TaxTMI 
TaxTMI 
2010 (12) TMI 237
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....-2003, 2004, which was to remain in operation till 31^st of March 2015. As the desired results were not so good and there being no acceleration in the rate of growth of industrial sector primarily on account of the disturbed conditions in the State and competition from cheaper imported products coming into the country as a result of the policy of globalization, and economic liberalization pursued by the Government of India, forcing many local Small Scale Industrial Units to down their shutters and increase in the problem of unemployment on account of saturation in the Government jobs, impelled the State of J&K to approach the Central government for a special package for development of industries in the State on the lines of North East Industrial Policy notified by the Central Government vide Ministry of Industry's OM No.EA/1/2/96-IPD dt. 24th of Dec'97. The Central Government felt the need for structured intervention strategies to accelerate industrial development of the State and boost investor confidence. Vide Notification dated l4th of June 2002 issued by the Ministry of Commerce & Industry (Department of Industrial Policy &.Promotion), Government of India some new initiat....
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....on of Cenvat credit under the Cenvat Credit Rules, 2002. The exemption contained in the above notification was to apply only to those industrial units namely:- a/ who had commenced their commercial production on or after 14th of June' 2002; and b/ industrial units existing before l4th of June'2002, but have undertaken substantial expansion by way of increase in installed capacity by not less than 25% on or before the, above date. Clause (4) of the notification provided that exemption contained in the said notification shall apply to any of the aforementioned units for a period of not exceeding ten years from, the date of publication of the notification in the. Official gazette or from the date of commencement of commercial production whichever is later. The above notification was amended vide notification No. 5/2003-C.E. dated 13th of Feb'03, by adding following proviso in second paragraph in clause (b):- "Provided that 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 to the manufacture of goods cleared under this notification." ....
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....uty for a period of ten years from the date of commencement of commercial production. It is stated that on the basis of the said promise extended to the investors by way of above notification, the petitioners invested huge money in the State of J&K, in order to start the industrial activity. It is further contended that hot only the expenditure was incurred in setting up the industrial units in the State but had to train the man-power of the State for employment in these industrial units and convert them from un-skilled to specialized and skilled man-power. By setting up the industrial units in the State of J&K on the promise extended to the investors by the Central Government as also the State Government, in the shape of the industrial policy promulgated by the respective Governments; about 70% of employment has been generated from .amongst the local youths of the State. The further contention raised is that as the raw material used for manufacture of various goods is not available in the State of J&K, the same has to be procured from outside the State from different parts of the country, which results in increase in the input cost of the product which costs would not have been....
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....nt Steel, 2008(2) SCC 777, State of Bihar v. Suprabhat Steel Ltd and anr, 1999(1) SCC 31, Union of India v. Shree Ganpati Rolling Mills, (2006) 3 GLR 586, Dai-Ichi Karkara Ltd v. UOI, 2000(4) SCC 57, Motilal Padmapat Sugar Mills v. State of Uttarpradesh and ors, 1979(2) SCC 409, Assistant Comm of Commercial Taxes v. Dharmendra Trading Co. Ltd (Dharwad, 1988(3) SCC 570, Pournami Oil Mills and ors v. State ofKeralaand ors, 1986(Suppl) SCC 728, Shrejee Sales Corporation and ors v. Union of India, 1997(3) SCC 398, Satyam Steel & Alloys Pvt Ltd v. UOI, 2005(182) ELT 441 (Gau) and a judgment of Guwahati High Court in the case of Karnakhya Cosmetics and Pharmaceuticals Pvt. Ltd v. UOI and ors. Respondents have resisted the petitions by stating that Section 5(A) of the Act of 1944, confers the power upon the Central Government to grant exemption from payment of excise duty in case a satisfaction is recorded that ranting of such an exemption is in the larger public interest. This power can be exercised in absolute terms or subject to such conditions to be fulfilled, as may be, specified in the notification on excisable goods. In the year 2002, the Government had provided excise duty exem....
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.... order to show that no prejudice has been caused to the petitioner units, reliance has been placed on the sample of invoices to indicate that the petitioners collect excise duty from their customers to whom the goods are sold. Under the General Clauses Act, power to exempt includes the power to modify or withdraw the same. Placing reliance on a judgment of the Apex Court reported as Kasinka Trading and anr v. UOI and another, (1995) 1 SCC 274, it is contended that the action of respondents in withdrawing the exemption vide notification impugned is in accordance with the law. Regarding the plea of promissory estoppel, it is stated that the said doctrine is not applicable in the present case. Reliance in this regard has again been placed on the judgment in the case of Kasinka Trading (supra) and R.C. Tobacco Pvt. Ltd. V UOI, reported in 2005(1988) ELT 129. It is stated that even if promise is extended by way of a scheme to the investors, the Government in public interest can withdraw the same before the expiry of the date as fixed in the said Scheme regarding grant of a special incentive or benefit. It is further contended that the impugned notifications provide for remedial measu....
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....addition to the said incentives, there was exemption from payment of sales tax, municipal tax etc., also. Lured by the said promise extended to the investors in terms of the policy and the notification issued pursuant thereto, the petitioners established their industrial units within the specified areas as defined in the policy to carry out different industrial activities. In order to further notice the factual background, the facts as narrated in one of the writ petition. i.e. OWP No. 460/08 titled M/s Bharat Box Factory Ltd v. State and ors, which is taken as the lead case, may be noticed as under: - The petitioner in the above writ petition has contended that on the promise extended by the Central as well as the State Government in terms of the policy and the notification issued pursuant thereto dt.14th of Nov'02, providing for refund of entire excise duty on the manufacture of specified goods as per the said policy; an industrial unit was set up in the specified area in the State on 17th of April'03, for manufacturing printed corrugated cartons at an investment of Rs. 1.77 Crores by taking loan from banks and other financial institutions. The investment as on today on the....
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....e not been denied by the respondents. So what emerges from the pleadings is that on the promise extended by the State Government and the Central Government in terms of the policy and the earlier notification, referred to above, the petitioners established their industrial units in the State within the specified areas and started the industrial activities, and thus, changed their position. The industrial units were so established on the promise extended to them by the Government to provide the incentive of 100% exemption from payment of excise duty on finished goods and in lieu of this, the petitioners have altered their position by establishing the industrial units within the specified areas in the State This answers question Nos. 1 and 2. Question No.3: While exercising its sovereign power, whether the exemption granted by the State would be an exemption simplicitor or by way of an incentive offered for establishment of industries in the specified areas in the State, is the next question which is to be determined, it be seen that the State has the power to formulate the policies which are in public interest. Such a power can be exercised by invoking Article 162 of the Con....
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....he specified areas in the State of J&K to manufacture specified goods in terms of the policy and in case, such an activity is carried on within the State, there will be 100% exemption from payment of excise duty for a period of ten years. In such a situation, the State cannot revoke the exemption in terms of Section 5A of the Act of 1944 on the premises that power to grant exemption also provides for its withdrawal. In case of exemption simplicitor, the power to grant and withdraw the exemption is traceable to a Statute and can be exercised in larger public interest. In case of exemption being granted on the basis of a policy resolution where there is an element of inducement, the same cannot be withdrawn if it has the effect of resiling from such a promise. However, it is not to say that the State cannot resile from its promise provided it establishes to the satisfaction of the court that overriding public interest so requires. Whether there exists such a supervening public interest to withdraw the exemption would be discussed at a later part of the judgment. The respondents, as noticed above, raised the contention that the impugned notifications have been issued in public i....
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.... exemption which holds a promise or incentive for setting up an industry and in respect of the power exercised in pursuance to a Statute which does not hold any promise. At this stage, it would be appropriate to notice what has been observed by the Apex Court in para 16 of the judgment in the case reported as State of Jharkhand and others v. Tata Cummins Ltd. And another, (2006) 4 SCC 57:- 'Before analyzing the above policy read with the notifications, it is important to bear in mind the connotation of the word "tax" A tax is a payment for raising general revenue. It is a burden. it is based on the principle of ability or capacity to pay. it is a manifestation of the taxing power of the State. An exemption from payment of tax under an enactment is an exemption from the tax liability. Therefore, every such exemption notification has to be read strictly. However, when an assessee is promised with a tax exemption for setting up an industry in the backward area as a term of the industrial policy, we have to read the implementing notifications in the context of the industrial policy. In such a case, the exemption notifications have to be read liberally keeping in mind the ob....
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....has to act upon his promise. The doctrine of promissory estoppel is not based on the principle of estoppel. This doctrine is evolved by equity to see that no injustice is caused. Where a party by his word or conduct makes a promise to another party in unequivocal and clear terms intending to create legal relations knowing or intending that it would be acted upon by the party to whom the promise is made and it is so acted upon by the other party the promise would be binding on the party making it and the said party would not be entitled to go back on the promise made. Reliance be placed on the judgment of the Apex Court in the case reported as Bangalore Development Authority and others v. R. Hanumaiah and others, (2005) 12 SCC 508. What: has been observed in para 28 of the judgment in the above case, may be noticed as under:- "The doctrine of promissory estoppel is not based on the principle of estoppel. It is a doctrine evolved by equity in order to prevent injustice. Where a party by his word or conduct makes a promise to another person in unequivocal and clear terms intending to create legal relations knowing or intending that it would be acted upon by the party to Wh....
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....r not. "33 The State, however, contended that the doctrine of promissory estoppel had no application in the present case because the appellant did not suffer any detriment by acting on the representation made by the Government: the vanaspati factory set up by the appellant was quite a profitable concern and there was no prejudice caused to the appellant. This contention of the State is clearly unsustainable and must be rejected. We do not think it is necessary, in order to attract the applicability of the doctrine of promissory estoppel, that the promise, acting in reliance on the promise, should suffer any detriment. What is necessary is only that the promise should have altered his position in reliance on the promise....." Reliance can also be placed on the judgment of the Apex Court in the case reported as Pournami Oil Mills and others v. State of Kerala and another, 1986 (Supp)SCC 728. In the above case, a policy was formulated by the State ofKerala, for boosting of industrialization. Some incentive was provided in the shape of exemption from payment of sales tax and purchase tax to the industrial units for setting up their units and carrying out the industrial acti....
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....requires, and if it can be shown by the Government or the public authority for having regard to the facts as they have transpired that it would be inequitable to hold the Government or public authority to the promise or representation made by it. The court on satisfaction would not, in those circumstances raise the equity in favour of the persons to whom a promise or representation is made and enforce the promise or representation against the Government or the public authority..." What emerges from the observations made by the Apex Court, noticed, above, is that in case, the State or the public authority is able to show that the promise held out to the promisee cannot be made good as on the facts equity so demands and the larger public interest so requires, the Government cannot be made bound by the said promise. The doctrine of promissory estoppel would be displaced if the Government is able to show that during the said period, supervening public interest would tie prejudiced if the promise is carried out. But in that eventuality, the court has to see the public interest as also the position of the promisee who has altered the position on the basis of the promise extended to it....
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....ion 5A of the Act of 1944, the Government granted l00% exemption from payment of excise duty to those industrial units who established their units on or before 14th of June'02, or who undertook substantial expansion of their units by not less than 25% on or after the said date, the detail of which has already been discussed above. The import of the policy read with the notification issued in this regard reveals as follows:- a/ that 100% exemption from payment of excise duty on the goods manufactured by the units within the specified areas in the State for a period of ten years would be given from the date of issuance of notification or from the date of commencement of commercial production whichever is later; b/ the mode of exemption was by way of a refund mechanism. The excise duty payable on the finished goods was refundable except the credit for Cenvat incentive. This was the promise extended to the petitioner units who established their units in the specified areas in the State and also those who undertook substantial expansion of their units in terms of the policy and the notification dt.14th of June'02, and started manufacturing the specified goods. All t....
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....al notification of 2002. The original scheme, in pursuance to which the units were set up in the State, provided that the duty payable on the inputs has to be given credit while charging the excisable duty from the manufacturer. The remaining excise duty is to be paid from the personal ledger account which alone is refunded. Certain inputs. are not subjected to the excise duty but constitute the raw material for a finished product. Once this input raw material is used for the purpose of finished goods and finished goods are leviable to excisable duty, the manufacturer would not be entitled to claim exemption from payment of excise duty. What is contended is that the manufacturer will have to pay l00% excise duty on its finished goods, the inputs of which are not excisable and he would be entitled to refund only to the extent of value addition in terms of the impugned notifications. From the aforementioned discussion, it clearly emerges that a promise was extended by the State Government to the petitioner Units by way of an incentive in the shape of 100% exemption from payment of excise duty and acting upon the said promise, the petitioners established their units within the s....
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....in the manufacture of goods and the cost incurred would be the value addition. There is no dispute that the petitioners could not have been misled in this behalf and they fully understood that it is the actual manufacturing activity which is required to be carried out within the specified areas in the State which entitles them to grant of such an exemption. It is the actual manufacturing activity carried out in the specified areas which is the basis on which promise has been extended. If no industrial activity is carried out in the specified areas in the State, then no such promise can be enforced against the State. After having done so, the respondents had to maintain the refund of 100% excise duty on such value addition to is here where the deviation has taken place by providing that the refund will be permissible only to the extent of average rates fixed in this behalf. This is not what was the promise held out by the earlier notification. It cannot be said that the impugned notifications continued to extend the same promise as was intended in terms of the earlier notification. The deviation, thus, as indicated above, has taken place in this regard vide impugned notificati....
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....te 1. 29 All goods 29 2. 30 All goods 56 3. 33 All goods 56 4. 34 All goods 38 5. 38 All goods 34 6. 39 All goods 26 7. 40 Tyres, Tubes and Flaps 41 8. 72 or 73 All goods 39 9. 74 All goods 15 10. 76 All goods 36 11. 85 Electric motors and generators sets and parts thereof 31 12. Any Chapter Goods other than 36 those mentioned above 36 The further stand taken by the respondents is that in order to verify the factum of bogus production by the industrial units within the specified areas, a study was carried out by the Excise department on receipt of information from the Director General, Central Excise Intelligence and other concerned agencies to find out the percentage of excise duty paid in cash from the Cenvat Credit account by the units availing this exemption. The details in this regard were compared with the duty payment details of industrial groups all over the country located in unspecified areas. It was found that the industrial units located in specified areas were paying a higher percentage of duty in cash through Personal Ledge....
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.... scrutiny in the present case. Adequacy of material based on which such a changed policy decision has been taken, cannot be examined by this court. State cannot be the judge of its own cause and when decision to withdraw its promise is taken on the basis of some supervening public interest, this question has to be determined by the court and such a determination cannot be ipse dixit of the Government. It is for the court to determine as to whether the material on the basis of which such a promise has been withdrawn is adequate or not. It is in this light that the question is required to be considered. Now what is the material on the basis of which decision to allow refund of excise duty under revised mechanism has been taken? In this regard, the respondents have based their claim on following a made in the objections:- 1/ that the amount of duty paid on the personal ledger account by the units in the specified areas is higher than those units located in unspecified areas; 2/ the actual percentage of duty refundable on the value addition has been done on the basis of all India average. The percentage principle applied in respect of the industrial units locate....
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....The very foundation for permitting refund duty worked out on all India bases, has been done without any study and is per so arbitrary. The other contention raised by the respondents is that if a representation is made by a manufacturer, in specified areas, the jurisdictional Commissioner shall determine the actual value addition in the production of the goods. This determination of actual value addition has been termed as the special rate. This concept of special rate displaces the very foundation of the rate fixed in terms of original notification. Vide impugned notifications, in case, the actual quantum of excise duty payable by a manufacturer on his final product would have been reflected, the question of modification of average rate and introduction of special rate would not have arisen at all. It clearly reflects that respondents themselves were not sure regarding the actual rate payable on value addition. This leads to the conclusion and acknowledgment on the part of respondents that even in a given case. it is possible that the average rate of excise duty payable on finished goods as announced by the impugned notification may not be correct and it is in view of the subseq....
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....he refund etc., is also doubted. The respondents cannot be permitted to plead such a state of affairs without bringing on record any cogent evidence in this regard. The issue of misuse cannot be generalized. It has to be case specific covering an individual or of individuals every such misuse is required to be ascertained and verified before asserting that there has been misuse of exemption. By a general survey conducted, it cannot be said that the exemption benefit is being misused by the present petitioners. Taking recourse to the fact that exemption granted is being misused without identifying the individual cases would be an exercise which can be termed to have been, made by the respondents only to deny the exemption granted to the petitioners by way of original notification in pursuance to which they have altered their position. This action on the part of respondents can be termed to be arbitrary in nature. I am fortified in this view by a judgment of the Apex Court reported as U.P. Power Corporation Ltd. And another v. Sant Steels & Alloys (P) Ltd. And others, (2008) 2 SCC 777. What has been observed by the Apex Courtin paragraphs 30 and 3 of the above judgment may be n....
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....the revocation of such concession can be said to be in public interest. Since the benefit was given to these units in the hill areas, there should have been overwhelming evidence to show some mala fide on the part of these consumers which have persuaded the Corporation to revoke it. If there was no misuse of the energy by these units in the hill areas to whom the concession had been granted then in that case it cannot be taken that there was really public interest involved which persuaded the Corporation to revoke the same. In the present case, the plea of respondents that some unscrupulous manufacturers were involved in bogus production for the purpose of claiming maximum exemption from the payment of excise duty, cannot be generalized but has to be case specific. The same, therefore, cannot be treated to be in the public interest as projected by the respondents. This is because there has been no individual identification of such bogus manufacturers and the action of respondents vide impugned notifications would prejudice the rights of those genuine manufacturers who on the promise of the State, have altered their position and are involved in fair industrial activities. In v....
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.... in this regard. I am fortified in this view by a judgment of the Apex court reported as (1988) 3 SCC 570, Assistant Commissioner of Commercial Taxes (Asst.) Dharwar and others v. Dharmendra Trading Company and others. What has been observed by the Apex Court in para 6 of the above judgment, may be noticed as under:- "....The only submission made on behalf of the appellants is that since the benefit given is called a refund, it cannot be said to be an exemption or reduction as permitted by Section 8-A. In our view, there is no substance in this submission at all. In order to test the validity of the order dated June 30, 1969, one has to see the substance of the concession granted under the order and not merely certain words used out of context. Although the benefit regarding sales tax granted to the new industries is by way of refunds of sales tax paid to the extent provided in the order, it is clear that, in effect, the benefit granted is in the nature of an exemption from the payment of the sales tax or reduction in the sales tax liability to the extent stated in the order....." The other contention raised by the petitioners is the impugned notifications are prospecti....