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1990 DIGILAW 20 (DEL)

MODI RUBBER LIMITED v. UNION OF INDIA

1990-01-25

CHARANJIT TALWAR, S.N.SAPRA

body1990
JUDGMENT CHARANJIT TALWAR, J. The petitioner - company is carrying on the business of manufacturing tyres and tubes for motor vehicles. The case of the petitioner is that till the end of the year 1974, there was an acute shortage of tyres in India. New investment for setting up a tyre plant was difficult to get as huge investment of about Rs. 30 crores was required for an installed capacity of about 5 lakhs tyres per annum. By the time the petitioner's plant was completed and ready for production in October, 1974, the total investment of the company went up to even over Rs. 30 crores. It is averred that during the time the petitioner was setting up its project, it explained the difficulties of new units to the Government of India for considering fiscal measures to be adopted for the tyre industry to enable new units to achieve a reasonable return on their investments and to be able to compete with the existing old established tyre companies. It is claimed that the Government of India, after fully investigating the relevant facts pertaining to the tyre industry found that the cost of investment in putting up a new tyre industry had gone up by four times to that of the old established units and keeping that in view, recommended fiscal relief by way of rebate in excise duty. Thus keeping in view the objective of giving incentive to various industries to increase their production as compared to the past production, a composite scheme was evolved by the Government of India. That scheme was given effect to, it is urged, by promulgating Notification No. 198/76 dated June 16, 1976 (annexure "A" to the writ petition). This notification was issued in exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944. This scheme was to remain in operation till March 31, 1979 and it applied to 43 items given in the Table annexed to the notification. Tyres and tubes falling within the purview of item No. 16 of the First Schedule to the Central Excises and Salt Act, 1944 have been shown in the said Table at Sl. Nos. 18 and 19. Tyres and tubes falling within the purview of item No. 16 of the First Schedule to the Central Excises and Salt Act, 1944 have been shown in the said Table at Sl. Nos. 18 and 19. Under this notification, a manufacturer who cleared goods in excess of base clearance, as provided under the said scheme, was entitled to a rebate of 25 per cent excise duty on such excess clearance. It is the case of the petitioner - company that it acted on the said notification and submitted its declarations to the appropriate departmental authority from time to time which were accepted by the department. The salient features of the incentive scheme as provided in the said notification were explained by the Government of India, Ministry of Finance, Department of Revenue and Banking vide letter No. F. No. 2221/19/75 TRU. On the basis of this letter, various Collectorates in India issued trade notices highlighting the said incentive scheme. One such notice issued by the Nagpur Collectorate has been annexed as annexure "C" to the petition. The opening para of that document shows that the scheme of excise duty relief had been announced to encourage higher production. The salient features of the scheme, which, as we have noticed above, was to remain in force up to March 31, 1979, were detailed in the said trade notice of June 25, 1976. The petitioner has averred in paragraphs 19 to 27 of the petition that acting on the basis of the aforesaid scheme and with a view to achieving the maximum benefit, it made large investments for increasing production. However, on July 14, 1978 the Central Government issued the impugned Notification No. 141/78 withdrawing the benefit of 25 per cent excise duty relief on the excess production of tyres and tubes. This notification was also issued in exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, amending the earlier notification issued on June 16, 1976. The main contention of the petitioner - company is that the notification dated the 16th June, 1976 bearing No. 198 of 1976 which was time bound up to March 31, 1979, could not be withdrawn as the Central Government was estopped from doing so. Mr. The main contention of the petitioner - company is that the notification dated the 16th June, 1976 bearing No. 198 of 1976 which was time bound up to March 31, 1979, could not be withdrawn as the Central Government was estopped from doing so. Mr. Ravinder Narain, learned counsel for the petitioner submits that the doctrine of promissory estoppel applies against the Central Government and in any event the Government has no power to withdraw the benefit of exemption till the said date, i.e., 31st March, 1979. This petition was filed on 27th July, 1978, i.e., within a fortnight of issuance of the impugned notification. By that time, it seems to us that the principle of promissory estoppel against the Government had not fallen for consideration of the Supreme Court. It was in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42 (SC); [1979] 2 SCR 641; AIR 1979 SC 621 that this doctrine was thoroughly analysed. While holding that there can be no promissory estoppel against the Legislature in the exercise of its legislative functions, it was held that : "It is true that taxation is a sovereign or governmental function, but, for reasons which we have already discussed, no distinction can be made between the exercise of a sovereign or governmental function and a trading or business activity of the Government, so far as the doctrine of promissory estoppel is concerned. Whatever be the nature of the function which the Government is discharging, the Government is subject to the rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it. Whatever be the nature of the function which the Government is discharging, the Government is subject to the rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it. We are, therefore, of the view that in the present case the Government was bound to exempt the appellant from payment of sales tax in respect of sales of vanaspati effected by it in the State of Uttar Pradesh for a period of three years from the date of commencement of the production and was not entitled to recover such sales tax from the appellant." However, it was made clear in this judgment that the principle of promissory estoppel cannot be used to compel the Government or a public authority to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority. It was further pointed out that the doctrine of promissory estoppel being an equitable doctrine, it has to yield when the equity so requires. In Jit Ram Shiv Kumar v. State of Haryana AIR 1980 SC 1285 , the Supreme Court while dealing with this very proposition, however, held that the principle of promissory estoppel was not available against the Government in exercise of not only its legislative or sovereign powers but also in exercise of executive powers. As this decision could not be reconciled with the decision in Motilal's case [1979] 44 STC 42 (SC); [1979] 2 SCR 641; AIR 1979 SC 621 , it was expressly disapproved in the case of Union of India v. Godfrey Philips India Limited [1986] 59 Comp. Cas 526 (SC); (1985) 22 ELT 306 (SC). The law in regard to the doctrine of promissory estoppel, as laid in the earlier case of Motilal Sugar Mills [1979] 44 STC 42 (SC); [1979] 2 SCR 641; AIR 1979 SC 621 was held to be a correct law and it has thereafter been followed in a number of decisions by the Supreme Court. We are of the opinion that in the facts of the present case the doctrine of promissory estoppel against the Government can be pleaded by the petitioner. We are of the opinion that in the facts of the present case the doctrine of promissory estoppel against the Government can be pleaded by the petitioner. In Ceat Tyres of India Limited v. Union of India reported in [1987] 31 ELT 332 (Bom), the very question which has fallen for our consideration, viz., withdrawal of rebate on excise duty on excess production of tyres and tubes, fell for decision by the Bombay High Court. After surveying the case law, that court was of the view that the exercise of power of exemption under rule 8 of the Central Excise Rules cannot be held to be a legislative function and the promise held by the Government can be enforced. In paragraph 18 of the reported judgment, it was held as follows : "Therefore, it is clear that when an exemption has been issued under rule 8 of the Central Excise Rules, such exercise of power cannot be equated with the legislative function and the promise held by the Central Government to grant exemption in given conditions, can be enforced and the Government is bound by it and the obligation cannot be released on the basis that such exemption is in legislative exercise of its function. It is legislative in character but the Parliament has not made it. The Government can make and unmake such laws, day in and day out. It cannot be said that in such cases the doctrine of promissory estoppel has no application." Before the Bombay High Court, the respondents had taken up a plea that the petitioners had not acted in pursuance of the notification of 1976 nor had they suffered any loss or damage. Before us, in reply to the averments contained in paragraphs 16 to 27 regarding the petitioner having altered its position in pursuance of the said notification and having spent a huge amount to increase production, the respondents have merely denied the allegations. It is stated in the counter-affidavit as follows in reply to the said paragraphs : "Nothing is admitted which is not borne out by records." We agree with learned counsel for the petitioners that the above reply is vague and cannot be considered a denial in the eyes of law. The averment of the petitioner having altered its position because of the notification of 1976 has to be accepted. The said doctrine, we hold, is applicable. The averment of the petitioner having altered its position because of the notification of 1976 has to be accepted. The said doctrine, we hold, is applicable. The other argument urged by Mr. Rajinder Dutt, learned counsel for the respondents was that it would be inequitable to hold the Government to its promise made in the notification of 1976. He reiterated the plea taken up in the counter-affidavit that the working of the scheme was reviewed at the end of the second financial year, i.e., 1977-78 and it was found that in respect of tyre industry certain anomalies and distortions had crept in. Therefore, the relief granted earlier was required to be withdrawn and thus in public interest the scheme was modified vide the impugned notification. It is to be noticed that apart from a bare assertion, the respondents have not given any particulars or data to support the assertion. In Ceat Tyres's case [1987] 31 ELT 332 (Bom) it was held that it is just not enough to state that the exemptions were withdrawn in the public interest or that there was a change in the policy because of review of the scheme. We agree with the view of the Bombay High Court. The bald assertion of the respondents that the scheme was reviewed and modified in public interest is of no effect and rejected. The impugned Notification No. 141 of 1978 issued on July 14, 1978, is hereby quashed. We allow the petition and make the rule absolute. However, in the circumstances of the case, there will be no order as to costs. Petition allowed.