2014 (11) TMI 1187 - HC - Central Excise

Area based exemption - development of industries in the Northeastern region, which continued to be the backward region - exemptions in respect of Sales Tax and Municipal Tax - doctrine of promissory estoppel Held that - Almost all the industry sectors in these areas are paying maximum duty through PLA and difference with all India ration is quite alarming. The above analysis coupled with the details of cases booked by DGCEL and representation of industry associations further prove that there appears to be a general tendency to bring raw materials on non-duty paid invoices or to show bogus production or bogus purchase to maximize payment of duty in cash. In fact, when other units in the country avails CENVAT Credit of say 68% of total duty (32% in PLA), there cannot be any plausible reasons to a vail credit to say 24% (76% in PLA) by units in these areas. This analysis clearly brings out a fact that misuse of excise duty concessions is rampant and it is across the industry. Misuses are on account of administrative failure to tackle evasion. However, when the trend of evasion is seen across the industry, such misuse cannot be handled with any amount of enforcement and the only available option is to think of modifying the scheme itself. Moreover, investigation of such cases is very time consuming as each purchase and sale transaction along with transport records, which involve a large number of parties at different part of the country, is required to be investigated. The State does not dispute the Industrial Policies of 1997 and 2007 and also the grant of concession pursuant to the said notifications. However, the dispute revolves round the justification for issuing the modified notifications, in question. It is to be seen whether any superior public interest is evident, which prompted the Government to issue the modified notifications - The instances of misuse noticed in the inquiry are hardly consists of about 41 cases and most of the cases, as per Annexure-A, are still under adjudication, it is not finally decided whether the industries concerned in the Northeastern region are guilty of any misuse. The scheme of the policy and the notifications insist that there should be payment of the excise duty and thereafter, they should apply for refund. The Department, at the time of refund, can very well thoroughly scrutinize all these aspects regarding misuse and malpractice alleged. Therefore, the allegation that for the instances of malpractice stated above, there has to be a partial withdrawal of concessions, does not appear to be justifiable ground. Doctrine of promissory estoppel - Held that - The State has failed to show any prejudice to the superior public interest and that there is also no contra legislation in this regard. The respondents and the petitioners have all set up industries allured by the promise of tax concessions and made substantially investments. The setting up of an industry an d commencement of production requires a thorough compliance of formalities and c heck up by every Department. The industries, in question, have complied with all the requirements of law and have set up industries and all of them have started production - Within a span of a year after the issuance of notification of Industrial Policy of 2007, the change in the stand to withdraw the concessions does not appear to be sound and proper and the grounds made out are so feeble and fragile which do not offer a concrete objective material for this Court to believe that really superior public interest prompted the issuance of modified notifications. Petition allowed.

Summary

Issues Involved:
1. Validity of modified notifications withdrawing concessions.
2. Application of the doctrine of promissory estoppel.
3. Public interest and instances of misuse of concessions.

Issue-wise Analysis:

1. Validity of Modified Notifications Withdrawing Concessions:

The Government of India formulated an Industrial Policy in 1997 and reiterated it in 2007, offering total exemption from Central Excise Duty in the Northeastern region for ten years to stimulate industrial development. However, in 2008, the government issued modified notifications limiting these concessions to the extent of value addition, citing misuse of the scheme. The respondents challenged these modifications, and the Single Judge struck down the modified notifications, leading to the appeals.

The court observed that the modified notifications were issued abruptly and contrary to the terms of the Industrial Policy. The State's argument that the modifications were necessary due to misuse was found unconvincing, as the instances of misuse were minimal and mostly under adjudication. The court emphasized that the government has mechanisms to detect and prevent misuse through diligent inspections and scrutiny at the time of refund.

2. Application of the Doctrine of Promissory Estoppel:

The doctrine of promissory estoppel was a crucial argument in the case. The petitioners argued that the government had made a solemn promise of tax concessions, which induced them to invest heavily in the Northeastern region. The abrupt withdrawal of these concessions violated the principle of promissory estoppel, as established in the Supreme Court's decision in Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh.

The court agreed with the petitioners, noting that the government failed to show any superior public interest that justified the withdrawal of concessions. The court referenced the Gujarat High Court's decision in SAL Steel Ltd. vs. Union of India, which similarly held that the government could not resile from its promise without substantial justification.

3. Public Interest and Instances of Misuse of Concessions:

The State argued that the modified notifications were issued to prevent misuse of the concessions, citing a report by the Directorate General of Central Excise Intelligence (DGCEI) that highlighted instances of fraudulent activities. However, the court found that the instances of misuse were not significant enough to warrant a partial withdrawal of concessions. The court noted that the government had other means to address misuse, such as inspections and scrutiny during the refund process.

The court concluded that the modified notifications were not justified by any superior public interest and that the government's actions were not based on concrete and objective material. The court emphasized the importance of maintaining the credibility of government promises to encourage industrial investment.

Conclusion:

The court dismissed the appeals and allowed the writ petitions, holding that the industries set up under the Industrial Policies of 1997 and 2007 should continue to enjoy full exemption as per the original policies and notifications. The court found no valid reason to interfere with the Single Judge's order, emphasizing the principles of promissory estoppel and the lack of substantial public interest justifying the modified notifications.