2009 (10) TMI 925 - HC - Central Excise

Summary

Issues Involved:
1. Validity of Notification No. 16/2008-CE dated 27.03.2008 and Notification No. 33/2008-CE dated 10.06.2008.
2. Application of the principle of promissory estoppel.
3. Scope of powers under Section 5A of the Central Excise Act, 1944.
4. Impact of Section 38A of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Validity of Notification No. 16/2008-CE dated 27.03.2008 and Notification No. 33/2008-CE dated 10.06.2008:
The petitioner challenged the validity of the impugned notifications which modified the exemption scheme originally provided under Notification No. 39/2001-CE dated 31.07.2001. The court found that the original notification aimed to provide tax incentives to new industrial units set up in Kutch following the devastating earthquake in 2001. The subsequent notifications changed the basis of the exemption from the amount of duty paid to the duty payable on value addition, thereby reducing the benefit. The court held that the object of the original notification was to attract investment and generate employment, not to incentivize value addition. The subsequent notifications mixed up the objectives of different schemes and treated unequals as equals, which was not permissible.

2. Application of the Principle of Promissory Estoppel:
The court applied the principle of promissory estoppel, holding that the petitioner had acted on the promise made in the original notification by making significant investments. The government could not unilaterally change the terms of the exemption midstream without showing a superior public interest. The court emphasized that the principle of promissory estoppel applies even against the State when it acts through delegated legislation, and the State cannot resile from its promise merely on the ground of revenue loss.

3. Scope of Powers under Section 5A of the Central Excise Act, 1944:
The court examined the scope of powers under Section 5A, which allows the Central Government to grant exemptions from excise duty in public interest. The court held that while the power to modify or revoke an exemption is inherent, it must be exercised within the limits of the authority granted by the statute. The government cannot modify an exemption based on a perceived loss of revenue when the original notification was issued to forego revenue to achieve a specific public interest, such as economic revival and employment generation in a disaster-affected area.

4. Impact of Section 38A of the Central Excise Act, 1944:
Section 38A ensures that amendments to notifications do not affect the previous operation of the notification or any rights, privileges, obligations, or liabilities acquired under it. The court held that this provision incorporates the principle of a completed contract between the parties, obligating both the beneficiary and the authority to comply with the terms of the original notification. The subsequent notifications could not affect the rights already accrued to the petitioner under the original notification.

Conclusion:
The court declared the impugned notifications dated 27.03.2008 and 10.06.2008 as bad in law to the extent they curtailed or modified the basis of the exemption provided in the original notification. New industrial units set up in Kutch within the specified period were entitled to the full benefit of the exemption without any restriction imposed by the impugned notifications. The court directed that any differential amount of duty should be credited to the units' accounts, allowing them to take credit for future liabilities.

Order:
The petition was allowed, and the rule was made absolute to the extent specified, with no order as to costs.