to the interest of
such persons on account of such withdrawal. However, the
Court must satisfy itself that such a public interest exists. The
law on this aspect has been emphatically laid down in the case
of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.5
The portion relevant for our purpose is extracted below:
‘It is only if the Court is satisfied, on proper and
adequate material placed by the Government, that
overriding public interest requires that the Government 10 (1995) 1 SCC 274 11 (1997) 3 SCC 398 5 (1997) 2 SCC 409 : 1979 SCC (Tax) 144
WA No.81/11 Page 24 of 34
should not be held bound by the promise but should be free
to act unfettered by it, that the Court would refuse to
enforce the promise against the Government. The Court
would not act on the mere ipse dixit of the Government, for
it is the Court which has to decide and not the Government
whether the Government should be held exempt from
liability. This is the essence of the rule of law. The burden
would be upon the Government to show that the public
interest in the Government acting otherwise than in
accordance with the promise is so overwhelming that it
would be inequitable to hold the Government bound by the
promise and the Court would insist on a highly rigorous
standard of proof in the discharge of this burden. But even
where there is no such overriding public interest, it may
still be competent to the Government to resile from the
promise “on giving reasonable notice, which need not be a
formal notice, giving the promisee a reasonable opportunity
of resuming his position” provided of course it is possible
for the promisee to restore status quo ante. If, however, the
promisee cannot resume his position, the promise would
become final and irrevocable. Vide Emmanuel Ayodeji
Ajayi v. Briscoe16.’
4. Two propositions follow from the above analysis:
(1) The determination of applicability of promissory
estoppel against public authority/Government hinges
upon balance of equity or ‘public interest’.
(2) It is the Court which has to determine whether
the Government should be held exempt from the liability
of the ‘promise’ or ‘representation’.
In the present case, the first notification exempting the
customs duty on PVC itself recites ‘… Central Government being
satisfied that it is necessary in public interest to do so …’. In the
16 (1964) 3 All ER 556
WA No.81/11 Page 25 of 34
notification issued later which gave rise to the present cause of
action, the same recitation is present.”
It is, therefore, obvious that even though it may be found that
the Government or any other competent authority had held out
any promise on the basis of which the promisee might have acted,
if public interest required recall of such a promise and such a
public interest outweighed the interest of the promisee then the
doctrine of promissory estoppel against the Government would
lose its rigour and cannot be of any avail to such promisee. In the
aforesaid decision the further contention canvassed on behalf of
the appellant-promisee was also examined. That centred round
the question whether the notification having fixed a time-limit for
its operation could be rescinded prior to the expiry of the said
period. Rejecting the said contention and upholding the right of
the authorities to recall such a notification even earlier it was
observed in para 7 of the Report that once public interest is
accepted as the superior equity which can override individual
equity, the principle should be applicable even in cases where a
period has been indicated. It was further observed that the
Government is competent to resile from a promise even if there is
no manifest public interest involved, provided, of course, no one is
put in any adverse situation which cannot be rectified. To adopt
the line of reasoning in Emmanuel Ayodeji Ajayi v. Briscoe16
quoted in M.P. Sugar Mills5 even where there is no such
overriding public interest, it may still be within the competence of
the Government to resile from the promise on giving reasonable
notice which need not be a formal notice, giving the promisee a
reasonable opportunity of resuming his position, provided, of
course, it is possible for the promisee to restore the status quo
ante. If, however, the promisee cannot resume his position, the
promise would become final and irrevocable.
(Underlined for emphasis)
WA No.81/11 Page 26 of 34
23. As already noticed earlier, it was on the basis of the North East
Industrial Policy dated 24-12-1997 that the two Notifications No. 32/99-CE
and 33/99-CE were initially issued by the Central Government to give effect
to the new initiatives for industrial development in the region. The object of
the policy is to attract investment by promising exemption from payment of
excise duty, additional duty of excise and income tax for a period of ten
years from the date of commencement of commercial production or the date
of issue of such Notification, whichever, was later, to bring about the
development of infrastructural facilities and industries in the region. It is the
specific case of the appellant that acting upon such promise, it invested a
total of ₹ 69 crores for construction of land, building, plant & machineries,
furnitures and fixtures, office equipments, vehicles, stocks. Having satisfied
the criteria stipulated in the said two Notifications, the appellant availed of
the benefit of exemption from payment of excise duty and additional excise
duty for the goods manufactured and cleared by it and also claiming refund
of the duty deposited by it in cash during the period from 17-11-2000 to 28-
2-2001. The Excise Department, in turn, after verifying the claims for the
refund used to refund the excise duty deposited into it during that period.
24. By announcing the North East Industrial Policy, 1997 implemented
by the Notifications No. 32/99-CE and 33/99-CE, it can truly be said that
the respondents have held out a promise to exempt the manufacturer of the
specified goods from payment of excise duty and additional excise duty for
the next ten years subject, however, to fulfilment of the criteria stipulated
therein. As already noticed, the “flip-flop” of the Central Government issuing
notifications granting, then withdrawing, again granting before finally
withdrawing such benefits is evident. However, the Parliament passed
Section 154 of the Finance Act, 2003, which was enacted on 14-5-2003,
making retrospective denial of exemption of such benefits. Thus, the
exemptions available to the manufacturers of cigarettes from 1999 up to 27-
1-2001 (except for a short period between 31-12-199 and 17-1-2000 during
which it was not available), was rescinded retrospectively. This meant that
WA No.81/11 Page 27 of 34
the excise duty already refunded to the manufacturers would be liable to be
recovered, no further refund would be made and that the manufacturers
would be liable to pay the excise duty not paid when the exemption was in
force i.e. between 8-7-1999 and 27-1-2001. If that is the end of the matter,
the appellant may not have any case at all. But then, the respondent
authorities thereafter issued the Notification No. 69/2003-CE dated 25-8-
2003 partially restoring the exemption of goods mentioned in Table 3 of the
Notification of Chapter 24 of the Schedule I (2401.90, 2402.00, 2404.41,
2404.49, 2404.50 and 2404.99) of the CET Act that was withdrawn by the
said Notification No. /2001-CE to the extent of 50% of the duty payable
which was made available only to the units located in the States of
Arunachal Pradesh, Assam, Manipur, Meghalaya, Nagaland and Tripura and
for those units which had commenced commercial production on or after
24-12-997 but not later than 28-2-2001 and the units should have
continued its manufacturing activities after 8-2-2001 and should have
availed of the benefits under the Notification No. 32/99-CE and 33/99-CE
subject, however, to their fulfilling certain conditions stipulated therein
issued the Notifications No. 8-4-04-CE dated 21-1-2004 exempting goods
falling under the said the Notification No. 69/2003-CE from 100% duties of
excise subject certain conditions. Subsequently, another Notification No.
28/2004-CE was issued on 9-7-2004 by the GOI amending the said
Notification No. 8/2004-CE stipulating for the first time the mechanism of
escrow account for ensuring that money earned from exemption is re-
invested in the State itself.
25. Obviously, these three Notifications were issued subsequent to the
enactment of the Section 154 of the Finance Act, 2003. Therefore, there is
force in the contention of the learned senior counsel for the appellant that
inasmuch as Section 154 of the Finance Act, 2003 was enacted prior to the
said three Notifications, it has no relevance in this case nor can it have any
adverse effect on the rights already accrued to the petitioners thereunder.
The impugned Notification No. 11/2007-CE dated 1-3-2007 was issued in
exercise of the powers conferred under Section 5A(1) of the Excise Act. The
WA No.81/11 Page 28 of 34
contention of the learned senior counsel for the appellant is that the
impugned Notification, in so far as it takes away the rights already accrued
to the appellant in terms of the Notifications No. 11/04-CE and 28/04-CE is
concerned, is illegal inasmuch as the parent Act i.e. Excise Act does not give
the Ministry of Finance the power to issue such Notification with
retrospective effect, and has also infringes Section 38A of the Excise Act,
which provides that the rights which have accrued or vested in a party by
prior Notification shall not be affected by an amendment to the Notification.
If any authority is required in this behalf, we may conveniently refer to
Mahabir Vegetable Oils (P) Ltd. V. State of Haryana, (2006) 3 SCC 620.
This is what the Apex Court said:
“38. The promises/representations made by way of a statute,
therefore, continued to operate in the field. It may be true that the
appellants altered their position only from August 1996 but it has
neither been denied nor disputed that during the relevant period,
namely, August 1996 to 16-12-1996 not only have they invested huge
amounts but also the authorities of the State sanctioned benefits,
granted permissions. Parties had also taken other steps which could
be taken only for the purpose of setting up of a new industrial unit.
An entrepreneur who sets up an industry in a backward area unless
otherwise prohibited, is entitled to alter his position pursuant to or in
furtherance of the promises or representations made by the State.
The State accepted that equity operated in favour of the
entrepreneurs by issuing Note 2 to the notification dated 16-12-1996
whereby and whereunder solvent extraction plant was for the first
time inserted in Schedule III i.e. in the negative list.
39. Both the provisions contained in Schedule III and Note 2
formed part of subordinate legislation. By reason of the said note, the
State did not deviate from its professed object. It was in conformity
with the purport for which original Rule 28-A was enacted.
40. We, in this case, are not concerned with the quantum of
exemption to which the appellants may be entitled to, but only with
WA No.81/11 Page 29 of 34
the interpretation of the relevant provisions which arise for
consideration before us.
41. We may at this stage consider the effect of omission of the said
note. It is beyond any cavil that a subordinate legislation can be given
a retrospective effect and retroactive operation, if any power in this
behalf is contained in the main Act. The rule-making power is a
species of delegated legislation. A delegatee therefore can make rules
only within the four corners thereof.
42. It is a fundamental rule of law that no statute shall be
construed to have a retrospective operation unless such a
construction appears very clearly in the terms of the Act, or arises by
necessary and distinct implication. (See West v. Gwynne14.)”
26. Thus, in our opinion, prima facie, the impugned Notification No.
11/2007-CE is hit by the doctrine of promissory estoppel for the following
reasons:
(a) By the North East Industrial Policy, 1997 implemented by the
Notifications No. 32-1999-CE and No. 33-1999-CE, a promise was
held out by the respondent authorities that excise and additional
excise exemptions would be given to those investors who started
production of identified goods for a period of ten years;
(b) The appellant believed that the promise was true and, if acted
upon, would be entitled to a refund of excise duty, and had,
therefore, acted upon such promise; and
(c) While acting upon such promise, the appellant altered its position
by investing sixty-nine crores of rupees in land, buildings, plants
and machineries, office equipments, vehicles and stocks.
(d) The authority issuing the Notifications Nos. 11/04-CE and 28/04-
CE acted within the scope of his authority.
14 (1911) 2 Ch 1 : 104 LT 759 (CA)
WA No.81/11 Page 30 of 34
(e) The impugned Notification No. 11/07-CE is ultra vires Section 5A
of the Excise Act and is, therefore, not operative; there is thus no
difficulty in invoking the doctrine of promissory estoppel.
27. It is not, however, necessary for the appellant to further prove that
any damage, detriment or prejudice was caused to it by making such
investment. What is now to be seen is whether there is overriding public
interest compelling the State-respondents to withdraw the benefits already
extended to the appellant and whether it may still be within the competence
of the respondent authorities to resile from the promise on giving reasonable
opportunity of resuming the position of the appellant even where there is no
such overriding public interest provided, of course, it is possible for the
appellant to restore the status quo ante, but if that is not possible, the
promise would become final and irrevocable. As already held by the Apex
Court in Motilal Padampat Sugar Mills Co. Ltd. (supra), this Court will
not act on the mere ipsi dixit of the Government, for it is the Court which
has to decide and not the government whether the Government should be
held exempt from liability. This is the essence of the rule of law. The burden
would be upon the Government to show that the public interest is so
overwhelming that it would be inequitable to hold the government bound by
the promise and the Court will insist on a highly rigorous standard of proof
in the discharge of this burden. The main reasons given by the respondent
authorities are found at para 4(xi) to (xiv) of their counter-affidavit, namely,
(i) the appellant misutilized the escrow account in respect of its investment.
During the period w.e.f. 25-8-2003 to 21-1-2004 i.e. the period between the
Notification No. 69/03 dated 25-8-2003 and the Notification No. 8/04-CE
dated 21-1-04 which is known as pre-escrow period, the appellant is shown
to have invested ₹100 crores out of which only an amount of ₹34 crores was
certified by the Investment Appraisal Committee to have been invested and
(ii) the Industrial Policy Resolution dated 1-4-2007 issued by the Ministry of
Industry and Commerce inserted negative list which included tobacco
products and pan masala enabling the withdrawal of these two items from
WA No.81/11 Page 31 of 34
tax exemption with retrospective effect in public interest taking into account
health hazard and various other factors.
28. In so far as the impact of negative list is concerned, there is no
difficulty in holding that these two items are still entitled to exemption
inasmuch as towards of the end of the North East Industrial and Investment
Promotion Policy, 2007 (NEIP, 2007) i.e. Clause 2, it is clearly provided that
industrial units which had commenced commercial production on or before
31-3-2007 will continue to get benefits/incentives under the NEIP, 1997
notwithstanding the inclusion of tobacco products and pan masala among
the negative lists as items ineligible for benefits under NEIP, 2007.
Indisputably, the units of the appellant had commenced commercial
production on or before 31-3-2007. This is evident from the Office
memorandum dated 1-4-2007 which categorically stated that industrial
units which had commenced commercial production on or before 31-3-2007
would continue to get benefits/incentives under NEIP, 1997. Under the
circumstances, the right of the appellant to get benefits/incentives made
available under the Notifications No. 11/04-CE and 28/04-CE cannot be
abrogated by the impugned Notification. Once it is found that the appellant
has admittedly acted upon the promise held out by the respondents in the
Notifications No. 11/04-CE and 28/04-CE and made some investment,
though the quantum whereof is not ascertainable at this stage as will be
evident hereafter, it may not no longer be possible to restore the status quo
ante. Therefore, the State-respondents are barred by the doctrine of
promissory estoppel from issuing the impugned Notifications No. 11/2007-
CE dated 1-3-2007 withdrawing full and partial exemption of excise and
excise tariff extended to the appellant made available to it by the Notification
No. 8/2004-CE dated 21-1-2004 and Notification No. 28/2004-CE dated 9-
7-2004. However, the appellant is not yet out of the jungle. This is so,
because the answer of the appellant to the further contention of the
respondents that the funds have been misutilized by it, is far from
satisfactory. All that it can say in this regard is found at para 34 of its reply
affidavit, which is as follows:
WA No.81/11 Page 32 of 34
“34. That the contents of paragraph 8 of the Affidavit in Opposition
are denied as being incorrect, fabricated and vexatious. It is most
respectfully submitted that there has been no misuse and mis-
utilization of funds as alleged by the Respondent No. 2. It is denied
that the funds from Escrow Account were not utilized in a proper
manner. It is submitted that the Respondent No. 2 be put to strict
proof of the same. In fact, the petitioner has faced immense difficulty
in obtaining the benefit under the exemption notifications even during
the subsistence of the exemption period. The Respondent and its
Central Excise Officials have been engaged in numerous illegal and
arbitrary actions of appropriating huge amounts of money lying in the
escrow accounts of the Petitioner and its group companies without
any justification or reason whatsoever. In fact, the Central Excise
Authorities and the Investment Appraisal Committee have been
conducting their functions under the Notifications Nos. 8 and 28
illegally and arbitrarily and have been denying investment certificates
to the Petitioner and its Group Companies. Aggrieved by numerous
illegalities and irregularities conducted by the Central Excise
Authorities, the Petitioner was constrained to file writ petitions
challenging the arbitrary actions of the Respondents and the other
Central Excise Authorities. The Petitioner has accordingly filed WP(C)
Nos. 591/2008, 1048 of 2008 and 2148 of 2008 challenging various
aspects of illegal and arbitrary functioning of the authorities
motivated at depriving the Petitioner of benefits granted under the
excise exemption notifications and these petitions have been allowed
in favour of the Petitioner vide judgment dated 6-1-2010.”
29. The paragraph extracted above is conspicuous by the lack of details
and particulars in the case set up by the appellant. Detail averments were
made by the respondent authorities as to the effect that between 25-8-2003
and 21-1-2004, which is known as the pre-escrow account period, the
appellant was shown to have invested an amount of rupees one hundred
WA No.81/11 Page 33 of 34
crores out of which only rupees 34 crores was certified by the Investment
Appraisal Committee by way of investment in plants and machineries and
social infrastructure project, whereas the balance remained un-invested
which was subsequently appropriated by the respondent authorities. The
respondents also point out that the Commissioner had initiated recovery
measures against the appellant by issuing demand notices under Section
11A of the Excise Act for the period of 25-8-2003 to 8-7-2004 as it defaulted
in paying back duty to the public exchequer on its own. It is further pointed
out by the respondents that during the period from 25-8-2003 to 8-7-2004,
the appellant availed of duty exemption to the order of ₹96,61,11,858/-
which required it to invest the equivalent amount. It was also required to
produce investment certificates for the said amount, but it produced the
investment certificate only to the tune of rupees thirty-four crores. According
to the respondents, the balance amount of rupees sixty-three crores not so
invested in the manner specified in the notification is required to be
deposited back with the public exchequer. Instead, the appellant resorted to
litigations causing inordinate delay to the respondents in recovering public
money. In our opinion, these specific averments made by the respondent
authorities have not received satisfactory response from the appellant
despite establishing a case of promissory estoppel thereby creating hurdle to
its case for complete relief from this Court. No copies of the judgments relied
upon by it are also annexed to the writ petition or the memo of appeal. In
this view of the matter, the Investment Appraisal Committee shall have to
take a call on these issues again. Be that as it may, the impugned judgment
is not sustainable in law, and is, therefore, liable to be set aside.
30. In the premises set forth above, this writ appeal is disposed of with
the following orders:
(a) The impugned judgment dated 10-12-2010 passed by the learned
Single Judge is, accordingly, set aside.
(b) Consequently, the impugned Notification No. 11/2007-CE dated
1-3-2007 is hereby quashed;
WA No.81/11 Page 34 of 34
(c) The Investment Appraisal Committee is, therefore, directed to give
an opportunity of hearing to the appellant to prove that it has
actually invested ₹96,61,11,858/- in the specified items for
availing of the benefits made available under the Notifications No.
8/04-CE and 28/04-CE dated 21-1-2004 and dated9-7-2004
respectively within a period of two months;
(d) If the appellant can prove that it has actually invested ₹
96,61,11,858/- or less, the Committee shall issue an Investment
Certificate to that effect whereupon the respondent authorities
shall refund to the appellant so much of the excise duty, which
may become due to it, within a period of three months thereafter.
(e) No cost.
JUDGE JUDGE
Upadhaya