OWP/470/2008 of RECKITT BENCKISER INDIALTD. Vs U.O.I. AND ORS. on 23 December 2010

HIGH COURT OF JAMMU AND KASHMIR ATJAMMU

OWP No. 470/08 and other connected petitions|as|9er listaPpended to this order|

M/s Reckitt Benckiser v. Union of India and Ors.

Coram:

Hon'ble Mr Justice Sunti Halil, Judge

Appearing counsel:

For the petitioner(s): M/s Jawanar Lal withPranav Konli, AR Madnav|Rao, Ajoy K.Roy,BSSalathia, DS Thakur, SK|Shukla,|CS Azad, MK Sharma,Suraj_S.Wazir, Dharam Paul, CSGupta,Mrs Sindhu Sharma ancDeepika Thussoo, Advs..For the respondents: M/s MI Qadri, AGV.K. Magoo,Ajay Sharma, SeniorStanding Counsel,|Central Excise andCustoms, Piyusn Gupta,Jatinder Choudnary, |Advocates.

Whether approved for reporting

In Press/Digest/Journal aYes/No

As the tissues involved in all the writpetitions in hand are similar, they snall stand.disposed of by a common order.

In order to boost the industrial activity in|the State of Jammu and Kashmir, so that thegrowthrateOT industrialsectorcouldpeaccelerated which could strengthen and broaden.the infrastructure base of the State in generaland.industriesIn.particular, mMmInimizthe.unemployment problem, the State promulgatedan Industrial Policy 1998-2003, 2004, whicn wasto remain in operation till31[St]of March@2OL5.

As the desired results were not so good andthere being no acceleration in the rate of growthof industrial sector primarily on account of the.disturbed conditions.In.theStateand.competition from cheaper imported products.coming into the country as a result of the policy.OT globalizationand.ECONOMICliberalizationpursued by the Government of India, forcingmany local Small Scale Industrial Units to down.their shutters and increase in the problem ofunemployment on account of saturationiathe.Government jobs, impelied the State of J&K to.approach the Central government for a specialpackage for development of industries in the.State on the lines of North East Industrial Policynotified by the Central Government vide Ministryof Industry’s OM No.EA/1/2/96-IPD dt. 24[tn]Of |Dec’97.

The Central Government felt the need for.structured intervention strategies to accelerateindustrial development of the State and boostinvestor confidence.Vide Notification dated 14[th]OT June@2002,issued.DYtheMinistry|OT Commerce & Industry (Department of IndustrialPolicy & Promotion), Government of India, somenew initiatives were taken to provide incentivesas well aS an enabling environment for industrialdevelopment in the State. The policy provided.various fiscal incentives to new industrial units as)alsoinethose|existingUNITSengagedIn|Substantial expansion. AS a measure of fiscal.incentives, the Government approved conversion.of growth center into total tax free zones for aperiod|OT ten YEdISfrom thedateOT commencement of commercial production.

In terms of the new_ industrial policyapprovedDY theCentralGovernment,allindustrial activities like growth center, industrialinfrastructure development centers (IIDCs) and.other locations like industrial estates, parksexport processing zones, commercial estates.etc., as notified Dy the Central Government were.neld entitled to 100% excise duty exemption for.a period of ten years from the date ofcommencement of commercial production asindicated above. The State Government was also.

requested to grant sales tax exemption to theunits which avall of concessions under the abovepolicy.

To carry out the object of new Industrial|Policy, notification No. 56/2002-CE at. 14[tn]OT |Nov’'2002, was issued granting exemption frompayment of excise or additional duty of excise, asthe case may be. ThiS was done in exercise ofpowers conferred by Sub Section (1) of Section.5A of the Central Excise Act, 1944, (nere-in-aftercalled the Act of 1944), read with sub Section (3).of Section 3 of the Additional Duties of Excise.(Goods of Special Importance), Act, 1957 andsub Section (3) of Section 3 of the AdditionalDuties of Excise (Textiles and Textile Articles)Act, 1978. The said notification exempted thegoods”~ specified in the First Schedule and theSecond Schedule to the Central Excise Tariff Act,1985, other than the goods’ specified inAnnexure I appended to the notification, and.cleared from ae unit located in the’ Industriagrowthcentre,industrialinfrastructuredevelopmentcentreOT|EXPpoOrpromotionindustrial park or industrial estate or industrialarea or commercial estate, or Scheme area, asthe case may be _ specified in Annexure MIappended to the notification, from so much of theduty of excise or additional duty of excise, as the.

case may be, leviable thereon under any of theaforementioned Acts as is equivalent to theamount of duty paid by the manufacturer ofgoods, other than the amount of duty paid by.utilization of Cenvat credit under the Cenvat.Credit Rules, 2002.

The exemption contained in the above|notification was to apply only to those industrialunits namely:- a/-who.Nadcommenceéctheir.commercial]production on or after 14[th]of June’2002; and D/industrial units existing before 14[tn]OT|June’2002, but have undertaken’ substantialexpansion by way of increase in installed capacityby not less than 25% on or before the abovedate.

Clause (4) of the notification provided that|exemption contained in the said notification snail.apply to any of the aforementioned units for aperiod of not exceeding ten years from the dateOf publication of the notification in the officialgazette or from the date of commencement ofcommercial production whichever is later.

The above notification was amended vide.notification No. 5/2003-C.E., dated 13[th]of.Feb 03, by adding following proviso in secondparagrapn in clause (bD):- “Provided that such refund shall not exceedthe amount of duty paid less the amount of the.CENVAT credit availed of, in respect of the dutypaid on the inputs used in or in relation to themanufactureOF|goodsclearedunderthis.notification. 7

Thereafter, various amendments were made|in the original notification dt. 14[tn]of Nov’02.However, all the amendments were in line withthe Industrial Policy of the State Government as_also that of Central Government, Vide notifications impugned No.19/2008-Central Excise dated 27[tn]of Marcn’2008, and.34/2008-Central Excise dt. 10[th]of June O8,further amendments have been carried out in theOriginal notification, by the Central Government,whereby the excise duty refund has been.restricted to qa maximum limit as mentioned iIthe tables appended to the above notifications in.respect of different goods. The said notificationsChanged the entire scenario by reducing the.100%exemption|providedDYtheearlier|

notifications to a limited percentage in respect ofdifferent goods manufactured by the units.Another feature of these notifications is that theexemption from duty has been restricted on.value addition undertaken in the manufacture oT|Said goods by the units. The — notificationsimpugned Nave given the liberty to an industrial.UNIT|toapplytotheCommissionerfor.determination of actual value addition if the|manufacturer does not agree to the rate of exciseduty exemption which has been made availableunder.theimpugnednotifications. TheCommissioner has been given the power to.determine the actual value addition in the.production or manufacture of goods and therebyOrder refund according to the excise duty to the.extent of value addition made. Following are,thus, the salient features of the impugned.notifications:- a/-100% excise duty refundable in terms of earlier notification restricted to the maximum.limits as specified in the rate column of the tableappended to the impugned notifications in.respect of different goods; D/exemption from payment of duty on the|finished goods changed to duty payable only to value addition undertaken in the manufacture ofSaid goods Dy the units.

It is the above amended notifications issued.by the respondents which are the subject matterof challenge in the present petitions.

The case set out by the petitioners is that inorder to attract the investors to make Investment|in the State of J&K, so that there is an overallindustrial growth, incentives were provided tosuch investors by issuing notification 56/2002-CE.at.14[tn]OT Nov 02,Whichgranted100%exemption from payment of excise duty for aperiod|OT ten YEdISfrom thedateOT commencement of commercial production. It is.Stated that on the basis of the said promiseextended to the investors by way of above.notification, the petitioners invested Nuge money.in the State of J&K, in order to start the industrialactivity. It is further contended that not only the.expenditure was incurred in setting up the.industrial units in the State but had to train theman-power of the State for employment in theseindustrial units and convert them from un-skilled|to specialized and skilled man-power. By setting.up the industrial units in the State of J&K on thepromise extended to the investors by the CentralGovernment as also the State Government, in the snape of the industrial policy promulgated bythe respective Governments, about /0% ofemployment nas been generated from amongstthe local youtns of the State.

The further contention raised is that as the|raw material used for manufacture of variousgoods is not availabie in the State of J&kK, theSame has to be procured from outside the Statefrom different parts of the country, which results.in increase in the input cost of the product whichcosts would not have been incurred had the units.been established in any otner 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 theirindustrial units in this State. The benefit of thenotification dt. 14[tn]of Nov’02, regarding 100%exemption from payment of excise duty was to.be extended to the petitioner-units for a period often years from the date of publication of the.Original notification, referred to above, or from.the date of commencement of commercial|production, whicnever is later.

The grievance projected is that by issuance|of impugned notifications, the respondents havepromulgated a new scheme withdrawing the.benefit aS was available to them tin terms of the Originalnotification.This.action.OT therespondents is said to be hit by doctrine ofpromissory estoppel. It is stated that in terms ofthe original notification, the respondents nadformulated a policy to grant complete exemptionfrom payment of excise duty for a period of tenyears to the eligible industrial units in respect ofthe industrial activities undertaken by them inthe State of J&K, and accordingly, acting uponthe said promise extended to the various.investors, nuge investment was made inestablishing the industrial units for production ofsuch goods which make the petitioners entitled to.claim the refund for the period mentioned above.Therespondents|afterISSUINGtheOriginal notification thereby extending certain benefits to.theInvestors,In.PUFSUAaNCEtoWHICH)thepetitioners established their units, are Dound by.the promise extended by them and cannot framea scheme which has the effect of reducing thebenefit of complete exemption from payment ofexcise duty. It is further submitted by thepetitioners that the withdrawal of the benefit bythe respondents by way of issuing the impugned.notifications is not in the larger public interest.rather, it defeats the same.

It is stated that such a change in the policy|as has been done by the impugned notifications is not necessitated by any public interest. The.action of respondents in framing an entirely newpolicy is hit by the doctrine of promissoryestoppel and is not in accordance with the law or.in public interest. In support of their contentions,reliance has been placed on the judgmentsreported as.U.P. Power Corporation Ltd andanr v. Sant Steel, 2008(2) SCC 777, State ofBihar v. Suprabhat Steel Ltd and antr,1999(1) SCC 31, Union of India v. Shree.Ganpati Rolling Mills, (2006) 3 GLR 586,Dai-Ichi Karkara Ltd v. UOI, 2000(4) SCC)57, Motilal Padmapat Sugar Millis v. State ofUttarpradesh and ors, 1979(2) SCC 409,Assistant Comm of Commercial Taxes v..Dharmendra Trading Co. Ltd (Dharwad,|1988(3) SCC 570, Pournami Oil Mills and ors.v. State of Kerala and ors, 1986(Supp!) SCC}728, Shrejee Sales Corporation and ors v./Union of India, 1997(3) SCC 398, Satyam.Steel & Alloys Pvt Ltd v. VOI, 2005(182) ELT.441 (Gau) and a judgment of Guwanati HighCourt in the case of Kamakhya Cosmeticsand Pharmaceuticals Pvt. Ltd v. VOI and ors.

Respondents have resisted the petitions by.stating that Section 5(A) of the Act of 1944,confers the power upon the Central Governmentto grant exemption from payment of excise duty in case a satisfaction is recorded that granting ofsuch an exemption is in the larger public interest.This power can be exercised in absolute terms orSubject to such conditions to be fulfilled, as may.be, specified in the notification on excisablegoods. In the year 2002, the Government nadprovidedexcise.dutyexemptioninethe.new/existing industrial units located in theSpecified areas in the State of Jammu andKasnmir. The benefit granted by the Governmentin terms of the notification dt. 14[tn]of Nov’ 2002,led to some unscrupulous manufacturers to.indulge in Dogus production and different types oftax evasion tactics were adopted by suchmanufacturers. The goods were being suppliedby the manufacturers without issuance of sale.invoices and this resulted in bogus sale invoicesissued by the traders who do not undertake.actual supply of goods.

The further contention raised is that there.was misuse of exemption benefit Deing grantedby the Government and the units in the areaswere 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 toascertain this fact, an overall study was made bythe Excise department at its own level on receipt.of information from the Director General, Central

Excise Intelligence and other concerned agenciesto find out the percentage of excise duty paid incasn and from the Cenvat Credit account by theunits availing this benefit of exemption. On.verification, it was found that the industrial unitsin specified areas were paying a very highpercentage of duty in cash through PersonalLedger Account (PLA), in comparison to the unitslocated in other parts of the country, in order toclaim the refund. Keeping in view the _ saimalpractice adopted by the manufacturers andalso taking into consideration the public interest,the impugned amendments in the policy nave.been made to grant excise duty exemption onlyto the actual value addition made by the units in.these industrial areas. It is stated that the powernaspeen|rigntly exercisedunderthe.aforementioned Section of the Act of 1944, tomodify the refund mechanism in order to provide.excise duty refund only to the extent of dutypayable on the actual value addition made by the.manufacturers.

That in terms of the modified mechanism,|the manufacturers are required to pay the dutyon the full value of goods manufactured andcleared by them in the same manner as per theexisting scheme but refund would be granted —only to the extent of duty paid on actual value.

addition made by them in the specified areas.This, as indicated above, is said to have beendone in public interest and to generate therevenue. In order to show that no prejudice nas—been caused to the petitioner units, reliance nasbeen placed on the sample of invoices to indicatethat the petitioners collect excise duty from their.customers to wnom the goods are sold. Underthe General Clauses Act, power to exemptincludes the power to modify or withdraw the.Same. Placing reliance on a judgment of the ApexCourt reported as/Kasinka Trading and anr Vv.UOI and another, (1995) 1 SCC 274,It IS)contended that the action of respondents inwithdrawing the exemption vide notification.impugned is in accordance with the law.

Regarding the plea of promissory estoppel,|it is stated that the said doctrine is not applicablein the present case. Reliance in this regard nasagain been placed on the judgment in the case ofKasinka Trading (supra) and R.C. Tobacco|Pvt. Ltd. V UOI, reported in 2005(1988) ELT.129.It is stated that even if a promise is)extended by way of a scheme to the investors,the Government in public interest can withdrawthe same before the expiry of the date as fixed inthe said Scheme regarding grant of a specialincentive or benefit.

It is further contended that the impugned|notifications provide for remedial measures byWdayOT fixationOT specialrateDY|the.Commissioner concerned, when the manufacturerfinds that the rate so fixed under thesenotifications is not acceptable to him. Tnere beingsucnan)INDUHT.remedialprovision.In.the.notifications itself, the petitioners, it is stated,cannot be said to be deprived of their legal.rignts. It is, thus, contended that the petitionerscannot nave any grievance against the action.taken by the respondents by way of issuance ofamended notifications dt. 2/[th]of March’2008, and10[tn]of June’O8. |

I have neard learned counsel for the parties.

Following issues arise for determination in.this case'- A/whether any promise was extended by theCentral Government to the investors to allow theOperation of exemption from payment of exciseduty which was to remain in force for a period often years on the specified finished goodsmanufactured in specified areas within the State;

B/whether the Investors had altered theinposition based upon the promise extended tothem _in_ terms of the policy and the_ originotification issued pursuant thereto for grant ofexemption from payment of excise duty; C/while exercising its sovereign power,|whether the exemption so granted by theGovernment was an exemption simplicitor or theSame was Dy way of an incentive offered to theinvestors for establishing industrial units in theSpecified areas within the State to carry on themanufacturing activities:

D/that if it was an exemption by way ofincentive to establish the units within the State,whether withdrawal of the said exemption wouldH@be hit by the principles ofpromissory estoppelF

E/whether the impugned _ notification wissued keeping in view the overwhelming publicinterest and what exactly was the public interestin withdrawing the exemption so granted; F/whether the exemption was granted by wayof a refund mechanism.

Question Nos. 1 and 2:

In all the writ petitions in hand, it nas|specificallypeenpleadedthat.theState|Government, in order to promote its industrialactivity in the State, formulated an_ industrialpolicy whicn was to remain in force uptil 2015..Variousincentiveswereprovided tothe.investors in terms of the said policy in the shapeof subsidies and 100% exemption from payment.of excise duty on manufacture of specified goodwithin specified areas in the State. In addition to.the said incentives, there was exemption from.payment of sales tax, municipal tax etc., also.Lured by the said promise extended to theinvestors in terms of the policy and thenotificationissued.pursuantthereto,the.petitioners|establishedtheir.industrial unitswithin the specified areas as defined in the policyto carry out different industrial activities.

In order to further notice the factual.Dackground, the facts as narrated in one of thewrit petition i.e. OWP No. 460/08 titled M/s.Bharat Box Factory Ltd v. State and ors, wnhicn istaken as the lead case, may be noticed asunder:-|

The petitioner in the above writ petition nas|contended that on the promise extended by theCentral as well as the State Government insterms of the policy and the notification issued.pursuant thereto dt. 14[th]of Nov’02, providing forrefund of entire excise duty on the manufactureOf specified goods as per the said policy, an.industrial unit was set up in the specified area inthe State on 1/[tn]of April 0O3, for manufacturing|printed corrugated cartons at an investment ofRs. 1.77 Crores by taking loan from Danks andother financial institutions. The investment as on.today on the said unit is approximately Rs. 15.Crores. The second unit was installed by thepetitionerIn.terms.OT theDOlicy|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 aboutRs. 28 Crores. Unit III was set up by thepetitioner Company acting upon the promiseextended by the Government for manufacturing>mosquitocCollsand|toilet|cleanersat.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 inthe State, the units are being run by thepetitioner on DG sets installed in the said units.It is stated that the petitioner company Nhas—incurred huge amount to train the man power of the State for employment in these units and.converted them from unskilled to specialized andSkilled man-power. The activity undertaken bythe petitioner has generated employment in the.State as approximately 3800 skilled and unskilledlabourers Nave been engaged out of which 70%.employees belong to the State of J&K.

The raw material for mosquito coils and|liquid toilet cleaner for units II and III is brought.by the petitioner from outside the State at hignercost as the same is not available in the State of.J&K. Tne raw material namely paper board forUnit I is purchased from Andhra Pradesh andPunjab. The transportation cost itself puts thepetitioner company at a disadvantageous position.as compared to other manufacturers dealing withthe same business who nave set up their units in.other parts of the country. The buyers of theproductsmanufactured.DYthepetitionercompany are located outside the State. It Is,thus, contended that non availability of raw.material in tne State and the buyers of theproducts outside the State itself snows that the.units are otherwise economically unviable and.were set up only on the promise extended by the.Government that there would be refund of entire|excise duty for a period of ten years in terms ofthe original notification No.56/2002-CE.|

The petitioner company passed on the!benefit of lower excise duty to its Duyers as aresult of which the product is sold in the market.at a lower price which is primary reason for thebuyers to Duy the product of the petitionercompany from the State of J&K.

Similar contentions Nave been raised by the|other petitioners also, which have not been.denied by the respondents. |

So wnat emerges from the pleadings is that|ON)thepromiseextended.DYtheState|Government and the Central Government in-terms of the policy and the earlier notification,referred to above, the petitioners establishedtheir industrial units in the State within the.Specifiedarea Sand|started theindustrialactivities, and thus, changed their position. Theindustrial units were so establisned on the.promise extended to them by the Government to.provide the incentive of 100% exemption frompayment of excise duty on finished goods and in.lieu of this, the petitioners have altered their.position by establishing the industrial units withinthe specified areas in the State. This answersquestion Nos. 1 and 2.

While|exercisingItssovereignDOWE€ETwhether the exemption granted by the Statewould be an exemption simplicitor or by way ofan)incentive|offeredfor.establishmentOT industries in the specified areas in the State, is.the next question wnicn is to be determined. itbe seen that the State has the power toformulate the policies which are in public 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 thatthe State can grant exemption by invoking.certain provisions of the Statute to grant sucn.exemption. The said power is traceable to theStatute itself and its exercise is done in the larger.public interest. While exercising the power in.pursuance to a policy resolution and in order tocarry out the objectives of the policy, recourse is_taken to the statutory provisions dealing with the.Subject. In the former case, the State considersgranting sucn exemption necessary to meet the.exigencies of the situation in public interest.There is no inducement or representation in sucna situation. While, in the case of a policyresolution, exemption is granted due to the.promise made by the State. In such an event, where there was inducement, the State can resilefrom the promise made py it only when it.establishes to the satisfaction of the court thatoverriding public interest so requires. Once, sucn.an overriding public interest is establisned by theState, it can be allowed to withdraw theCONCESSIONS. |

In case of the former, the State can'withdraw the exemption at any point of time as.there is no element of promise or inducement ingranting sucn an exemption even though, it is.granted in public interest. In case of later, the.underlying principle is that the State is bound bythe promise it extends to its subjects and cannot.be permitted to resile from the same. Tne.Government would be bound by the promise andthepromiseCan pe|enforcedagainstthe.Government at the instance of the promisee. —The doctrine of promissory estoppel is in therealm of equity. There is no consideration for the.promise and the promise is not recorded in the.form of a formal contract as required underArticle 299 of the Constitution. It is an equitabledoctrine and has to yield when the equity so.requires. Tne State Government cannot exempt.itself from the liability to carry on the promisemerely because it feels that the change in policyISNECESSALy. ThereCan)De|No|exparte appraisement of the circumstances on behalf ofthe State.

Whatclearlyemerges fromthe.aforementioned discussion is that the exemptionin the present case has Deen granted Dy way ofa policy resolution extending promise to the.petitioners to establish their industrial unitswithin the specified areas in the State of J&K tomanufacture specified goods in terms of the.policy and in case, such an activity is carried onwithin the State, there will be 100% exemption.from payment of excise duty for a period of tenyears. In such a situation, the State cannotrevoke the exemption in terms of Section 5A ofthe Act of 1944 on the premises that power togrant exemption also provides for its withdrawal.In case of exemption simplicitor, the power to.grant and withdraw the exemption is traceable to.a Statute and can be exercised in larger publicinterest. In case of exemption being granted on.the basis of a policy resolution where there is an.element of inducement, the same cannot bewithdrawn if it has the effect of resiling from such.a promise. However, it is not to say that theState cannot resile from its promise provided itestablishes to the satisfaction of the court that§overriding public interest so requires.

Whether there exists sucn a supervening|public interest to withdraw the exemption wouldbe discussed at a later part of the judgment.

The respondents, as noticed above, raised|the contention that the impugned notificationsNave been issued in public interest. In Support ofthe above contention raised by them, reliancenas been placed on the judgment of the ApexCourt in the case of Kasinka Trading (Supra). Itis stated that the exemption was granted inexercise 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 the Apex Court while examining this.issue in the aforementioned case, which are asunder:-|

“the appellants who are in business,Nave 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|doctrineof|promissoryestoppelWasheldavallable to the appellant therein. Again in Bakul|Oil Industries it was the incentive to set up|industriesIn}adconformingafeadthettheexemption had been granted and the Court held|thettheGovernment|could|withdrawandexemption granted by it earlier only if such)withdrawal could be made without offending the|ruleof|promissoryestoppelandwithout

depriving an industry entitled to claim exemptionfor the entire specified period for which|exemption had been promised to it at tne time of|giving incentive. Both these cases therefore,|cannot advance the case of the appellant and are|distinguishable on facts because the exemption|notification under Section 75 of the Act which|was issued in this case did not hold out any|incentive for setting up of any industry to use|PVC resins and on the other hand had been|issued in exercise of the statutory powers, in|public interest and subsequently withdrawn in|exercise of the same powers again in public|interest. In our opinion, no justifiable prejudice|was caused to the appellants in the absence of|any unequivocal promise by the Government not|to act and review its policy even if the necessity|warrantedandthe“PUDIICInterest”SO|demanded. Thus, in the facts and circumstances|of these cases, the appellants cannot invoke the|doctrine of promissory estoppel to question the|withdrawal notification issued under Section 75 ofthe Act. 7

A perusal of the observations made by the|Apex Court in the above case, snows that a cleardistinction nas been made by the Apex Court in.the above case in respect of exemption whichnolids a promise or incentive for setting up anindustry and in respect of the power exercised in.pursuance to a Statute which does not nold any.promise.

At this stage, it would be appropriate to/notice wnat Nas been observed Dy the Apex Court.in para 16 of the judgment in the case reported as|State of Jharkhand and others v. Tata.Cummins Ltd. And another, (2006) 4 SCC5Jt=

“Before analyzing the above policy readwith the notifications, it is important to bear in|mind the connotation of the word “tax”. A tax IS dfpayment for raising general revenue. It is a)burden. It is based on the principle of ability or|capacity to pay. It is a manifestation of the)taxing power of the State. An exemption from|payment of tax under an enactment Is ansexemption from the tax liability. Therefore, every|such exemption notification nas to be read)Strictly. However, when an assessee is promised|with a tax exemption for setting up an industry|in the backward area as a term of the [Industria]policy, we have to read the implementing|notifications in the context of the Industrial|policy.|Tn)SUCNadCaS€,theexemptionnotifications Nave to be read liberally Keeping in|mind the objects envisaged by the _ industriapolicy 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 100% exemption from.payment of excise duty for a specified period.Theamendmentmade.videimpugned

notifications, has to be considered in the contextof the original industrial policy which wasformulated 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, theexemption granted by the Government was notan exemption simplicitor but an exemptiongranted in pursuance to a promise extended tothe investors on the basis of a policy resolution.and notification issued pursuant there to at. 14[tn]of Nov’ 72007

Question No. 4:

The next question whicn is to be consideredis whether the exemption granted in terms ofthe earlier notification to the units located in.Specified areas in the State was by way of an.incentive to establish the units within specifiedareas in the State and whether the action ofrespondents in withdrawing the said exemption.would be hit by the principle of promissoryestoppel.

The doctrine of promissory estoppel is|equitable in origin and nature and arose to.provide a remedy through the enforcement of agratuitous promise. In Black's Law Dictionary (Seventh Edition), the word ‘promissory estoppel’Nas been defined as under'- “The principle that a promise madewithoutconsideration ITldnonetheless|be|enforced to prevent injustice if the promisor|snould Nave reasonably expected the promise to rely on the promise and if the promisee did|actually rely on the promise to his or her|detriment. ”

The.words‘promissory|estoppel’and.‘estoppel are two distinct theories. In the case oflater, there is no requirement of promise Dutanyone invoking the principle of promissoryestoppel, nas to snow that acting on the promise.made by someone, he has altered nis position.The promisor, under these circumstances, nas toact upon his promise.

The doctrine of promissory estoppel is not|Dased on the principle of estoppel. This doctrine.is evolved by equity to see that no injustice iscaused. Where a party by nis word or conduct.makes a promise to another party in unequivocaland clear terms intending to create legal relationsKnowing or intending that it would be acted upon.by the party to wnom the promise is made and itis so acted upon by the other party the promise.would be binding on the party making it and the.Said party would not be entitled to go back on the.promise made. Reliance be placed on the judgment of the Apex Court in the case reportedas|Bangalore Development Authority andothers v. R.Hanumaiah and others, (2005)12 SCC 508.What nas been observed in para 28of the judgment in tne above case, may benoticed as under:-.

“The doctrine of promissory estoppel isnot based on the principle of estoppel. It is a)doctrine evolved by equity in order to prevent|injustice. Where a party by his word or conduct|makesadpromisetOanother|PEersoOIn}unequivocal and clear terms intending to create|legal relations Knowing or intending that it would|be acted upon by the party to whom the promise|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 madeé...

A perusal of the afore-noticed observations|made by the Apex Court, would show that theprinciple underlying the doctrine of promissory.estoppel would be when any person acting on apromise made by the other alters its position andthe person making the representation holds back.from its words to the detriment of one who alters|the position. When there is such a situation, theSaid doctrine steps in. This doctrine has been.evolved as a principle of equity to mitigate therigours of strict law and to prevent injusticetaking place from strict adherence to it. There isno consideration for the promise and the promise, as indicated above, is not reduced in.the form of a formal contract as required underArticle 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 bythe promisee and the promisee would alter itsposition.relyingUPONIt.But,Once|the.Government makes such a promise and thepromisee has acted upon such ae promiseextended to it and nas altered its position, theGovernment can be compelled to make goodsuch a promise like any other private individual.In this regard, it would be apt to notice theobservations made by the Apex Court in the casereported asM/s Motilal Padampat Sugar Mills|Co. Ltd v. State of Uttar Pradesh and others,(1979) 2 SCC 409.What was observed Inparagraphs 8 and 33 of the judgment in theabove case may be noticed as under:-.

°8.....tnhe true principle of promissoestoppel, therefore, seems to be that wnere one|party has by his words or conduct made to the|other a clear and unequivocal promise whicn Is intended to create legal relations or affect a legal relationship to arise in the future, Knowing or|intending that it would be acted upon by the)other party to whom the promise is made andIt |is in fact so acted upon by the other party, the|promise would be binding on the party making It and he would not be entitled to go back upon it, if tt would be inequitable to allow him to so so|Naving regard to the dealings whicn have taken|

place between the parties, and this would be so|irrespective of whether there is any pre-existing|relationship between the parties or not.”

“33,.The State, Nowever, contended thatthe doctrine of promissory estoppel nad no|application in the present case because the)appellant did not suffer any detriment by acting|on the representation made by the Government:|the vanaspati factory set up by the appellant was|guite a profitable concern and there was no)prejudice caused to the appellant. This contention|of the State is clearly unsustainable and must be|rejected. We do not think it Is necessary, in order|to attract the applicability of the doctrine ofpromissory estoppel, that the promise, acting in|reliance on the promise, should suffer any|detriment. What is necessary is only that the)promise should have altered his position’ inreliance on the Ppromiseé.....

Facts

Reliance can also be placed on the judgment.of the Apex Court in the case reported asPournam! O11] Mills and others v. State ofKerala and another, 1986 (Supp)SCC 728.In|the above case, a policy was formulated by theState of Kerala, for boosting of industrialization.|Some incentive was provided in the shape ofexemption from payment of sales tax andpurcnase tax to the industrial units for setting up>their units and carrying out the industrialactivities in the State of Kerala, for a period offive years. Later on, the said incentive waswithdrawn. Tne Apex Court taking note of the fact that the industrial units have set up their.units on the basis of the promise extended tothem, they are within their rignts to invoke thepleaOT promissory.estoppel.|Therelevantobservationsmade.In.DafadJOT|theaforementioned judgment may be noticed asunder:-|

“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 boosting of industrialization, exemption from|sales tax and purchase tax for a period of five|Yearswas extended as a concession and the fiveyear period was to run from the date ofcommencement 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|theStateof|KeralapurportsToacldifferently.....

It be further seen that the principle of|promissory estoppel is an equitable doctrine and.it must yield when equity so requires. Tnis,.nowever, is not the absolute proposition whichShould bind the Government. The State or any.public authority cannot be compelled to carry outa promise whicn is prohibited by law or whicn.was devoid of the authority or power of theconcerned officer of the Government or the’authority concerned to make such a promise. The doctrineOT promissoryestoppelbeingan)equitable doctrine, as indicated above, mustyield place to the equity, if there is a larger publicinterest involved. Reliance in this regard may be.placed on the judgment of the Apex Courtreportedas|SharmaTransport.Vv.Government of A.P. and others, (2002) 2'SCC 188.The relevant observations made in this.regard|In.Dafad24OT|the judgmentaforementioned be noticed as under:- "TtISequallysettledlaw|thetthepromissory estoppel cannot be used to compel|the Government or a public authority to carry out|a representation or promise which is_ prohibitedby law or wnich was devoid of the authority or|power of the officer of the Government or the)public authority to make. Doctrine of promissory|estoppel being an equitable doctrine, it must|yield place to the equity, if larger public interest|so reguires, and if it can be shown by the)Government or the public authority for having|regard to the facts as they have transpired that it would be inequitable to hold the Government or public authority to the promise or representation|made by it. The court on satisfaction would not,|in those circumstances raise the equity in favour|of|theDersoOryTOwhormadpromiseOrrepresentation is made and enforce the promise|or representation against the Government or the|public authority......

What emerges from the observations made|by the Apex Court, noticed above, is that in case,the State or the public authority is able to show.

that the promise held out to the promisee cannot.be made good as on the facts equity so demandsand the larger public interest so requires, theGovernment cannot be made bound by the said.promise. The doctrine of promissory estoppelwould be displaced if the Government is able toShow that during the said period, supervening—public interest would be prejudiced if the promiseis carried out. But in that eventuality, the courtnas to see the public interest as also the position.of the promisee who has altered the position onthe basis of the promise extended to it by the.Government and a balance has to be maintainec.

Not only in respect of a supervening public.interest Dut also if the Government ts able toshow tnat the promise so made was in violationof a Statute, it will not compel the Government.to act upon the promise made Dy 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, theGovernment claims to be exempted from itsliability. It cannot on some_ indefinite andundisclosed grounds of necessity or expediencyresile itself from fulfilling the commitment madeby it with the promisee in this behalf. It is for thecourt to decide as to whether, the facts andcircumstances disclosed in this behalf are such as|

to render it inequitable to enforce the liabilityupon the Government. The Government can alsoresile from the promise if it is possible for thepromisee to resume its original position or.restore status quo ante even if the promise is notacted upon by the Government.

So, wnat is contemplated by the principle of promissory estoppel stated nerein supra is thatthe decision of the Government to resile from its.commitment would be subject to judicial scrutinywhich will examine while balancing the two.equities-one in favour of the promisee and the.other in favour of the promisor, as to whethersuch a promise is to be carried out or not. The.Government cannot bDecome the sole judge andtake an exparte decision in this regard, as thiswould be In violation of the rule of law on the.Dasis of wnich our system Survives.

Applying the principle to the present case, itbe seen that the doctrine of promissory estoppelcan be applied on fulfillment of two conditionsnamely:|

i/clear and unequivocal promise knowing that|the said promise would be acted upon by the.promisee; and ©

ii/acting upon such a promise, the promisee|nas altered in such a manner that he cannotrestore his aitered position to the one which wasbefore acting upon the promise.

In the present case, in pursuance to a policy|decision taken by the Central Government on the.request of the State Government, as noticedabove, incentive in the shape of exemption from.payment of excise duty was given for carrying.out the industrial activities within the specifiedareas in the State. Taking recourse to _ itStatutory power under Section 5A of the Act of1944, the Government granted 100% exemption.from payment of excise duty to those industrialunits who established their units on or before 14[tn]OT June'O2,OT|who.undertook.substantialexpansion of their units by not less than 25% on.or after the said date, the detail of which hasalready been discussed above. The import of thepolicy read with the notification issued in this.regard reveals as follows:- a/-that 100% exemption from payment of|excise duty on the goods manufactured by the.units within the specified areas in the State for a.period of ten years would be given from the dateof issuance of notification or from the date of commencementOT commercialproductionwhichever is later; D/the mode of exemption was by way of a|refund mechanism. The excise duty payable onthe finished goods was refundable except thecredit for Cenvat incentive.

This was the promise extended to the|petitioner units who established their units in the.Specified areas in the State and also those whoundertook substantial expansion of their units in-terms of the policy and the notification dt. 14[tn]ofJune 02, and started manufacturing the specifiedgoods. Ali these investors lured by the publishingof the policy and notification pursuant thereto,who set up their units or carried out substantialexpansion.OT their.units, clearly|ancunequivocally were made to do so to carry out.the industrial activities within the State. What.was also known to these investors at that pointof time that this concession/incentive is to begiven only in respect of the industrial activities inthe State within the specified areas. To say itcandidly, the activity of manufacturing the goods.within the State was an essential condition for§seekingsucnabenefit.|Theimpugnednotifications, as discussed herein supra, amended the notification at. 14[tn]of Nov’ O2, in two|respects |.@€.,:- i/the exemption of the excise duty was|restricted to the value addition made, meaningtherebythat.the actualCOST|incurredIn|manufacturing the goods excluding the inputs.procured in the shape of raw material; ii/100% excise duty refundable in terms of the|Originalnotification restricted todalimitedpercentage as specified in the rate column of the.table appended to the impugned notifications in.respect of different goods.

Theabove|modificationsnavepeenconstrued by the petitioner units to be an act ofresiling from the promise extended to them by.the Government in terms of the notification at.14[tn]of Nov 2002. The contention raised in this.benalf is that 100% exemption from payment ofexcise duty on the finished goods was promised.vide the original notification and the concept ofvalue addition as incorporated in the impugned.notifications was never intended or indicated insthe original notification, on the basis of whichinvestors had set up their units in the StateTheexcise duty under the Excise Act is payable onlyon the finished goods and the concept of value addition is alien in the scheme of things. TheexpressionHvalue addition@appearing in theimpugned notification is not referable to thequantum of excise duty but to the industrialactivity.When there is a value addition in the.manufacturing of a product, sucn manufacturer isentitled to claim exemption on payment of excise.duty on finisned goods whatever may be thevalue of the same Dut when excise duty refund islimited to the quantum of value addition, then,the exemption becomes restricted to the valueaddition only. This is not, what is contemplatedby the original notification of 2002.

The original scheme, in pursuance to wnich|the units were set up in the State, provided thatthe duty payable on the inputs has to be givencredit while charging the excisable duty from the.manufacturer. The remaining excise duty is to be.paid from the personal ledger account whichalone is refunded. Certain inputs are notSubjected to the excise duty but constitute theraw material for a finisned product. Once thisinput raw material is used for the purpose offinished goods and finisned goods are leviable to.excisable duty, the manufacturer would not be.entitled to claim exemption from payment ofexcise duty. What is contended is that themanufacturer will have to pay 100% excise duty.

on its finished goods, the inputs of which are notexcisable and ne would be entitied to refund onlyto the extent of value addition in terms of the)impugned notifications.

From the aforementioned discussion, it.clearly emerges that a promise was extended by.the State Government to the petitioner Units byway of an incentive in the snape of 100%exemption from payment of excise duty and.acting upon the said promise, the petitionersestablisned their units within the specified areas.in the State of J&K and have altered theirposition. Unilateral withdrawal of that promise isDarred by the principle of equitable promissory.estoppel. |

Whether the impugned notification nas been |issued by the respondents keeping in view some.overwhelming public interest is the next questionwhich is required to be considered.

Before addressing the said issue, thne|question would be as to whether there was any.Change in the original policy contemplated by the.impugned notifications. In this regard, the standof the respondents nas to be noticed.

The respondents, as indicated above, Nave|Stated that the impugned notification does not, inany way, change the contours of the promise.which nas been extended to the entrepreneurs.What is being contended is that all those unitswho are engaged in genuine industrial activities,|would be entitled to receive the same benefit as|was given to them in terms of the previousnotification. In this regard, reference is being.made.totheimpugnednotification WNhIC)provides ample scope for remedial measures by.way of fixation of special rates and if themanufacturer finds that the rates so specified arenot acceptable to him due to the reason that theactual value addition in the production or.manufacture of the said goods to the value of theSaid goods, is more than the rate specified, the.Said manufacturer may make application in-writing to the Commissioner of Central Excise orthe Commissioner of Customs and Central, asthe case may be for determination of such specialrate by stating all the relevant facts regardingthe material components used in the production.Or manufacture of goods.

Fromthearguments|ralsecDY|the.respondents, it is found that the impugned notifications, as indicated above, make twochanges from the earlier notification. These are:-.

a/-that the excise duty is payable on value|addition; and D/refund is permitted only to the extent of.percentageas|assessedON|average DasIiIdetermined by the respondents by taking theSaid average on the basis of units located in.other parts of the country in unspecified areas.

It is not in dispute that the concept of value|addition is relatable to goods which are actuallymanufactured in the units from the raw materia!after excluding the cost of the said raw material.The actual activity carried out in the manufactureOf goods and the cost incurred would be the.value addition. Tnere is no dispute that thepetitioners could not have been misied in thisbenalf and they fully understood that it is the.actual manufacturing activity which is required to.be carried out within the specified areas in theState which entitles them to grant of such an.exemption. It is the actual manufacturing activitycarried out in the specified areas which is the.basis on which promise has been extended. Ifno industrial activity is carried out in the specifiedareas in the State, then no such promise can be enforced against the State. After Naving doneso, the respondents nad to maintain the refund of100% excise duty on such value addition. It is.nere where the deviation has taken place by.providing that the refund will be permissible onlyto the extent of average rates fixed in this behalf.This is not what was the promise held out by the.earlier notification. It cannot be said that the|impugned notifications continued to extend theSame promise as was intended in terms of the.earlier notification. The deviation, thus, asindicated above, has taken place in this regard.vide impugned notifications and there is a change.in the original policy. |

After having said so, the question would bewhether the promise has been withdrawn _onaccount of Supervening public interest.

The stand of respondents in this regard is that :-|

i/as a result of the provision for granting|refund of casn paid duty and eligibility of credit ofentire amount of said duty to the buyers ofexcisable goods, certain bogus manufacturersindulged in tax evasion tactics resulting in huge.loss to the public exchequer; ii/bogus production was shown Dy such|unscrupulous manufacturers in the specifiedareas whereas the actual production takes placeelsewhere in the country;|

iti/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 onsuch invoices without receipt of goods; Vi/|the industrial units in specified areas were|paying a high percentage of duty in cash througnPersonal Ledger Account as compared to otherparts of the country on the same goods; vii/ bogus purcnase of raw material was Deing.shown by the traders wnen, infact, there was nosuch purchase and no actual manufacturing)activity within the specified areas in the State.

On the basis of above, it is contended that|the impugned notification has been issuedprescribing a modified scheme regarding refund of excise duty on all India average of percentageof duty paid in cash and through Cenvat Credit sothat there is a check on unscrupulous and DogusSmanufacturers. This, aS per the respondents is_the public interest which led to issuance ofimpugnednotificationswherebyanewmechanism has been devised for refund of exciseduty payable in casn. The mecnanism sodevised has been referred to in the table ascontained in the notification impugned. It is.Stated tnat the duty payable on value addition isequivalent to the amount calculated as apercentage of total duty payable on the excisabie.goods at the rates specified in the tableprepared in this regard. The table whicn is—referred to by the respondents in this regard, is—being reproduced below:-|

The further stand taken by the respondents.is that in order to verify the factum of bogus.production by the industrial units within theSpecified areas, a study was carried out by theExcise department on receipt of information from.the Director General, Central Excise Intelligenceand other concerned agencies to find out thepercentage of excise duty paid in cash from the.Cenvat Credit account by the units availing thisexemption. Ine details in this regard were.compared with the duty payment details ofindustrial groups all over the country located inunspecified areas. It was found that theindustrial units located in specified areas were.paying a higher percentage of duty in casnthrougn Personal Ledger Account in comparison.to the units located in other parts of the country through PLA on similar goods. It was only afterthis analysis that a need was felt to curd suchillegal activities on the part of unscrupulous andbogus manufacturers. |

It is under the said circumstances and In|order to avoid large scale evasion of excise duty.Dy Dogus manufacturers, the present notificationnaspeen|issuedwith.damodifiedrefundmecnanism so as to grant excise duty refund to.Only those units who actually are engaged in themanufacturing activities in the specified areas.within the State. This, as indicated above, is thesuperveningDUDIIC|interest.as|Defthe.respondents which led to issuance of fresn.notifications.

The reasoning provided by the respondents|in issuing the impugned notification which lays.down the refund mechanism apparently cannotbe faulted. This court cannot |sook to thesufficiency of the material and satisfaction.arrived at by the respondent authorities ineffecting such a cnange. As already discussed.above, the exemption was in lieu of themanufacturing activities to be carried out in theSpecified areas within the State of J&K. Suchamanufacturing activity has co-relation with thepromise extended. The exemption would be.

provided if there is manufacturing activity in theState in specified areas and if there is no suchactivity, then, the promise extended cannot beenforced against the State. The refund in tnatcase would be allowed only to the extent ofactual activity carried out by the manufacturersin the specified areas. The State would be well.within its rights to effect remedial measures inthisregard.The.analysismade.DYthe.respondents, which stands noticed above, do.reflect that percentage of duty paid in casn inthe specified areas and those in the unspecifiedareas is relatively nigh in the Personal Ledger.Account. It is this amount which ts to berefunded. It may also not be incorrect to suggest.that there are some unscrupulous elements.involved in cheating the exchequer by resortingto bogus industria! activities.

The power of the State in regulating the|refund mechanism is also not disputed. However,|what is required to be seen is as to whether wnile.arriving at sucn a decision, some objective basisNave been Kept in mind or not. In essence, it is.the decision making process which would be the.Subject matter of judicial scrutiny in the presentcase. Adequacy of material based on which sucha changed policy decision has been taken,cannot be examined by this court. State cannot be the judge of its own cause and when decisionto withdraw its promise is taken on the bDasis ofsome supervening public interest, this questionnas to be determined by the court and such adetermination cannot be ipse dixit of theGovernment. It Is for the court to determine asto whether the material on the basis of whicn.such a promise has been withdrawn is adequateor not. It is in this light that the question isrequired to be considered.

Now what is the material on the basis ot which decision to allow refund of excise dutyUnder revised mechanism has been taken. In thisregard, the respondents have based their claim.on following assertions made in the objections:- 1/That the amount of duty paid on the|personal ledger account by the units in the.specified areas is higher than those units locatedin unspecified areas; 2/ the actual percentage of duty refundable onthe value addition has been done on the basis of.all India average.

The percentage principle applied in respect|of the industrial units located in the specifiedareas in the rest of the country, as indicated

above, suffers from fundamental infirmity, assuch, would not yield any appropriate result asvarious factors are required to be considered inorder to find out the component of excise duty.payable by a manufacturer. The factors whichwould make the units located in the specifiedareas different from those located in unspecifiedareas would be the availability of raw material,COST|OT transportation,adequate|SUDDIYofelectricity, non availability of skilled labour etc.,.within the said areas in the State, as also thedate of installation of units in Unspecified areas.and other relevant factors. Tne respondentsNave produced three charts. The first chart givesthe details of the excise duty paid by the units.located in the specified areas which contains ten.broad headings. The second chart nas beenprepared on all India average basis for the sameten neadings and the third chart produced by the.respondents shows the comparison between thetwo charts, referred to above.

It Is not discernible from these charts as to.now the percentage of value addition nas been.arrived at in the impugned notification. It be.seen that for all the goods falling within chapter76 of all India chart, respondents have assigned36% as value addition. Chapter 7/76 include various goods for which uniform percentage nasbeen fixed. |

While making sucn an assessment, it does|not get reflected as to whether any study hasbeen conducted in this regard. There is no basiswhatsoever for assigning 36% as value additionfor all the goods covered by the chapter. It isalso visible that the study fails to take note of thefact that the excise duty paid in casn for all goods.falling in the same chapter for instance iron andsteel would not be the same. The excise duty.paid for manufacture of iron ingots from iron orewould be different from excise duty paid in cashfor screws made from iron ore. The respondentsNave categorized all goods falling under the.Central Excise Tariff Act into 10 categories for theDUFDOSE|OT allIndia.SUFVeY.Such.acategorization is legally Unacceptable. The.Survey covers only ten categories and there areother categories for whicn no survey was.Conducted.Thedetermination.OT averagepercentage of excise duty on value addition nasnot been made on scientific basis but on surmisesand conjunctures. The very foundation for.permitting refund duty worked out on all IndiaDasis, NaS been done without any study and is.per se arbitrary.

Theotner|contention ralsecDYtherespondents is that if a representation is madeDY a manufacturer, in specified areas, thejurisdictional Commissioner snall determine the.actual value addition in the production of thegoods. This determination of actual valueaddition has been termed as the special rate. —This concept of special rate displaces the veryfoundation of the rate fixed in terms of originalnotification. Vide impugned notifications, in case,the actual quantum of excise duty payable by amanufacturer on his final product would nave.been reflected, the question of modification ofaverage rate and introduction of special ratewould not nave arisen at all. It clearly reflectsthat respondents themselves were not sure.regarding the actual rate payable on valueaddition. This leads to the conclusion and.acknowledgment on the part of respondents that.even in a given case, it is possible that theaverage rate of excise duty payable on finishedgoods as announced by the impugned notification.may not be correct and it is in view of theSubsequent notification dt. 10[th]of June’08, whichseeks to cure such a defect Dy making provision.for special rate. What emerges from the above isthat the principle on the basis of which averagerate has been fixed on all India basis was faulty.

After having said so, it has to be seen that|whether the original notification can be termed tobe deficient in any manner so as to lead toperceived misuse which has formed the Dasis for.issuance of the notification impugned. —

In the original notification, in clause 2, it isprovided that tne manufacturer shall submit aStatement of the duty paid, other than theamount of duty paid by utilization of Cenvatcredit under the Cenvat Credit Rules, 2002, tothe Assistant Commissioner of Central Excise or.Deputy Commissioner of Central Excise, as thecase may De, by the seventh day of the nextmonth in which the duty nas been paid in cash.On receipt of the statement, the competent.authority empowered under the Excise Act isrequired to undertake verification which it deems.necessary and thereafter refund the amount ofduty paid in cash by the fifteenth day of the nextmonth to the manufacturer. It was furtherprovided that in case, there is any delay in the.matter of verification by the competent authority,the refund shall De made on provisional basis bythe 15[th]of day of the next month to month underconsideration, and thereafter adjust the amountof refund by such amount as may be necessary,at the time of payment of subsequent refunds.

Thus, it is not as if the statement made by a|manufacturer is accepted at face value . If anyclaim is made for refund and the same jisapprovedDY|thecompetent.autnority, theauthority has to snow by co-relating it with thespecific transaction and by way of a specific orderOT refundas|towhereand|Nowaconcession/benefit Nas been availed by themanufacturerDYMISuUSINGtheschemeOT exemption. If on verification, it is found that theamount of refund is claimed erroneously, thecompetent authority is well within its powers to.recover the same. The bogey of misuse and thescheme of exemption, therefore, cannot bepermitted to be raised under the guise of so.called misuse. The court cannot be expected to.accept the bald assertion regarding the misuse ofthe scheme as_ otherwise, the role of thejurisdictional Commissioner who is empowered to.Undertake the verification or withdraw the refund.etc., is also doubted. Tne respondents cannot bepermitted to plead such a state of affairs withoutbringing on record any cogent evidence in thisregard.

The issue of misuse cannot be generalized.|It has to be case specific covering an individualor group of individualsEvery sucn misuse isrequired to be ascertained and verified before.

asserting thattherenasDeen|MISUSEofexemption. By a general survey conducted, itcannot be said that the exemption benefit isbeing misused by the present petitioners.

Taking recourse to the fact that exemption|granted is being misused without identifying the.individual cases would be an exercise which can.De|termedCO.navepeen|made.DYthe.respondents only to deny the exemption grantedto the petitioners by way of original notification inpursuance to whicn they Nnave altered theirposition. This action on the part of respondents.can be termed to be arbitrary in nature. I amfortified in this view by a judgment of the Apex.Court reported asU.P. Power Corporation Ltd.And another v. Sant Steels & Alloys (P) Ltd.And others, (2008) 2 SCC 777.What hasbeen observed by the Apex Court in paragraphs.30 and 31 of the above judgment, may benoticed as under':- SSO... 1t 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. certainbenefits and they acted on that representation, it does not behove on the part of the appellant|Corporation to witndraw the said benefit before|expiry of the stipulated period by Issuing the|notificationrevokingtheSalfnwhichtherespondents were legitimately entitled to avail.|We|failto understandwhy|theappellant Corporation which made a representation and|allowed the other party to act upon. suchrepresentation 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.

31. Other grounds for the purpose of public|interest which nave been pleaded, namely, that|there are two methods of tariff provided by the|amenament and the actual consumption Nas|(energyconsumptionChargesNave)been|reduced based on the calculation of energy|charges per kV from 308 paise to 100 paise and|there was large scale theft or that units were|closing down and there was no mala fide|intention in the metter of revocation of the|notification and the cost of production of power|hasJOrleUptORs.2.50|perunit,are|considerations whicn hardly involve any public|interest. They were more of a nature of losses|wnich nave been suffered by the Corporation and|these methods were evolved to reduce and tomake good the losses. Restructuring benefit to 17% of Tariff 4(A) (demand charges) are the)factors whicn are aimed to make the losses good|for the Corporation. This is not case in which|serious public repercussion was involved. These|are not the factors which put together can)constitute a public interest. Theft of the energy if|it was proved by cogent data that as a result of|giving this benefit to the entrepreneurs in the hill}areas, they were misusing it or there was theft of|the energy at a large scale by these persons to whom the concession had been given then of|course such factors, if all the datas were brought|on record of course could have persuaded the|Court to take a different view of the matter. Butsimply because there was theft of energy the|State cannot persuade us to hold that the)

revocation of such concession can be said to be}in public interest. Since the benefit was given to these units in the hill areas, there should have|been overwhelming evidence to show some mala|fide on the part of these consumers which Nave|persuaded the Corporation to revoke it. If there|was no misuse of the energy by these units in the|hill areas to whom the concession had been|granted then in that case it cannot be taken that|there was really public interest involved which|persuaded the Corporation to revoke the same. “

In the present case, the plea of respondents|that some unscrupulous manufacturers were.involved in bogus production for the purpose ofclaiming maximum exemption from the paymentof excise duty, cannot be generalized Dut nas to.be case specific. The same, therefore, cannot betreated to be in the public interest as projectedby the respondents. This is because there has—been no individual identification of sucn bogus.manufacturers and the action of respondents videimpugned notifications would prejudice the rightsof those genuine manufacturers who on thepromise of the State, have altered their positionand are Involved tn fair industrial activities. —

In view of the above discussion, I am of the|Opinion that there is no supervening publicinterest in withdrawing the exemption by way ofimpugned notifications.

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! forthe respondents is to be noticed. It is stated byhim that the exemption from payment of exciseduty should not be confused with the refund ofduty. Tnese are two different legal and distinctconcepts. 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_ shallhimself assess the duty payable on any excisabie.good which would mean that the assessment ofduty is based on self assessment. By way ofimpugned notification, the quantum of exemption.Nas been rationalized by proposing rate of refund.on total duty payable. Thus, it was implicit in theSaladprovision.thatIt.couldpe|amendea, rescinded or withdrawn at any time if the public.interest so demands. By providing such anexemption, the legislature had nedged it with.certain conditions.

Now, examining the import of the above.argument, wnat is being stated is that it is notthe case where no duty is being charged from theinvestors but a case where the duty chargeabieon the goods is recovered from the investorswhich is refunded subject to satisfying theconditions of the notification impugned.

In order to test the correctness of the'argument, one has to see the substance of theconcession granted and not merely certain wordsused out of context. Although the benefitregarding excise duty to the new entrepreneurs is.DY way of refund of such duty to the extentprovided in the order, it is clear that, in effect,the benefit is in the nature of exemption frompayment of excise duty. The nature of promiseextendedIn.theearliernotification clearlycontemplates grant of exemption from excise.duty. The promise in this regard is extended upto100% exemption. The mode and manner inwhich this duty is payable cannot detract thecourt from analyzing the real intent of thepromise. Tnerefore, I am not inclined to agree.with the assertions made by Mr Sharma, learnedcounsel for the respondents in this regard. I amfortified in this view by a judgment of the Apexcourt reported as(1988) 3 SCC 570, AssistantCommissioner of Commercial Taxes (Asst. )

Dharwar and others v. Dharmendra Trading.Company and others.What has been observedby the Apex Court in para 6 of the abovejudgment, may be noticed as under:-|

Conclusion

‘ies lhe only submission made on benalfof the appellants is that since the benefit given Is|called a refund, it cannot be said to be an\exemption or reduction as permitted by Section|8-A. In our view, there is no substance in this|submission at all. In order to test the validity of|the order dated June 30, 1969, one has to see|the substance of the concession granted under|the order and not merely certain words used out|of context. Although the benefit regarding sales|tax granted to the new inaustries is by way oOfrefunds of sales tax paid to the extent provided|in the order, it is clear that, in effect, the benefit|granted is in the nature of an exemption from tne|payment of the sales tax or reduction in the sales|tax liability to the extent stated in the order.....

Theotnercontention.raisedDYthepetitioners is the impugned notifications areprospective in nature and would not cover thoseunits who are engaged in industrial activities andavailing certain incentives in terms of the earliernotification issued in 2002, which nas to remainin force for a period of ten years from the date ofits issuance. In this regard, reliance nas beenplaced by the petitioners on the provisions ofSection 38 A of the Act of 1944.

In view of the above detailed discussion, I,need not to enter into this arena as the writpetitions|arebeingCiSpOSedOT|withoutaddressing this controversy. |

For the reasons mentioned above, these.petitions are allowed. Impugned notificationsbearing Nos.19/2008-CE dt. 2/[th]of March’08,and 34/2008-CE at. 10[th]of June08, shall standquashed. The petitioner-units shall continue to.avail the benefit of exemption from payment ofexcise duty as provided in terms of thenotification No.56/2002-CE dat. 1[th]of Nov'02.The respondent-State, Nowever, shall be atliperty to take appropriate action in accordance.with therelevant.rules against.those|unscrupulous manufacturers who are involved inillegal activities of alleged bogus production.

DisposedOT|Connected CMPs.

accordingly,along

with|

(Sunil Halt)Judge

Jammy|Dt. 23.12.2010.SS Khalsa/