High Court · 2009

Some of the writ petitioners, in the present set of writ petitions, clai (iii) m to have set up, acting upon the promises made in the 1997 IPR and taking into account the relevant notifications issued in this regard, industries for manufac ture of various commercial products, which the said notifications, granting exem ption from payment of excise duty, had envisaged. Another set of writ petitioner s plead that their industrial units had already existed, when the 1997 IPR came into force and, acting upon the incentives promised, they made substantial expan sion by increasing the installed capacity of their respective industrial units t o the extent as mentioned in the relevant notifications. (iv) In course of time, the petitioners were granted certificates of eligibil ity showing that they were entitled to receive various exemptions from payment o f excise duty, which was, otherwise, leviable on their products. In fact, many o f the petitioners, having set up their industries, started receiving refund of c entral excise duty in terms of the notifications issued in this regard. Those, w ho claim to have expanded the installed capacity of their respective industrial units, in terms of the relevant notifications, too claim that they are entitled to receive refund of excise duty in terms of the notifications aforementioned. (v) Be it mentioned that the earliest notification No.32/99-CE, dated 08.07. 99, aforementioned, whereby exemption from payment of central excise duty was gr anted, underwent several amendments. Notwithstanding such issuance of subsequent notifications, the petitioners claim that they have had remained entitled to, a nd had, in fact, been receiving, full excise duty exemption. Thus, the basic in centives, which had, according to the petitioners, lured the petitioners to set up their respective industries, in Assam, continued without any modification. (vi) As already indicated, a new industrial unit was, under the notification No.32/99-CE, dated 08.07.99, entitled to refund of excise duty equivalent to the amount of the duty paid by the manufacturer for the finished goods from the acc ount current maintained under Rule 9 read with Rule 173G of the Central Excise R ules, 1944. However, in the year 2001, the CENVAT Credit Rules were framed simpl ifying the credit provisions, and procedure for availing credit of the duty paid on input and capital goods used, whether directly or indirectly, in, or in resp ect of, manufacture of final products. The credit of the duty, so allowed, coul d be used for payment of excise duty leviable on the finished goods subject to t he conditions laid down in the relevant Rules. The basic object of allowing cred it on CENVAT was to ensure that there is no cascading effect of levy of excise d uty. The Rules framed aimed at collecting excise duty on the finished goods and thereby the manufacturer of finished goods were enabled to take credit of the d uty paid on the inputs or the capital goods used in the manufacture of finished products and could utilize the said credit for payment of excise duty on the fin al finished products. (vii) Some of the manufacturers did not, however, utilize the CENVAT for payme nt of excise duty on the finished goods; they rather, continued to make full pay ment of excise duty on finished products through the account current and claimed refund of the same. Such manufacturers, thus, allowed the CENVAT credit to be accumulated in their books of account with the object of utilizing the same at a latter stage. In other words, instead of utilizing the CENVAT credit, some of t he manufacturers continued to make full payment of excise duty on finished produ cts through the account current and claimed refund of the same. They let the CEN VAT credit to so accumulate with the object of utilizing the same after expiry o f a period of 10 years of exemption. This apart, the manufacturers, who did not use the CENVAT credit, were able to utilize the accumulated amount for payment of excise duty on such products, which were not eligible for exemption under the Notification Nos. 32/99-CE and/or 33/99-CE aforementioned. Since the inputs, i n respect of which CENVAT credit had been taken, were to be utilized in the manu facture of finished goods, which were eligible for exemption as per Notification Nos.32/99-CE and 33/99-CE, dated 08.07.99, the CENVAT credit, in respect of suc h inputs, could not have been utilized for payment of excise duty in respect of finished products, which were not eligible for exemption under the said notifica tions, dated 08.07.99. Similarly, the act of accumulating CENVAT credit (in resp ect of the inputs, used in the manufacture of finished products, eligible for ex emption, under Notification Nos.32/99-CE and 33/99-CE), with the object of utili zation the same for payment of excise duty after expiry of the period of ten yea rs of promised exemption, was against the spirit of Notification Nos.32/99-CE an d 33/99-CE aforementioned as well as 1997 IPR. The modus operandi, so adopted, would have, thus, defeated the aim and objectives of the 1997 IPR. The Notifica tion No.32/99-CE, dated 08.07.99, was, therefore, amended by Notification No.35/ 2001-CE, dated 29.06.2001. By the Notification, dated 29.06.2001, aforementioned , it was made clear that those industries, which were, otherwise, exigible to ex cise duty, shall be eligible for refund of the amount of duty paid other than th e duty paid by utilization of CENVAT credit under the CENVAT Credit Rules, 2001. The effect of the Notification, dated 29.06.2001, aforementioned, thus, did two things, namely, (a) it required the manufacturers to, first, utilize CENVAT cre dit towards payment of excise duty on the inputs and, (b) it made the eligible i ndustries entitled to receive refund of only such amount of excise duty, which w ere paid after utilization of the CENVAT credit. Similar amendments were introd uced in the notification No.33/99-CE too. In course of time, Notification No.32/ 99-CE was, again, amended by Notification No.61/2002-CE, dated 23.12.2002, where by a proviso was added to Clause (b) of the second paragraph making it clear tha t the refund shall not exceed the amount of duty paid less the CENVAT credit ava iled off in respect of the duty paid on the inputs used or in respect of the man ufacture of goods cleared under Notification No.32/99-CE. The Notification No.32 /99-CE underwent yet another amendment by notification No.65/2003-CE, dated 06.0 8.2003. In the Notification, dated 06.08.2003, aforementioned, paragraph 1A was (viii) inserted, which read as under: (cid:28)In cases where all the goods produced by a manufacturer are eligible for exempt ion under this notification, the exemption contained in this notification shall be available subject to the condition that the manufacturer first utilize whole of the CENVAT credit available to him on the last day of the month under conside ration for payment of duty on goods cleared during such month and pays only the balance amount in cash. (cid:29) The proviso to Clause (b) of paragraph 2 was also substituted by the following: (cid:28)Provided that in cases, where the exemption contained in this notification is n ot applicable to some of the goods produced by a manufacturer, such refund shall not exceed the amount of duty paid less the amount of the CENVAT credit availed of, in respect of the duty paid on the inputs used in or in relation the manufa cture of goods cleared under this Notification. (cid:29) The amendments, so introduced, made it mandatory for a manufacturer of t (ix) hose goods, which were made eligible for exemption under Notification No.32/99-C E, to, first, utilize the CENVAT credit available to him on the last day of the month under consideration for payment of duty on goods cleared during such month and to pay balance amount only in cash. The substituted proviso further took ca re to see that refund is not claimed in respect of the duty paid on goods, which were not eligible for exemption. (x) Before expiry of the 1997 IPR, the Government of India announced a new indus trial policy resolution by a Memorandum, dated 01.04.2007, namely, North-East In dustrial and Investment Promotion Policy, 2007 (NEIIPP), (hereinafter referred t o as the ’2007 IPR’), whereunder a package of fiscal concessions and other conce ssions for the North-Eastern region were promised. (xi) Under the 2007 IPR too, the incentives were promised in respect of those industrial units, which were to be set up, on coming into force of the 2007 IPR , as well as those industrial units, which had existed before coming into force of the 2007 IPR, but which would undertake substantial expansion of their respec tive industrial units, in terms of the requirement of the 2007 IPR. In terms of the promises made by the 2007 IPR, requisite notification, making the promised e xcise duty exemption available for the industrial units, was issued on 25.04.200 7, the Notification being 20 of 2007, dated 25.04.2007. On the question of exci se duty exemption, Clause (v) of 2007 IPR mentions thus: (cid:28)hundred percent excise duty exemption will be continued on finished products made in the North-Eastern Region as was available in NEIP, 1997. (cid:29) (xii) The IPR 2007 made it clear that the 1997 IPR and other concessions, made thereunder, in the North-Eastern Region, announced by the Office Memorandum, da ted 24.12.97, would cease to operate with effect from 01.04.2007, but the Indust rial Units, which had commenced commercial production, on or before 31.03.2007, would continue to receive benefits/incentives under the NEIP, 1997 (i.e., 1997 I PR) until expiry of the promised period of ten years from the respective date of commencement of their commercial production. (xiii) In the present set of writ petitions, thus, there are four distinct cate gories of investors, namely, (i) those, who had set up their industrial units un der the 1997 IPR and claim 100% exemption from payment of excise duty; (ii) thos e, who had in existence such industrial units, as specified under the 1997 IPR, when the 1997 IPR came into force, but undertook substantial expansion as were r equired under the 1997 IPR and, having made such substantial expansion, they cla im to be entitled to the benefits as were promised and assured to them by the 19 97 IPR; (iii) those, who have set up their respective industrial units under th e 2007 IPR and claim to be entitled to receive such benefit as were promised and assured to them under the 2007 IPR; and (iv) those, who have expanded the insta lled capacity of their respective industrial units to the extent as were necessa ry under the 2007 IPR, and claim, therefore, to have become entitled to receive the benefits as were promised and assured to them by the 2007 IPR. All these pet itioners claim to have commenced their commercial production in terms of the rel evant IPRs, namely, 1997 IPR and 2007 IPR, as the case may be. The petitioners claim that having established their industrial units, or having expanded their i ndustrial units, and having started production from such industrial units within the prescribed period, they had been receiving, without any interruption, 100% refund of the amount of excise duty paid in terms of the notification Nos.32/99- CE, 33/99-CE and 25.04.2007. (xiv) The grievance of the petitioners is that with the help of the Notificati on No.17/2008, dated 27.03.2008, the Ministry of Finance, Department of Revenue, Govt. of India has amended the notification, dated 32/99-CE, aforementioned and by the notification, dated 27.03.2008, the excise duty refund has been restrict ed to the maximum limits as specified in the rate column of the table appended t o the said notification, whereunder different rates of maximum limits of exempti on have been specified in respect of different goods. For instance, the goods pr oduced by the petitioners, as stated in WP(C) No.2143/2008, fall under Chapter 8 5 of the Schedule to the Central Excise Tariff Act, 1985. The maximum limits of excise duty refund in respect of such goods would, now, be 31%, whereas, accordi ng to the petitioners, in WP(C) No. 2143/2008, they were entitled to receive 100 % refund as had been promised under the 1997 IPR and also the subsequent notific ations issued in this regard. The petitioners have, therefore, impugned the not ification, dated 27.03.2008, aforementioned by contending, inter alia, that the amendments, which the notification No.32/99-CE, dated 08.07. 1999, had undergone , continued to provide the promised exemption of excise duty without any curtail ment except that the Government, with the help of the amendments, which were mad e, took care to ensure that the benefit of exemption was not used for purposes o ther than what the 1997 IPR and the exemption notifications had envisaged, but t he impugned notification, dated 27.03.2008, has changed the entire scenario by r educing promised limit of exemption inasmuch the exemptions were, until before t he issuance of the impugned notification, available to the extent of 100%, where as the impugned notification reduces the same to a limited percentage.

3. Before proceeding further, it may be appropriate to point out that justi fying the issuance of the impugned notifications, the respondents alleged that s ome unscrupulous manufacturers showing bogus production and thereby gaining undu e benefit in the form of excise duty exemption and, it was for this reason, that the impugned notifications have been issued without affecting the interest of t he genuine manufacturers. The respondents further clarified by reiterating that the genuine manufacturers would continue to receive exemption from payment of ex cise duty to the same extent as they were entitled to receive and had, in fact, been receiving under the earlier notifications. The respondents claim that the 1 997 IPR and the notifications, earlier issued thereunder, all aimed at giving ex emption from payment of excise duty to the extent of value addition and not anyt hing beyond and this exemption remains still available with the genuine manufact urers. In this regard, in their affidavit, the respondents justify the issuance of the impugned notification in the following words: (cid:28)7. An analysis of cases booked by the Excise department and the representations received from the Industry Associations has revealed that the following modus o perandi is broadly being followed. i. Reporting of bogus production by mere issuance of sale invoices without actua l production of goods and supply/ clearance of excisable goods. This would resul t in availment of cenvat credit by buyers of such excisable goods in other parts of the country without actual production being carried out and in absence of ac Reporting of bogus production by such units in these areas where actual Over valuation of goods resulting in availment of excess of credit by bu tual receipt of goods. ii. production takes place elsewhere in the country. iii. yer. IV. Goods are supplied by manufacturers, importers to these units without issuan ce of sales invoice and these are backed by bogus sale invoices issued by trader s who do not undertake actual supply of goods. The actual supplier of these good s issue bogus duty paid invoices to other manufacturers who take credit based on such invoices without receipt of goods. To elaborate the above modus operandi, I beg to give the following illustration. Illustration 1: - A Unit in North east reports fictitious production of Rs 100, which has actually not taken place and pays full duty of Rs.16/- in cash. It is submitted that obviously there is no Cenvat credit available in as much no input or raw material has been purchased by him. Such a purchaser claims full refund from the Government under the scheme. No-doubt one can argue that there is no lo ss to the Government as the Government has collected Rs.16/- and refunded only t he same amount. However, the fact remains that the said manufacturer issues sale s invoices showing excise duty payment to another buyer/manufacturer in other pa rts of the country entitling and making the buyer eligible to take Cenvat credit of Rs.16/-. The subsequent buyer/ manufacturer utilizes this credit of Rs.16/ - for payment of excise duty on goods manufactured by him and as a result, he pay s excise duty less in cash to the extent of Rs.16/ - for which Cenvat credit tho ugh ineligible (on account of actual non production of goods) is availed by him. In this way, there is a clear loss to the Government of Rs.16/- and the manufac turer in North East illegally gains that amount as he is recovering this amount from his customers. Illustration 2: - If an input valued at Rs.100/- is manufactured in Ahmedabad an d cleared on payment of duty of Rs.14/ - to a unit in the North East, who in tur n makes a value addition of Rs.50/-, in such a case the Government wants to give excise duty refund of Rs.7/- to the unit in North East on the value addition of Rs.50/- and to this extent the product manufactured in North East should become cheaper by Rs.7/-. However, if the same manufacturer in North East shows the pu rchase of these inputs from a trader on a non duty paid invoice which is in fact a non duty paid invoice, in that case, he pays a total duty of Rs 21 in cash i. e. excise duty at 14% on Rs.150/- (the sum total of Rs.100/- because of input an d Rs.50/- value addition as mentioned hereinabove) and gets the refund of Rs.21/ - after paying duty in cash from the personal ledger account. At the same time, such manufacturer recovers a duty ofRs.21/›from his customers and gives him the net benefit ofRs.21/- entitled to be claimed as Cenvat credit against the intend ed benefit of Rs.7/- which should be the only entitlement. In other words, the G overnment has to give refund for the goods manufactured in other parts of the co untry as a result of manipulation indulged into by such a manufacturer. These are general illustrations of misuse exemption given by the Government , which was meant to be available only for genuine manufacturers. Your humble applicant submits that by adopting such modus operandi, the unit in these areas were wanting to pay maximum amount of duty in cash so that t hey become entitled to a claim of refund of entire amount of duty paid in cash. In order to verify this aspect, a study has been made by the Excise department o n receipt of information from the Director General, Central Excise Intelligence and other such agencies to find out the percentage of excise duty paid in cash a nd from the Cenvat Credit account by the units availing this area based exemptio n. On receipt of these details they were compared with the duty payment details of the same industry groups for all the units across the country to find out whe ther the percentage of duty paid by the units in cash in the specified areas is comparable with the units in the rest of the country. An analysis of these detai ls, clearly shows that the industry sectors in the specified areas were paying a very high percentage of duty in cash i.e. through Personal Ledger Account in co mparison to the all India, payment of duty through PLA on similar goods. It is s ubmitted that had these units in the specified areas paid excise duty without in dulging in deliberate manipulations, as referred to hereinabove, there was no re ason why the cash portion of the excise duty in the specified region would be so alarmingly high vis a vis the payment of excise duty by cash by in respect of s imilar product in the rest of the country. The above analysis coupled with the d etails of the cases booked by the Excise department as well as the details recei ved on representations of Industry associations, which were adversely affected d ue to unfair competition, further prove the fact of general tendency of manufact urer in specified areas who indulge in such manipulative tactics by issuing eith er bogus production or bogus purchase of raw materials from traders. Such analys is clearly brings out the fact that there was a misuse of the excise duty exempt ion which was considered expedient in public interest and given by the Central G overnment with a laudable object of having genuine industrialization in either b ackward areas or areas like North East. Misuse of excise duty exemption being ra mpant and the effect of such manipulative acts which were brought to the notice of the Government was to defeat the purpose, policy and intention of the Governm ent to provide excise duty exemption only in respect of genuine manufacturing ac tivities carried out in these areas. The entire genesis of the policy manifestin g the intention of the Government to grant excise duty exemption was to provide such exemption only to actual value addition made in these areas. It is in backg round of these facts and with a view to give effect to such a policy, the Govern ment in exercise of the powers conferred under section SA has modified the refun d mechanism so as to provide that excise duty refund would be allowed only to th e extent of duty payable on actual value addition made by manufacturers undertak ing manufacturing activities in these areas. As a result of the above said modif ication, manufacturers are required to pay duty on the full value of goods manuf actured and cleared by them 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 m ade by them in these specified areas. That as a result of such modification which has been considered by the Central Government to be expedient in public interest and in the interest of the Revenue , such a modification has been brought out. The effect of such modification is a s follows: i. It is submitted that genuine manufacturers are not likely to be affected inasmuch as they would be getting the refund of same amount under the scheme be fore and after the modification, because if the inputs are duty paid then the re fund under the earlier scheme and modified scheme should be of the same amount. ii. Unscrupulous manufacturers reporting bogus production and who are resort ing to fictitious purchase of inputs on the strength of invoices which are non d uty paid invoices would be getting excise duty refund of duty paid on actual val ue addition made by such manufacturers who have industries in these specified ar eas. iii. The excise duty exemption would be available only to the extent of actua l value addition made in these areas and not for the value of raw material manuf actured in other part of the country, which are received by the units in these a reas without cover of duty paying invoices. (cid:29)

4. By way of an additional affidavit, the respondents have also placed on r ecord the notification, dated 10.06.2008, whereby some further amendments to the earlier notification No.31/2008, dated 27.03.2008, has been introduced. In this regard, the respondents submit that following the impugned notification, dated 27.03.2008, many representations were received from different industrial bodies and associations and, after considering their grievances, Government of India, M inistry of Finance, has issued the notification, dated 10.06.2008, aforementione d, under Section 5A of the Central Excise Act, 1944, modifying some of the Claus es of the earlier impugned notification, dated 27.03.2008, to take care of some of the grievances of the industries.

5. It may be pointed out that the subsequent notification, dated 10.06.2008 , has, in effect, given liberty to an industrial unit to apply to the Commission er for determination of the actual value addition if the manufacturer of such an industrial unit does not agree to the rate of excise duty exemption, which has been made available to the manufacturer under the impugned notification, dated 2 7.03.2008. Under the notification, dated 10.06.2008, the Commissioner can determ ine the actual value addition in the production or manufacture of goods and, the n, refund accordingly the excise duty to the extent of value addition made. The determination of the actual value addition has been termed as (cid:28)special rate (cid:29). In effect, thus, what the respondents contend is that it is only when there is val ue addition in manufacturing a product that the manufacture would be entitled to exemption of excise duty payable on such a product. The respondents further con tend, (in this regard, and it is this aspect, which is under challenge) that the refund of excise duty would be limited to the extent of value addition and not beyond. In other words, according to the respondents, the 1997 IPR, and the noti fications issued thereunder, entitled a manufacturer to receive refund if there was value addition in the final product and, secondly, (though more importantly) , the excise duty refund was available only to the extent of value addition and no more. In short, thus, the respondents contend that a manufacturer would be en titled to exemption from payment of excise duty only if there is value addition and that the quantum of refund would be limited to the extent of value addition and no more. To put it a little differently, the respondents’ case is that unles s there is value addition, there is no entitlement to receive refund and the qua ntum of refund is limited to the extent of value addition made. Thus, if for ins tance, excisable input in a finished product is Rs.10/- and the excise duty paya ble on the finished product is Rs.50/-, the refund would be to the extent of Rs. 40/- and no more.

6. I may pause here to point out that in some of the writ petitions even t he notification, dated 10.06.2008, aforementioned, whereby Commissioner has been given the power to determine the actual value addition has been challenged on t he ground that the mechanism, provided thereunder, does not make available to th e petitioners exemption from payment of excise duty to the same extent as had be en promised to them by the 1997 IPR and various notifications issued earlier in this regard.

7. I have heard learned counsel for the petitioners and Mr. K. N. Choudhury , learned Senior counsel, appearing on behalf of the respondents. The arguments of Mr. P. K. Goswami, learned Senior counsel, who has appeared on the behalf of one of the petitioners, have been, by and large, adopted by the learned counsel for the remaining petitioners, except, to some extent, as would be indicated he reinbelow, the arguments of Dr. Saraf, learned Senior counsel, who has also appe ared on behalf of some of the writ petitioners.

8. Pithily speaking, the challenge, posed to the impugned notifications, is based on the doctrine of promissory estoppel. It has been pointed out by Mr. P. K. Goswami, learned Senior counsel, that under the 1997 IPR, Union of India h ad taken a policy decision to grant complete exemption, from payment of excise d uty, for a period of ten years, to the eligible industrial units in respect of t heir industrial activities and it was to give effect to this policy decision tha t the Notification No.32/99-CE, dated 08.07.1999, had been issued granting compl ete exemption from payment of excise duty, or additional excise duty, on finishe d products inasmuch as the Notification, dated 08.07.1999, aforementioned made i t clear that the specified goods stood exempted from payment of so much of duty of excise, or additional duty of excise, as may be leviable on the products, equ al to the amount to be paid by the manufacturers of the goods from the account c urrent maintained under Rule 9 read with Rule 173G of the Central Excise Act, 19 44. The 1997 IPR, contends Mr. Goswami, clearly held out a promise for grant of complete exemption from payment of excise duty to the industrial units in respe ct of their specified products. The petitioners, according to Mr. Goswami, acte d upon the promise, so made, inasmuch as they have, lured by the promises, made huge investments and established industries for production of such goods as make the petitioners entitled to claim refund. Mr. Goswami submits that the petition ers have, thus, relying and acting upon the representations made, in the said in dustrial policy by the Government, have altered their position to their detrimen t. In such circumstances, submits Mr. Goswami, doctrine of promissory estoppel d oes not permit withdrawal of promises made under the said industrial policy by i ssuing a notification, such as, the present one, by the Ministry of Finance, Gov ernment of India, which clearly has the effect, according to Mr. Goswami, of red ucing the benefits of complete exemption from payment of excise duty inasmuch as the impugned Notification makes exemption available only to the extent of value addition; whereas the 1997 IPR and the earlier Notifications made exemption fro m payment of excise duty available on the finished products. This apart, points out Mr. Goswami, the exemption has, now, been made available only to the extent of specified rates, which have been fixed by the Government; whereas every indu strial unit may pay different cost for raw-materials and it is not necessary tha t the value addition, in a given product, by two different industrial units woul d be to the same extent.

9. It is submitted my Mr. Goswami that if the statutory authority or an ex ecutive authority of the State, functioning on behalf of the State, in exercise of its legally permissible powers, had held out any promise to a party, who, rel ying on the same, has changed its position to its detriment and when such a prom ise made to the party does not offend any provisions of law or does not fetter a ny legislative or quasi-judicial power inhering the promisor, then, on the stren gth of the principle of promissory estoppel, the promisor can be pinned down to keep to the promise made by the promisor. Only in the cases, contends Mr. Goswa mi, where there is supervening public interest that the Government would be allo wed to change its stand and withdraw from the representation made by it, which h ad induced persons to take certain steps, which might go adverse to the interest of such persons on account of such withdrawal. However, the Court must satisf y itself, agrees Mr. Goswami, that such a supervening public interest exists. D etermination of the question as to whether there is supervening public interest or not has to be by the Court and such determination cannot be ipse dixit of the Government. So contends Mr. Goswami. In support of these submissions, Mr. Goswa mi has placed reliance on Mahavir Vegetable Oils Pvt. Ltd. Vs. State of Haryana, reported in (2006) 3 SCC 620, Southern Petrochemical Industries Co. Ltd. Vs. El ectricity Inspector and Etio and Others, reported in (2007) 5 SCC 447, MRF Vs. A sstt. Commissioner of Sales Tax and others, reported in (2006) 8 SCC 702, Union of India Vs. Indo Afghan Agencies Ltd., reported in (1968) 2 SCR 366, U.P. Power Corporation Vs. Sant Steel Alloys Pvt. Ltd., reported in (2008) 2 SCC 777, Shre e Sanyeeji Ispat Pvt. Ltd. and another Vs. State of Assam and others, reported i n 2006 (2) GLT 397, Pawan Alloys and Casting Pvt. Ltd. Vs. U.P.S.E.B, reported i n (1997) 7 SCC 251, Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P., repo rted in (1979) 2 SCC 409, State of Punjab vs. Nestle India Ltd., reported in (20 04) 136 STC 35, Shri Guru Ashis Wire Industries vs. State of Gujarat, reported i n (1994) 92 STC 286, Pournami Oil Mills vs. State of Kerala, reported in 1986 (S upp) SCC 728 and State of Bihar and another vs. Usha Martin Industries Ltd., rep orted (1987) 65 STC 430.

10. The doctrine of promissory estoppel, insists Mr. Goswami, is squarely attracted to the facts of the present case and no sustainable reason has been as signed by the respondents, which can justify their departure from the promises m ade under the 1997 IPR. Though the respondents have contended, points out Mr. G oswami, that some of the manufacturers had misused the scheme of exemption, gran ted under the 1997 IPR, by indulging in bogus productions, the fact remains that none of the petitioners is claimed to have indulged in such illegal or manipula tive activities. Hence, the petitioners, contends Mr. Goswami, cannot be penali zed for the unscrupulous activities, if any, of some manufactures other than the petitioners. If the Government is allowed to withdraw its promise on the ground that some manufacturers have indulged in bogus production, it would, pleads Mr. Goswami, result in great injustice to the petitioners, particularly, when the m anufacturers, as a class, are not accused of having indulged in bogus production . If not restrained, the Government’s action would, according to Mr. Goswami, be tantamount to not taking action against their own departmental personnel and, i nstead thereof, punishing the genuine manufacturers.

11. Punishing the petitioners for the acts, if any, of some unscrupulous ma nufacturers would be, submits Mr. Goswami, nothing, but arbitrary, for, having e stablished their industrial units, the petitioners had legitimate expectation th at so long as they continued to conduct their business in terms of the relevant IPR and various notifications issued thereunder, 100% exemption from payment of excise duty on their finished products, as had been envisaged and promised and h ad been earlier made available to them would be continued. Such legitimate expec tation, contends Mr. Goswami, barred the Government from resiling from their pro mises on the basis of the alleged bogus production by some unscrupulous manufact urers. Support for his submission is sought to be derived by Mr. Goswami from th e case of MRF Vs. Asstt. Commissioner of Sales Tax and others, reported in (2006 ) 8 SCC 702, and U.P. Power Corporation Vs. Sant Steel Alloys Pvt. Ltd., reporte d in (2008) 2 SCC 777. The petitioners, points out Mr. Goswami, are required to file various returns, weekly, monthly, quarterly, half yearly and annually under the relevant Act and Rules, in respect of excise duty payable, and paid, by the m as manufacturers and the personnel of the Department of Central Excise monitor and verify these claims. Attention of this Court, in this regard, has been brou ght by Mr. Goswami to the provisions contained in Chapter III of the Central Exc ise Act and Rules 22, 23, 24, 25 and 26 of the Rules framed thereunder. In such circumstances, unless the industrial activities of the manufacturers, as a clas s, are found to be against the purport and spirit of the 1997 IPR, the genuine m anufacturers cannot be penalized for the failure of the officials of the respond ent Department to catch hold of the violators or for connivance of such personne l of the respondent Department with such violators. So submits Mr. Goswami.

12. It is contended by Mr. Goswami that the Department of Finance, which is a mere administrative wing of the Central Government, has no power and authority to curtail the benefits announced and promised under the 1997 IPR, for, the 199 7 IPR was adopted by the Union Cabinet. Without amending the 1997 IPR, submits M r. Goswami, Department of Finance cannot curtail or withdraw the incentives prom ised under the 1997 IPR. In support of this contention, Mr. Goswami has referre d to, and relied upon, the case of Suprabhat Steels Ltd. vs. the State of Bihar, reported in (1999) 1 SCC 31. The impugned Notifications, therefore, according to Mr. Goswami, are not sustainable in law and must, therefore, be set aside and quashed.

13. et of writ petitions. Let me, now, turn to the resistance offered by the respondents to this s

14. The respondents resist the petition, at the very threshold, by contendin g that at no point of time, the petitioners had enjoyed complete or 100% exempti on from payment of excise duty inasmuch as the excise duty were to remain confin ed, according to the respondents, to the value addition made in the specified ar eas. Yet another ground of resistance, offered by the respondents to the very m aintainability of the writ petitions, is that none of the writ petitions, conten d the respondents, lay necessary foundation to attract application of the doctri ne of promissory estoppel inasmuch as the writ petitions, according to Mr. K. N . Choudhury, learned Senior counsel, do not furnish adequate materials warrantin g application of the doctrine of promissory estoppel. In this respect, Mr. Choud hury seeks to derive support from Union of India vs. Ganpati Rolling Mills Pvt. Ltd., reported in (2006) 4 GLT 1.

15. It is further submitted by Mr. K. N. Choudhury that the impugned notific ations merely give effect to the real indentment of the Union Government inasmuc h as the 1997 IPR, according to Mr. Choudhury, aimed at giving benefit of exempt ion from payment of excise duty to such value additions, which may be made, in t he specified areas, in the north eastern region, but when the Government of Indi a found that some unscrupulous manufacturers had been indulging in bogus product ions by misusing the earlier notifications, the impugned Notifications were issu ed in order to plug the loopholes, in the earlier Notifications, so that the gen uine manufacturers continue to receive such degree of exemption as the 1997 IPR had intended to make available to the genuine manufacturers. The genuine manufac turers would, therefore, according to Mr. Choudhury, not suffer, and whatever re liefs they had been receiving, by way of exemption, prior to the impugned Notifi cations, would continue to be received by them even under the impunged notificat ions.

16. It is further submitted by Mr. Choudhury that the 1997 IPR and the Notif ications, issued thereunder, did not vest any indefeasible right in any of the p etitioners, as manufacturer, to claim exemption. When the promises, in respect of exemption from payment of excise duty, were made, under the 1997 IPR, in publ ic interest, the Government is not debarred, under the law, from withdrawing suc h promises if such withdrawal is, contends Mr. Choudhury, in public interest. I n the present case, according to Mr. KN Choudhury, the activities of some of th e manufacturers were defeating the very object with which the exemptions had bee n granted under the 1997 IPR. In such circumstances, contends Mr. Choudhury, su pervening public interest demanded that the Government modifies the exemption no tifications in the manner as have been done by the Government. The modification of the exemption notification is, therefore, according to Mr. Choudhury, wholly valid and justified. In support of his submission, Mr. Choudhury places relianc e on the case of R.C. Tobacco Pvt. Ltd. vs. Union of India and others, reported in (2005) 7 SCC 725. It has been contended by Mr. K. N. Choudhury, learned Senior counsel, th 17. at to the facts of the present case, the decision, rendered in Suprabhat Steels Ltd. (supra), is not at all applicable inasmuch as, in the present case, the imp ugned Notifications have been issued with the approval of the Union Cabinet and not by the Ministry of Finance, Government of India, alone; whereas, in Suprabha t Steels Ltd. (supra), when the industrial policy was still in force, the admini strative wing of the Government, namely, Department of Finance, had interfered w ith the exemption, which the State Cabinet, in Bihar, had promised.

18. In the present case, points out Mr. Choudhury, not only the IPR, but als o the impugned notifications have the approval of the Union Cabinet. Hence, the decision, in Suprabhat Steels Ltd. (supra), has no application to the facts of the present case. It is submitted by Mr. Choudhury that exemption from payment of excise d 19. uty was made available to the industrial units in terms of the Government Policy . The Government, according to Mr. Choudhury, cannot be made a slave of its poli cy and if, by virtue of a policy, the petitioners were receiving some benefits, there is no legal impediment, on the part of the Government, to adopt another po licy and withdraw such benefit if withdrawing of such benefit is necessary in pu blic interest. When the Government takes a decision, as in the present case, kee ping in mind all relevant considerations, such a policy decision, contends Mr. C houdhury, cannot be interfered with and the doctrine of promissory estoppel cann ot estop the Government from changing its policy if such change in policy is not irrational or arbitrary. The adequacy of materials, which prompted the Governm ent to resile from its earlier promises, cannot be looked into by the Court for the purpose of determining as to whether the changes in policy is justified. In order to show that the equitable doctrine of promissory estoppel is not at all a ttracted to the facts of the present case, Mr. Choudhury places reliance on Bann ari Amman Sugar Ltd Vs. Commercial Tax Officer, reported in (2005) 1 SCC 625, Sr eeji Sales Corporation Vs. Union of India and others, reported in (1997) 3 SCC 3 98, Dia Ichi Karkari Ltd Vs. Union of India and others, reported in (2000) 4 SCC 57, State of Rajasthan Vs. J.K. Udaipur Ltd., reported in (2004) 7 SCC 673, Sta te of Tamil Nadu Vs. Sun Paper Mills, reported in (1998) 9 SCC 693, and Commissi oner of Commercial Tax Vs. Dharmendra Trading, reported in (1988) 3 SCC 570.

20. In substance, what the respondents contend is that at no given point of time, there was total exemption from payment of excise duty on the finished prod ucts by the manufacturers under the 1997 IPR. The exemption was limited, accordi ng to the respondents, by two factors, namely, that exemption was to be availabl e to only such industries, which made requisite value addition, and refund was m ade available to a manufacturer, who makes value addition, while manufacturing t he finished products. This apart, the refund has always been made available, acc ording to the respondents, to the extent of value addition, which the manufactur er may have made and no more.

21. Reacting to the submissions, made on behalf of the respondents, it has b een pointed out by Dr. Saraf, learned Senior counsel, that the respondents do no t have a consistent case to resist the writ petitions inasmuch as they claim, on the one hand, that the impugned Notifications have not altered the situation an d continues to give the benefits, which were intended by the 1997 IPR, and yet, on the other hand, they have failed to show that the petitioners would receive e xemption from payment of excise duty to the same extent as they had been receivi ng during the post impugned notifications period. This apart, points out Dr. Sa raf, when, according to the respondents themselves, the impugned notifications d o not take away any benefit, which the 1997 IPR and/or the Notifications issued thereunder, had earlier given to the petitioners, then, the effect would be that the 1997 IPR has remained intact and, if it has remained intact, then, the Fina nce Department, Government of India, cannot take away the benefits, which the 19 97 IPR had promised, even if such a decision of the Finance Department receives approval from the Union Cabinet.

22. It is pointed out by Dr. Saraf that the Notification, dated 08.07.1999, was issued under Section 5A of the Central Excise Act, 1944, to give effect to t he 1997 IPR and was not an independent notification. Section 5A, according to D r. Saraf, does not empower the revenue authorities to curtail or withdraw the be nefits given under the policy decision of the Union of India. In the present ca se, the impugned notifications have curtailed, according to Dr. Saraf, the exten t of exemption, which were, otherwise, available to the petitioners, as manufact urers, and, when the 1997 IPR has remained, even according to the respondents, u naltered or unchanged, one of the Ministries of the Union of India, such as, the Department of Finance, cannot reduce the extent of exemption, which the 1997 IP R had promised and made available to the present petitioners, as manufacturers. Even if such a notification, under Section 5A, was issued with the approval of the Union Cabinet, the fact remains that that such exercise of power is, accordi ng to Dr. Saraf, not permissible in law. In support of his submissions, Dr. Sara f, besides what Mr. Goswami has relied upon, referred to the case of Union of In dia vs. Godfrey Philips India Ltd., reported in (1985) 4 SCC 369, to show that when, acting on the basis of the promise made by the Government, the petitioners have set up their industrial units, the Government cannot withdraw the earlier promise made by it without proving to the satisfaction of the Court that it was in overriding public interest that the Government had to withdraw its promise. I n the present case, according to Dr. Saraf, an examination of the question, as t o whether there was such supervening public interest, which forced the Governmen t to withdraw its promises made under 1997 IPR, is not even necessary inasmuch a s the Government’s clear stand has been that whatever benefits were available to the genuine manufacturers under the 1997 IPR are, notwithstanding the impugned notifications, still available to them. If this Court finds, points out Dr. Sara f, that this plea of the Government is incorrect, it would be sufficient to set aside the impugned notifications inasmuch as the notifications would, then, in s uch a case, be held to be suffering from complete non-application of mind inasmu ch as the Government does not even know that the impugned notifications have the affect of withdrawing the promises, which the Government had made. Such a decis ion, which is reached unconsciously and without application of mind to all relev ant factors, cannot but be treated, submits Dr. Saraf, as irrational and arbitra ry.

23. Extensively reading out the decision, rendered in Ganapati Rolling Mills Pvt. Ltd. (supra), Dr. Saraf points out that in Ganapati Rolling Mills Pvt. Lt d. (supra), the petitioners were required to show that they had set up their ind ustries or extended the capacity of their industries acting on the 1997 IPR. How ever, specific finding of the High Court, in this regard, in Ganapati Rolling Mi lls Pvt. Ltd. (supra), was that all the petitioners had established their respec tive industrial units before the 1997 IPR came into force. In such circumstances , the petitioners, in Ganapati Rolling Mills Pvt. Ltd. (supra), ought to have sh own, further points out Dr. Saraf, that they had increased the capacity of their respective industrial units to the extent as the 1997 IPR required, but they ha d made out no such specific case in their writ petitions inasmuch as none of the writ petitioners had claimed, in Ganapati Rolling Mills Pvt. Ltd. (supra), that they had increased the capacity of their respective industrial units, acting up on the 1997 IPR, to the extent as the 1997 IPR had made it mandatory for an indu strial unit to claim exemption from payment of excise duty on their finished pro ducts. In such circumstances, the Court, in Ganapati Rolling Mills Pvt. Ltd. (su pra), concluded, points out Dr. Saraf, that the petitioners had not laid a clear foundation for invoking the equitable doctrine of promissory estoppel. To the c ase at hand, submits Dr. Saraf, the decision in Ganapati Rolling Mills Pvt. Ltd. (supra) has no application at all inasmuch as the respondents have not even cit ed one case, in the present set of writ petitions, to clearly show as to which w rit petition does not lay adequate foundation for attracting the application of the doctrine of promissory estoppel. Thus, a bald assertion by the respondents t hat no clear foundation for attracting the doctrine of promissory estoppel has b een laid in the writ petitions does not, according to Dr. Saraf, carry any weigh t. A policy decision, according to Dr. Saraf, may be, otherwise, legal or r 24. ational; but if it tends to take away the rights, which an industrial unit has a cquired, because of the application of the doctrine of promissory estoppel, the Government cannot use the policy decision as a shield to deny and resile from th e promises made by it unless it satisfies the Court that overriding public inter est requires that the Government should not be held bound by the promise it had made and it is such supervening public interest, which forced the Government to change its earlier policy decision.

25. It is the submission of Dr. Saraf that while dealing with a case, which invo lves application of the doctrine of promissory estoppel, it is not enough for th e Government to say that there is a change in its policy. It would be, according to Dr. Saraf, the duty of the Government, in such a case, to place before the C ourt all the materials, based on which the decision to withdraw the exemption wa s taken, and it will be for the Government to satisfy the Court that supervening public interest had forced the Government to resile from the promise made earli er. In order to ascertain as to whether supervening public interest protects suc h an action of the Government or not, the Court would have to look, insists Dr. Saraf, on adequacy of the materials to determine, for itself, as to whether it i s really supervening public interest, which forced the Government to withdraw fr om the promise made by it.

26. It is further submitted by Dr. Saraf that the illustrations, given by th e respondents, in their affidavit-in-opposition, indicating as to how bogus prod uction have been taking place, are completely illogical inasmuch as the illustra tions have failed to indicate as to what benefit the purchaser would have if he makes bogus purchase from unscrupulous manufacturer. The respondents’ affidavit, contends Dr. Saraf, has also failed to indicate that any survey had been conduc ted by the Government to find out if the industrial activities, in the areas oth er than the areas, which fall under the domain of the 1997 IPR, are all genuine. Dr. Saraf points out that the industrial units, established under the 1997 IPR, received full exemption from payment of excise duty and, in such circumstances, their tendency would be to pay excise duty as much as payable in law; whereas n o such exemption being available to industrial units, in the areas, which fall o utside the 1997 IPR, there is likely to be the tendency to avoid payment of exci se duty and pay as less excise duty as possible; hence, it is quite possible, po ints out Dr. Saraf, that those industrial units, which are covered by 1997 IPR, have been, truthfully and faithfully, paying excise duty; whereas those industri al units, which are not covered by 1997 IPR, would be suppressing the extent of their respective excise duty liability and, consequently, paying less excise dut y than the present petitioners. In such circumstances, further points out Dr. Sa raf, the Government’s assumption, that the industrial units, not covered by 1997 IPR, have been paying as much excise duty as were payable by them, cannot be re adily and safely relied upon. Such a presumptuous approach by the Government is without any rational basis inasmuch as the Government has not placed any materi al to show, submits Dr. Saraf, that the quantum of excise duty paid by the indus trial units, not covered by 1997 IPR, have been correct. When the Government, c ontends Dr. Saraf, does not claim, on oath, that the industrial units, which fal l outside 1997 IPR, have been paying so much of excise duty as are actually paya ble by them, one cannot, safely and confidently, reach the conclusion that becau se of the fact that the industrial units, covered by 1997 IPR, have been paying more excise duty through PLA, they have been indulging in bogus production compa red to those, which are not covered by 1997 IPR and which pay less excise duty t hrough PLA. Relying upon such inconclusive materials, the Government, contends Dr. Saraf, cannot be allowed to plead that payment of excise duty by the industr ial units, in the specified areas, covered by the 1997 IPR, is false or manipula ted. This is an essential aspect of the matter, which appears to have, according to Dr. Saraf, wholly escaped attention of the Union Cabinet.

27. From the submissions, made on behalf of the respondents, what becomes tr ansparent is that the respondents do not, as contended by Dr. Saraf, have a cons istent case. While, on the one hand, the respondents contend that the impugned N otifications do not reduce the exemption, which the earlier Notification, namely , No.32/99-CE, dated 08.07.1999, issued under the 1997 IPR, had made available t o the manufacturers, the respondents, at the same time and in the same breath, c ontend, on the other hand, that the petitioners cannot be said to have any veste d right, by virtue of the 1997 IPR and/or the earlier Notifications, to claim be nefit of exemption other than what the impugned notifications have, now, made av ailable to the petitioners as manufacturers. This inconsistency is sought to be explained by the respondents by contending that their scheme of exemption, as pr ovided under various notifications, had some loopholes and that the impugned not ifications have been issued merely to plug these loopholes and that even the imp ugned notifications continue to give to the genuine manufacturers the reliefs, w hich they were, otherwise, also, entitled to receive and had, in fact, been rece iving by establishing their industrial units under 1997 IPR.

28. Let me, therefore, ascertain as to whether the contention of the respond ents that at no point of time, the petitioners had enjoyed complete or 100% exem ption from payment of excise duty and that the excise duty refund, at all stages , had remained confined to the value additions, made in the specified areas, is correct.

29. While considering the above aspect of the case, it is necessary to point out that the 1997 IPR, with regard to the fiscal incentives, read, inter alia, thus: (cid:28)FISCAL INCENTIVES TO NEW INDUSTRAIL UNITS AND THEIR SUBSTANTIAL EXPANSION. i. Government has approved for converting the growth centers and IIDs into a tot al Tax Free Zone for the next 10 years. All industrial activity in these zones w ould be free from Income Tax, Excise for a period of 10 years from the commencem ent of production. State Government would be requested to grant exemptions in re spect of Sales Tax and Municipal Tax. Industries located in the growth centers would also be given Capital Inv ii. estment Subsidy at the rate of 15% of their investment in plant and machinery, s ubject to a maximum ceiling of Rs.30.0 lakhs. (cid:29)

30. From a bare reading of the fiscal incentives offered by the 1997 IPR, it becomes clear that the incentive, which the 1997 IPR had promised, was that in the specified zones, which were to be treated as tax-free zones, all industrial activities, for a period of ten years, with effect from the date of commencement of production, would be free from payment of, inter alia, excise duty. In the face of the declaration, so clearly and unequivocally made under the 1997 IPR, t here can be no room for doubt that the 1997 IPR did, indeed, promise that the in dustrial activities, in the specified zones, would remain, for the said specifie d period, free from payment of, inter alia, excise duty. It is this promise, wh ich was sought to be concretized by issuing the Notification No. 32/99-CE, dated

08.07.99. This Notification read as under: (cid:28)No.32/99-CENTRAL EXCISE DATED 8TH JULY,1999 G.S.R.508 (E)- In exercise of the powers conferred by the sub-section (1) of sec tion 5A of the Central Excise Act, 1994 (1 of 1944), read with sub-section (3) o f section 3 of the Additional Duties of Excise (Goods of Special Importance) Act , 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textile and Textile Articles Act, 1978 (40 of 1978), the Central Govern ment, being satisfied that it is necessary in the public interest so to do, here by exempts the goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (1 of 1986) and cleared from a unit located in the Growth Centre or Integrated Infrastructure Development Centre or Export P romotion Industrial Park or Industrial Estates or Industrial Area or Commercial Estate, as the case may be, specified in Annexure appended to this notification, from so much of the duty of excise or additional duty of excise, as the case ma y be, leviable thereon under any of the said Acts as is equivalent to the amount of duty paid by the manufacturer of goods from the account current maintained u nder rule 9 read with rule 173G of the Central Excise Rules,1994. (cid:29)

31. The emphasized portions of the above Notification, dated 08.07.99, more than amply demonstrate that what had been made available to a manufacturer, unde r the 1997 IPR, was exemption from payment of excise duty, additional excise dut y, on the specified goods, to the extent of the amount of duty paid by the manuf acturer from the account current maintained under Rule 9 read with Rule 173G of the Central Excise Rules, 1944. Thus, the 1997 IPR promised to give 100% exempti on from payment of excise duty and the notification No.32-CE/99, dated 08.07.99, too (which was published to make the exemption, so promised under the IPR, avai lable) declared, unequivocally, that a manufacturer would be entitled to claim e xemption from payment of so much of excise duty (or additional excise duty) as w ould, otherwise, be payable on the goods manufactured by him if the goods are su ch, which have been specified for the purpose of granting such exemption. Thus, if a manufacturer produces specified goods, he would be entitled to refund of ex cise duty to the extent as would be payable on his finished products. It needs t o be carefully noted that excise duty is payable on a finished product by the bu yer of such a product and when the manufacturer realizes excise duty from the bu yer, he is required to deposit excise duty, so collected, in the Government trea sury. The benefit of excise duty exemption mean that though the buyer would pay excise duty and such excise duty is deposited by the manufacturer with the Gover nment, the Government would return, in the form of refund, excise duty, which ha d been collected by the manufacturer from the buyer and deposited, on such colle ction, with the Government. There is nothing either in the 1997 IPR or in the No tification, dated 08.07.99, to even faintly indicate that excise duty exemption would be available only to the extent of such value as may be added to the raw m aterials used by the manufacturer.

32. I have also pointed out above that Cenvat credit rules were framed simplify ing the credit provision and procedure for availing credit of the duty paid on i nput and capital goods used, whether directly or indirectly, in, or in respect o f, manufacture of final products. The credit of the duty, so allowed, could be used for payment of excise duty leviable on the finished goods subject to the co nditions laid down in the relevant Rules. The basic object of allowing credit on CENVAT was to ensure that there is no cascading effect of levy of excise duty. The Rules framed aimed at collecting excise duty on the finished goods and ther eby the manufacturer of finished goods were enabled to take credit of the duty p aid on the inputs or the capital goods used in the manufacture of finished produ cts and could utilize the said credit for payment of excise duty on the final fi nished products.

33. It has also been pointed out as to why and how the changes in the Cenvat rules were made. The final picture, which emerges, in this regard, because of t he amendment of the notification No.32/99-CE, dated 08.07.99, by the subsequent notification No.65/2003, dated 06.08.2003, may be considered in the light of par agraph 1A thereof, which reads as under: (cid:28)lA. In cases where all the goods produced by a manufacturer are eligible for ex emption under this notification, the exemption, contained in this notification, shall be available subject to the condition that the manufacturer first utilize whole of the CENVAT credit available to him on the last day of the month under c onsideration for payment of duty on goods cleared during such month and pays onl y the balance amount in cash. (cid:29) 34. ollowing:- (Provided that in cases), where the exemption, contained in this notification, i s not applicable to some of the goods produced by a manufacturer, such refund sh all not exceed the amount of duty paid The proviso to clause (b) of paragraph 2 was also substituted with the f