2014 (11) TMI 1230 - HC - Central Excise

Area Based Exemption - Northeastern/Backward region - substantial expansion or not - doctrine of promissory estoppel - benefit of N/N. 39/2001-CE dated 31-07-2001 - Irregular availment of CENVAT Credit - Bogus Sale - it is argued that in respect of North-eastern area, there is not even a single case of detection of fraudulent availment of benefit - HELD THAT - The percentage of excise duty paid in the exempted areas is highest when compared to similar industries in the area where there is no exemption as per the PLA. The difference in percentage is shown so high that sometimes it is three times higher the duty is paid in the areas where exemption is granted. Such a collection of revenue was found to be on account of the reasons that bogus production, overvaluation, procurement of raw material without invoice etc. Keeping in view of the recommendations found in the report, the Cabinet found that grant of indiscriminate exemption will lead to misuse. In order to prevent such malpractice, the formula of value addition has been introduced in granting partial concessions to the industries, which enjoy exemptions under Section 5A of the Act of 1944. 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 The argument that because of the misuse, the concession had to be withdrawn does not ap pear to be tenable, on deeper scrutiny of the materials placed before the Court. It is not as if that the State and the Department does not have any mechanism or machinery for detecting malpractice of bogus production by diligent periodical inspection. Where the goods do not carry MRP, with reference to the marginal cost and the prevalent market price of similar goods in comparison to the market price of similar goods, the malpractice of over valuation can be detected at the time of refund. Import of goods from the sister unit s from some other area to the exempted area - HELD THAT - The same could also be easily detected because, under the VAT Act, the transit permits have to be taken if false transit permit has been taken for transfer of consignment from one unit to the sister unit in the exempted area, in such cases, it could be easily detected as a case of malpractice. That apart, the transit of goods is well regulated under the VAT Act, and the transit passes, documents of title of goods consigned have to be taken and that at every check post, there would be a check. It is not that easy for an industrialist to flout the law and import the goods for the purpose of evading Central Excise duty as alleged. 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. Application of the doctrine of promissory estoppel - HELD THAT - It is almost a well settled principle of law 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 and commencement of production requires a thorough compliance of formalities and check 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. The allegation of misuse, if really a genuine ground, it would have come to the notice of the Department much earlier before the declaration of the second Industrial Policy in the year 2007, the modified notifications are brought into force within a short span of time. If really there is any infringement or misuse or malpractice, the State would have given serious attention and would not have issued the second Industrial Policy of 2007 in haste. The industries, in question, have complied with all the requirements of law and have set up industries and all of them have started production. The allegation of misuse, if really a genuine ground, it would have come to the notice of the Department much earlier before the declaration of the second Industrial Policy in the year 2007, the modified notifications are brought into force within a short span of time. If really there is any infringement or misuse or malpractice, the State would have given serious attention and would not have issued the second Industrial Policy of 2007 in haste. 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 prop er 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. There are no reason to interfere with the order of learned Single Judge - petition allowed.

Summary

Issues Involved:
1. Validity of modified notifications withdrawing concessions under the Industrial Policies of 1997 and 2007.
2. Application of the doctrine of promissory estoppel.
3. Public interest justification for modified notifications.

Detailed Analysis:

1. Validity of Modified Notifications:
The Government of India initially issued an Industrial Policy in 1997, offering a 10-year total exemption from Central Excise Duty in the Northeastern region to stimulate industrial development. This policy was reiterated in 2007. However, in 2008, the Government issued modified notifications limiting the extent of excise duty exemptions to value addition. The respondents challenged these notifications as being contrary to the original Industrial Policies. The learned Single Judge struck down the modified notifications, and the State appealed this decision.

2. Application of the Doctrine of Promissory Estoppel:
The respondents argued that the Government, by offering concessions, had made a solemn promise which induced them to invest heavily in the Northeastern region. Abrupt withdrawal of these concessions was claimed to be impermissible under the doctrine of promissory estoppel, as established in the Supreme Court case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh. The Court noted that the Government had not provided credible material to justify disabling the respondents from invoking this doctrine. The instances of misuse cited by the Directorate General of Central Excise Intelligence (DGCEI) were not sufficient to override the doctrine of promissory estoppel.

3. Public Interest Justification:
The State justified the modified notifications on the grounds of public interest, citing instances of misuse of the concessions. However, the Court found that the instances of misuse were limited and many were still under adjudication. The Court emphasized that the Government has mechanisms to detect and address malpractices through diligent inspections and scrutiny at the time of refunds. The Court observed that the modified notifications did not demonstrate a superior public interest that would justify the withdrawal of concessions. The Court referenced the Gujarat High Court's decision in SAL Steel Ltd. vs. Union of India, which similarly found that allegations of misuse were not a valid ground for withdrawing benefits.

Conclusion:
The Court concluded that the State failed to show any superior public interest or legislative change that would justify the modified notifications. The respondents had relied on the Government's promise and made substantial investments. The abrupt change in policy within a year of the 2007 Industrial Policy was not justified. The appeals were dismissed, and the writ petitions were allowed, ensuring that the industries would continue to enjoy the full benefits of the original Industrial Policies of 1997 and 2007.