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Issues: (i) whether the impugned notifications reducing the extent of excise duty exemption under the North-Eastern industrial incentive scheme were inconsistent with the promises contained in the industrial policy and the earlier exemption notifications; (ii) whether the State had shown sufficient supervening public interest to justify withdrawal or curtailment of the promised exemption.
Issue (i): whether the impugned notifications reducing the extent of excise duty exemption under the North-Eastern industrial incentive scheme were inconsistent with the promises contained in the industrial policy and the earlier exemption notifications.
Analysis: The industrial policy promised 100% excise duty exemption for eligible units in the specified areas, and the earlier exemption notifications were issued to implement that promise. The subsequent amendments requiring prior use of Cenvat credit only regulated the refund mechanism and did not reduce the promised quantum of exemption. The later notifications, by introducing average rates and special rates tied to value addition, altered the substantive benefit and not merely the mode of its grant. The Court held that the promise of complete exemption had been clearly held out and was acted upon by the petitioners who established or expanded their units on that basis.
Conclusion: The impugned notifications were inconsistent with the earlier promise of complete exemption and could not be sustained on that basis.
Issue (ii): whether the State had shown sufficient supervening public interest to justify withdrawal or curtailment of the promised exemption.
Analysis: The State relied on alleged bogus production and misuse of the scheme, but the materials placed were found to be inadequate and inconclusive. The respondents did not establish that the petitioners, as a class or individually, had engaged in bogus production, nor did they satisfactorily justify the rate reduction by objective data. The comparison with all-India cash payment figures was held to be an unsound basis for curtailing the promised benefit. The Court further held that the petitioners had a legitimate expectation that the promised exemption would continue, and that promissory estoppel barred the Government from resiling in the absence of proven overriding public interest.
Conclusion: The State failed to establish supervening public interest, and the curtailment of exemption was held unjustified.
Final Conclusion: The impugned notifications were struck down, and the petitioners were held entitled to continue receiving the promised 100% excise duty exemption under the relevant industrial incentive regime.
Ratio Decidendi: Where the Government makes a clear promise of fiscal exemption under an industrial policy and investors alter their position in reliance on it, the exemption cannot be curtailed by subsequent notifications unless the Government proves overriding public interest on adequate materials.
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