TMI Blog2010 (12) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... f Nov’2002. Principles of ‘promissory estoppel - , it clearly emerges that a promise was extended by the State Government to the petitioner Units by way of an incentive in the shape of 100% exemption from payment of excise duty and acting upon the said promise, the petitioners established their units within the specified areas in the State of J&K and have altered their position. Unilateral withdrawal of that promise is barred by the principle of equitable promissory estoppel. Misuse of exemption - the plea of revenue that some unscrupulous manufacturers were involved in bogus production for the purpose of claiming maximum exemption from the payment of excise duty, cannot be generalized but has to be case specific. The same, therefore, cannot be treated to be in the public interest as projected by the respondents. This is because there has been no individual identification of such bogus manufacturers and the action of respondents vide impugned notifications would prejudice the rights of those genuine manufacturers who on the promise of the State, have altered their position and are involved in fair ndustrial activities. Notification no. 19/2008 CE dated 27-3-2008 shall stand quas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vide Notification dated l4th of June 2002 issued by the Ministry of Commerce Industry (Department of Industrial Policy .Promotion), Government of India some new initiatives were taken to provide incentives as well as an enabling environment for industrial development in the State. The policy provided various fiscal incentives to new industrial units as also to those existing units engaged in substantial expansion. As a measure of fiscal incentives, the Government approved conversion of growth center into total tax free zones for a period of ten years from the date of commencement of commercial production. In terms of the new industrial policy approved by the Central Government, all industrial activities like growth center, industrial infrastructure development centers (IIDCs) and other locations like industrial estates, parks export processing zones, commercial estates etc., as notified by the Central Government were held entitled to 100% excise duty exemption for a period of ten years from the date of commencement of commercial production as indicated above; The State Government was also requested to grant sales tax exemption to the units which avail of concessions under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it availed of, in respect of the duty paid on the inputs used in or in relation to the manufacture of goods cleared under this notification. Thereafter, various amendments were made in the original notification dt.14th of Nov 02. However, all the amendments were in line with the Industrial Policy of the State Government as also that of Central Government. Vide notifications impugned No.19/2008- Central Excise dated 27th of March 2008, and 34/2008-Central. Excise dt. 10th of June 08, further amendments have been carried out in the. original notification, by the Central Government, whereby the excise duty, refund has been restricted to a maximum limit as mentioned in the tables appended to the above notifications in respect of different goods. The said notifications changed the entire scenario by reducing the 100% exemption provided by the earlier notifications to a limited percentage in respect of different goods manufactured by the units. Another feature of these notifications is that the exemption from duty has been restricted on value addition undertaken in the manufacture of said goods by the units. The notifications impugned have given the liberty to an industrial unit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m different parts of the country, which results in increase in the input cost of the product which costs would not have been incurred had the units been established in any other State. It was only on the basis of the incentives which were provided to the investors in terms of the scheme, which lured the petitioners to set up their industrial units in this State. The benefit of the notification dt.14th of Nov 02, regarding. 100% exemption from payment of excise duty was to be extended to the petitioner-units for a period of ten years from the date of publication of the original notification, referred to above, or from the date of commencement of commercial production, whichever is later. The grievance projected is that by issuance of impugned notifications, the respondents have promulgated a new scheme withdrawing the benefit as was available to them in terms of the original notification. This action of the respondents is said to be hit by doctrine of promissory estoppels. It is stated that in terms of the original notification, the. respondents had formulated a policy to grant complete exemption from payment of excise duty for a period of ten years to the eligible industrial unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as may be, specified in the notification on excisable goods. In the year 2002, the Government had provided excise duty exemption to the new/existing industrial units located in the specified areas in the State ofJammu and Kashmir. The benefit granted by the Government in terms of the notification dt. 14th of Nov 2002, led to some unscrupulous manufacturers to indulge in bogus production and different types of tax evasion tactics were adopted by such manufacturers. The goods were being supplied by the manufacturers without issuance of sale invoices and this resulted in bogus sale invoices issued by the traders who do not undertake actual supply of goods. The further contention raised is that there was misuse of exemption benefit being granted by the Government and the units in the areas were wanting to pay maximum amount of duty in cash so that they become entitled to claim refund of entire amount of duty paid in cash. In order to ascertain this fact, an overall study was made by the Excise department at its own level on receipt of information from the Director General, Central Excise. Intelligence and other concerned agencies to find out the percentage of excise duty paid in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of a special incentive or benefit. It is further contended that the impugned notifications provide for remedial measures by way of fixation of special rate by the Commissioner concerned, when the manufacturer finds that the rate so fixed under these notifications is not acceptable to him. There being such an inbuilt remedial provision in the notifications itself, the petitioners, it is stated, cannot be said to be deprived of their legal rights. It is, thus, contended that the petitioners cannot have any grievance against the action taken by the respondents by way of issuance of amended notifications dt. 27th of March 2008, and 10th of June 08. I have heard learned counsel for the parties. Following issues arise for determination in this case:- . . A/ whether any was extended by the Central Government to the investors to allow the operation of exemption from payment of excise duty which was to remain in force for a period of ten years on the specified finished goods manufactured in specified areas with the State; B/ whether the investors had altered their position based upon the promise extended to hem in terms of the policy and the original notification issued purs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan from banks and other financial institutions. The investment as on today on the said unit is approximately Rs. 15 Crores. The second unit was installed by the petitioner in terms of the policy for manufacturing mosquito coils and toilet cleaners at an investment of Rs. 14 lacs and the total investment of the said plant as on today is about Rs. 28 Crores. Unit III was set up by the Petitioner Company acting upon the promise extended by the Government for manufacturing mosquito coils and toilet cleaners at an investment of Rs. 1.97 Crores in the year 2007. The total investment of the said unit is said to be Rs. 25 crores. Due to the shortage of power in the State, the units are being run by the petitioner on DG sets installed in the said units. It is stated that the petitioner company has incurred huge amount to train the man power of the State for employment in these units and converted them from unskilled to specialized and skilled man-power. The activity undertaken by the petitioner has generated employment in the State as approximately 3800 skilled and unskilled laborers have been engaged out of which 70% employees belong to the State of J K. The raw material for mosquito c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic interest. Such a power can be exercised by invoking Article 162 of the Constitution of India, by taking resort to some provisions or pursuant to a policy resolution. It is in the realm of this power that the State can grant exemption by invoking certain provisions of the Statute to grant such exemption. The said power is traceable to the Statute itself and its exercise is done in the larger public interest. While exercising the power in pursuance to a policy resolution and in order to carry out the objectives of the policy, recourse is taken to the statutory provisions dealing with the subject. In the former case, the State considers granting such exemption necessary to meet the exigencies of the situation in public interest. There is no inducement or representation in such a situation. While, in the case of a policy resolution, exemption is granted due to the promise made by the State. In such an event, where there was inducement, the State can resile from the promise made by it only when it establishes, to the satisfaction of the court that overriding public interest so requires. Once, such an overriding public interest is established by the State, it can be allowed to withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention that the impugned notifications have been issued in public interest. In support of the above contention raised by them, reliance has been placed on the judgment of theApex Courtin the case of Kasinka Trading (Supra). It is stated that the exemption was granted in exercise of statutory power in public interest and subsequently withdrawn by exercising the same power again in the public interest. At this stage, it would be relevant to notice the observations made by theApex Courtwhile examining this issue in the aforementioned case, which are as under: - The appellants who are in business, have to be prepared for tides in the business. In Pournami Oil Mills, it was the incentive to set up new industry in the State with a view to boost the industrialization that exemption had been granted and it was in that fact situation that the doctrine of promissory estoppet was held available to the appellant the hem. Again in Bakul Oil Industries it was the incentive to set up industries in a conforming area that the exemption had been granted and the Court held that the Government could withdraw and exemption granted by it earlier only if such withdrawal could be made without o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations have to be read liberally keeping in mind the objects envisaged by the industrial policy and not in a strict sense as in the case of exemptions from tax liability under the taxing statute. In the present case, as noticed above, an industrial policy was framed in terms of which, the State provided the incentive to the petitioner-units for setting up their industrial units for the purpose of manufacturing activities within the specified areas in the State. This incentive was provided in the nature of l00% exemption from payment of excise duty for a specified period. The amendment: made vide impugned notifications, has to be considered in the context of the original industrial policy which was formulated in terms of which incentive was provided for inviting the entrepreneurs to make investment in the State in specified areas. I, accordingly, hold that in the present case, the exemption granted by the Government was not an exemption simplicitor but an exemption granted in pursuance to a promise extended to the investors on the basis of a policy resolution and notification issued pursuant there to dt. 14 th of Nov 2002. Question No. 4 The next question which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is made and it is so acted upon by the other party the promise would be binding on the party. making it. It would not be entitled to go back on the promise made . A perusal of the afore-noticed observations made by theApex Court, would show that the principle underlying the doctrine of promissory estoppel would he when any person acting on a promise made by the other alters its position and the person making the representation holds back from its words to the detriment of one who alters the position. When there is such a situation, the said doctrine steps in. This doctrine has been evolved as a principle of equity to mitigate the rigours of strict law and to prevent injustice taking place from strict adherence to it. There is no consideration for the promise and the promise, as indicated above, is not reduced in the form of a formal contract as required under Article 299 of the Constitution. The State has the option not to make any promise knowing or intending to know that it would be acted upon by the promisee and the promisee would alter its position relying upon it. But, once the Government makes such a promise and the promisee has acted upon such a promise extended to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of five years. Later on, the said incentive was withdrawn. TheApex Courttaking note of the fact that the industrial units have set up their units on the basis of the promise extended to them, they are within their rights to invoke the plea of promissory estoppel. The relevant observations made in para 7 of the aforementioned judgment may be noticed as under:- Under the order dated April 11, 1979, new small scale units were invited to set up their industries in the State of Kerala and with a view to boasting of industrialization, exemption from sales tax and purchase tax for a period of five years was extended as a concession and the five year period was to run from the date of commencement of production. If in response to such an order and in consideration of the concession made available, promoters of any small scale concern have set up their industries within the State of Kerala, they would be entitled to plead the rule of estoppel in their favour when the State of Kerala purports to act differently It be further seen that the principle of promissory estoppel is an equitable doctrine and it must yield when equity so requires. This, however, is not the absolute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in respect of a supervening public interest but also if the Government. is able to show that the promise so made was in violation of a Statute, it will not compel the Government to act upon the promise made by it. However, the decision of the Government in this behalf has to be supported by some material indicating the facts and circumstances on account of which, the Government claims to be exempted from its liability. It cannot on some indefinite and undisclosed grounds of necessity or expediency resile itself from fulfilling the commitment made by it with the promisee in this behalf. It is for the court to decide as to whether, the facts and circumstances disclosed in this behalf are such as to render it inequitable to enforce the liability upon the Government. The Government can also resile from the promise if it is possible for the promisee to resume its original position or restore status quo ante even if the promise is not acted upon by the Government. So, what is contemplated by the principle of promissory estoppel stated herein supra is that the decision of the Government to resile from its commitment would be subject to judicial scrutiny which will examine while bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t up their units or carried out substantial expansion of their units clearly and unequivocally were made to do so to carry out the industrial activities within the State. What was also known to these investors at that point of time that this concession/incentive is to be given only in respect of the industrial activities in the State within the specified areas. To say it candidly, the activity of manufacturing the goods within the State was an essential condition for seeking such a benefit. The impugned notifications, as discussed herein supra, amended the notification dt.14th of Nov 02, in two respects i.e.,: i/ the exemption of the excise duty was restricted to the value addition made, meaning thereby that the actual cost incurred in manufacturing the goods excluding the inputs procured in the shape of raw material; ii/ 100% excise duty refundable in terms of the original notification restricted to a limited percentage as specified in the rate column of the table appended to the impugned notifications in respect of different goods. The above modifications have been construed by the petitioner units to be an act of resiling from the promise extended to them by the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by the principle of equitable promissory estoppel. Question No.5: Whether the impugned notification has been issued by the respondents keeping in view some overwhelming public interest is the next question which is required to be considered. Before addressing the said issue, the question would be as to whether there was any change in the original policy contemplated by the impugned notifications. In this regard, the stand of the respondents has to be noticed. The respondents, as indicated above, have stated that the impugned notification does not, in any way, change the contours of the promise which has been extended to the entrepreneurs. What is being contended is that all those units who are engaged in genuine industrial activities, would be entitled to receive the same benefit as was given to them in terms of the previous notification. In this regard, reference is being made to the impugned notification which provides ample scope for remedial measures by way of fixation of special rates and if the manufacturer finds that the rates so specified are not acceptable to him due to the reason that the actual value addition in the production or manufacture of the said good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of supervening interest. The stand of respondents in this regard is that:- i/ as a result of the provision for granting refund of cash paid duty and eligibility of credit of entire amount of said duty to the buyers of excisable goods, certain bogus manufacturers indulged in tax evasion tactics resulting in huge loss to the public exchequer; ii/ bogus production was shown by such unscrupulous manufacturers in the specified areas whereas the actual production takes place elsewhere in the country; iii/ over valuation of goods which resulted in availment of excess of credit by the buyer; iv/ the goods were being supplied by the manufacturers without issuance of sale invoices when there was no actual supply of goods; v/ bogus duty paid invoices were being issued to other manufacturers who take credit based on such invoices without receipt of goods; vi/ the industrial units in specified areas were paying a high percentage of duty in cash through Personal Ledger Account as compared to other parts of the country on the same goods; vii/ bogus purchase of raw material was being shown by the traders when, infact, there was no such purchase and no actual manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying a higher percentage of duty in cash through Personal Ledger Account in comparison to the units located in other parts of the country through PLA on similar goods. It was only after this analysis that a need was felt to curb such illegal activities on the part of unscrupulous and bogus manufacturers. It is under the said circumstances and in order to avoid large scale evasion of excise duty by bogus manufacturers, the present notification has been issued with a modified refund mechanism so as to grant excise duty refund to only those units who actually are engaged in the manufacturing activities in the specified areas within the State. This; as indicated above, is the supervening public interest as per the respondents which led to issuance of fresh notifications. The reasoning provided by the respondents in issuing the impugned notification which lays down the refund mechanism apparently cannot be faulted. This court cannot look to the sufficiency of the material and satisfaction arrived at by the respondent authorities in effecting such a change. As already discussed above, the exemption was in lieu of the manufacturing activities to be carried out in the specified area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in respect of the industrial units located in the specified areas in the rest of the country, as indicated above, suffers from fundamental infirmity, as such, would not yield any appropriate result as various factors are required to be considered in order to find out the component of excise duty payable by a manufacturer. The factors which would make the units located in the specified areas different from those located in unspecified areas would be the availability of raw material, cost of transportation, adequate supply of electricity, non availability of skilled labour etc., within the said areas in the State, as also the date of installation of units in unspecified areas and other relevant factors. The respondents have produced three charts. The first chart gives the details of the excise duty paid by the units located in the specified areas which contains ten broad headings. The second chart has been prepared on allIndiaaverage bases for the same ten headings and the third chart produced by the respondents shows the comparison between the two charts, referred to above. It is not discernible from these charts as to how the percentage of value addition has been arrived at i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and it is in view of the subsequent notification dt.10th of June 08, which seeks to cure such a defect by making provision for special rate. What emerges from he above is that the principle on the basis of which average rate has been fixed on allIndiabasis was faulty. After having said so, it has to be seen that whether the original notification can be termed to be deficient in any manner so as to lead to perceived misuse which has formed the basis for issuance of the notification impugned. In the original notification, in clause 2, it is provided that the manufacturer shall submit a statement of the duty paid, other than the amount of duty paid by utilization of Cenvat credit under the Cenvat Credit Rules, 2002, to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, by the seventh day of the next month in which the duty has been paid in cash. On receipt of the statement, the competent authority empowered under the Excise Act is required to undertake verification which it deems necessary and thereafter refund the amount of duty paid in cash by the fifteenth day of the next month to the manufacturer. It was further provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above judgment may be noticed as under:- It is highly against the public morality that the incumbent who have felt persuaded on account of the representation made by the State Government that they will be given certain benefits and they acted on that representation, it does not behove on the part of the appellant Corporation to withdraw the said benefit before expiry of the stipulated period by issuing the notification revoking the same which the respondents were legitimately entitled to avail. We fail to understand why the appellant Corporation which made a representation and allowed the other party to act upon such representation could resile and leave the citizens in a lurch. In such a situation, the principle of promissory estoppel which has been evolved by the courts which is based on public morality cannot permit the State to act in such an arbitrary fashion. Other grounds for the purpose of public interest which have been pleaded, namely, that there are two methods of tariff provided by the amendment and the actual consumption has (energy consumption charges have) been reduced based on the calculation of energy charges per kV from 308 paise to 100 paise and there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above discussion, I am of the opinion that there is no supervening public interest in withdrawing the exemption by way of impugned notifications. Question No.6: The next question to be considered is whether the exemption was granted by way of a refund mechanism. In this regard, the plea of respondents as raised by Mr Ajay Sharma, learned counsel for the respondents is to be noticed. It is stated by him that the exemption from payment of excise duty should not be confused with the refund of duty. These are two different legal and distinct concepts. The expression exemption would mean a concession allowed to a class or individual from a general burden for valid and justifiable reasons. Rule 6 of the Central Excise Rules, 2002, provides that the assessee shall himself assess the duty payable on any excisable good which would mean that the assessment of duty is based on self assessment. By way of impugned notification, the quantum of exemption has been rationalized by proposing rate of refund on total duty payable. Thus, it was implicit in the said provision that it could be amended, rescinded or withdrawn at any time if the public interest so demands. By providing su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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