2010 (3) TMI 1146 - HC - Central Excise

Promissory estoppels manufacturing area based exemption withdrawn of held that - in exercise of such power under Section 5A of the Act, the authority cannot be permitted to take recourse to the principles applicable for determining whether duty is correctly levied or not. - Once an exemption notification has been issued on the footing that it is in public interest, the authority cannot thereafter refer to loss of revenue as larger public interest for withdrawing such an exemption. - The onus shall be on the respondent authority to establish superior public interest for curtailing or withdrawing an exemption already granted - the two impugned notifications to the extent they curtail/modify/substitute the basis laid down in Original Notification No.39/2001-CE dated 31.07.2001 are declared to be bad in law

Summary

Issues Involved:
1. Facts
2. Contentions
3. Reasoning
4. Summary
5. Conclusion, Direction, Order

Detailed Analysis:

Facts:
The petitioner, a Limited Company engaged in manufacturing steel bars and related products, challenged two notifications (No.16/2008 and No.33/2008) that affected their entitlement to an excise duty exemption originally granted under Notification No.39/2001. This exemption was introduced to aid the economic recovery of the Kutch region following a devastating earthquake in 2001 by attracting new industrial investments.

Contentions:

(a) Petitioners:
The petitioners argued that the impugned notifications unfairly reduced their exemption benefits before the stipulated five-year period had expired. They contended that the change from a 100% refund of duty paid to a calculation based on "value addition" was arbitrary, irrational, and contrary to the original intent of the exemption. They invoked the principle of promissory estoppel, asserting that they had made substantial investments based on the original promise of full exemption.

(b) Respondents:
The respondents argued that the government has wide discretion in tax matters, including the power to modify or withdraw exemptions under Section 5A of the Central Excise Act, 1944. They justified the changes by citing misuse of the exemption scheme by some manufacturers, leading to significant revenue losses. The modifications were intended to curb such abuses and ensure that exemptions were granted only for genuine value addition.

Reasoning:
The court examined the original intent behind Notification No.39/2001, which was to provide a tax holiday to attract new investments in the earthquake-affected Kutch region. The court found that the subsequent notifications (No.16/2008 and No.33/2008) altered the basis of the exemption from a full refund of duty paid to a calculation based on value addition, which was not in line with the original notification's intent. The court held that the principle of promissory estoppel applied, as the petitioners had made substantial investments based on the original promise of a full exemption. The court also noted that any modification of the exemption should be justified by a superior public interest, which was not adequately demonstrated by the respondents.

Summary:
1. The original Notification No.39/2001 provided a full refund of excise duty to new industrial units in Kutch for five years to aid economic recovery post-earthquake.
2. The impugned notifications (No.16/2008 and No.33/2008) changed the basis of the exemption to a calculation based on value addition, reducing the benefits before the five-year period expired.
3. The court found that the principle of promissory estoppel applied, as the petitioners had made investments based on the original promise.
4. The respondents failed to demonstrate a superior public interest justifying the modification of the exemption.

Conclusion, Direction, Order:
The court declared the impugned notifications (No.16/2008 and No.33/2008) to be bad in law to the extent they curtailed the benefits under the original Notification No.39/2001. The petitioners were entitled to the full exemption as originally promised, provided all other conditions were met. The court directed that any differential amount of duty paid under the impugned notifications be credited to the petitioners' accounts. The petitions were allowed, and the rule was made absolute with no order as to costs.