By TIOL News Service

AGARTALA, AUG 27, 2016: THE Union of India by its industrial policy embodied in the office Memorandum dated 24.12.1997, issued by the Ministry of Industry, Department of Industrial Policy and Promotion, Government of India, declared certain incentives for those who would establish industries in the North Eastern Region, in order to give stimulus to the development of industrial infrastructure.

Pursuant thereto, notifications No.32/99-CE and No. 33/99-CE dated 08.07.1999 were issued exempting the goods specified in the first Schedule and the second Schedule to the Central Excise Tariff Act.

Whereas 32/99-CE granted exemption to North East States from Excise duty to goods cleared from a unit located in the Growth Centre or Integrated Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estates or Industrial Area or Commercial Estates or Scheme Area, Notification 33/99-CE granted excise Exemption to specified goods of factories in North East (Assam, Tripura, Meghalaya, Mizoram, Manipur, Nagaland or Arunachal Pradesh).

Pan masala falling under Chapter 21 and goods falling under Chapter 24 stood excluded from being eligible for the exemption under both the notifications.

By notification 45/99-CE, dated 31.12.1999 which amended both the notifications 32/99-CE & 33/99-CE, goods falling under Chapter 24 or heading No.21.06 now stood excluded from the exemption.

Notification 1/2000-CE, dated 17.01.2000 carried out amendments in both the referred notifications of 1999 by extending the benefit of the same to “goods falling under Chapter 24 or heading no. 21.06”. Inasmuch as the words, figures and letters "other' than the goods falling under Chapter 24 or heading No.21.06 of the said First Schedule or the Second Schedule, as the case may be" were be omitted.

The parent notifications of 1999 referred above underwent further amendment by notification 1/2001-CE dated 22.01.2001 and whereby cigarettes falling under Chapter 24 of the said First Schedule stood excluded from the purview of the exemption notification.

Another amendment by notification 6/2001-CE dated 01.03.2001 saw the reference being substituted with the words “other than goods falling under Chapter 24 of the First Schedule or the Second Schedule to the Central Excise TariffAct, 1985.”

The notifications came into the limelight again in the Union Budget of 2003. The Central Excise Explanatory Note to the Finance Bill, 2003 against the head Miscellaneous informed that –

Notification nos. 32/99-CE and 33/99-CE, both dated 8.7.99 (North East exemption) have been amended retrospectively, so as to –

a) Exclude cigarettes (falling under chapter 24) and pan masala containing tobacco (chapter 21) with effect from 8th July 1999 and,

b) (exclude) All goods falling under chapter 24 with effect from 1 st March 2001, from the purview of these exemptions (refer clause 146 of the Finance Bill, 2003)

c) Restrict the refund amount under these notifications to the duty paid less the amount of credit availed on the inputs used in or in relation to the the manufacture of products on which exemption under the said notifications is availed, with effect from 8 th July 1999 (refer clause 145 of the Finance Bill, 2003)

The above retrospective amendments were brought into force by Section 153 and section 154 of the Finance Act, 2003, Schedules Eighth and Ninth respectively.

In the present petition, we are concerned with section 154 &Schedule Ninth.

Incidentally, Section 154 of the Finance Act, 2003 was challenged on the ground of constitutional invalidity. In R.C. Tobacco Private Ltd. and another vs. Union of India = 2005-TIOL-115-SC-CX , the apex court upheld the constitutional validity of the aforesaid provision and repelled the challenge so made.

The effect was that the benefits of the notifications dated 08.07.1999 was effaced retrospectively.

By notification No.69/2003-CE dated 25.08.2003, the Central Government exempted notified excisable goods of chapter 24 to the extent as mentioned in the Table to the notification.

Notification No.8/2004-CE dated 21.01.2004 superceded notification 69/2003-CE and in terms of which goods falling under sub heading No.2401.90, 2402.00, 2404.41, 2404.49, 2404.50 or 2404.99 manufactured by a unit located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland or Tripura were exempted subject to conditions and some of which were that the unit had commenced commercial production on or after the 24th day of December, 1997, but not later than the 28th day of February, 2001; had availed of the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 32/99-Central Excise, dated the 8th July, 1999 or No. 33/99-Central Excise, dated the 8th July, 1999; andhas continued its manufacturing activities after the 28th day of February, 2001. This notification was further amended by Notification 28/2004-CE dated 09.07.2004. Not only the procedural stringency, but also imposition of interest at the rate specified under Section 11AB of the CEA, 1944, was also brought in the domain of the scheme.

By notification 11/2007-CE dated 01.03.2007 the following amendments were carried out in notification 8/2004-CE.

"2. The exemption contained in this notification shall not be available to goods cleared on or after the 1st day of March, 2007:

Provided that for the goods cleared on or before 28th February, 2007 and in respect of which the exemption has already been availed of, the conditions specified in this notification shall continue to apply. "

By means of this writ petition, the petitioners have challenged the notification No. 11/2007-CE dated 01.03.2007 as that has abrogated the benefits allowed to the petitioners under the notifications No. 32/1999-CE and 33/1999-CE dated 08.07.1999, in furtherance of which the petitioners have made extensive investments in the specified zone, growth centre or the industrial park. The petitioners, as the matter of consequential reliefs, have urged for prohibiting the respondents to act in furtherance of the notification dated 01.03.2007.

Incidentally, North-East Industrial Policy (NEIP), 1997 announced on 24.12.1997 was declared to have been discontinued from 01.04.2007 by the office memorandum under No.10(3)/2007-DBA-II/NER dated 01.04.2007.

In its place, a fresh package of fiscal incentives and other concession for the North-East Region, namely the North-East Industrial and Investment Promotion Policy (NEIIPP, 2007) has been given effect from 01.04.2007. By the said policy, a negative list has been provided. The industries in the said negative list will not be eligible for any benefit under the NEIIPP, 2007. The negative list inter alia lists the following industries:

(i) All goods falling under Chapter 24 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which pertains to tobacco and manufactured tobacco substitutes.

(ii) Pan Masala as covered under Chapter 21 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986).

Relying on a host of decisions of the apex Court, the petitioner contended that there is no element of public interest for issuing impugned notification dated 01.03.2007; that even the respondents did not disclose any public interest and as such, all the benefits which the petitioners were getting or are entitled to, is required to be protected by invoking the principle of promissory estoppel; that in order to keep the faith and maintain good governance it is necessary that whatever representation is made by the State which induced the other party to act, the State cannot be permitted to withdraw from that; that this is a matter of faith.

The respondents have made a robust endeavour for defending the impugned notification dated 01.03.2007. In brief, they have stated that for purpose of development of any region certain incentives were declared in the public interest by the notification No.11/2007-CE dated 01.03.2007. This notification cannot be stated as arbitrary, illegal etc. inasmuch as the said notification was issued as per provisions of Central Excise Act, 1944. They have further asserted that earlier by the notifications No.32/99-CE and 33/99-CE dated 08.07.1999 the Central Government had extended certain incentives including exemption of tax and duty for setting up of new industries. But those privilege/benefits were withdrawn by the notification No.11/2007-CE dated 01.03.2007. Such withdrawal was also based on Government policy. In para-9 of their counter affidavit they have asserted that 'under some circumstances Central Government became compelled to withdraw the benefit/incentives by issuing notification. As per notification No.11/2007 dated 01.03.2007 exemption benefit was not allowed on or after 01.03.2007 and this was done in public interest.' Withdrawal of any exemption benefit by issuing the notification in the public interest is lawful and within the ambit of the provisions of Central Excise Act, 1944, it was emphasised.

By filing an additional affidavit on 07.04.2015, those respondents have raised another plea of estoppel by conduct against the petitioners as they have been depositing the excise duty in terms of the new policy which has come into effect from 01.04.2007. It is also submitted that the petitioners had filed two writ petitions in the Gauhati High Court and those writ petitions were dismissed by the Gauhati High Court by rejecting the pleas as raised by the petitioners herein. He has referred the passages of Dharampal Satyapal Limited and Ors. vs. Union of India (UOI) and Anr., 2011 (1) GLT 625 to draw some nourishment for his submission.

IT is further reiterated that when someone is invoking an exemption or an exemption provision to relieve him of tax liability they must establish clearly that he is covered by the said provision and in case of doubt or ambiguity the benefit must go to the State. He has submitted that power to lay down a policy includes power to withdraw the same unless in the former eventuality it is afflicted by a mala fide exercise of power or the action taken is an abuse of power. That apart, withdrawal of exemption benefit prematurely is a policy decision of the Government which might appear resiling from the promise, but in the circumstances under which the said policy has been adopted cannot be held unsustainable.

The High Court formulated the following questions:

(i) Whether the impugned notification dated 01.03.2007, is hit by promissory estoppel by restraining premature withdrawal of the benefits?

(ii) Whether the notification No. 69/03-CE dated 25.08.2003 has been completely eclipsed by the notification under No.8/2004-CE dated 21.01.2004? And

(iii) Whether there is any misuse of process or public interest element justifying the withdrawal of benefits as granted by the NEIP, 1997 by virtue of the notification dated 01.03.2007?

The High Court observed –

++ There cannot be any amount of dispute that by the notification under No. 69/2003–CE dated 25.08.2003 the Central Government had reintroduced in the public interest exemption of excisable goods of the description specified in the Column 3 of the table appended below the said notification and falling within the subheading mentioned therein of the First Schedule to the Central Excise Tariff Act, 1985 subject to the conditions as stated. There is no challenge by the petitioner against the said notification.

++ The question therefore is whether the petitioners are entitled to get the benefits in terms of the notification dated 25.08.2003 read with or without notification dated 21.01.2004 for 10 years as promised by the NEIP 1997, or in other words whether the impugned notification dated 01.03.2007 in respect of premature withdrawal of the benefits is hit by promissory estoppel?

++ To a larger extent, law of promissory estoppel has been crystallised without leaving even a thin penumbra. In the case in hand, the representation or the promise is unequivocal and the petitioners have altered their position acting on such promise or assurance, even though the respondents have averred whether the petitioners have invested huge amount or not is highly questionable but they have not denied that both the units of the petitioners availed the incentive. If incentives were not availed, but they are covered by the notifications dated 25.08.2003 and 21.01.2004 conjointly, they are entitled to get such incentives in the form of exemption subject to their compliance of the conditions as laid down therein, till withdrawal or expiry of the promised period.

++ In this case, even the respondents have not advanced the plea of absence of unequivocal representation. It is well settled that if the statutory authority or an executing authority of the state, functioning on its behalf, in exercise of its legally permissible powers had held out any promise to party, who, relying on the same has changed its position to its detriment and when such a promise made to the party does not offend any provisions of law or does not flatter any legislative or quasi judicial power inhering the promise, then on the strength of promissory estoppel the promise can be obligated to perform in accordance with the promise.

++ However, if there is supervening public interest, the government would be allowed to take its stand and withdraw from the representation made by it, which had induced persons to take certain steps, which might go adverse to the interest of such persons on account of such withdrawal determination. As to whether there is supervening public interest or not, cannot be ipse dixit of the government. The court can also examine the aspects of the public interest. Hence, the decision in Dharam Satyapal Limited and others vs Union of India rendered by Gauhati High Court has failed to persuade this court to adopt.

++ According to the respondents, the said notification 21/2007-CE dated 25.04.2007 has been issued solely on consideration of safeguarding public interest having regard to the health hazards relating to consumption of tobacco and tobacco products. It has been implied that the public interest is better served by withdrawing the incentive rather than by continuing with it. The said notification dated 25.04.2007 has not however been challenged in the writ petition. But by filing the rejoinder the petitioners has simply stated that the contents of paraNo.27(xiv) are a matter of record and do not merit a response; the policy change would not absolve the government from its obligation under the doctrine of promissory estoppel. But the promise has been further extended by the NEIIPP 2007, vide the office memorandum dated 01.04.2007, by providing that "the industrial units which have commenced commercial production on or before 31.03.2007 will continue to get benefits /incentives under NEIP 1997."

++ The notification dated 25.04.2007 has amended the notifications No.32/99-CE dated 08.07.1999 and 33/99-CE dated 08.07.2007. In the said notification dated 25.04.2007, by way of substitution, the following proviso has been added:

"Provided that the exemption contained in this notification shall not be applicable to pan masala, falling under Chapter 21 of the said First Schedule, goods falling under Chapter 24 of the said First Schedule; and plastic carry bags of less than 20 microns as specified by the Ministry of Environment and Forests Notification No. S.O. 705 (E), dated the 2nd of September, 1999 and S.O. 698 (E) dated the 17th of June, 2003."

++ This proviso has been substituted in place of the first proviso appearing in the notification No. 32/99-CE dated 08.07.1999. According to this court, the reasons as provided in the counter affidavit in support of such deletion and substitution of the first proviso by the notification No. 21/2007-CE dated 25.04.2007 cannot be brushed aside. Pan masala containing tobacco may cause health hazard as claimed by the respondents.

++ As such, even though the petitioners have not thrown the categorical challenge against the said notification dated 25.04.2007, the said notification will not absolve the respondents from its obligation under the promissory estoppel so far the pan masala without tobacco content is concerned.In view of the saving clause as engrafted in NEIIPP 2007 , as the petitioners' units have commenced commercial production on or before 31.12.2007 will continue to get benefits/incentives under NEIP, 1997 in terms of the notification No. 8/2004-CE dated 21.01.2004 subject to the notification dated 25.04.2007.

++ For deposit, the petitioner would get relaxation for purpose of counting limitation in terms of notification 28/2004-C.E. dated 09.07.2004. The limitation would start from this day for compliance of the modality as laid down in the notification No.8/2004–CE dated 21.07.2004 and 28/2004–CE dated 09.07.2004. This court, however, has not made any observation consciously as to the petitioners' entitlement under the scheme. The competent authority would decide the same.

++ On a comparative study of those notifications, this court finds that the notification dated 25.08.2003 has for all purposes merged with the notification dated 21.01.2004. The fundamental provisions made in the notification dated 25.08.2003 have not been debased by the notification dated 21.01.2004. The notification dated 21.01.2004 has expanded the benefit further but with certain restrictive conditions. The petitioners have not challenged the said notification dated 21.01.2004. As corollary thereof, this court is of the view that there had been no eclipse. However this court is constrained to note that while drawing up the writ petition, the petitioners acted casually by not seeking the reliefs in terms of the notification dated 21.1.2004. If it was a legal strategy to get the incentives without compliance of the conditions subsequently imposed by the notifications dated 21.01.2004 and 09.07.2004, the same must fail for not challenging the notifications dated 21.01.2004 and 09.07.2004. Hence, the petitioner would continue to get the benefit in terms of the promise re-extended by para 2 of the Office memorandum dated 01.04.2007 for the remaining period in terms of NEIP, 1997.

++ Another question that has fallen for consideration of this court is that whether the notification dated 01.03.2007 to the writ petition can survive. As this has been held that the respondents have failed to show that the petitioner has misused the incentives or taken undue advantage, the said notification dated 01.03.2007 is hit by the promissory estoppel . In this regard it would be apposite to say that the dispute as to whether the petitioner would be entitled to get duty exemption on certification of investment in the social sector in terms of the notifications dated 21.01.2004 and 09.07.2004 is to be verified by the Investment Appraisal Committee (IAC) and on their certification only the exemption can be availed. Hence, absence of "proper investment" as alleged, cannot be termed as misuse or undue advantage.

++ Moreover, the respondents did not assign any public interest for issuing the impugned notification dated 01.03.2007. The cumulative effect is that the notification dated 01.03.2007cannot be sustained and accordingly the same is set aside.

The Writ Petition was allowed to the extent as indicated.

(See 2016-TIOL-1876-HC-TRIPURA-CX)