2010 (3) TMI 1191 - HC - Central Excise

Court invalidates retrospective notification, citing promissory estoppel, stresses good governance, public faith. Referral for suspension pending Apex Court.

VVF LTD. & 1 Versus UNION OF INDIA & 1

The court allowed the petitions, holding that the impugned notification could not be sustained due to its retrospective nature and contravention of the ... Formulation of Fiscal Policy - exemption simplicitor or incentive offered? - promissory estoppel - withdrawal of the benefit/incentive - retrospective effect or prospective effect? Issues Involved:1. Declaration by the Central Government in formulating fiscal policy.2. Alteration of the petitioner's position based on the fiscal policy.3. Application of promissory estoppel in fiscal matters.4. Withdrawal or rationalization of benefits/incentives retrospectively.5. Operation of promissory estoppel against the Central Government.6. Contravention of promissory estoppel by the change in fiscal policy.Issue-wise Detailed Analysis:1. Declaration by the Central Government in Formulating Fiscal Policy:The court examined whether the Central Government made a declaration in formulating fiscal policy, specifically whether it was an exemption simplicitor or an incentive for establishing industries in the Kutch District. The court found that the notification dated 31.07.2001 provided a specific incentive for new industrial units in the Kutch District, granting a full refund of the actual duty paid. This was not a product-wise exemption for the whole country but a targeted incentive for a specific region.2. Alteration of the Petitioner's Position Based on the Fiscal Policy:The court noted that the petitioners established new industrial units in Kutch District based on the fiscal policy's incentive. Therefore, it was concluded that the petitioners had altered their position by making the requisite investment for establishing new industrial units within the specified time period.3. Application of Promissory Estoppel in Fiscal Matters:The court referenced several Supreme Court decisions to outline the doctrine of promissory estoppel, emphasizing that it preserves a right unless expressly taken away. The court highlighted that once a representation is made and acted upon, it cannot be withdrawn arbitrarily, except in cases of overriding public interest or statutory provisions.4. Withdrawal or Rationalization of Benefits/Incentives Retrospectively:The court examined the impugned notification dated 27.03.2008, which altered the refund mechanism from a full refund of actual duty paid to a specified rate based on value addition. The court concluded that this change curtailed the existing benefit and was retrospective in nature, thereby prejudicing the rights of the petitioners who had already established their units based on the earlier policy.5. Operation of Promissory Estoppel Against the Central Government:The court held that the doctrine of promissory estoppel would operate against the Central Government, preventing it from withdrawing the exemption benefit retrospectively. The court emphasized that the Government must demonstrate overwhelming public interest to justify such a withdrawal, which was not satisfactorily shown in this case.6. Contravention of Promissory Estoppel by the Change in Fiscal Policy:The court found that the change in fiscal policy contravened the doctrine of promissory estoppel. The impugned notification was deemed to have a retrospective effect, which could not be justified by the material produced by the Central Government. The court concluded that the withdrawal of the benefit/incentive was not in public interest and thus could not be sustained.Conclusion:The court allowed the petitions, holding that the impugned notification could not be sustained due to its retrospective nature and contravention of the doctrine of promissory estoppel. The court emphasized the importance of maintaining public faith in governmental commitments and the necessity of good governance. The matter was referred to an appropriate bench for further proceedings regarding the suspension of the order's operation to enable the Union of India to approach the Apex Court.