IN THE GAUHATI HIGH COURTghconline.nic.in/Judgment/WA812011.pdf · 2. Ministry of Commerce &...

WA No.81/11 of 34

IN THE GAUHATI HIGH COURT (THE HIGH COURT OF ASSAM:: NAGALAND::MIZORAM AND ARUNACHAL PRADESH)

WRIT APPEAL NO.81 OF 2011 M/s. Dharampal Satyapal Limited having its Registered Office at 1711 S.P. Mukherjee Marg, New Delhi – 110006 ----- Appellant (Petitioner) Vs. 1. Union of India Through Under-Secretary to the Government of India, Ministry of Finance (Department of Revenue) North Block, New Delhi. 2. Ministry of Commerce & Industry Through Secretary to the Government of India Udyog Bhawan, New Delhi. 3. The Commissioner, Central Excise, Guwahati, Assam. 4. The Deputy/Assistant Commissioner, Central Excise, Guwahati, Assam. 5. State of Assam, represented by the Commissioner and Secretary to the Government of Assam Department of Industries & Commerce

Dispur, Guwahati- 6. ----- Respondents BEFORE THE HON’BLE MR. JUSTICE T. VAIPHEI THE HON’BLE MR. JUSICE M.R. PATHAK

For the appellant : Dr. A.K. Sharaf, Sr. Advocate Mr. Amit Goyal

Mr. Santanu Tyagi Mrs. Gargi Tha Mr. Pritam Baruah, Advocates. For the respondents: Mr. S.C. Keyal, Asstt. S.G.I. Date of hearing : 03-03-2016 Date of judgment : 20-04-2016

JUDGMENT AND ORDER (CAV)

(T. Vaiphei, J.)

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The validity of the Notification No. 11/2007-CE dated 1-3-2007

issued by the Central Government in the Ministry of Finance (Department of

Revenue) taking away the benefits allowed to the appellant-firm under the

Notifications No. 32/1999-CE and 33/1999-CE both bearing dated 8-7-

1999 was challenged before the learned Single Judge, who, by the judgment

dated 10-12-2010 in WP(C) No. 750 of 2010, dismissed the writ petition.

Aggrieved by this, this appeal is NOW filed by the appellant-firm.

2. The facts giving rise to this appeal may be briefly noticed at the

outset. The appellant is a company registered under the Companies Act,

1956 and has its units in Guwahati and Agartala and is engaged in the

production of Jarda scented tobacco/pan masala containing tobacco falling

under the heading of tariff 2403 99 30 and 2403 99 10 of the First Schedule

to the Central Excise Tariff Act, 1985 (“Tariff Act” for short). In order to uplift

the North Eastern India from economic backwardness and to attract

investors’ confidence, the Central Government formulated the North Eastern

Industrial Policy dated 24-12-1997 for facilitating industrial development in

the North Eastern Region. One of the incentives being initiated was to

provide Central Excise and Income Tax Exemption on various excisable

commodities/goods including tobacco products for a period of ten years

from the date of commencement of commercial production or date of

issuance of the Notification, whichever was later. In furtherance of such

policy decision, the Central Government issued the said Notification No.

32/99-CE and 33/99-CE exempting some specified goods manufactured in

the specified areas of the North East India from, inter alia, excise duty and

additional excise duty, which were otherwise leviable on these goods.

The summary of the said two Notifications are as under:

i) The Notification No. 32/99-CE applied to all goods specified

in the First and Second Schedule to the Central Excise Tariff

Act, 1985, which were cleared from units located in the areas

specified in the said Notification. This Notification provided a

mechanism whereby the manufacturer was to submit a

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statement of the duty paid to the concerned Central Excise

authorities and after due verification, the manufacturer was

entitled to a refund of the duty paid. The exemption was

available to all industrial units which had commenced their

commercial production on or after 24-12-1997 or those

industrial units that were in existence before 24-12-1997 but

had undertaken substantial expansion by way of increase

installed capacity by not less than twenty five per cent on or

after 24-12-1997. The total period of the concession was 10

years from the date of publication of the notification or from

the date of commencement of commercial production,

whichever was later.

ii) The Notification No. 33/99-CE exempted all goods specified

in the Schedule appended to the same Notification issued

under the Central Excise Act, 1944 (“Excise Act” for short)

and cleared from units, inter alia, a unit located in the State

of Assam, Tripura or Meghalaya or Mizoram or Manipur or

Nagaland or Arunachal Pradesh. This Notification provided a

mechanism whereby the manufacturer was to submit a

statement of the duty paid to the concerned a statement of

the duty paid to the concerned Central Excise authorities

and after due verification, the manufacturer was entitled to a

refund of the excise duty paid. The exemption was available

to all industrial units which had commenced commercial

production on or after 24-12-1997 or those industrial units

that were in existence before 24-12-1997 but had

undertaken substantial expansion by way of increased in

installed capacity by not less that twenty five per cent on or

after 24-12-1997. The total period of the concession was to

be for a period of ten years from the date of publication of the

notification or from the date of commencement of commercial

production, whichever was later.

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3. It is the case of the appellant that acting on the exemption so granted

and in anticipation of the benefits so assured, it set up a total of 15

manufacturing units at Guwahati in the Industrial Estate, Bamunimaidan,

out of which 4 are involved in the manufacturing of tobacco. Three tobacco

manufacturing units were also set up at Agartala pursuance to the 1997

Industrial Policy and the Notifications issued in connection therewith.

According to the appellant, it has invested huge amounts in the North East

by providing employment to the locals and stimulating industrialization in

the region. Presently, it provides employment to about 2200 persons in its

units and has planned several new units and ventures in the North East

region on the assurance that exemption extended to them would continue

for the next ten years. According to the appellant, the details of investment

made as on 30-9-2009 are as under:

Particulars Amount in Lacs

Land : ₹45.46 Buildings : ₹432.41

Plant & Machineries : ₹1098.39 Furnitures & Fixtures : ₹66.66 Office Equipments : ₹138.21 Vehicles : ₹40.01 Stocks : ₹5089.89 Total : ₹6911.03 It is stated by the appellant that it satisfied all the requirements of the said

Notification and availed of the benefits of exemptions from payment of excise

duty made thereunder in respect of the finished goods manufactured and

cleared by them. The appellant was also availing of the benefit of exemption

under the Notification No. 33/99-CE and were claiming refund of the excise

duly deposited by it in cash during the period from 17-11-2000 to 28-2-

2001. The Excise Department after verifying the claims of the appellant was

granting refund of such duty to it during that period.

4. It is the further case of the appellant that the Central Government,

however, issued the Notification No. 45/99-CE, dated 31-12-1999 amending

the Notifications No. 32/99-CE and 33/99-CE which excluded all goods

falling under Chapter 24 or Heading No. 21.06 of the First Schedule or

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Second Schedule to the Tariff Act. This implied that all tobacco products

including pan masala containing tobacco, chewing tobacco and cigarettes

stood excluded from the ambit of such exemption provided under the said

two Notifications. Subsequently, the Central Government vide the

Notification No. 1/2000-CE dated 17-1-2000 restored the said exemption to

goods falling under Chapter 24 of the First Schedule or the Second Schedule

of the Tariff Act. However, on 22-1-2001, the Central Government issued

another notification, namely, Notification No. 1/2001-CE, removing the said

exemption. This was soon followed by another Notification bearing No.

6/2001-CE dated 1-3-2001 excluding all goods falling under Chapter 24 of

the First Schedule and the Second Schedule to the Tariff Act from the ambit

of the exemption. The Central Government, however, issued another

Notification bearing No. 69/2003-CE, dated 25-8-2003 partially restoring

the exemption that was withdrawn to the extent of 50% of the duty payable.

It was stipulated therein that the exemption would be subject to certain

conditions that it would be available only in respect of units that were

located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya,

Mizoram, Nagaland or Tripura and for those units that commenced

commercial production on or after 24-12-1997 but not later than 28-2-2001

and that the units should have continued their manufacturing activities

after 28-2-2001 and should have availed of the benefits under Notification

Nos. 32/99-CE and 33/99-CE. The Notification further stipulated that the

sum of duty payable but for the exemption was to be utilized by the

manufacturer only for investment in plants and machineries in a

manufacturing unit which is located in the same 7 North East States and

the said investments had to be made before the expiry of six months from

the end of each quarter described above to a Committee consisting of the

Chief Commissioner of Central Excise, Shillong, the Principal Secretary of

the Department of Industries of the concerned State in which the unit was

located and the Principal Secretary of the Department of Industries of the

State in which the investment was made. The manufacturer was required to

prove to the satisfaction of the Committee that the investment was made for

plant and machinery in a manufacturing unit located in the concerned

State. Once the Committee was satisfied that the investment was made in

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the plant and machinery of the manufacturing unit, it was to issue a

certificate to that effect to the manufacturer within a period of one month as

above. The certificate was then to be produced by the manufacturer within a

period of two weeks from the date of issue of the said certificate to the

jurisdictional Central Excise Officer. The investment made under the said

Notification was required to be for a period of ten years from the date on

which the investment was made.

5. Subsequently, another Notification No. 8/2004-CE dated 21-1-2004

was issued by the Central Government raising the exemption limit to 100%

from 50% with similar procedural stipulations as in the Notification No.

66/2003-CE except that the investment could also be made in

infrastructure or civil works or social projects apart from the investment in

plants and machineries. Another Notification bearing No. 28/2004-CE was

issued on 9-7-2004 making a series of procedural amendments to the said

Notification No. 8/2004 wherein it was provided that the sum equal to the

excise duty that was payable, but for the exemption, would be deposited by

the manufacturer within 60 days from the end of the quarter in an Escrow

Account opened by the manufacturer for that purpose. A bond equivalent to

the exempted duty amount was also required to be executed by the

manufacturer to safeguard the revenue as instructed by the Department.

Further, it was stated that operation including withdrawal from and closure

of the said escrow account had to be made with the prior approval of the

jurisdictional Commissioner of Central Excise, taking into account the

conditions specified in the said Notification. The Notification also required

the manufacturer to invest the amount so deposited in the Escrow Account

within two years from the date of the deposits and the said amount

withdrawn from the Escrow Account was to be utilized for the purpose

specified within 60 days of its withdrawal. Condition (EA) of the said

Notification provided that if the manufacturer failed to make the deposit or

invest the amount specified within the stipulated period and in accordance

with the Notification, then the duty equivalent to that amount would be

recoverable from the manufacturer along with interest as stipulated, inter

alia, by forfeiture of amount in the said Escrow Account. To safeguard the

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revenue of the Government, measures were taken in two ways, namely, (i) by

way of execution of bond at the time duty deposition in Escrow Account and

(ii) by execution of tripartite agreement in which the manufacturer is bound

to pay in case of failure to invest the amount so withdrawn within the

prescribed time.

6. Pursuant to the said Notifications No. 8/2004-CE and No. 28/2004-

CE, the appellant executed a bond and entered into a Tripartite Escrow

Agreement with the respondent No. 3 and the State Bank of India, Guwahati

on 21-6-2005 whereby the State Bank of India was appointed as the Escrow

Agent. It was further stipulated in the agreement that operations of the

account including withdrawals from and closure of the said Escrow Account

were to be made with the prior approval of the jurisdictional Commissioner

of Central Excise, Shillong and that if the balance amount lying with Escrow

Account was not re-invested in terms of the Notification No. 28/2004-CE,

the appellant should bind itself to pay on the demand of the Deputy

Commissioner of the Central Excise or Assistant Commissioner of Central

Excise, as the case may be, to the extent of the duty which was equal to the

amount not re-invested along with interest thereon at the rate specified

under Section 11 (AB) of the Excise Act with the amount lying in balance in

the Escrow Account.

7. It is the case of the appellant that the Central Government, contrary

to the assurances made in the earlier Notifications pursuant to which it had

made huge investments in the Region, issued the Notification No. 11/2007-

CE, dated 1-3-2007 amending the said Notifications No. 08/2004-CE and

28/2004-CE respectively and withdrawing the benefits which had accrued

to it thereunder. According to the appellant, the effect of this amendment is

that the exemption contained in the said Notifications was made

inapplicable to the goods cleared after 1-3-2007. This unilateral decision of

the Central Government resulted in depriving the benefits of exemption of

excise tariff and excise duty to the extent of 50% under the Notification No.

8/2004-CE and 28/2004-CE and 100% under the Notifications No. 32/99-

CE and 33/99-CE for the said units set up by it in the years 1999, 2000,

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2001, 2002, 2003 and 2007, though the Central Government had held out

the promise that it would be entitled to the excise exemption for a period of

ten years with effect from the dates of commencement of commercial

production.

8. Subsequently, the Central Government issued the Notifications No.

21/2007-CE on 25-4-2007 amending the Notifications No. 32/99-CE and

33/99-CE and withdrawing the benefits which had accrued to the

manufacturer under the said two Notifications. Resultantly, the exemption

given in the said two Notifications became inapplicable to pan masala falling

under Chapter 21 of the First Schedule to the Tariff Act even though the

said units including the appellant had already commenced their productions

on or before 31-3-2007. Aggrieved by this, the appellant made various

representations before the respondent authorities requesting them to

withdraw the impugned Notifications No. 11/2007-CE and 21/2007-CE as

they are contrary to the Notifications No. 32/99-CE, 33/99-CE, 69/03-CE,

08/04-CE and 28/04-CE. Contending that such unilateral withdrawal is

arbitrary and unwarranted as well as defeats its legitimate expectation and

the doctrine of promissory estoppel, the appellant unsuccessfully

represented before the various authorities of the concerned Departments of

both the Governments. However, it has come to the notice of the appellant

that the Ministry of Commerce and Industries vide the Office Memoranda

dated 22. 11. 2007, 24. 1. 2008 and 23. 2. 2009 requested the Ministry of

Finance, Department of Revenue for taking a decision on the appellant’s

request for reconsideration of the withdrawal of excise duty exemption made

under the Policy 1997, but it came a cropper. It is further pointed out by the

appellant that it had faced enormous difficulties in obtaining the benefit of

such exemption notification during the subsistence of the exemption period

and that the respondents and the Central Excise officials were engaging in

numerous illegal and arbitrary actions of appropriating huge amounts of

money lying in their escrow accounts and its group companies without any

rhyme or reason. According to the appellant, the Central Excise authorities

and the Investment Appraisal Committee have been conducting their

functions under the Notifications No. 8 and 28 illegally and arbitrarily in

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denying investment certificates to it and its group companies. Aggrieved by

that, the appellant also filed WP(C) No. 591 of 2008, 1048 of 2008 and 2148

of 2008 challenging the arbitrary exercise of powers by the respondent

authorities denying it the benefit granted under the excise exemption

notifications. These writ petitions were allowed, but an appeal against the

said order was filed before the Division Bench which stayed the said order.

9. The respondents No. 1 to 4 contested the writ petition and filed two

affidavits. In the first affidavit filed on behalf of the respondent No. 2, the

promulgation of the policy of 1997 and the notifications No. 32/99-CE and

33/99-CE dated 8. 7. 1999, the incentives thereunder including central

excise holiday for a period of 10 years for the goods specified therein vis-à-

vis the industrial units identified, the entitlement of the petitioner and the

grant thereof to it were admitted. The answering respondents averred that

subsequent thereto though the Central Government issued notification No.

45 /99 dated 31. 12. 1999 under Section 5a of the Act whereby the

notifications No. 32/99-CE and 33/99-CE dated 8. 7. 99 were amended with

effect from that date excluding all tobacco related products falling under

Chapter 24 or heading No. 21. 06 of the First Schedule or Second Schedule

of the Central Excise Tariff Act, 1985, from the purview of the exemption,

the benefit was, however, restored by the notification no. 1/2000 dated 17.

1. 2000. Thereafter by Notification No. 1/2001-CE dated 22. 1. 2001 the

exemption on cigarettes was withdrawn. This was followed by the

notification No. 6/2001-CE dated 1. 3. 2001 removing the excise duty

exemption on all goods falling under Chapter 24 of the First Schedule of the

Second Schedule of the Central Excise Tariff Act, 1995 and excluding all the

goods from the purview of the notifications No. 32/99-CE and 33/99-CE

dated 8.7.99 and the Notification No. 33/99-CE dated 8-7-99. According to

the answering respondents, the Government of India, on a due consideration

of the achievements in the realm of industrial development in the North East

Region, mushroom growth of tobacco related companies and heavy refund

due to excise duty exemptions, the Government of India in public interest

amended the Finance Act, 2003 by inserting Section 154 therein and

consequently rolled back the benefit of excise duty exemption with

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retrospective effect thus effecting cessation of the benefits under Policy 1997

vis-à-vis tobacco. Reference to the determination made by the Apex Court in

R. C. Tobacco (P) Ltd. versus Union of India, (2005) 7 SCC 725

sustaining the aforementioned amendment of the Central Act, 1944 by the

Finance Act 2003 has been made to fortify their contention.

10. On a post-assessment of the arrangement so contemplated, the

Government decided against the retention of Central Excise Duty for

investment and thus issued notification No. 28/04 dated 9.7.2004

introducing Escrow Account Mechanism System and accordingly amended

the contents of the notification No. 8/2004 dated 21.1.2004. The post-

escrow period also witnessed various problems according to the answering

respondents, as the Investment Appraisal Committee detected mis-

utilisation of the investment as well as utilisation of the escrow fund. The

Government decided to not to operate the operation of the escrow account

and eventually issued the Notification No. 11/07 dated 1.3.2007 under

Section 5A(1) of the Central Excise Act, 1944 read with Section 3 of the

Additional Duties of Excise (Goods of Specific of Importance) Act, 1957 and

further amended, in public interest, the Notification No. 8/04-CE dated 21-

1-2004 clarifying that the exemption contained therein would not be

available to the goods cleared on or after the first day of March, 2007.

11. While reiterating that the promise of incentives under Policy 1997 had

ceased with the amendment vide the Finance Act, 2003 read with the Ninth

Schedule thereto excluding tobacco and other products specified therein

from the purview of the exemption, the partial respite from this levy granted

by the notification No. 69/03 dated 25. 8. 2003 and 11/07-CE dated 9.7.

2004 has been asserted to be independent of the aforementioned policy and

not by way of extension thereof. It has been stated that out of an amount of

₹100 crores represented by the appellant to have been invested during the

pre-escrow period, only an amount of ₹34 crores had been certified by the

Investment Appraisal Committee to have been genuinely applied in its plants

and machinery and social infrastructure projects. Referring to the negative

list in the Policy 2007, the answering respondents traced the root of the said

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measure to Section 154 of the Finance Act, 2003 whereby tobacco and goods

covered under Chapter 21 of the First Schedule of the Tariff Act 1985

including pan masala had been withdrawn from the purview of exemption of

the central excise duty as evidenced by the Ninth Schedule thereto. The

impugned Notification dated 25.4.2007 has been justified on this plea as

well as on the ground of public interest bearing in mind the adverse

ramifications of the use of tobacco products and the resultant health

hazards in the country. The answering respondents insisted that the

assurance of the continuance of the benefit under Policy 1997 vis-à-vis

industrial units that had commenced commercial production on or before

31.3.2007 would not apply for tobacco and tobacco based products. The

impugned notification dated 25.4.2007 has also been endorsed stating that

the grant of exemption of excise duty in respect of tobacco products did not

yield any noticeable progress or industrial development as contemplated.

12. Reiterating its pleaded assertions, the appellant highlighted the

inconsistency in the approach of the respondents in withdrawing the

exemption from central excise duty on tobacco while sustaining the income

tax exemption/rebate extended by the Policy 1997. According to it, the grant

of exemption of excise duty after the incorporation of Section 154 of the

Finance Act, 2003 by the Notification No. 69/2003-CE dated 25/8/2003

negated the case of the respondents that the promise of the said incentive

came to end by such amendment. While insisting that the Policy of 2007

saved the manufacturing units of the appellant that had commenced

production on or before 31.3.2007, it reiterated its attack against the

impugned notification dated 25.4.2007 as illegal, arbitrary and mala fide. It

submitted that it was entitled to the protection of Section 38A of the Act and

refuted the justification of public interest in issuing the impugned

notification.

13. In their additional affidavit, the respondents No. 1 to 4 besides

contending that the counter filed by the respondent No. 2 questioned the

maintainability of the writ petition on the ground of delay as the impugned

notification was dated 25.4.2007. Apart from asserting that the appellant

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even otherwise had failed to lay any factual foundation to invoke the

doctrine of promissory estoppel, they accused it of suppression of the

material fact that it had, the impugned notification notwithstanding, been

paying central excise duty for the tobacco products on the clearance of their

products in terms of normal duty as applicable till 30-6-008. As the

withholding of the said fact had a vital and decisive bearing on the grant of

interim order in its favour, the respondents pleaded that the petitioner has

thereby disentitled itself for any equitable relief from this Court.

14. Dr. A.K. Saraf, the learned senior counsel for the appellant, contends

that the learned Single Judge has patently fallen into error in holding that

under IPR 2007, the saving clause, which entitled the units established

under IPR 1997 to avail of the benefits for the remainder of the term was

applicable only to units which were into manufacturing goods other than

those listed in the negative list. Assailing the reliance placed by the learned

Single Judge upon the fact that making the industries indulging in

manufacturing of goods in the negative list would render Section 154 of the

Finance Act, 2003 redundant, the learned senior counsel submits that such

finding is misconceived inasmuch as the appellant is merely claiming the

benefits of the Notification Nos. 8/2004-CE dated 21-1-2004 and 28/2004-

CE dated 9-7-2004. It is next contended by the learned senior counsel that

if the Notifications No. 8/2004-CE and 28/2004-CE, which were issued after

the enactment of Section 154 of the Finance Act, 2003, are valid for the

purpose of granting exemption of excise duty to goods falling under Chapter

24 of Schedule I or II of CET Act, then the saving clause of IPR 2007 would

not be rendered redundant if the units manufacturing products, which are

listed in the negative list, are also given the benefit of the same. He also

contends that the withdrawal of benefits promised under the Notification No.

8/2004-CE dated 21-1-2004 and No. 28/2004-CE dated 9-7-2004 by the

Notification No. 11/2007-CE and Notification No. 21/2007-CE is arbitrary

and unreasonable inasmuch as the respondent authorities could not have

withdrawn the Excise Duty exemption when the same units are still allowed

to avail of 100% Income Tax exemption under Section 80-IB of the Income

Tax Act, 1961. He, therefore, submits that such withdrawal is without any

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application of mind and is arbitrary and, as such, the Notification No.

11/2007-CE and Notification No. 21/2007-CE cannot be sustained in law

and are liable to be quashed. In defending the impugned judgment and the

impugned Notifications, Mr. S.C. Keyal, the learned Assistant Solicitor

General of India (ASG), reiterated the same contentions urged before the

learned Single Judge and further submits that the legality of the withdrawal

of the benefit granted to the tobacco manufacturing units such as the

appellant under the 1997 Industrial Policy by Section 154 of the Finance

Act, 2003 was already upheld the Apex Court in R.C. Tobacco (P) Ltd., v.

Union of India, (2005) 7 SCC 725. He, therefore, submits that the

impugned judgment is perfectly in order and does not warrant the

interference of this Court.

15. We have perused the impugned judgment, the pleadings of the parties

and other materials on record, and have also heard both the learned counsel

appearing for the rival parties. In order to arrive at the right answer to any

question, the right question shall have to be formulated. H.M. Seervai, the

famous jurist, used to say, “Ask the right question, you will never get the

wrong answer, but ask the wrong question, you will never get the right

answer!” In this writ appeal, we are of the view that the right question to be

asked for effective adjudication is:

Whether the State-respondents are barred by the doctrine of

promissory estoppel from issuing the impugned Notification No.

11/2007-CE dated 1-3-2007 withdrawing full and partial exemption

of excise and excise tariff duty extended to the appellant made

available to it by the Notification No. 8/2004-CE dated 21-1-2004 and

the Notification No. 28/2004-CE dated 9-7-2004?

To appreciate the controversy, the text of the impugned Notification

dated 1-3-2007 is reproduced hereunder:

NOTIFICATION NO. 11/2007-Central Excise New Delhi, the 1st March, 2007 10 Phalguna, 1978 (Saka)

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G.S.R.(E) – In exercise of the powers conferred by sub-section (1) section 5A

of the Central Excise Act, 1944 (I of 1944), read with sub-section (3) of

section 3 of the Additional Duties of Excise (goods of Special Importance)

Act, 1957 (58 of 1957), and sub-section (3) of section 136 of the Finance

Act, 2001 (14 of 2001), the Central Government, on being satisfied that it is

necessary in the public interest so to do, hereby makes the following

further amendment in the Notification of the Government of India in the

Ministry of Finance (Department of Revenue), No. 8/2004-Central Excise,

dated 21st January, 2004 which was published in the Gazette of India,

/extraordinary, vide number G.S.R. 60-(E) of the same date, namely:-

In the said Notification, after paragraph 1, the following paragraph shall

be inserted, namely:-

“2. The exemption contained in this Notification shall not be

available to goods cleared on or after the 1st day of March, 2007.

Provided that for the cleared on or before 28th February, 2007 and in

respect of which the exemption has already been availed of, the conditions

specified in this Notification shall continue to apply.

( S. Bajaj)

Under Secretary to Government of India.

Note:- The principal Notification was published in the Gazette of India,

Extraordinary, vide number G.S.R.60(E), dated 21st January, 2004, and was

last amended by Notification No. 28/2004-Central Excise, dated 9th July,

2004, and published vide number G.S.R. 419(E), dated 9th Jly, 2004.”

16. A close look at the Notification No. 8/2004, dated 21-01-2004 will

show that all goods falling under sub-heading 2401.90, 2402.00, 2404.41,

2404.49, 2404.50 or 2404.50 of the First Schedule and the Second Schedule

to the Tariff Act were exempted from payment of the whole of the duties of

excise, additional duties of excise leviable under the Tariff Act, the

Additional Duties of Excise (Goods of Special Importance) Act and National

Calamity Contingent Duty leviable thereon under sub-section (1) of section

136 of the said Finance Act subject to the conditions stipulated therein. As

already noticed, all tobacco products including pan masala containing

tobacco, chewing tobacco and cigarettes were excluded from the ambit of

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exemption off and on. At this stage, it may also be noticed that these items

are enumerated in Chapter 24 of First Schedule to the Tariff Act. However,

by the impugned Notification No. 11/07-CE, the exemptions from payment

of excise and additional excise duties so leviable earlier would no longer be

available to goods cleared on or after 1-3-2007. However, in so far as goods

cleared on or before 28-2-2007 and in respect of which the exemption had

already been availed of are concerned, the condition specified in the

Notification No. 8/2004, dated 21-1-2004 would continue to apply.

17. It needs to be recapitulated that in order to implement the New

Industrial Policy in the North Eastern Region, which was launched to

promote and stimulate industrial production therein, the Government of

India (GOI) issued the Notification No. 32/1999-CE dated 8-7-1999

exempting all goods in Schedule I and II of the Central Excise Tariff Act,

1985 (“CET Act”) which were manufactured in the areas mentioned in the

notification; the notification laid down the criteria for becoming eligible to

avail of the exemption. Simultaneously, another cognate Notification dated

33/1999-CE dated 8-7-1999 was issued by the GOI exempting goods

mentioned therein from payment of excise duty leviable from the

manufacturers. Soon thereafter, the GOI vide the Notification No. 45/99-CE

dated 31-12-1999 amended the said two notifications excluding goods

falling under Chapter 24 or heading No. 21.06 of Schedule I or II of the CET

Act. However, even before the end of one month, the Notification No.

1/2000-CE dated 17-1-2000 reversed the changes made in the Notification

No. 45-99-CE making available the exemption to all the goods under

Schedule I and II. After a year or so, the GOI issued another Notification No.

1/2001-CE dated 22-1-2001 amending the said Notifications No. 32/99-CE

and 33-99-CE whereby cigarettes falling under Chapter 24 of Schedule I

CET Act was excluded from the exemption. This was followed by the

Notification No. 6/2001-CE dated 1-3-2001 amending the Notifications No.

32/99-CE and 33/99-CE whereby the goods falling under Chapter 24 of

Schedule I stood excluded. Thereafter, the Parliament passed the Finance

Act, 2003, which came into force on 1-4-2003, by, among others, enacting

Section 154 amending the said Notification No. 32/99-CE with effect from 8-

WA No.81/11 of 34

7-1999 i.e. retrospectively providing that the exemptions notified therein

should not be applicable to: (i) cigarettes falling under Chapter 24 of the 1st

Schedule or the 2nd Schedule of the CET Act; (ii) pan masala containing

tobacco falling under sub-heading No. 2106.00 or 2404.49, as the case may

be.

18. Another Notification No. 69/2003-CE was issued on 25-8-2003

partially restoring the exemption of goods mentioned in Table 3 of the

Notification of Chapter 24 of the Schedule I (2401.90, 2402.00, 2404.41,

2404.49, 2404.50 and 2404.99) of the CET Act that was withdrawn by the

said Notification No. /2001-CE to the extent of 50% of the duty payable

which was made available only to the units located in the States of

Arunachal Pradesh, Assam, Manipur, Meghalaya, Nagaland and Tripura and

for those units which had commenced commercial production on or after

24-12-997 but not later than 28-2-2001 and the units should have

continued its manufacturing activities after 8-2-2001 and should have

availed of the benefits under the Notification No. 32/99-CE and 33/99-CE

subject, however, to their fulfilling certain conditions stipulated therein. This

was followed by another Notification No. 8/2004-CE dated 21-1-2004

exempting goods falling under the said the Notification No. 69/2003-CE

from 100% duties of excise subject certain conditions. Subsequently,

another Notification No. 28/2004-CE was issued on 9-7-2004 by the GOI

amending the said Notification No. 8/2004-CE stipulating for the first time

the mechanism of escrow account for ensuring that money earned from

exemption is re-invested in the State itself. Some three year thereafter, the

Department of Industrial Police and Promotion, Ministry of Industry and

Commerce launched the North East Industrial and Investment Promotion

Policy, 2007 containing a saving clause declaring that “industrial units

which have commercial production on or before 31-3-2007 would continue

to get benefits/incentives under NEIP, 1997”. The new Policy included a

negative list which excluded units manufacturing certain class of goods from

eligibility under new Policy related exemption. This negative list included (i)

all goods falling under Chapter 24 of 1st Schedule, CET Act which pertains

to tobacco and manufactured tobacco substitutes; (ii) Pan Masala as covered

WA No.81/11 of 34

under Chapter 21 of the 1st Schedule to the CET Act, etc. On 1-3-2007, the

GOI issued another Notification No. 11-2007-CE amending the Notification

No. 8/2004-CE whereby the exemption granted therein was not made

available to goods cleared on or after 1st day of March, 2007. This was

followed by another Notification No. 21/2007-CE dated 25-4-2007 further

amending the Notification No. 32/99-CE which has the effect of excluding

pan masala under Chapter 21; goods falling under Chapter 24 and plastic

bags of less than 20 microns from the ambit of exemption.

19. Aggrieved by this Notification No. 11/2007-CE dated 1-3-2007, the

writ petition was filed before the learned Single Judge for quashing the same

and to issue a writ of mandamus directing the respondent authorities to

restore the benefits under the Notification Nos. 08/04-CE and 28/04-CE to

the North East Region. At this stage, it may not be out of place to reproduce

hereunder the provisions of Section 5-A of the Excise Act, which are in the

following terms:

“5-A. Power to grant exemption from duty of excise.—(1) If

the Central Government is satisfied that it is necessary in the

public interest so to do, it may, by notification in the Official

Gazette, exempt generally either absolutely or subject to such

conditions (to be fulfilled before or after removal) as may be

specified in the notification, excisable goods of any specified

description from the whole or any part of the duty of excise

leviable thereon:

Provided that, unless specifically provided in such

notification, no exemption therein shall apply to excisable

goods which are produced or manufactured—

(i) in a free trade zone and brought to any other

place in India; or

(ii) by a hundred per cent export-oriented

undertaking and [brought to any other place in

India.

WA No.81/11 of 34

Explanation.—In this proviso, “free trade zone” and

“hundred per cent export-oriented undertaking” shall have

the same meanings as in Explanation 2 to sub-section (1)

of Section 3. (1-A) For the removal of doubts, it is hereby declared

that where an exemption under sub-section (1) in respect

of any excisable goods from the whole of the duty of excise

leviable thereon has been granted absolutely, the

manufacturer of such excisable goods shall not pay the

duty of excise on such goods.

(2) If the Central Government is satisfied that it is

necessary in the public interest so to do, it may, by special

order in each case, exempt from payment of duty of excise,

under circumstances of an exceptional nature to be stated

in such order, any excisable goods on which duty of excise

is leviable.

(2-A) The Central Government may, if it considers it

necessary or expedient so to do for the purpose of

clarifying the scope or applicability of any notification

issued under sub-section (1) or order issued under sub-

section (2), insert an explanation in such notification or

order, as the case may be, by notification in the Official

Gazette at any time within one year of issue of the

notification under sub-section (1) or order under sub-

section (2), and every such explanation shall have effect as

if it had always been the part of the first notification or

order, as the case may be.

(3) An exemption under sub-section (1) or sub-section

(2) in respect of any excisable goods from any part of the

duty of excise leviable thereon (the duty of excise leviable

thereon being hereinafter referred to as the statutory duty)

may be granted by providing for the levy of a duty on such

goods at a rate expressed in a form or method different

WA No.81/11 of 34

from the form or method in which the statutory duty is

leviable and any exemption granted in relation to any

excisable goods in the manner provided in this sub-section

shall have effect subject to the condition that the duty of

excise chargeable on such goods shall in no case exceed

the statutory duty.

Explanation.—“Form or method”, in relation to a rate

of duty of excise means the basis, namely, valuation,

weight, number, length, area, volume or other measure

with reference to which the duty is leviable.

(4) Every notification issued under sub-rule (1), and

every order made under sub-rule (2), of Rule 8 of the

Central Excise Rules, 1944, and in force immediately

before the commencement of the Customs and Central

Excises Laws (Amendment) Act, 1988 shall be deemed to

have been issued or made under the provisions of this

section and shall continue to have the same force and

effect after such commencement until it is amended,

varied, rescinded or superseded under the provisions of

this section.]

(5) Every notification issued under sub-section (1) 9 [or

sub-section (2-A)] shall,—

(a) unless otherwise provided, come into force on

the date of its issue by the Central

Government for publication in the Official

Gazette;

(b) also be published and offered for sale on the

date of its issue by the Directorate of Publicity

and Public Relations, Customs and Central

Excise, New Delhi, under the Central Board of

Excise and Customs constituted under the

Central Boards of Revenue Act, 1963.

WA No.81/11 of 34

(6) Notwithstanding anything contained in sub-section (5),

where a notification comes into force on a date later than the

date of its issue, the same shall be published and offered for

sale by the said Directorate of Publicity and Public Relations

on a date on or before the date on which the said notification

comes into force.”

20. It may be noted that the above Notifications for exemption were

issued by the Central Government from time to time under Section 5-A of

the Excise Act. In this state of affairs of flip-flop decisions by the Central

Government, the appellants are seeking the protection of the doctrine of

promissory estoppel. What is the doctrine of promissory estoppel is explained

in by Lord Denning in his inimitable words:

“A man should keep his word. All the more so when the

promise is not a bare promise but is made with the intention that the

other party should act upon it. Just as contract is different from tort

and from estoppel, so also in the sphere now under discussion

promises may give rise to a different equity from other conduct.

The difference may lie in the necessity of showing ‘detriment’.

Where one party deliberately promises to waive, modify or discharge

his strict legal rights, intending the other party to act on the faith or

promise, and the other party actually does act on it, then it is

contrary, not only to equity but also to good faith, to allow the

promisor to go back on his promise. It should not be necessary for the

other party to show that he acted to his detriment in reliance on the

promise. It should be sufficient that he acted on it.”

The Apex Court in Amrit Banaspati Co. Ltd. v. State of

Punjab,(1992) 2 SCC 411 also explained doctrine in the following manner:

WA No.81/11 of 34

“3. Law of Promissory Estoppel which found its ‘most eloquent

exposition’ in Union of India v. Indo-Afghan Agencies Ltd.1

crystallised in Motilal Padampat Sugar Mills Co. (P) Ltd. v. State

of U.P.2 as furnishing cause of action to a citizen, enforceable in a

court of law, against government if it or its officials in course of their

authority extended any promise which created or was capable of

creating legal relationship, and it was acted upon, by the promisee

irrespective of any prejudice. It was reiterated in Union of India v.

Godfrey Philips India Ltd.3 and was taken further when it was held

that no duty of excise was assessable on cigarettes manufactured by

assessee by including, cost of corrugated fibreboard containers, when

it was clearly represented by the Central Board of Excise and

Customs in response to the submission made by the Cigarette

Manufacturers’ Association — and this representation was approved

and accepted by the Central Government — that the cost of

corrugated fibreboard containers would not be includible in the value

of the cigarettes for the purpose of assessment of excise duty. In

Delhi Cloth and General Mills Ltd. v. Union of India4 it was held:

“All that is now required is that the party asserting the

estoppel must have acted upon the assurance given to him. Must

have relied upon the representation made to him. It means, the

party has changed or altered the position by relying on the

assurance or the representation. The alteration of position by the

party is the only indispensable requirement of the doctrine. It is

not necessary to prove further any damage, detriment or prejudice

to the party asserting the estoppel.”

(Underlined for emphasis)

1 (1968) 2 SCR 366 : AIR 1968 SC 718 2 (1979) 2 SCC 409 : 1979 SCC (Tax) 144 : (1979) 2 SCR 641 3 (1985) 4 SCC 369 : 1986 SCC (Tax) 11 4 (1988) 1 SCC 86 : (1988) 1 SCR 383

WA No.81/11 of 34

21. The doctrine, however, has certain limitations as held by the Apex

Court in Godfrey Philips India Ltd. (supra). This is what it said:

“13. Of course we must make it clear, and that is also laid

down in Motilal Sugar Mills case (supra) that there can be no

promissory estoppel against the Legislature in the exercise of its

legislative functions nor can the Government or public authority

be debarred by promissory estoppel from enforcing a statutory

prohibition. It is equally true that promissory estoppel cannot be

used to compel the Government or a public authority to carry out

a representation or promise which is contrary to law or which was

outside the authority or, power of the officer of the Government or

of the public authority to make. We may also point out that the

doctrine of promissory estoppel being an equitable doctrine, it

must yield when the equity so requires; if it can be shown by the

Government or public authority that having regard to the facts as

they have transpired, it would be inequitable to hold the

Government or public authority to the promise or representation

made by it, the Court would not raise an equity in favour of the

person to whom the promise or representation is made and

enforce the promise or representation against the Government or

public authority. The doctrine of promissory estoppel would be

displaced in such a case, because on the facts, equity would not

require that the Government or public authority should be held

bound by the promise or representation made by it. This aspect

has been dealt with fully in Motilal Sugar Mills case (supra) and

we find ourselves wholly in agreement with what has been said in

that decision on this point.”

22. To give a complete picture of the legal position with respect to the

doctrine of promissory estoppel, we may also refer to and reproduce

hereunder para 30 of the judgment of the Apex Court in Pawan Alloys &

Casting Pvt. Ltd., Meerut v. UP State electricity Board and others,

(1997) 7 SCC 251:

WA No.81/11 of 34

“30. Shri Dave next invited our attention to a three-Judge

Bench judgment of this Court in the case of Shrijee Sales Corpn.

wherein A.M. Ahmadi, C.J., speaking for the Bench considered the

correctness of the aforesaid decision in Kasinka Trading10. As

the decision in Shrijee Sales Corpn.11 has laid down the

parameters of the field in which the doctrine of promissory

estoppel can apply it is necessary to closely refer to the relevant

observations found in the said judgment. It may be mentioned

that the very same customs exemption notification which was

considered by the Bench of two learned Judges in Kasinka

Trading10 was considered by a three-Judge Bench in Shrijee

Sales Corpn.11 While upholding the said notification Ahmadi,

C.J., in paras 3 and 4 of the Report observed as under:

“3. It is not necessary for us to go into a historical analysis

of the case-law relating to promissory estoppel against the

Government. Suffice it to say that the principle of promissory

estoppel is applicable against the Government but in case

there is a supervening public equity, the Government would be

allowed to change its stand; it would then be able to withdraw

from representation made by it which induced persons to take

certain steps which may have gone adverse to the interest of

such persons on account of such withdrawal. However, the

Court must satisfy itself that such a public interest exists. The

law on this aspect has been emphatically laid down in the case

of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.5

The portion relevant for our purpose is extracted below:

‘It is only if the Court is satisfied, on proper and

adequate material placed by the Government, that

overriding public interest requires that the Government 10 (1995) 1 SCC 274 11 (1997) 3 SCC 398 5 (1997) 2 SCC 409 : 1979 SCC (Tax) 144

WA No.81/11 of 34

should not be held bound by the promise but should be free

to act unfettered by it, that the Court would refuse to

enforce the promise against the Government. The Court

would not act on the mere ipse dixit of the Government, for

it is the Court which has to decide and not the Government

whether the Government should be held exempt from

liability. This is the essence of the rule of law. The burden

would be upon the Government to show that the public

interest in the Government acting otherwise than in

accordance with the promise is so overwhelming that it

would be inequitable to hold the Government bound by the

promise and the Court would insist on a highly rigorous

standard of proof in the discharge of this burden. But even

where there is no such overriding public interest, it may

still be competent to the Government to resile from the

promise “on giving reasonable notice, which need not be a

formal notice, giving the promisee a reasonable opportunity

of resuming his position” provided of course it is possible

for the promisee to restore status quo ante. If, however, the

promisee cannot resume his position, the promise would

become final and irrevocable. Vide Emmanuel Ayodeji

Ajayi v. Briscoe16.’

4. Two propositions follow from the above analysis:

(1) The determination of applicability of promissory

estoppel against public authority/Government hinges

upon balance of equity or ‘public interest’.

(2) It is the Court which has to determine whether

the Government should be held exempt from the liability

of the ‘promise’ or ‘representation’.

In the present case, the first notification exempting the

customs duty on PVC itself recites ‘… Central Government being

satisfied that it is necessary in public interest to do so …’. In the

16 (1964) 3 All ER 556

WA No.81/11 of 34

notification issued later which gave rise to the present cause of

action, the same recitation is present.”

It is, therefore, obvious that even though it may be found that

the Government or any other competent authority had held out

any promise on the basis of which the promisee might have acted,

if public interest required recall of such a promise and such a

public interest outweighed the interest of the promisee then the

doctrine of promissory estoppel against the Government would

lose its rigour and cannot be of any avail to such promisee. In the

aforesaid decision the further contention canvassed on behalf of

the appellant-promisee was also examined. That centred round

the question whether the notification having fixed a time-limit for

its operation could be rescinded prior to the expiry of the said

period. Rejecting the said contention and upholding the right of

the authorities to recall such a notification even earlier it was

observed in para 7 of the Report that once public interest is

accepted as the superior equity which can override individual

equity, the principle should be applicable even in cases where a

period has been indicated. It was further observed that the

Government is competent to resile from a promise even if there is

no manifest public interest involved, provided, of course, no one is

put in any adverse situation which cannot be rectified. To adopt

the line of reasoning in Emmanuel Ayodeji Ajayi v. Briscoe16

quoted in M.P. Sugar Mills5 even where there is no such

overriding public interest, it may still be within the competence of

the Government to resile from the promise on giving reasonable

notice which need not be a formal notice, giving the promisee a

reasonable opportunity of resuming his position, provided, of

course, it is possible for the promisee to restore the status quo

ante. If, however, the promisee cannot resume his position, the

promise would become final and irrevocable.

(Underlined for emphasis)

WA No.81/11 of 34

23. As already noticed earlier, it was on the basis of the North East

Industrial Policy dated 24-12-1997 that the two Notifications No. 32/99-CE

and 33/99-CE were initially issued by the Central Government to give effect

to the new initiatives for industrial development in the region. The object of

the policy is to attract investment by promising exemption from payment of

excise duty, additional duty of excise and income tax for a period of ten

years from the date of commencement of commercial production or the date

of issue of such Notification, whichever, was later, to bring about the

development of infrastructural facilities and industries in the region. It is the

specific case of the appellant that acting upon such promise, it invested a

total of ₹ 69 crores for construction of land, building, plant & machineries,

furnitures and fixtures, office equipments, vehicles, stocks. Having satisfied

the criteria stipulated in the said two Notifications, the appellant availed of

the benefit of exemption from payment of excise duty and additional excise

duty for the goods manufactured and cleared by it and also claiming refund

of the duty deposited by it in cash during the period from 17-11-2000 to 28-

2-2001. The Excise Department, in turn, after verifying the claims for the

refund used to refund the excise duty deposited into it during that period.

24. By announcing the North East Industrial Policy, 1997 implemented

by the Notifications No. 32/99-CE and 33/99-CE, it can truly be said that

the respondents have held out a promise to exempt the manufacturer of the

specified goods from payment of excise duty and additional excise duty for

the next ten years subject, however, to fulfilment of the criteria stipulated

therein. As already noticed, the “flip-flop” of the Central Government issuing

notifications granting, then withdrawing, again granting before finally

withdrawing such benefits is evident. However, the Parliament passed

Section 154 of the Finance Act, 2003, which was enacted on 14-5-2003,

making retrospective denial of exemption of such benefits. Thus, the

exemptions available to the manufacturers of cigarettes from 1999 up to 27-

1-2001 (except for a short period between 31-12-199 and 17-1-2000 during

which it was not available), was rescinded retrospectively. This meant that

WA No.81/11 of 34

the excise duty already refunded to the manufacturers would be liable to be

recovered, no further refund would be made and that the manufacturers

would be liable to pay the excise duty not paid when the exemption was in

force i.e. between 8-7-1999 and 27-1-2001. If that is the end of the matter,

the appellant may not have any case at all. But then, the respondent

authorities thereafter issued the Notification No. 69/2003-CE dated 25-8-

2003 partially restoring the exemption of goods mentioned in Table 3 of the

Notification of Chapter 24 of the Schedule I (2401.90, 2402.00, 2404.41,

2404.49, 2404.50 and 2404.99) of the CET Act that was withdrawn by the

said Notification No. /2001-CE to the extent of 50% of the duty payable

which was made available only to the units located in the States of

Arunachal Pradesh, Assam, Manipur, Meghalaya, Nagaland and Tripura and

for those units which had commenced commercial production on or after

24-12-997 but not later than 28-2-2001 and the units should have

continued its manufacturing activities after 8-2-2001 and should have

availed of the benefits under the Notification No. 32/99-CE and 33/99-CE

subject, however, to their fulfilling certain conditions stipulated therein

issued the Notifications No. 8-4-04-CE dated 21-1-2004 exempting goods

falling under the said the Notification No. 69/2003-CE from 100% duties of

excise subject certain conditions. Subsequently, another Notification No.

28/2004-CE was issued on 9-7-2004 by the GOI amending the said

Notification No. 8/2004-CE stipulating for the first time the mechanism of

escrow account for ensuring that money earned from exemption is re-

invested in the State itself.

25. Obviously, these three Notifications were issued subsequent to the

enactment of the Section 154 of the Finance Act, 2003. Therefore, there is

force in the contention of the learned senior counsel for the appellant that

inasmuch as Section 154 of the Finance Act, 2003 was enacted prior to the

said three Notifications, it has no relevance in this case nor can it have any

adverse effect on the rights already accrued to the petitioners thereunder.

The impugned Notification No. 11/2007-CE dated 1-3-2007 was issued in

exercise of the powers conferred under Section 5A(1) of the Excise Act. The

WA No.81/11 of 34

contention of the learned senior counsel for the appellant is that the

impugned Notification, in so far as it takes away the rights already accrued

to the appellant in terms of the Notifications No. 11/04-CE and 28/04-CE is

concerned, is illegal inasmuch as the parent Act i.e. Excise Act does not give

the Ministry of Finance the power to issue such Notification with

retrospective effect, and has also infringes Section 38A of the Excise Act,

which provides that the rights which have accrued or vested in a party by

prior Notification shall not be affected by an amendment to the Notification.

If any authority is required in this behalf, we may conveniently refer to

Mahabir Vegetable Oils (P) Ltd. V. State of Haryana, (2006) 3 SCC 620.

This is what the Apex Court said:

“38. The promises/representations made by way of a statute,

therefore, continued to operate in the field. It may be true that the

appellants altered their position only from August 1996 but it has

neither been denied nor disputed that during the relevant period,

namely, August 1996 to 16-12-1996 not only have they invested huge

amounts but also the authorities of the State sanctioned benefits,

granted permissions. Parties had also taken other steps which could

be taken only for the purpose of setting up of a new industrial unit.

An entrepreneur who sets up an industry in a backward area unless

otherwise prohibited, is entitled to alter his position pursuant to or in

furtherance of the promises or representations made by the State.

The State accepted that equity operated in favour of the

entrepreneurs by issuing Note 2 to the notification dated 16-12-1996

whereby and whereunder solvent extraction plant was for the first

time inserted in Schedule III i.e. in the negative list.

39. Both the provisions contained in Schedule III and Note 2

formed part of subordinate legislation. By reason of the said note, the

State did not deviate from its professed object. It was in conformity

with the purport for which original Rule 28-A was enacted.

40. We, in this case, are not concerned with the quantum of

exemption to which the appellants may be entitled to, but only with

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the interpretation of the relevant provisions which arise for

consideration before us.

41. We may at this stage consider the effect of omission of the said

note. It is beyond any cavil that a subordinate legislation can be given

a retrospective effect and retroactive operation, if any power in this

behalf is contained in the main Act. The rule-making power is a

species of delegated legislation. A delegatee therefore can make rules

only within the four corners thereof.

42. It is a fundamental rule of law that no statute shall be

construed to have a retrospective operation unless such a

construction appears very clearly in the terms of the Act, or arises by

necessary and distinct implication. (See West v. Gwynne14.)”

26. Thus, in our opinion, prima facie, the impugned Notification No.

11/2007-CE is hit by the doctrine of promissory estoppel for the following

reasons:

(a) By the North East Industrial Policy, 1997 implemented by the

Notifications No. 32-1999-CE and No. 33-1999-CE, a promise was

held out by the respondent authorities that excise and additional

excise exemptions would be given to those investors who started

production of identified goods for a period of ten years;

(b) The appellant believed that the promise was true and, if acted

upon, would be entitled to a refund of excise duty, and had,

therefore, acted upon such promise; and

(c) While acting upon such promise, the appellant altered its position

by investing sixty-nine crores of rupees in land, buildings, plants

and machineries, office equipments, vehicles and stocks.

(d) The authority issuing the Notifications Nos. 11/04-CE and 28/04-

CE acted within the scope of his authority.

14 (1911) 2 Ch 1 : 104 LT 759 (CA)

WA No.81/11 of 34

(e) The impugned Notification No. 11/07-CE is ultra vires Section 5A

of the Excise Act and is, therefore, not operative; there is thus no

difficulty in invoking the doctrine of promissory estoppel.

27. It is not, however, necessary for the appellant to further prove that

any damage, detriment or prejudice was caused to it by making such

investment. What is now to be seen is whether there is overriding public

interest compelling the State-respondents to withdraw the benefits already

extended to the appellant and whether it may still be within the competence

of the respondent authorities to resile from the promise on giving reasonable

opportunity of resuming the position of the appellant even where there is no

such overriding public interest provided, of course, it is possible for the

appellant to restore the status quo ante, but if that is not possible, the

promise would become final and irrevocable. As already held by the Apex

Court in Motilal Padampat Sugar Mills Co. Ltd. (supra), this Court will

not act on the mere ipsi dixit of the Government, for it is the Court which

has to decide and not the government whether the Government should be

held exempt from liability. This is the essence of the rule of law. The burden

would be upon the Government to show that the public interest is so

overwhelming that it would be inequitable to hold the government bound by

the promise and the Court will insist on a highly rigorous standard of proof

in the discharge of this burden. The main reasons given by the respondent

authorities are found at para 4(xi) to (xiv) of their counter-affidavit, namely,

(i) the appellant misutilized the escrow account in respect of its investment.

During the period w.e.f. 25-8-2003 to 21-1-2004 i.e. the period between the

Notification No. 69/03 dated 25-8-2003 and the Notification No. 8/04-CE

dated 21-1-04 which is known as pre-escrow period, the appellant is shown

to have invested ₹100 crores out of which only an amount of ₹34 crores was

certified by the Investment Appraisal Committee to have been invested and

(ii) the Industrial Policy Resolution dated 1-4-2007 issued by the Ministry of

Industry and Commerce inserted negative list which included tobacco

products and pan masala enabling the withdrawal of these two items from

WA No.81/11 of 34

tax exemption with retrospective effect in public interest taking into account

health hazard and various other factors.

28. In so far as the impact of negative list is concerned, there is no

difficulty in holding that these two items are still entitled to exemption

inasmuch as towards of the end of the North East Industrial and Investment

Promotion Policy, 2007 (NEIP, 2007) i.e. Clause 2, it is clearly provided that

industrial units which had commenced commercial production on or before

31-3-2007 will continue to get benefits/incentives under the NEIP, 1997

notwithstanding the inclusion of tobacco products and pan masala among

the negative lists as items ineligible for benefits under NEIP, 2007.

Indisputably, the units of the appellant had commenced commercial

production on or before 31-3-2007. This is evident from the Office

memorandum dated 1-4-2007 which categorically stated that industrial

units which had commenced commercial production on or before 31-3-2007

would continue to get benefits/incentives under NEIP, 1997. Under the

circumstances, the right of the appellant to get benefits/incentives made

available under the Notifications No. 11/04-CE and 28/04-CE cannot be

abrogated by the impugned Notification. Once it is found that the appellant

has admittedly acted upon the promise held out by the respondents in the

Notifications No. 11/04-CE and 28/04-CE and made some investment,

though the quantum whereof is not ascertainable at this stage as will be

evident hereafter, it may not no longer be possible to restore the status quo

ante. Therefore, the State-respondents are barred by the doctrine of

promissory estoppel from issuing the impugned Notifications No. 11/2007-

CE dated 1-3-2007 withdrawing full and partial exemption of excise and

excise tariff extended to the appellant made available to it by the Notification

No. 8/2004-CE dated 21-1-2004 and Notification No. 28/2004-CE dated 9-

7-2004. However, the appellant is not yet out of the jungle. This is so,

because the answer of the appellant to the further contention of the

respondents that the funds have been misutilized by it, is far from

satisfactory. All that it can say in this regard is found at para 34 of its reply

affidavit, which is as follows:

WA No.81/11 of 34

“34. That the contents of paragraph 8 of the Affidavit in Opposition

are denied as being incorrect, fabricated and vexatious. It is most

respectfully submitted that there has been no misuse and mis-

utilization of funds as alleged by the Respondent No. 2. It is denied

that the funds from Escrow Account were not utilized in a proper

manner. It is submitted that the Respondent No. 2 be put to strict

proof of the same. In fact, the petitioner has faced immense difficulty

in obtaining the benefit under the exemption notifications even during

the subsistence of the exemption period. The Respondent and its

Central Excise Officials have been engaged in numerous illegal and

arbitrary actions of appropriating huge amounts of money lying in the

escrow accounts of the Petitioner and its group companies without

any justification or reason whatsoever. In fact, the Central Excise

Authorities and the Investment Appraisal Committee have been

conducting their functions under the Notifications Nos. 8 and 28

illegally and arbitrarily and have been denying investment certificates

to the Petitioner and its Group Companies. Aggrieved by numerous

illegalities and irregularities conducted by the Central Excise

Authorities, the Petitioner was constrained to file writ petitions

challenging the arbitrary actions of the Respondents and the other

Central Excise Authorities. The Petitioner has accordingly filed WP(C)

Nos. 591/2008, 1048 of 2008 and 2148 of 2008 challenging various

aspects of illegal and arbitrary functioning of the authorities

motivated at depriving the Petitioner of benefits granted under the

excise exemption notifications and these petitions have been allowed

in favour of the Petitioner vide judgment dated 6-1-2010.”

29. The paragraph extracted above is conspicuous by the lack of details

and particulars in the case set up by the appellant. Detail averments were

made by the respondent authorities as to the effect that between 25-8-2003

and 21-1-2004, which is known as the pre-escrow account period, the

appellant was shown to have invested an amount of rupees one hundred

WA No.81/11 of 34

crores out of which only rupees 34 crores was certified by the Investment

Appraisal Committee by way of investment in plants and machineries and

social infrastructure project, whereas the balance remained un-invested

which was subsequently appropriated by the respondent authorities. The

respondents also point out that the Commissioner had initiated recovery

measures against the appellant by issuing demand notices under Section

11A of the Excise Act for the period of 25-8-2003 to 8-7-2004 as it defaulted

in paying back duty to the public exchequer on its own. It is further pointed

out by the respondents that during the period from 25-8-2003 to 8-7-2004,

the appellant availed of duty exemption to the order of ₹96,61,11,858/-

which required it to invest the equivalent amount. It was also required to

produce investment certificates for the said amount, but it produced the

investment certificate only to the tune of rupees thirty-four crores. According

to the respondents, the balance amount of rupees sixty-three crores not so

invested in the manner specified in the notification is required to be

deposited back with the public exchequer. Instead, the appellant resorted to

litigations causing inordinate delay to the respondents in recovering public

money. In our opinion, these specific averments made by the respondent

authorities have not received satisfactory response from the appellant

despite establishing a case of promissory estoppel thereby creating hurdle to

its case for complete relief from this Court. No copies of the judgments relied

upon by it are also annexed to the writ petition or the memo of appeal. In

this view of the matter, the Investment Appraisal Committee shall have to

take a call on these issues again. Be that as it may, the impugned judgment

is not sustainable in law, and is, therefore, liable to be set aside.

30. In the premises set forth above, this writ appeal is disposed of with

the following orders:

(a) The impugned judgment dated 10-12-2010 passed by the learned

Single Judge is, accordingly, set aside.

(b) Consequently, the impugned Notification No. 11/2007-CE dated

1-3-2007 is hereby quashed;

WA No.81/11 of 34

(c) The Investment Appraisal Committee is, therefore, directed to give

an opportunity of hearing to the appellant to prove that it has

actually invested ₹96,61,11,858/- in the specified items for

availing of the benefits made available under the Notifications No.

8/04-CE and 28/04-CE dated 21-1-2004 and dated9-7-2004

respectively within a period of two months;

(d) If the appellant can prove that it has actually invested ₹

96,61,11,858/- or less, the Committee shall issue an Investment

Certificate to that effect whereupon the respondent authorities

shall refund to the appellant so much of the excise duty, which

may become due to it, within a period of three months thereafter.

(e) No cost.

JUDGE JUDGE

Upadhaya

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