2023 (9) TMI 1653 - HC - Central Excise

Government cannot withdraw tax benefits without justification under promissory estoppel doctrine, withdrawal notification set aside

The HC dismissed a review petition challenging the validity of notification dated 01.03.2007 that withdrew certain tax benefits. The court held that the ... Validity of notification dated 01.03.2007, which withdrew certain tax benefits - invalidated by the doctrine of promissory estoppel due to premature withdrawal of benefits - whether notification No.69/03-CE dated 25.08.2003 was completely overshadowed by the subsequent notification No.8/2004-CE dated 21.01.2004? - misuse of process or public interest element - HELD THAT:- The present review petition has been filed pursuant to the liberty granted by the Apex court on the first proposition advanced before it that the decision of the Appellate Court relying upon the judgment in the case of Unicorn Industries [2019 (9) TMI 791 - SUPREME COURT] is incorrect. It needs to be mentioned at the outset that the very notification No. 11 of 2007 dated 1st March, 2007, was also in question before the Apex Court in the case of Unicorn Industries apart from the other withdrawal notification No.21 of 2007, dated 25th April, 2007. The Gauhati High Court had struck down the withdrawal notifications in the case of M/S Dharampal Satyapal Limited Vrs. Union of India & Ors. [2016 (5) TMI 1074 - GAUHATI HIGH COURT], a sister concern of the present petitioners. The judgment of the Gauhati High Court has also been fairly placed titled as M/S Dharampal Satyapal Limited Vrs. Union of India & Ors. Para 27 of the judgment incorporates the stand of the respondent authorities in support of the withdrawal notification. The decision of the Gauhati High Court on the withdrawal notification No. 11 of 2007 was subject matter of challenge before the Apex Court in Unicorn Industries. It is pertinent to say that based on the same stand of the respondents-Union of India including their contentions that under the exemption notification the mechanism of escrow was being subjected to misuse, the decision in the case of Unicorn Industries and other analogous civil appeals was rendered. As such, the instant plea raised by the review petitioners on the above Grounds are not such which are not covered by the ratio rendered by the Apex Court in the case of Unicorn Industries. Conclusion - The cumulative effect is that the notification dated 01.03.2007, Annexure-L to the writ petition, cannot be sustained and accordingly the same is set aside. The withdrawal of tax benefits was unjustified under the doctrine of promissory estoppel, the earlier notification was effectively merged with the latter, and the respondents failed to substantiate their claims of public interest or misuse to justify the withdrawal. The instant review petition is accordingly dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe judgment primarily revolves around the following core legal issues:(i) Whether the notification dated 01.03.2007, which withdrew certain tax benefits, is invalidated by the doctrine of promissory estoppel due to premature withdrawal of benefitsRs.(ii) Whether the notification No.69/03-CE dated 25.08.2003 was completely overshadowed by the subsequent notification No.8/2004-CE dated 21.01.2004Rs.(iii) Whether there was any misuse of process or public interest element that justified the withdrawal of benefits granted by the North East Industrial Policy (NEIP), 1997, through the notification dated 01.03.2007Rs.2. ISSUE-WISE DETAILED ANALYSISIssue (i): Promissory Estoppel and Premature WithdrawalRelevant legal framework and precedents: The doctrine of promissory estoppel prevents a party from withdrawing a promise that the other party has relied upon. Key precedents include the Supreme Court cases of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Union of India & Ors. v. Unicorn Industries.Court's interpretation and reasoning: The court examined whether the withdrawal of tax exemptions through the notification dated 01.03.2007 was premature and violated the principle of promissory estoppel. The court noted that the exemptions were initially promised under the NEIP 1997 to stimulate industrial growth in the North Eastern Region.Key evidence and findings: The court considered the investment made by the petitioners based on the promise of tax exemptions and the subsequent withdrawal of these benefits.Application of law to facts: The court applied the doctrine of promissory estoppel, considering whether the government was bound by its initial promise despite the withdrawal notification.Treatment of competing arguments: The respondents argued that the withdrawal was justified by public interest, particularly concerning health hazards associated with tobacco products. The petitioners contended that the withdrawal lacked justification and violated promissory estoppel.Conclusions: The court concluded that the notification dated 01.03.2007 was indeed hit by promissory estoppel, as the respondents failed to demonstrate any misuse of incentives or undue advantage taken by the petitioners.Issue (ii): Eclipsing of Notification No.69/03-CERelevant legal framework and precedents: The court considered the interplay between successive notifications and their legal impact.Court's interpretation and reasoning: The court examined whether the notification dated 25.08.2003 was effectively nullified by the subsequent notification dated 21.01.2004.Key evidence and findings: The court noted that the latter notification expanded the benefits but imposed additional conditions.Application of law to facts: The court analyzed the terms of both notifications to determine if the earlier one was eclipsed.Treatment of competing arguments: The petitioners argued for the continued application of benefits under the earlier notification, while the respondents claimed the latter notification superseded it.Conclusions: The court found that the notification dated 25.08.2003 had merged with the notification dated 21.01.2004, and the petitioners could not claim benefits without complying with new conditions.Issue (iii): Justification for Withdrawal of BenefitsRelevant legal framework and precedents: The court considered the justification for policy changes and the role of public interest.Court's interpretation and reasoning: The court assessed whether the withdrawal of benefits was justified by public interest or misuse of the escrow mechanism.Key evidence and findings: The respondents cited public health concerns and misuse of the escrow mechanism as reasons for withdrawal.Application of law to facts: The court evaluated the validity of these justifications in the context of the petitioners' claims.Treatment of competing arguments: The petitioners disputed the public health rationale and argued that misuse of the escrow mechanism was not substantiated.Conclusions: The court determined that the notification dated 01.03.2007 could not be sustained, as the respondents failed to prove misuse or public interest justifying the withdrawal.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The cumulative effect is that the notification dated 01.03.2007, Annexure-L to the writ petition, cannot be sustained and accordingly the same is set aside.'Core principles established: The judgment reinforced the principle of promissory estoppel in the context of government notifications and the need for clear justification when withdrawing promised benefits.Final determinations on each issue: The court concluded that the withdrawal of tax benefits was unjustified under the doctrine of promissory estoppel, the earlier notification was effectively merged with the latter, and the respondents failed to substantiate their claims of public interest or misuse to justify the withdrawal.