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2009 (6) TMI 624 - HC - Central ExciseExemption, area based exemption - North-East region - Modification in the exemption scheme - Held that - merely because of the fact that some persons are indulging in bogus production, and the State s monitoring and inspecting machinery is either incompetent to detect the violators or connive with them, the State cannot punish bona fide investors. When the State itself does not know as to which one of the two industrial units, one set up under the IPRs, and the other, set up in areas outside the IPRs, is genuinely paying excise duty, merely because of the fact that in the areas, covered by the IPR, a higher duty of excise duty is paid, through PLA, the State cannot claim that there is bogus production; if there is bogus production, it is the duty of the State to arrest such bogus producers. The respondents also do not accuse that the investors, as a class, have been indulging, in the specified areas, in bogus production and, especially, when the State does not affirm, on oath, that the basis, which it has selected for withdrawing the concessions, is correct. In such circumstances, the State cannot claim that it has placed adequate materials before the Court showing existence of overriding public interest, which compelled the State to withdraw the promises made. A Government has no obligation to make promises; but if it chooses to make promise, it cannot withdraw the promise merely because it does not have desirable wherewithal to ensure that its enforcement machinery functions efficiently and properly. For the failure of its own machinery to check bogus production, a State cannot punish the bona fide investors. When there was inducement, the State can resile from the promises made by it only when it establishes, to the satisfaction of the Court, that overriding public interest so requires. Only when such a nature of public interest is established by the State can the State be allowed to withdraw the concessions, which might have lured the investors. However, even in the case of statutory exemption, which was granted by the State not pursuant to any promises made but under its sovereign power, the State, if it choses to withdraw exemption, has the obligation to satisfy the Court that its act of withdrawing the concession is fair and just. In the present case, though the Government has not, even for a moment, categorically admitted that the impugned notifications have reduced the promised incentives and though the Government still insists that whatever incentives were available, in the 1997 IPR, have remained available to an investor even after the impugned notifications have been issued, this contention of the Government, as already pointed put above, is wholly incorrect. Thus, the Government has not boldly taken the stand that it has withdrawn the incentives, if not completely, at least, partially, the fact of the matter remains that the Government has gone back on its promise made in the 1997 IPR as well as 2007 IPR. The impugned notifications, dated 27-3-2008 and 10-6-2008, are hereby set aside and quashed. The petitioners are hereby held entitled to receive 100% exemption from payment of excise duty as were available to them in terms of the relevant notifications, dated 8-7-99 and 25-4-2007, as the case may be.
Issues Involved:
1. Promises made under the 1997 IPR and 2007 IPR. 2. Issuance of notifications reducing excise duty exemptions. 3. Doctrine of promissory estoppel. 4. Supervening public interest. 5. Legitimate expectation of investors. 6. Adequacy of materials justifying the withdrawal of promises. 7. Role and responsibilities of different government departments. Detailed Analysis: 1. Promises Made Under the 1997 IPR and 2007 IPR: The 1997 Industrial Policy Resolution (IPR) announced by the Government of India promised a package of incentives, including 100% exemption from payment of excise duty for ten years for new industrial units in the North-Eastern region. The 2007 IPR continued these incentives for new units and those undertaking substantial expansion. The petitioners set up or expanded their industries based on these promises and started receiving excise duty refunds accordingly. 2. Issuance of Notifications Reducing Excise Duty Exemptions: The Ministry of Finance issued Notification No. 17/2008, dated 27-3-2008, amending the earlier Notification No. 32/99-C.E., dated 8-7-1999, and limiting the excise duty refund to specified rates for different goods. This was followed by Notification No. 10-6-2008, allowing manufacturers to apply for a "special rate" determination by the Commissioner if they disagreed with the specified rates. 3. Doctrine of Promissory Estoppel: The petitioners argued that the doctrine of promissory estoppel applies, preventing the government from resiling from its promises under the 1997 IPR and 2007 IPR. They contended that they had altered their position based on the promises made and that the government cannot withdraw these promises without proving supervening public interest. The court agreed, stating that the government must disclose adequate materials to justify its withdrawal from the promises made. 4. Supervening Public Interest: The respondents claimed that the withdrawal of the full excise duty exemption was justified due to misuse by some manufacturers indulging in bogus production. However, the court found that the respondents failed to provide adequate materials to prove this claim. The court emphasized that the government must show that overriding public interest requires it to resile from its promises, which was not adequately demonstrated in this case. 5. Legitimate Expectation of Investors: The court recognized the legitimate expectation of the petitioners, who had invested based on the government's promises. It held that the government must protect the interests of genuine investors and cannot penalize them for the actions of a few unscrupulous manufacturers. The court stressed that the government must consider the expectations of honest investors before making any policy changes. 6. Adequacy of Materials Justifying the Withdrawal of Promises: The court examined whether the government had taken into account all relevant factors and excluded irrelevant ones while deciding to issue the impugned notifications. It found that the government's basis for determining bogus production was flawed and that the comparison of excise duty payments between specified and unspecified areas was not rational. The court concluded that the government had not provided adequate materials to justify the withdrawal of the promised incentives. 7. Role and Responsibilities of Different Government Departments: The court addressed the issue of whether the Department of Finance could unilaterally withdraw the promises made under the industrial policies approved by the Union Cabinet. It held that the government must function as a cohesive body, and different departments cannot adopt contradictory policies. The court noted that the impugned notifications were issued with the approval of the Union Cabinet, making it a decision of the entire government, not just the Department of Finance. Conclusion: The court set aside the impugned notifications dated 27-3-2008 and 10-6-2008, holding that the petitioners are entitled to 100% exemption from payment of excise duty as promised under the relevant notifications dated 8-7-1999 and 25-4-2007. The court emphasized the importance of the doctrine of promissory estoppel and the need for the government to provide adequate justification for withdrawing promised incentives, considering the legitimate expectations of investors.
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