2016 (5) TMI 1074 - HC - Central Excise

Revoking the area based exemption - North Eastern India region - Jarda scented tobacco/pan masala containing tobacco - Validity of the Notification No. 11/2007-CE dated 1-3-2007 - notification 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 - applicability of doctrine of promissory estoppel - Held that - 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. (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. 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 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. Thus the impugned judgment dated 10-12-2010 passed by the learned Single Judge is, accordingly, set aside.Consequently, the impugned Notification No. 11/2007-CE dated 1-3-2007 is hereby quashed. 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.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.

Summary

Issues Involved:
1. Validity of Notification No. 11/2007-CE dated 1-3-2007.
2. Doctrine of Promissory Estoppel.
3. Retrospective effect of Section 154 of the Finance Act, 2003.
4. Misutilization of funds by the appellant.
5. Compliance with the North East Industrial Policy, 1997 and subsequent policies.

Detailed Analysis:

1. Validity of Notification No. 11/2007-CE dated 1-3-2007:
The appellant challenged the validity of Notification No. 11/2007-CE, which withdrew the excise duty exemptions previously granted under Notifications No. 8/2004-CE and 28/2004-CE. The court found that the impugned notification was issued under Section 5A(1) of the Central Excise Act, which allows the Central Government to exempt goods from excise duty if it is in the public interest. However, the court held that this notification was ultra vires Section 5A of the Excise Act because it attempted to retrospectively withdraw benefits already accrued to the appellant, which is not permissible under the Act.

2. Doctrine of Promissory Estoppel:
The court extensively discussed the doctrine of promissory estoppel, which prevents a party from going back on a promise if the other party has relied on it to their detriment. The court held that the Central Government had made a promise through the North East Industrial Policy, 1997, and subsequent notifications, to provide excise duty exemptions for ten years. The appellant had relied on this promise and made substantial investments. Therefore, the government was estopped from withdrawing the benefits through the impugned notification.

3. Retrospective Effect of Section 154 of the Finance Act, 2003:
The respondents argued that Section 154 of the Finance Act, 2003, which excluded tobacco products from excise duty exemptions, applied retrospectively and nullified the appellant’s claims. However, the court noted that subsequent notifications (No. 69/2003-CE, 8/2004-CE, and 28/2004-CE) issued after the enactment of Section 154 partially restored the exemptions. Thus, the court found that Section 154 did not affect the appellant's rights under these subsequent notifications.

4. Misutilization of Funds by the Appellant:
The respondents alleged that the appellant had misutilized funds from the escrow account and failed to invest the required amount in specified items. The court directed the Investment Appraisal Committee to re-examine this issue and give the appellant an opportunity to prove that it had actually invested the claimed amount. The court emphasized that the appellant's right to exemptions could not be nullified without a thorough investigation into these allegations.

5. Compliance with the North East Industrial Policy, 1997 and Subsequent Policies:
The court noted that the North East Industrial and Investment Promotion Policy, 2007, included a negative list that excluded tobacco products from benefits. However, it also contained a saving clause stating that units that commenced production before 31-3-2007 would continue to receive benefits under the 1997 policy. Since the appellant's units had commenced production before this date, the court held that they were entitled to the exemptions despite the negative list.

Conclusion:
The court set aside the impugned judgment and quashed Notification No. 11/2007-CE. It directed the Investment Appraisal Committee to give the appellant an opportunity to prove its investments and, if proven, to issue an investment certificate. The respondents were ordered to refund the excise duty to the appellant based on this certificate. The court emphasized that the doctrine of promissory estoppel barred the government from withdrawing the promised benefits and that the retrospective application of Section 154 of the Finance Act, 2003, did not affect the appellant's rights under subsequent notifications.