2009 (6) TMI 624 - HC - Central Excise

Court Upholds Excise Duty Exemption Promise, Emphasizes Promissory Estoppel

HERBO FOUNDATION PVT. LTD., KAMAKHYA COSMETICS AND PHARMACEUTICALS PVT. LTD And Others Versus UNION OF INDIA

HERBO FOUNDATION PVT. LTD., KAMAKHYA COSMETICS AND PHARMACEUTICALS PVT. LTD And Others Versus UNION OF INDIA - 2010 (261) E.L.T. 98 (Gau.) Issues Involved:1. Promises made under the 1997 IPR and 2007 IPR.2. Issuance of notifications reducing excise duty exemptions.3. Doctrine of promissory estoppel.4. Supervening public interest.5. Legitimate expectation of investors.6. Adequacy of materials justifying the withdrawal of promises.7. Role and responsibilities of different government departments.Detailed Analysis:1. Promises Made Under the 1997 IPR and 2007 IPR:The 1997 Industrial Policy Resolution (IPR) announced by the Government of India promised a package of incentives, including 100% exemption from payment of excise duty for ten years for new industrial units in the North-Eastern region. The 2007 IPR continued these incentives for new units and those undertaking substantial expansion. The petitioners set up or expanded their industries based on these promises and started receiving excise duty refunds accordingly.2. Issuance of Notifications Reducing Excise Duty Exemptions:The Ministry of Finance issued Notification No. 17/2008, dated 27-3-2008, amending the earlier Notification No. 32/99-C.E., dated 8-7-1999, and limiting the excise duty refund to specified rates for different goods. This was followed by Notification No. 10-6-2008, allowing manufacturers to apply for a 'special rate' determination by the Commissioner if they disagreed with the specified rates.3. Doctrine of Promissory Estoppel:The petitioners argued that the doctrine of promissory estoppel applies, preventing the government from resiling from its promises under the 1997 IPR and 2007 IPR. They contended that they had altered their position based on the promises made and that the government cannot withdraw these promises without proving supervening public interest. The court agreed, stating that the government must disclose adequate materials to justify its withdrawal from the promises made.4. Supervening Public Interest:The respondents claimed that the withdrawal of the full excise duty exemption was justified due to misuse by some manufacturers indulging in bogus production. However, the court found that the respondents failed to provide adequate materials to prove this claim. The court emphasized that the government must show that overriding public interest requires it to resile from its promises, which was not adequately demonstrated in this case.5. Legitimate Expectation of Investors:The court recognized the legitimate expectation of the petitioners, who had invested based on the government's promises. It held that the government must protect the interests of genuine investors and cannot penalize them for the actions of a few unscrupulous manufacturers. The court stressed that the government must consider the expectations of honest investors before making any policy changes.6. Adequacy of Materials Justifying the Withdrawal of Promises:The court examined whether the government had taken into account all relevant factors and excluded irrelevant ones while deciding to issue the impugned notifications. It found that the government's basis for determining bogus production was flawed and that the comparison of excise duty payments between specified and unspecified areas was not rational. The court concluded that the government had not provided adequate materials to justify the withdrawal of the promised incentives.7. Role and Responsibilities of Different Government Departments:The court addressed the issue of whether the Department of Finance could unilaterally withdraw the promises made under the industrial policies approved by the Union Cabinet. It held that the government must function as a cohesive body, and different departments cannot adopt contradictory policies. The court noted that the impugned notifications were issued with the approval of the Union Cabinet, making it a decision of the entire government, not just the Department of Finance.Conclusion:The court set aside the impugned notifications dated 27-3-2008 and 10-6-2008, holding that the petitioners are entitled to 100% exemption from payment of excise duty as promised under the relevant notifications dated 8-7-1999 and 25-4-2007. The court emphasized the importance of the doctrine of promissory estoppel and the need for the government to provide adequate justification for withdrawing promised incentives, considering the legitimate expectations of investors.