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TMI Blog2014 (11) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 The argument that because of the misuse, the concession had to be withdrawn does not ap pear to be tenable, on deeper scrutiny of the materials placed before the Court.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 marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicy 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. - WP(C) 1151/2013, 1153/2013 - - - Dated:- 20-11-2014 - Hon ble The Chief Justice (Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Policies envisaged 100% exemption of excise duty on the products manufactured in the Northeastern region. The Government of India issued separate modified notifications under Section 5A of the Act of 1944 and under Section 3 of the Act of 1957, whereunder the concessions of exemption of 100% excise duty was modified and limited to the extent of value addition with varying rates of exemption of the central excise duty. 4. The respondents, in WA No. 243 of 2009 and WA No. 230 of 2009, aggrieved by the modified notifications, which withdrew the concessions earlier offered i n the previous Industrial Policy and the notifications issued pursuant thereto, challenged the validity of the modified notifications as being bad in law. The l earned Single Judge upheld the contention of the respondents and struck down the modified notifications, dated 27-03-2008, which were issued in respect of both the Industrial Policies. 5. The State aggrieved by the said judgment and order, has filed the two ap peals. The other petitioners, who are also aggrieved by the modified notifications, have filed writ petitions challenging the validity of the said modified notifications. Since the question in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be in public interest. The Supreme Court, in Motilal Padampat Sugar Mills Co. Ltd (supra) has laid down that promissory estoppel is an equitable doctrine and yielded when equity so requires. When the public interest would be prejudiced, the doctrine of promissory estoppel cannot be invoked; however, it is observed that the Government cannot claim exemption from the liability to carry out the promise on some indefinite and undisclosed ground of necessicity or expediency. The Government cannot be the sole judge of its liability and repudiate it on an ex party appraisement of the circumstances. If the Government wants to resist the liability, it would have to disclose the facts and circumstances. If the Government wants to resist the liability, it would be for the Court to decide if it is inequitable to enforce the liability against the Government. 7. In the instant case, the Government has not come up with any credible material to disable the petitioners and the respondents in the appeals to invoke the doctrine of promissory estoppel. The report of the Directorate General of Central Excise Intelligence (DGCEI) relied on by the State, points out only 41 case s of fraudulent av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No refund was claimed by the party. Fraudulent availment of Notification No. 39/2001-CE dated 31-07-2001 without being entitled for the exemption, as the investment made in Plant Machinery was less than 20 Crores. Detailed report sent to CC. Case is yet to be decided by the Committee. 7. Kush Synthetics Ltd. Kutcch No refund was claimed by the party Fraudulent availment of Notification No. 39/2001-CE dated 31-07-2001 without being entitled for the exemption. Detailed report sent to CC. Case is yet to be decided by the Committee. 8. Manaksia Ltd. Kutcch No refund was claimed by the party. Fraudulent availment of Notification No. 39/2001-CE dated 31-07-2001 without being entitled for the exemption, as the value of investment in Plant Machinery was highly inflated. Investigation is progress 9. Trendz Manufacturing Co. Kutcch No refund was claimed by the party Fraudulent availment of Notification No. 39/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nputs. 18. M/S V.K. Metal Works J K 2.64 Cenvat credit has been fraudulently availed by the buyers on the basis of invoices issued by these companies without physical receipt of any inputs. 19. Nav Bharat Metals J K 0.32 Cenvat credit has been fraudulently availed by the buyers on the basis of invoices issued by these companies without physical receipt of any inputs. 20. Shiv Giri Metal Indst. J K 0.43 Cenvat credit has been fraudulently availed by the buyers on the basis of invoices issued by these companies without physical receipt of any inputs. 21. Shree Sita Ram Castings J K 0.16 Cenvat credit has been fraudulently availed by the buyers on the basis of invoices issued by these companies without physical receipt of any inputs. 22. Shree Vaishno Devi Metals Pvt. Ltd. J K 3.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. Dharampal Satyapat Limited, Bamunimaidan, Guwahati, Assam Assam 0.23 Over-valuation of goods sold to their related unit situated in non-exempted area; thus facilitating availment of excess Cenvat credit. SCN issued. Demand confirmed. 32. Shree Sai Rolling Mills (India) Ltd., Rangsakona, Bymihat, Meghalaya Meghalaya 1.00 Bogus sale of goods to their related unit situated in non-exempted area; thus facilitating availment of inadmissible Cevat credit. SCN is likely to be issued soon. 33. Trishul Hitech Industries, EPIP, Bymihat, Meghalaya Meghalaya 0.68 Bogus sale of goods to their related unit situated in non-exempted area; thus facilitating availment of inadmissible Cevat credit. SCN is likely to be issued soon. 34. Satyam Ispat, NH 52A, Banderdewa, Arunachal Pradesh Arunachal Pradesh 0.31 Bogus sale of goods to their related unit situated in non-exempted area; thus f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sable goods and by misdeclaring it as finished goods (Deterpinated/ fractionated Mentha Oil) and wrongly claiming benefit of area based exemption and irregularly passing on a Cenvat credit to the purchaser. Goods are further exported by M/S Jindal Drugs Limited as merchant exporter claiming rebate of duty paid. Investigating is under process. 40. M/S SPM Industries Jammu To be quantified Procurement of fake bills of raw materials and showing huge production out of this without actually doing any production. Issued invoices only without actually sending the goods in order to facilitate the buyers of invoices to fraudulently avail Cenvat credit. Under investigation. 41. M/S Bio Veda Technologies Pvt. Ltd. Guwahati 0.29 The unit has shown bogus production and fraudulently issued bogus invoices against which inadmissible refund of duty was claimed. SCN issued. Case pending adjudication. 8. On the basis of the above materials, it is argued that in respect of North-eastern area, there is not even a single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 117 are extracted her eunder: 9. On behalf of Respondents it was submitted that in the field of taxation a wide discretion vests in the Legislature to classify items for tax purpose, and same principle be applied for granting exemption and/or withdrawal, and/or modification of the exemption. Under Section 5A of the Central Excise Act, 1944 (the Ac t) Central Government is vested with statutory powers to issue necessary Notification to grant exemption from duty of Central Excise on being satisfied that it is necessary in public interest so to do. As such Notification is placed before both the Houses of Parliament the Notification would have statutory flavor. There is no limitation on the power available under Section 5A of the Act. The power to grant exemption by its very nature permits revocation, annulment, modification or variation. It was submitted that the provision for granting refund of duty paid in cash had prompted certain unscrupulous manufacturers to indulge in different types of tax evasion tactics. According to learned Counsel on the basis of analysis of cases booked by the Excise Department as well as representations received from Industry Association following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cleared in the same manner as per existing scheme, but refund would be granted only to the extent of duty paid on the actual value addition according to the percentages fixed i n the Notification, or as may be fixed as a special case as provided in the Notification. In the written submissions filed by the Counsel the effect of modification is stated in the following words: \The effect of modification is as follows: (i) It is submitted that genuine manufacturers would not at all be affected in as much as they would be getting the refund of same amount under the present modification as also in the proposed scheme. (ii) Unscrupulous manufacturers reporting bogus production was resorting to fictitious purchase of inputs on the strength of invoices which are not duty paid in voices would be getting excise duty refund equivalent only to the duty paid on actual value addition made by such manufacturers who have industries in these specified areas. (iii) The excise duty exemption would be available only to the extent of actual value addition made in these areas and not for the value of raw materials manufactured in other part of the country, which are received by the units in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 5A(1) of the Act, being Original Notification No. 39 of 2001 dated 31 -7-2001. The Petitioner had acted as required by the Original Notification and when the Original Notification with attendant circumstances is read in context the subsequent notifications dated 27-3-2008 and 10-6-2008 do not indicate any intention to the contrary, that is contrary to the object, intent and purpose of the Original Notification. Thus by operation of law, namely, provisions of Section 38A of the Act, more particularly Clauses (b) and (c) of the said section read together, it is not possible to uphold the action of the Respondents in issuing subsequent Notifications dated 27-3-2008 and 10-6-2008. 32. Thus when one considers the entire scheme as a whole it is more than abundantly clear that there is hardly any scope for misuse of the scheme. Furthermore, the period of the scheme is a self limiting one and only those manufacturers who have complied with the requirements of the Original Notification are entitled to the benefit. The said manufacturers therefore cannot be called upon to make payment of duty and seek a smaller amount of refund under the scheme considering the purpose of grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by establishing industries based on such incentive. Further, as observed by the Apex Court in the above referred judgment in the case of Power Corporation Ltd. and Anr. (supra), such ground cannot be uphold as sustained. 11. The reference is also made to paragraphs No. 21, 22 28 of the decision of the High Court of Sikkim in Unicorn Industries -vs- Union of India, reported in 2013 (289) E.L.T. 117 (Sikkim), wherein it was observed as under: 21. The power reserved by the Government namely, the Government reserves the right to modify any part of the policy in public interest, therefore, may, in general, be correct and work out only where such superior or larger public interest warrants to do so. When such a contention arises, the Court is under obligation to examine as to whether such an exercise is within the scope and extent of power available under Section 5A of the Act. While examining so, the fact that the power under Section 5A of the Act is essentially a power to grant exemption in relation to duty of excise which is otherwise leviable under other provisions of the Act cannot be disregarded. Therefore, in exercise of such power under Section 5A of the Act, the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petitions strenuously submitted that the modified notifications are issued because of the instances of misuse of the con cessions. A thorough inquiry was held by the Directorate General of Central Exci se Intelligence (DGCEI), the Ministry of Finance also devoted its attention to t he problem of misuse. 14. The counsel has referred to the findings of the inquiry and the report, which is produced in support of the affidavit before the learned Single Judge. I t is reported that there are about 587 units enjoying the facility of exemption in J K, Northeast, Sikkim and Kutcch and a sum of ₹ 2,427 crores has been dole d out as complete exemption of excise duty to these units. The material portion of the report referred to by the counsel for the State are extracted hereunder f or convenient reference: 3.1. Misuse of Exemption Scheme: DGCL have booked large number of cases of misuse of exemption scheme by units in J K, North-East etc. Some of the industry associations, namely, All India Zinc Manufacturers Association, Federation of Southern India Manufacturers scale evasion by units in these areas, which have adversely affected units in other parts of the country. Analysi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogus sale, they also show bogus purchases by getting purchase invoices of traders. Further, even if their purchases are genuine, they may like to purchase against non-excise duty paid invoices as it reduces their cost of purchase. By adopting all such modus-operandi, the units in these areas avail less CENVAT Credit and pay maximum amount in cash. 3.4 From the above analysis, it is very clear that almost all the industry sectors in these areas are paying maximum duty through PLA and difference with al l 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 clear ly brings out a fact that misuse of excise duty concessions is rampant and it is across the industry. 4.1. It can be argued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total of 440 Units paying more than 50% duty in PLA 2108 673 2781 76 32 (All India Non-POL items) Total of 587 Units in these areas 2427 16. 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 (supra). 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. 17. Mr. Dubey, Standing Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und. 21. With regard to the allegation of importing of goods from the sister unit s from some other area to the exempted area, 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. 22. 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 appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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