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2004 DIGILAW 588 (GAU)

Assam Brook Ltd. v. Union of India

2004-11-29

RANJAN GOGOI

body2004
JUDGMENT Ranjan Gogoi, J. 1. All the cases under consideration having raised common questions of law on identical facts were heard together and are being disposed of by this common judgment and order. 2. Pursuant to a policy decision of the Government of India to provide incentives for development of industries in the North-eastern region an Office Memorandum dated 24th of December, 1997 was issued by the Ministry of Industries, Govt. of India promulgating a new industrial policy/concessional package for development of industries in the Northeastern States of the country. Amongst the different incentives and concessions announced, exemption from Central Excise in respect of industrial activities relating to manufacture of tea in the North-eastern States for a period of ten years, as contained in the Office Memorandum dated 24th December, 1997 is the subject matter of consideration in the present bunch of writ petitions. The petitioners are manufacturers of tea classifiable under Chapter 9 heading 09.02 sub-heading 09.02.00 of the Central Excise Tariff Act, 1985. Central excise on tea and tea waste falling under the heading and sub-headings noted above, on the date of the issuance of the O.M. dated 24.12.1997 was nil. With effect from the mid-night of 27th/28th February, 1999 excise duty at the rate of Rs. 2 per kilogram of bulk tea was introduced. As the levy was not accompanied by any exemption thereof to manufacturers of tea in the North-eastern Region, a series of writ petitions were filed before this Court. During the pendency of the aforesaid writ petitions, a Notification bearing No. 33 of 1999 was issued on 8.7.1999 exempting, amongst others, tea cleared from a unit located in any of the Northeastern States from the duty of excise leviable under the provisions of the Central Excise Act, 1944; Additional Duty of Excise (Goods of Special Importance) Act, 1957 and Additional Duties of Excise (Textile and Textile Articles) Act, 1978. The aforesaid Notification No. 33 of 1999, issued under the relevant provisions of the statutes in question empowering the Central Govt. to grant exemptions, contemplated payment of duty by the manufacturer in the first instance and refund thereof, upon due verification, in the manner specified in the Notification. Pursuant to the Notification No. 33/99 refund of duty paid by the manufacturers of tea like the petitioners were granted. to grant exemptions, contemplated payment of duty by the manufacturer in the first instance and refund thereof, upon due verification, in the manner specified in the Notification. Pursuant to the Notification No. 33/99 refund of duty paid by the manufacturers of tea like the petitioners were granted. In the meantime by the Finance Act of 2002 the duty leviable on tea and tea-waste was brought down to Rs. 1 per kilogram. Thereafter, pursuant to the budget speech of the Hon'ble Finance Minister of the Union for the financial year 2003-04, an exemption Notification No. 6 of 2003 was issued exempting tea from the excise duty leviable and instead, an additional duty of excise, by way of surcharge, at the rate of Rs. 1 per kg. was introduced by Section 157 of the Finance Act, 2003. The duty imposed, thereafter, was included in the First Schedule to the Tariff Act of 1985. The demand of the manufacturers of tea for refund of the aforesaid additional duty of excise under Notification No. 33/99 having been turned down by the respondents on the ground that such refund is not covered by the said Notification No. 33/99 and further as the levy of additional excise duty by the Finance Act of 2003 is for the purposes of creation of a special fund for development of the tea industry, the instant writ petitions have been filed seeking appropriate intervention of the Court in the matter so as to facilitate the refund of the additional duty of excise levied and paid by the manufacturers. 3. The arguments advanced on behalf of the petitioners by Sri K.N. Choudhury, learned senior counsel and the resistance offered on behalf of the Union by Sri B. Sarma, learned Additional C.G.S.C. has been elaborate and reliance has been placed by the respective counsels on several case laws. The arguments and counter-arguments advanced disclose two primary questions that would call for answers from this Court in the present bunch of cases. The first is whether additional duty of excise levied by way of surcharge with the avowed object of creating a special fund for the development of the tea industry is covered by the exemption Notification No. 33 of 1999 so as to entitle the manufacturers to a refund of the said duty. The first is whether additional duty of excise levied by way of surcharge with the avowed object of creating a special fund for the development of the tea industry is covered by the exemption Notification No. 33 of 1999 so as to entitle the manufacturers to a refund of the said duty. A negative answer to the above question for the Court would require consideration of the further issue as to whether the petitioners would be entitled to exemption from the duty imposed/refund thereof on the basis of the claimed promise of exemption from excise duty in terms of the policy resolution of the Government dated 24th of December, 1997. Having noticed what must be answered, the Court may now proceed to perform the required exercise in the light of the arguments advanced and the judicial precedents cited at the Bar. 4. While the learned counsel for the petitioners has argued that the additional duty of excise levied by the Finance Act of 2003 is in essence a duty of excise leviable under Section 3 of the Central Excise Act, 1944 and, therefore, the Notification No. 33 of 1999 would operate to exempt the same, learned counsel for the Union has argued that additional duty having been imposed by the Finance Act, must be distinguished from the basic duty (CENVAT) imposable under Section 3 of the Central Excise Act, 1944. It is an additional duty by way of surcharge for creation of a special fund and what has been exempted by Notification No. 33/99 is the basic duty leviable under Section 3, argues the learned counsel for the Union. It is, therefore, argued that the aforesaid Notification No. 33/99 would not entitle the petitioners to any exemption from the additional duty of excise. 5. The arguments advanced are capable of a quick resolution in view of a decision of the Apex Court in the case of Union of India and Ors. v. Modi Rubber Limited and Ors., reported in wherein a somewhat similar question had arisen. In Modi Rubber Limited (supra), apart from the basic excise duty imposed under Section 3 of the Central and Salt Act, 1944 (as in force at that point of time) on manufacturers of tyres, special excise duty @ 5% of the basic duty was imposed by the Finance Act, 1978. In Modi Rubber Limited (supra), apart from the basic excise duty imposed under Section 3 of the Central and Salt Act, 1944 (as in force at that point of time) on manufacturers of tyres, special excise duty @ 5% of the basic duty was imposed by the Finance Act, 1978. Two exemption Notifications under Rule 8(1) of the Central Excise Rules (corresponding to Section 5A of the present Act) were in force exempting the "duty of excise". The question that arose is whether special duty of excise imposed by the Finance Act would be covered by the exemption notifications in force. The Apex Court answered the question in the negative holding that in view of the provisions of Section 32(4) of the Finance Act, 1978, the source of power to exempt the special duty would be traceable to Rule 8(1) read with Section 32(4)of the Finance Act, 1978 which would require the exemption Notifications to recite and record the said facts. In Modi Rubber Limited (supra), the exemption Notifications were issued in exercise of powers under Rule 8(1) alone. Section 32(4) of the Finance Act, 1978 is perimeteria with Section 157(3) of the Finance Act of 2003. The Notification No. 33/99 does not recite that the exemption granted is in exercise of powers under Section 5A read with Section 157(3) of the Finance Act. The power exercised is under Section 5A. Consequently, on the ratio of the law laid down by the Apex Court in Modi Rubber Limited (supra), there is no doubt that Notification No. 33/99 cannot operate to exempt the additional duty of excise imposed by the Finance Act of 2003. 6. There is another aspect of the matter that must be dealt with at this stage. The additional duty of excise imposed by the Finance Act, 2003 was not a prevailing duty on the date when the Notification No. 33/99 was issued. The question, therefore, would be whether the Notification can be understood to provide for exemption of a duty that was not in force at the time when it was issued. The above question again need not detain the Court having been also answered by the Apex Court in the case of Modi Rubber Limited (supra). The following passage from the judgment of the Apex Court in Modi Rubber Limited (supra) would succinctly sum up the situation. "10. The above question again need not detain the Court having been also answered by the Apex Court in the case of Modi Rubber Limited (supra). The following passage from the judgment of the Apex Court in Modi Rubber Limited (supra) would succinctly sum up the situation. "10. Moreover, at the date when the first Notification was issued, namely, 1st August, 1974, there was no special duty of excise leviable on tyres. It came to be levied on tyres with effect from the financial year 1978 under various Finance Act enacted from year to year. It is therefore difficult to understand how the expression 'duty of excise' in the Notification dated 1st August, 1974 could possibly be read as comprehending special duty of excise which did not exist at the date of this Notification and came to be levied almost four years later. When special duty of excise was not in existence at the date of this Notification, how could the Central Government, in issuing this Notification, have intended to grant exemption from payment of special excise duty? The presumption is that when a Notification granting exemption from payment of excise duty is issued by the Central Government under Rule 8(1), the Central Government would have applied its mind to the question whether exemption should be granted and if so to that what extent. And obviously that can only be with reference to the duty of excise, which is then leviable. The Central Government could not be presumed to have projected its mind into the future and granted exemption in respect of excise duty which may be levied in the future, without considering the nature and extent of such duty and the object and purpose for which such levy may be made and without taking into account the situation which may be prevailing then. It is only when a new duty of excuse is levied, whether special duty of excise or auxiliary duty of excise or any other kind of duty of excise, that a question could arise whether any particular article should be exempted from payment of such duty of excise and the Central Government would then have to apply its mind to this question and having regard to the nature and extent of such duty of excise and the object and purpose for which it is levied and the economic situation including supply and demand position then prevailing, decide whether exemption from payment of such excise duty should be granted and if so, to what extent. It would be absurd to suggest that by issuing the Notification dated 1st August, 1974 the Central Government intended to grant exemption not only in respect of excise duty then prevailing but also in respect of all future duties of excise which may be levied from time to time." 7. This would bring us to the second issue in the case, i.e., whether the petitioners are entitled to invoke the doctrine of promissory estoppel to claim a right to exemption from payment of additional duty of excise imposed by the Finance Act, 2003. Learned counsel for the petitioners asserts that in the Office Memorandum dated 24.12.1997 laying down the Government Policy to provide incentives, there is a clear and unequivocal promise on the part of the Central Government to exempt manufacturers of tea in the N.E. Region from the purview of Central Excise for a period of 10 years. There is no dispute with regard to the promise made and the further fact that it is on the basis of the aforesaid promise that the petitioners had set up their industries or had undertaken substantial expansion, it is argued. The petitioners, therefore, have altered their position relying on the promise made. The absence of any provision for exemption of the additional duty imposed or for refund thereof as has been provided for in the Notification No. 33/99 is therefore, contrary to the promise made. Arguing further, learned counsel for the petitioners has submitted that a promise made in the Industrial Policy Resolution would bind the Government and failure or omission to act accordingly is liable to be corrected by a Court of Law. Arguing further, learned counsel for the petitioners has submitted that a promise made in the Industrial Policy Resolution would bind the Government and failure or omission to act accordingly is liable to be corrected by a Court of Law. In this regard, reliance has been placed on a judgment of the Apex Court in the case of State of Bihar and Ors. v. Suprabhat Steel Limited and Ors., reported in 1999 (1) SSC page 31. As the additional duty of excise is neither exempted nor refundable to manufacturers like the petitioners, the argument advanced is that the said position is contrary to the Industrial Policy Resolution as circulated by Office Memorandum dated 24.12.1997. Placing reliance on a judgment of the Apex Court in State of Punjab v. Nestle India Limited and Anr., reported in 2004 (Vol. 136) STC 35, learned counsel for the petitioners has argued that as the Central Government was competent in law to make the promise of exemption in view of the power conferred by the provisions of the statute, the said promise is capable of being enforced by suitable directions from the Court. 8. The arguments advanced on behalf of the Union and the stand taken in the affidavit concentrate on the first issue raised, which has already been answered in favour of the Union. However, the said answer would not be determinative of the scrutiny made by the Court with regard to the entitlement of the writ petitioners. In so far as the plea of promissory estoppel as advanced by the writ petitioners is concerned, the promise and the alteration of the position of the petitioners on the basis thereof is not being denied, a position, which perhaps, stands undisputed in view of the refund already granted in terms of the Notification No. 33/ 99. Nothing has also been pleaded or argued on behalf of the Union to enable the Court to come to the conclusion that the Union should be allowed to recall its promise and resile from the same either on the ground of better equities or superior public interest. The sole argument advanced is that a constitution of a special fund for the development of the tea industry in the N.E. Region is contemplated from the resources collected by the levy in question and the said resources are intended to be ploughed back for the development of the tea industry. 9. The sole argument advanced is that a constitution of a special fund for the development of the tea industry in the N.E. Region is contemplated from the resources collected by the levy in question and the said resources are intended to be ploughed back for the development of the tea industry. 9. A perusal of the industrial policy resolution of the Central Government circulated by Office Memorandum dated 24.12.1997 clearly reveals that there is an unequivocal and unambiguous declaration that all Industrial activity including manufacture of tea in the North Eastern States would stand exempted from payment of Central Excise Duty for a period of 10 years. No dispute has been raised that the petitioners had not set up or had not expanded their manufacturing units on the basis of the exemption contemplated in the Office Memorandum dated 24.12.1997. If that be so, there can be no manner of doubt that the petitioners have, indeed, altered their position by relying on the promise made by the Central Government. That an Industrial Policy Resolution is capable of creating legal relationship which ought to be enforced by the Courts has been clearly laid down by the Apex Court in the case of Suprabhat Steel (supra). A somewhat discordant note struck by the judgment of the Apex Court in the case of Sales Tax Officer and Anr. v. Shri Durga Oil Mills and Anr., reported in relied upon at the Bar, can be satisfactorily explained by understanding the peculiar facts in which the judgment of the Apex Court was made. In Shri Durga Oil Mills the Industrial Policy Resolution is dated 18.7.1979 whereas the notifications granting exemption were issued on 11.11.1969 and 23.4.1976. The said notifications were withdrawn on 20.5.1997 but were restored again on 9.9.1997 with modifications. The petitioners in that case, who claimed to have set up the industry pursuant to the Industrial Policy Resolution dated 18.7.1979 challenged the withdrawal of the Notifications and re-promulgation of the benefits in a modified form which, however, were made prior to the issuance of the Industrial Policy Resolution. That apart, in the above case, the State had pleaded a specific case as to why it should be allowed to resile from the promise which was found by the Apex Court in favour of the State. That apart, in the above case, the State had pleaded a specific case as to why it should be allowed to resile from the promise which was found by the Apex Court in favour of the State. In the present case, it is not the stand of the Union that it should be allowed to alter its Industrial Policy Resolution on ground of superior public interest or for any other sufficient cause. In fact, no pleading or argument seeking to justify any departure from the Industrial Policy Resolution has been made on behalf of the Union. 10. The exemption from payment of duty of excise is required to be granted by the empowered authority by exercising powers conferred to that effect by the statute. No exemption Notification in so far as additional duty of excise levied by the Finance Act of 2003 has been issued. Learned counsel for the petitioners has sought to establish a legal right in the petitioners to claim benefit of exemption by relying on several judicial pronouncements particularly the decision of the Apex Court in the case of Motilal Padampat Sugar Mills Company Limited v. State of Uttar Pradesh, reported in Union of India v. Godfrey Philips India Limited, reported in and a recent pronouncement of the Apex Court in the case of State of Punjab v. Nestle India Limited and Anr., reported in (2004) 136 35. It will not be necessary to burden this judgment by any elaborate discussion on the several case law cited and it will suffice to notice and follow the recent pronouncement of the Apex Court in Nestle India Limited (supra) which contains an exhaustive enumeration of the development in this particular sphere of law with specific reference to the leading pronouncements of the Apex Court including the cases of Motilal Padampat and Godfrey Philips. In Nestle India Limited, a decision to abolish purchase tax on milk imposable under the provisions of the Punjab Sales Tax Act was announced by the Chief Minister of the State at a State Level Function. This was followed by a statement to the same effect in the budget speech of the Finance Minister and thereafter an inter Office Memorandum was issued to the said effect. No exemption Notification was, however, issued though the power to exempt was statutorily conferred. Subsequently, a contrary decision was taken. This was followed by a statement to the same effect in the budget speech of the Finance Minister and thereafter an inter Office Memorandum was issued to the said effect. No exemption Notification was, however, issued though the power to exempt was statutorily conferred. Subsequently, a contrary decision was taken. The question that arose in the aforesaid facts is the liability of the purchasers of milk to pay purchase tax between the two dates in question. The Apex Court, relying on the decisions rendered in Motilal Padampat and Godfrey Philips held that as the power to exempt is contained in the statute, a promise to grant exemption can be enforced under law under doctrine of promissory estoppel even if no exemption Notification is issued. The Apex Court, however, held that if the power to exempt is not statutorily conferred, such enforcement will be contrary to law. The following observations of the Apex Court in Nestle India Limited would adequately sum up the position in law. "43. ......... Similarly, Century Spinning held that despite the requirement of the statute prescribing the manner and form to grant exemption from payment of octroi, a promise not made in that manner or form could be enforced in equity, Then again in Godfrey Philips (1986) 4 SCC 369, the court directed an exemption to be granted on the basis of the principles of promissory estoppel even though Rule 8 of the Central Excise Rules, 1944 required exemption to be granted by notification." "44. Of course, the Government cannot rely on a representation made without complying with the procedure prescribed by the relevant statute, but a citizen may and can compel the Government to do so if the factors necessary for founding a plea of promissory estoppel are established. Such a proposition would not "fall foul of our constitutional scheme and public interest." On the other hand, as was observed in Motilal Sugar Mills case and approved in the subsequent decisions: "It is indeed the pride of constitutional democracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of law is concerned : the former is equally bound as the latter. It is indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the doctrine of promissory estoppel." In this regard, the following further observations of the Apex Court in the case of Motilal Padampat (supra) must also be noticed by this Court in coming to its eventual conclusion. "33. ..........It is true that taxation is a sovereign or governmental function, but, for reasons which we have already discussed, no distinction could be made between the exercise of a sovereign or governmental function and trading or business activity of the government, so far as the doctrine of promissory estoppel is concerned......." The exceptions to the principle of promissory estoppel as pointed out by the Apex Court in Motilal Padampat, Godfrey Philips and Nestle India Limited are not present in the present case. In fact, it has already been noticed by this Court that there has been no attempt on the part of the Union to satisfy the Court that it should be allowed to recall its promise or resile from the same on the ground of better equities or superior public interest. 11. In view of the discussion that has preceded a conclusion can be reached that the absence of any provision for exemption or for refund of the duty paid is contrary to the promise of exemption made and the Union must be held to be bound by its promise. That the levy in question is intended to generate a special fund which is intended to be used for the development of the tea industry as stated in the additional affidavit filed on behalf of the Union and vehemently contended by the learned C.G.S.C. to defeat the claim made by the petitioners, in the considered view of the Court, would be of little consequence. The special fund generated is intended to be deployed to provide for revival and rehabilitation packages for closed/abandoned tea gardens; incentives to manufacturers for production of orthodox type of tea; generic promotion of tea in India and assistance to two Research and Development Institutions as stated in the additional affidavit of the Union. The special fund generated is intended to be deployed to provide for revival and rehabilitation packages for closed/abandoned tea gardens; incentives to manufacturers for production of orthodox type of tea; generic promotion of tea in India and assistance to two Research and Development Institutions as stated in the additional affidavit of the Union. The laudability of the measures intended cannot confer legality and legitimacy to the actions impugned which must necessarily be judged in the context of the promise contained in the Industrial Policy Resolution of the Union under which Manufacturers like the petitioners are intended to be exempted from the levy in question. The intended deployment of the funds generated by the levy cannot be construed to even remotely resemble the exemption to which the petitioners are entitled. Consequently, this Court has no hesitation in allowing the writ petitions by declaring that the petitioners are not liable to pay the additional duty of excise imposed by the Finance Act, 2003 and therefore would be entitled to all consequential reliefs including refund of duty paid, as may reasonably flow to them in law.