Dharampal Satyapal Ltd. v. Union of India Through Under Secy. Govt. of India, Ministry of Finance Deptt.
2018-07-27
ACHINTYA MALLA BUJOR BARUA
body2018
DigiLaw.ai
JUDGMENT : Heard Dr. A. Saraf, learned Senior counsel, assisted by Mr. K. Choudhury, learned counsel for the petitioner as well as Mr. B. Sarma, learned Standing counsel, Central Excise Department, Assam. 2. The petitioner is a company having its registered office at 1711, SP Mukherjee Marg, Delhi and is primarily engaged in the manufacture and sale of chewing tobacco, which is also known as pan masala. The petitioner company availed the benefit of the North East Industrial Policy, 1997 (NEIP 1997) and set up two manufacturing units, one in the State of Tripura and other in the State of Assam. 3. The Govt. of India, pursuant to a policy decision, had issued two Notifications, bearing No.32/99-CE and 33/99-CE, both dated 08.07.1999, by which exemptions were granted in respect of excise duty, as well as additional excise duty, in respect of certain goods manufactured in the specified areas in the North Eastern Region of India. The exemptions were made applicable to such manufacturing units which were established after 24.12.1997 and manufactured any of the goods mentioned in the 1st and 2nd Schedule to the Central Excise Tariff Act, 1985 and also to those goods which were specified in the Schedule to the Notifications. A further provision was that in order to avail the benefits the manufacturing units be located in any of the seven north eastern states, which apparently also includes the States of Assam and Tripura. 4. By a subsequent Notification No.45/99-CE dated 31.12.1999, the earlier two Notifications of 08.07.1999 were amended and tobacco related products, including pan masala, were excluded from the purview of the exemptions. By the later Notification dated 17.01.2000, the exemptions granted earlier were restored, but by the further Notifications dated 22.01.2000, and 01.03.2001, the exemptions were again withdrawn. 5. The exemptions granted and the withdrawal of the exemptions effected as indicated above, culminated in the Notification No.69/2003-CE dated 25.08.2003 by which the exemptions granted were to the extent of 50% of the duty payable.
5. The exemptions granted and the withdrawal of the exemptions effected as indicated above, culminated in the Notification No.69/2003-CE dated 25.08.2003 by which the exemptions granted were to the extent of 50% of the duty payable. The Notification of 25.08.2003 further provided that the exemption to the extent of 50% would be available in respect of those units which manufactured the specified goods, which also included pan masala, and have their manufacturing unit in any of the seven north eastern states and had commenced their commercial production after 24.12.1997 and not later than 28.02.2001, subject to the following: (i) The unit claiming such exemption should have continued the manufacturing activities after 28.02.2001 and had earlier availed the benefit of exemption as per the Notifications No.32/99-CE and 33/99-CE, both dated 08.07.1999. (ii) The amount of the duty payable, which stood exempted, should be utilised by the manufacturer for investment in plant and machinery and such investments are to be made before expiry of six months from the end of its quarter. (iii) The manufacturer was required to furnish the details of the investment within one month from the expiry of the six months to a committee comprising of the Chief Commissioner of Central Excise, Shillong, the Principal Secretary of the Department of Industry of the State where the unit is located and the Principal Secretary of the Department of Industry of the State where the investment was made, which committee was referred as the Investment Appraisal Committee (IAC). (iv) The IAC upon examining the details would satisfy itself as to whether the investment was made in the required manner and thereupon issue a certificate to the manufacturer, which would be utilised by it for availing the 50% exemption in the excise duties. (v). A further requirement was that the investment so made was for a period of 10 years from the date of investment. 6. The commercial productions of the pan masala and the later investments of the petitioner company towards claiming the exemption in excise duty stood covered by the Notification dated 25.08.2003. Another Notification, being Notification No.8/2000/4-CE dated 21.01.2004 was issued whereby a scheme for complete exemption from excise duty and additional excise duty was introduced subject to compliance of certain new conditions.
The commercial productions of the pan masala and the later investments of the petitioner company towards claiming the exemption in excise duty stood covered by the Notification dated 25.08.2003. Another Notification, being Notification No.8/2000/4-CE dated 21.01.2004 was issued whereby a scheme for complete exemption from excise duty and additional excise duty was introduced subject to compliance of certain new conditions. The said Notification also contains the condition that the exemptions are available in respect of the Units located in the seven States in the North Eastern Region (NER), which had commenced commercial production on or after 24.12.1997, but not later than 28.02.2001 and had availed the benefits under the Notifications dated 08.07.1999 and further that the investments equivalent to the excise duty and additional excise duty payable were made before expiry of six months from the end of each quarter and that the details of such investments were placed before the IAC for its acceptance and issuance of the certificate. 7. Thereafter, the Notification No.28/2004-CE dated 09.07.2004 was issued. The said Notification was also issued under Section 5A(1) of the Central Excise Act of 1944, read with Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Section 136(3) of the Finance Act, 2001. The Notification of 09.07.2004 accordingly amends the earlier Notification of 21.01.2004. 8. While retaining the conditions of exemption that the units be located in the seven States of NER, and had commenced commercial production on or after 24.12.1997, but not later than 28.02.2001 and had availed the benefits under the Notification dated 08.07.1999, and that the investment of the excise duty payable were made in plant and machinery in a manufacturing unit which are located in any of the seven States of NER or in infrastructure or civil works, or social projects in any of the seven States, and further the investments were made before expiry of six months of every quarter, the Notification of 09.07.2004 had also prescribed a procedure of making the investments which is different from the earlier Notifications.
The procedure for investment prescribed under the Notification dated 09.07.2004 is that: (i) The amount equal to the excise duty, special excise duty, additional excise duty and national calamity contingent duty payable in a quarter, but for the exemption shall be deposited by the manufacturer within 60 days from the end of each quarter, in an escrow account to be opened by the manufacturer for the purpose in a Bank authorised for excise duty collection. (ii) The operation of the escrow account, including, withdrawal from the account shall be made with the prior approval of the jurisdictional Commissioner of Central Excise (CCE), taking into account the conditions specified in the Notification. (iii) The manufacturer, pending the investment of the withdrawn amount, shall execute a bond, as may be specified, binding himself to pay on demand the amount deposited in the escrow account, but not so invested as required, along with the interest at the rate specified under Section 11AB of the Central Excise Act of 1944. (iv) The amount deposited in the escrow account shall be invested in the manner as indicated above, within a period of 2(two) years from the date of its deposit in such account and the amount withdrawn from the escrow account shall be invested in the manner indicated within 60 days from the date of its approval. 9. The notification of 09.07.2004 also provided that after the investment so made, the manufacturer shall submit a quarterly statement within 60 days from the end of the relevant quarter to the IAC, giving details of the deposits and the withdrawals made from the escrow account, along with the details of investment made during the quarter, which shall not be later than one month after the expiry of the period of two months from the deposit in the escrow account. The manufacturer, thereupon, shall prove to the satisfaction of the IAC that the investments were made for the purpose specified in condition B of the Notification dated 21.01.2004. 10. The IAC, thereupon, if satisfied that the investments were made as required under condition B of the Notification dated 21.01.2004, shall issue a certificate to that effect to the manufacturer whereupon the manufacturer shall stand discharged from payment of excise duty to the extent of investment so certified. 11.
10. The IAC, thereupon, if satisfied that the investments were made as required under condition B of the Notification dated 21.01.2004, shall issue a certificate to that effect to the manufacturer whereupon the manufacturer shall stand discharged from payment of excise duty to the extent of investment so certified. 11. If in the event, the manufacturer fails to make the deposit in the escrow account, or does not invest the amount equal to the duties payable within the stipulated period and in the manner provided, an amount equivalent to the amount not so deposited or invested shall be recoverable from the manufacturer along with interest specified in Section 11AB of the Central Excise Act, 1944, without prejudice to any further action that may be taken under the said Act, or any other law in force for the time being, by forfeiture of the amount deposited in the escrow account. 12. From the aforesaid provision of the Notifications dated 21.01.2004 and 09.07.2004, what is discernible is that the manufacturer is required to deposit in an escrow account, an amount equal to the excise duty, special excise duty, additional excise duty and national calamity contingent duty payable in a quarter, within 60 days of the end of the quarter and the amount so deposited be invested in a manner as provided under condition B of the Notification dated 21.01.2004, within a period of two years from such deposit. In the event, the amount is not so deposited in the escrow account or if deposited, or not invested in the required manner within two years, the duties so payable are recoverable from the manufacturer along with interest prescribed under Section 11AB of the Central Excise Act, 1944. 13. The manner in which the investment is to be made is provided under condition B of the Notification dated 21.01.2004 which is as under:- “B. An amount equal to the sum of basic excise duty, special excise duty, additional excise duty and national calamity contingent duty, payable, but for the exemption in this notification, shall be utilised by the manufacturer only for investment in: (i) Plant and machinery in a manufacturing unit which is located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland or Tripura; or (ii) Infrastructure or civil works or social projects in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland or Tripura.” 14.
Further the provision as to how the amount is to be withdrawn from the escrow account is provided under condition C(ii) of the Notification dated 09.07.2004, which is as under: “(ii) Operations including withdrawals from and closure of the said escrow account shall be made with the prior approval of the jurisdictional Commissioner of Central Excise, taking into account the conditions specified in this Notification and to safeguard the revenue.” 15. The manner in which the IAC is required to give its consideration is provided under clause D, which is as under: “D. The manufacturer shall: (i) submit a quarterly statement, within sixty days from the end of the relevant quarter to a Committee, consisting of the Chief Commissioner of Central Excise, Shillong, the Principal Secretary in the Department of Industry of the State concerned in which the unit is located and the Principal Secretary in the Department of Industry of the State in which the unit is located and the Principal Secretary in the Department of Industry of the State in which the investment is being made, giving details of deposits made in and withdrawal made from, the escrow account, along with details of investment, made during the quarter; (ii) provide all details relating to the investment made in terms of condition (B), not later than one month after the expiry of the period of two years referred to in condition (C), to the said Committee; (iii) prove to the satisfaction of the said Committee that the investment has been made for the purposes specified in condition(B); 16. As provided under condition C(ii) of the notification dated 09.07.2004, the petitioner was allowed to withdraw certain amount from the escrow account for making investments as required under condition B of the notification dated 21.01.2004. Upon such investments being made, the details thereof were placed before the IAC, which was considered in its meeting held on 24.12.2012. 17. As per the minutes of the IAC of 24.12.2012, an investment amounting to Rs.18,66,86,576/- out of the total claim of investment submitted by the petitioner stood rejected. Consequent thereof the petitioner was also issued a demand notice dated 26.10.2013, for payment of excise and other duties amounting to Rs.18,66,86,576/-, along with interest. Against such rejection and the demand notice, the petitioner preferred a writ petition WP(C) No. 1174/2013, which was given a final consideration by the judgment and order dated 07.08.2013. 18.
Consequent thereof the petitioner was also issued a demand notice dated 26.10.2013, for payment of excise and other duties amounting to Rs.18,66,86,576/-, along with interest. Against such rejection and the demand notice, the petitioner preferred a writ petition WP(C) No. 1174/2013, which was given a final consideration by the judgment and order dated 07.08.2013. 18. In the writ petition a stand was taken that in the minutes of rejection dated 24.12.2012 no reasons thereof were assigned nor the petitioner was given an opportunity for a hearing before the IAC had arrived at its conclusion. In the affidavit in opposition the respondents therein had taken the stand that the investments were disallowed as the IAC was of the view that the same were not investments made as required under the scheme. A further stand was taken that under the scheme no opportunity of hearing or showing cause was required to be given. 19. By the judgment and order dated 07.08.2013 of the Division Bench in WP(C) No.1174/2013, the stand of the respondent authorities that the scheme does not provide for any opportunity being given for substantiating the claim of investments were rejected on the ground that the principles of natural justice are imbibed in the scheme itself. 20. The Division Bench further went into the question as regards the role of the IAC in the post escrow situation, vis-a-vis the role of the jurisdictional Commissioner, who also makes an application of mind at the time of granting the approval for withdrawal from the escrow account, as regards the question as to whether the investments sought to be made meets the requirement of condition B of the notification dated 21.01.2004. The Division Bench in this respect refers to an earlier decision of this Court dated 06.10.2010 rendered in Dharampal Satyapal Ltd. & others Vs. Union of India and others reported in 2010 (1) GLT 744. Accordingly the matter was remanded back to the IAC for a reconsideration by giving the petitioner an opportunity of hearing by keeping in mind the position of law as indicated in Dharampal Satyapal Ltd.(Supra). 21. It is stated that the judgment and order of this Court dated 06.10.2010, in Dharampal Satyapal Ltd.(Supra) and a similar judgment and order dated 29.06.2010, were both affirmed by the Division Bench in writ appeals No. 394 and 395 of 2010, which were preferred by the respondent authorities. 22.
21. It is stated that the judgment and order of this Court dated 06.10.2010, in Dharampal Satyapal Ltd.(Supra) and a similar judgment and order dated 29.06.2010, were both affirmed by the Division Bench in writ appeals No. 394 and 395 of 2010, which were preferred by the respondent authorities. 22. In the judgment and order dated 06.10.2010 in Dharampal Satyapal Ltd. (Supra), in paragraphs 30 to 35 it has been held as under: 30. What is, now, of prime importance to borne in mind is that the liability of the manufacturer to satisfy the jurisdictional Commissioner that the withdrawal, sought for by the manufacturer, is for such a purpose as is envisaged by the Notification, dated 09.07.2004, imposes a corresponding duty, on the jurisdictional Commissioner, to ensure that he does not permit any withdrawal by a manufacturer from the Escrow Account unless the withdrawal, sought to be made, is for the purpose of making ‘investment’ on such a project, which is envisaged and permitted by the notification aforementioned, namely, that the ‘investment’ is in ‘plant and machinery’ or in ‘infrastructure’ or ‘civil works’, or ‘social project’. 31. Once the jurisdictional Commissioner has granted the withdrawal, the manufacturer cannot be penalized except when the withdrawal is proved to be fraudulent or is proved to have been allowed by the jurisdictional Commissioner on extraneous considerations or in collusion with the manufacturer for a purpose, which is not envisaged and permitted by the Notifications aforementioned. The reason is very simple. The Notification, dated 09.07.2004, promises exemption from payment of excise duty if manufacturer, who is otherwise, eligible to make ‘investment’ under the Notification, dated 21.01.2004, invests such sum of money, as he may be liable to pay as excise duty, or additional duty of excise, or special excise duty, etc., in ‘plant and machinery’, in a manufacturing unit or in “infrastructure”, or ‘civil works’, ‘social projects’, which are mentioned in the Notification, dated 09.07.2004. Having so invested the money with the permission of the jurisdictional Commissioner, the manufacturer is required to satisfy the IAC that he not only has made the ‘investment’, as claimed by him but also that he has invested the money for a purpose, which meets the conditions embodied in clause (B) of the Notifications.
Having so invested the money with the permission of the jurisdictional Commissioner, the manufacturer is required to satisfy the IAC that he not only has made the ‘investment’, as claimed by him but also that he has invested the money for a purpose, which meets the conditions embodied in clause (B) of the Notifications. It is easily understandable that a manufacturer, if honest, would be hesitant to make ‘investment’ freely unless he is satisfied that he would receive refund of the amount, which is invested by him. For this purpose, it was not only necessary that the manufacturer be sure that he was investing money in any of the four categories of specified activities, but he be also sure that the IAC would not reject his ‘investment’ on the ground that the ‘investment’, though made, was for a purpose not envisaged or allowable under the Notification aforementioned. In other words, in order to enable a manufacturer make ‘investment’ without reservation and freely, the scheme, now, embodied in the Notification, dated 09.07.2004, assures that if the investor makes an ‘investment’, his ‘investment’ would not be rejected on the ground that his ‘investment’ is for a purpose, which is not permissible under the Notifications, particularly, in a case, wherein the fact that he has made the ‘investment’ is not in dispute, for, hesitation, on the part of a person to invest on the ground that his investment may or may not be allowed, could have validly created obstacles in the free flow of ‘investment’. 32. It was, obviously, therefore, that the Central Government deemed it fit that before an ‘investment’ is made, the scheme of ‘investment’ is examined by an appropriate authority, to be appointed by the Central Government, so that no ‘investment’ is made unless it is covered by the purposes, which are specified under the Notifications. At the same time, it was also necessary that the interest of revenue be safeguarded so that a manufacturer, who invests on a project, which is not covered by the Notifications, does not, having already made such impermissible ‘investment’, claim exemptions and drags thereby the Central Government into litigation by trying to justify that his ‘investment’ falls within the scheme of the Notifications. 33.
33. Thus, in order to make the earlier scheme workable, the scheme, introduced later by the Notification, dated 09.07.2004, has brought into picture the jurisdictional Commissioner, who has been vested with the power to allow, or not allow, withdrawal from the Escrow Account. This apart, safeguarding the interest of revenue, all such amounts, which would be claimed as exemption, are required, now, to be deposited in the Escrow Account. No withdrawal from such an account can be allowed by a jurisdictional Commissioner unless the ‘investment’, sought to be made, is for the purposes as envisaged by the Notifications. Once the jurisdictional Commissioner has allowed an amount to be withdrawn from the Escrow Account for the purpose of making ‘investment’, there is no separate appellate or revisional authority including the IAC under the scheme of exemption, which can sit on the wisdom of the decision of the jurisdictional Commissioner. 34. It needs to be clearly understood that before the scheme, dated 09.07.2004, came into force, the IAC was required to do both, namely, enquire if the ‘investment’ had, at all, been made, and, if so, whether the ‘investment’ was for a purpose mentioned in the Notification. If, on such enquiry, it was found that the ‘investment’ had been made for a purpose other than what the Notifications, dated 21.01.2004, had envisaged, the IAC was not required to undertake any further exercise to determine if the manufacturer had or had not really invested the amount as claimed by him. Thus, the manufacturer was required to make, under the earlier Notification, dated 21.01.2004, ‘investment’, at his own peril and without knowing as to whether his ‘investment’ would or would not be allowed as an ‘investment’ within the meaning of the scheme of the Notification. Howsoever honest may be a manufacturer, the fact remains that any such kind of scheme, which the Notification, dated 21.01.2004, had embodied, could have, many a times, led to a serious controversy and dispute inasmuch as it might have become a matter of mere opinion whether an ‘investment’, already made, was really covered by the scheme of the Notifications or not. No ‘investment’ can be undertaken by a manufacturer on the basis of such an unsure and uncertain scheme. 35.
No ‘investment’ can be undertaken by a manufacturer on the basis of such an unsure and uncertain scheme. 35. The only way, therefore, to make the scheme workable was that either the Central Government, or some authority, appointed by the Central Government, examines the ‘investment’, which is sought to be made, and allows ‘investment’ to be made if and only if the ‘investment’ is for a purpose mentioned in the Notifications. It is this power, which, now, a jurisdictional Commissioner, apparently, exercises. He can, therefore, by no means, be said to be an authority subordinate to the IAC as far as his role of examining the question, as to whether an ‘investment’, sought be made, is for a purpose, as mentioned in the Notification, or not, is concerned. If a manufacturer seeks to make an ‘investment’ and it is allowed by the jurisdictional Commissioner, the interference would be that the ‘investment’ is for a purpose covered by the Notification. The Central Government is bound by the permission, which the jurisdictional Commissioner grants, even if he exceeds jurisdiction in granting such permission. When he grants permission to make an ‘investment’, it would be regarded as a valid ‘investment’. Even if he exceeds jurisdiction and allows an ‘investment’ to be made, which is, otherwise, found to be not covered by scheme, it has to be treated as an ‘investment’ made with the permission given purportedly in exercise of the powers given to a jurisdictional Commissioner by the Notification, dated 09.07.2004. In such cases, the Central Government would be bound by the decision, which the jurisdictional Commissioner has taken. Such a decision would also be binding on the IAC. The IAC cannot, therefore, if an ‘investment’ has been made by a manufacturer after withdrawing money from Escrow Account with due permission from the jurisdictional Commissioner, re-examine and determine as to whether ‘investment’, already made, falls within the scheme of exemption notification or not. 23. Further in paragraphs 44 and 141 it has been provided as under: “44.
The IAC cannot, therefore, if an ‘investment’ has been made by a manufacturer after withdrawing money from Escrow Account with due permission from the jurisdictional Commissioner, re-examine and determine as to whether ‘investment’, already made, falls within the scheme of exemption notification or not. 23. Further in paragraphs 44 and 141 it has been provided as under: “44. ....The manufacturer is, now, required to submit the details of the investment, already made by him, to the IAC and the IAC’s role, now, is to examine the ‘details of investment’ and, if the investment has really been made on the project, in respect whereof, permission by the jurisdictional Commissioner was granted, then, such investment has to be certified by the IAC and, to the extent, so certified, the liability of the manufacturer to make payment of excise duty, etc., would stand discharged.” “....The question of the IAC granting any prior approval for such a project for the purpose of enabling the jurisdictional Commissioner to allow withdrawal from Escrow Account would be alien to the scheme of investment, which the Notification, dated 09-07-2004, envisages. In fact, such a prior sanction of the project by the IAC would amount to usurpation of the power, which stands, vested in and exercisable by, the jurisdictional Commissioner. Had the role of the jurisdictional Commissioner, under the later Notification, dated 09.07.2004, remained confined to only ensuring or safeguarding the interest of revenue, the contention, raised on behalf of the respondents, that the IAC has a role to play in the matter of even initial scrutiny of a project, would have had some substance; but when the Notification, dated 09.07.2004, requires, under condition (C) (ii), that the jurisdictional Commissioner shall, while allowing withdrawal from the Escrow Account, take into account the conditions, specified in the Notification, and also safeguard the interest of revenue, the question of the jurisdictional Commissioner being merely an executor of the decision of the IAC does not arise at all.” “141. ..... The respondent No. 2 has sought to take the shield of protection of superior authority by saying that he has acted in the matter under the instructions of superior authority. It needs to be understood very clearly that the IAC, being not supervisory authority, the jurisdictional Commissioner is competent to take decision on the withdrawal application, as already discussed, after the notification, dated 09.07.2004, has come into force.
It needs to be understood very clearly that the IAC, being not supervisory authority, the jurisdictional Commissioner is competent to take decision on the withdrawal application, as already discussed, after the notification, dated 09.07.2004, has come into force. The concept of higher authority, which the respondents have sought to introduce, is wholly alien to the scheme of exemption inasmuch as neither the Chief Commissioner of Central Excise nor the IAC has any role to play at the stage, when withdrawal permission is required to be given by a jurisdictional Commissioner for making an ‘investment’, on a project, in accordance with the notifications. No higher authority, in the scheme of the notifications, exists so far as jurisdictional Commissioner’s exercise of power, on the question of withdrawal application, is concerned.” 24. What flows from the judgment and order of this Court dated 06.10.2010 in Dharampal Satyapal Ltd.(Supra) is that a conjoint reading of the Notifications, dated 24.01.2004 and 09.07.2004 indicates that the scheme provides: (i) In the post Escrow situation the jurisdictional Commissioner has been vested with the power either to allow or not to allow withdrawal from the escrow account and in doing so the jurisdictional Commissioner shall take into account as to whether the proposed investment sought to be made by the manufacturer conforms to the requirements of condition B of the Notification dated 24.01.2004, that is whether such investments are in plant and machinery in a manufacturing unit, or in infrastructure or civil works or social projects, in any of the seven States of NER. (ii) Such interpretation of the role of the jurisdictional Commissioner in allowing or not allowing the withdrawal from escrow account flows from the provision of condition C(ii) of the Notification dated 09.07.2004, which provides that the jurisdictional Commissioner while allowing the withdrawal from the escrow account shall take into account the condition specified in the Notification, which also includes the conditions specified in condition B of the Notification dated 24.01.2004.
(iii) In the aforesaid situation, once the jurisdictional Commissioner allows the withdrawal from the escrow account, it is to be understood that a due application of mind was made that the investments sought to be made conforms to the requirements of condition B of the Notification dated 24.01.2004 and therefore no further jurisdiction is vested in the IAC to make a fresh application of mind to arrive at a conclusion as to whether the claim of investments conform to the requirement of condition B. In the pre-escrow situation the role and concept of the jurisdictional Commissioner was not in place and consequently the manufacturers were required to make the investments at their own peril and thereafter place the same before the IAC for its application of mind as to whether investments conformed to the requirements of condition B. But such procedure opened the scope of further dispute and secondly had placed the manufacturer at an unenviable position to the effect that the investments made may either be accepted or rejected by the IAC. (iv) In the pre-escrow situation the IAC had the dual role of examining as to whether the investments conformed to the requirements of condition B, as well as, to verify as to whether such investments were actually made or not. But in the post escrow situation the IAC is required only to verify whether the investments conforms to what the jurisdictional Commissioner had allowed and further as to whether such investments were actually made. The difference is that in the post escrow situation the IAC is no longer required to examine whether investments meet the requirement of condition B. All that the IAC is required to do in the post escrow situation is to examine whether the investments claimed conforms to the investments that were approved by the jurisdictional Commissioner at the time of allowing the withdrawal from the escrow account and secondly whether such investments were actually made. 25. The aforesaid role and the respective jurisdictions of the jurisdictional Commissioner and that of the IAC can also be understood from the scheme of the provisions of the Notifications dated 24.01.2004 and 07.09.2004. The Notification of 24.01.2004 envisages only one authority, i.e., the IAC, whereas the Notification 09.07.2004 envisages two authorities, i.e., the jurisdictional Commissioner and the IAC.
25. The aforesaid role and the respective jurisdictions of the jurisdictional Commissioner and that of the IAC can also be understood from the scheme of the provisions of the Notifications dated 24.01.2004 and 07.09.2004. The Notification of 24.01.2004 envisages only one authority, i.e., the IAC, whereas the Notification 09.07.2004 envisages two authorities, i.e., the jurisdictional Commissioner and the IAC. As the Notification 24.01.2004 envisages only one authority, therefore it was for the IAC to examine and conclude as to whether the investments claimed conformed to the requirements of condition B and also whether such investments were actually made. But the notification of 09.07.2004 having provided a distinctive role to the jurisdictional Commissioner to either allow or not to allow the withdrawal from the escrow account by taking into account the conditions specified in condition B of the Notification 24.01.2004, it is clearly to be understood that the jurisdictional Commissioner before allowing or disallowing the withdrawal would make a due application of mind and ascertain as to whether the investments sought to be made conforms to the requirements of the condition B. In other words the decision of the jurisdictional Commissioner that the investments sought to be made conforms to the requirements of the condition B is the final decision and their remains no further jurisdiction on the IAC to arrive at a subsequent conclusion that such investments do not conform to the requirements of condition B. As per the Notification of 09.07.2004 the role of the IAC would now remain confined to examine whether the investments claimed were made as per the approval and acceptance granted by the jurisdictional Commissioner and secondly whether such investments were actually made or not. In the circumstance it is also to be understood that the role and jurisdiction of the IAC in the pre escrow situation and post escrow situation are different from each other and the role it had played in the pre-escrow situation cannot ipso-facto be made applicable also in the post escrow situation. 26.
In the circumstance it is also to be understood that the role and jurisdiction of the IAC in the pre escrow situation and post escrow situation are different from each other and the role it had played in the pre-escrow situation cannot ipso-facto be made applicable also in the post escrow situation. 26. If the role and jurisdiction of the IAC in the pre-escrow and post escrow situation is understood to be same, a situation may arise in the post escrow situation where an investment sought to be made having been approved by the jurisdictional Commissioner can still be rejected by the IAC by claiming that it does not meet the requirements of condition B. But such an understanding would be incongruous to the extent that the investments sought to be made having been approved by the jurisdictional Commissioner, the manufacturer makes such investment thinking it to be the approved investment and if upon making the investments it is subsequently rejected by the IAC, a situation would arrive where the manufacturer would change his position to his detriment at the instance of the jurisdictional Commissioner but would not be entitled to the benefit for which such change of position was made. Such a situation would result in a violation of the principle of promissory estoppel. 27. From the said point of view also, where the manufacturer who acts upon the approval of the jurisdictional Commissioner as regards the investments sought to be made, cannot be led to a situation to his detriment where the IAC would reject the claim for investment on the ground of not being in conformity with the requirements of condition B, which in fact would also mean that the IAC in the post escrow situation acting under the provisions of the Notification dated 09.07.2004 no longer has the jurisdiction to determine as to whether investments claimed conforms to the requirements of condition B. 28. When an authority is required to give his approval, it is also to be understood that such authority makes an application of mind as to whether the matter that is required to be approved satisfies all the requirements of the law or procedure to which it may be subjected.
When an authority is required to give his approval, it is also to be understood that such authority makes an application of mind as to whether the matter that is required to be approved satisfies all the requirements of the law or procedure to which it may be subjected. In other words, grant of approval and an application of mind as to whether such approval is to be granted are co-existent and therefore, when an authority grants an approval, it is also to be construed that there was due application of mind that the subject matter approved satisfies all the legal and procedural requirements. 29. In the aforesaid background when an examination of the minutes of the meeting of the IAC held on 25.06.2016 is made in order to arrive at a conclusion as to whether the requirements and procedure indicated above was satisfied in arriving at the decision to reject the claim of investment made by the petitioner, the following are discernable. 30. The IAC in paragraph 2.4 of the minutes records the various observations that it had made as regards the claim of investment made by the petitioner. In subparagraph 2.4(I) and (II), it was observed that certain investments were invested in Guwahati out of the Agartala Unit of the petitioner. Again in Clause 2.4(III) and (IV) it was observed that some investments were made in Agartala out of the Guwahati Unit. Accordingly, both the investments were rejected. In Clause 2.4(V), certain investments made in civil works, social projects and plants and machinery were rejected, but no reason as such were given as to why such investments were found to be unacceptable. In paragraph 4.1, the IAC arrived at a conclusion that the consultancy services included by the petitioner towards investments in plants and machinery were unacceptable and in paragraph 4.2, 4.3, and 4.4, the TDS, service tax and payment to ESI, respectively, paid by the petitioner which were also included as investments in the plants and machinery, infrastructure and social projects were unacceptable. In paragraph 4.5 to 4.8, it was observed that the plants and machinery which were purchased and kept in the original packed condition, but not installed, were also not acceptable.
In paragraph 4.5 to 4.8, it was observed that the plants and machinery which were purchased and kept in the original packed condition, but not installed, were also not acceptable. The IAC refers to an earlier minutes of a meeting held on 18.08.2004 providing that investments are to be accepted on the basis of installation of plants and machinery and not merely upon placing supply/purchase orders and concludes that the uninstalled plants and machinery in the original packed form is unacceptable. Further, the reliance of the petitioners in the CBEC Circular F No.81/3/2006-CX dated 25.07.2006 which provides that machinery received at site in the North Eastern Region and in possession of the beneficiary shall have to be construed to be an investment made, was also rejected by the IAC by taking a view that the said circular of the CBEC is not binding upon the IAC as because the IAC is a separate committee comprising of senior officials of the State Government and the CBEC and is also an independent statutory authority constituted by the Govt. of India and approved by the Parliament. The IAC was of the view that as because it is an independent statutory authority, therefore, it can formulate its own guidelines for arriving at a decision as to whether or not to allow a particular investment. 31. In paragraph 4.14, the IAC arrives at a conclusion that social project means to establish something for the cause of the people and, therefore, unless some capital investment for the benefit of the society is shown, it cannot be construed to be a social project. In paragraph 4.18, the IAC took a view that the jurisdictional Commissioner under clause C(ii) of the Notification was required to approve the withdrawal under a tripartite arrangement and there was no provision for a prior approval of the scheme either by the jurisdictional Commissioner or of the IAC. A view was further taken that under the Notification, the jurisdictional Commissioner was required only to allow the withdrawal from the escrow account and there is no inbuilt provision allowing the jurisdictional Commissioner to check or to verify the investments before allowing the withdrawals and that it is for the IAC to undertake the verification of the investments for issuing the certificate upon being satisfied that they were made in accordance with law.
Accordingly, the IAC rejected the investments amounting to Rs.18,04,77,678/- out of the claimed investment of Rs.18,66,86,576/-. In other words, except for an amount of Rs.80,246/- the balance of the amount claimed was rejected. 32. From the said minutes of the IAC of 25.06.2014, what is noticeable is that the investments claimed by the petitioner were rejected on the ground of, amongst others, : (i) The investments made in Tripura out of the Guwahati Unit and the investments made in Guwahati out of the Tripura Unit are unacceptable. (ii) The plants and machinery which were not installed but were found available in the original packed condition are unacceptable. (iii) The payment for consultancy service incurred for setting up the plants and machinery, as well as the TDS, Service Tax, ESI payment, paid by the petitioner are unacceptable. (iv) The social project has been interpreted to mean capital investment for the benefit of the society, and, therefore, the investment made in any other form for the benefit of the society are unacceptable. 33. Further the IAC was also of the view that it is a statutory authority comprising of the senior officials and, therefore, they are not bound by the provisions of any Notification or Circular, nor they are bound by any procedure established otherwise and that they have the inherent authority to set up any procedure that it may deem appropriate and thereupon arrive at a conclusion as to whether the investments claimed are acceptable investments or not. It was also the view of the IAC that the jurisdictional Commissioner can only approve the withdrawal and that there was no provision for him to approve the scheme of investments that may be presented or to verify the investments before allowing the withdrawals. 34. The question, as to what the jurisdictional Commissioner was required to do and as to what he can do had already been decided by this Court in its Judgment and Order dated 06.10.2010 in Dharampal Satyapal Ltd.,(supra) wherein in paragraph 33 it has been held that the jurisdictional Commissioner who has been vested with the power to either allow or not to allow the withdrawal from the escrow account cannot accordingly allow or disallow unless the investment sought to be made is found to be for the purpose as envisaged in the Notifications.
In other words, it is a categorical conclusion of this Court that in either allowing or disallowing the withdrawal from the escrow account, the jurisdictional Commissioner makes a due application of mind as to whether the proposed investments conform to the requirements of Clause B of the Notification dated 21.01.2004. 35. The said conclusion of this Court having attained its finality and also having been followed in a subsequent Judgment by the Division Bench, which had also attained its finality, the IAC would be disallowed to take the same view once again and reject the investments claimed by proceeding on the premises that the jurisdictional Commissioner has no authority to approve the proposed investments. 36. Further, Clause C (ii) of the Notification dated 09.07.2004 provides that the withdrawal from the escrow account can only be made with prior approval of the jurisdictional Commissioner by taking into account the condition specified in the Notification. 37. As already alluded hereinabove, any act of granting an approval also includes an inbuilt mechanism that such approval can be granted only upon a due application of mind as to whether the approval is to be granted or refused. When the said requirement of application of mind is read along with the provisions of Clause C(ii) of the Notification on 09.07.2004, it is seen that the jurisdictional Commissioner has to take into account the conditions specified in the Notification, which in other words, would mean that the jurisdictional Commissioner has to make an application of mind that the proposed investments do conform to the requirements of condition B of the Notification dated 21.01.2004. 38. In such view of the matter, the conclusions of the IAC in paragraph 4.18 of the minutes held on 25.02.2016 is unacceptable. The IAC in arriving at its conclusion as to whether the investments claimed conforms to condition B of the Notification dated 21.01.2004, would also have to give a due consideration as to which of the investments claimed by the manufacturer were approved by the jurisdictional Commissioner while granting the approval for withdrawal from the escrow account.
The IAC in arriving at its conclusion as to whether the investments claimed conforms to condition B of the Notification dated 21.01.2004, would also have to give a due consideration as to which of the investments claimed by the manufacturer were approved by the jurisdictional Commissioner while granting the approval for withdrawal from the escrow account. The conclusion of the IAC that the jurisdictional Commissioner was required only to allow the withdrawal from the escrow account and there is no inbuilt provision allowing him to check or verify the investments before allowing the withdrawals is also contrary to the provisions of condition C(ii) of the notification dated 09.07.2004, inasmuch as, under the said provision, the jurisdictional Commissioner is required to allow the withdrawals by taking into consideration the conditions specified in the notification, which would also include condition B of the notification dated 21.01.2004, meaning thereby that the jurisdictional Commissioner shall satisfy itself as to whether the investments sought to be made do meet the requirements of condition B. Further, the conclusion of the IAC that it is for it to undertake the verification of the investments for issuing the certificate upon being satisfied that they were made in accordance with law, would have to be understood that the verifications to be undertaken by the IAC would be as to whether the investments claimed were made as per the approval granted by the jurisdictional Commissioner or whether such investments were contrary to such approval. 39. Any other conclusion to the effect that the IAC has the absolute right to make a re-verification as to whether the investments claimed does conform to the requirements of condition B of the notification dated 21.01.2004, would render the role of the jurisdictional Commissioner under condition C(ii) to grant approval to the withdrawal by taking into consideration the conditions specified in the notification, to be redundant. Such conclusion would also be contrary to the principle of interpretation that a provision of a statute cannot be rendered redundant, while interpreting another provision and both the provisions are to be read in a harmony.
Such conclusion would also be contrary to the principle of interpretation that a provision of a statute cannot be rendered redundant, while interpreting another provision and both the provisions are to be read in a harmony. A harmonious interpretation of condition C(ii) and D(iii) of the notification dated 09.07.2004, providing for the role of the jurisdictional Commissioner and the role of the IAC, respectively would lead to an irresistible conclusion that upon the introduction of the role of the jurisdictional Commissioner by the notification dated 09.07.2004, the role of the IAC would now stand truncated to some extent, in comparison to the extent of its earlier role prior to the notification dated 09.07.2004, when it was the only authority for examining whether the investments claimed meet the requirement of condition B of the notification dated 21.01.2004. 40. Any other interpretation of the role of the jurisdictional Commissioner viz-a-viz the role of the IAC, allowing the IAC to make an independent assessment and verification as to whether the investments claimed conforms to the requirement of condition B and disallow the same as per its own conclusion, without giving due credence to the approval granted by the jurisdictional Commissioner, would render the role of the jurisdictional Commissioner to be redundant and irrelevant. Further, an investment made by the manufacturer strictly in accordance to the approval granted by the jurisdictional Commissioner, if subsequently disallowed by the IAC, merely because it forms a different opinion as regards the conformity to the requirements of condition B, would also lead to a situation where the manufacturer changes his position to his detriment pursuant to such approval of the jurisdictional Commissioner, but not allowed to reap the benefits of such change of position. In other words, there would be a violation of the principle of promissory estoppels, where the manufacturer makes the investments strictly pursuant to the approval of the jurisdictional Commissioner, but after such investments are made, it stands rejected merely because the IAC is of a different view that such investments do not conform to the requirement of condition B. 41.
In other words, there would be a violation of the principle of promissory estoppels, where the manufacturer makes the investments strictly pursuant to the approval of the jurisdictional Commissioner, but after such investments are made, it stands rejected merely because the IAC is of a different view that such investments do not conform to the requirement of condition B. 41. As regards the conclusion of the IAC in its minutes of 25.06.2014 that the investments made in Tripura out of the amounts pertaining to the Guwahati unit and the investments made in Assam out of the amount pertaining to the Tripura unit are unacceptable, in the view of this Court could be contrary to the provisions of condition B of the notification dated 21.01.2004. Condition B provides that the amount equal to the duties payable, but for the exemption, be utilized by the manufacturer only for investment in plant and machinery of a manufacturing unit which is located in the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland or Tripura or for investment in infrastructure or civil works or social projects in the same States. The provisions of condition B clearly provides that such investments can be made in any of the seven North-eastern States and the expression ‘or’ appearing between the name of the States gives a further indication that such investments can be made in either of the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland or Tripura. A reading of condition B shows that there is no such provision which prohibits the manufacturer from making the investments in any of the seven indicated States and that such investments would necessarily have to be confined to the State from where the withdrawal from the escrow account was allowed. Of course, such interpretation would have to be subjected to the condition that investments sought to be made were approved by the jurisdictional Commissioner. But in the instant case, there is no indication in the minutes of 25.06.2014 of the IAC that where the approval of the jurisdictional Commissioner was in respect of the investment to be made in a particular State, the manufacturer in violation thereof had made investment in another State. 42.
But in the instant case, there is no indication in the minutes of 25.06.2014 of the IAC that where the approval of the jurisdictional Commissioner was in respect of the investment to be made in a particular State, the manufacturer in violation thereof had made investment in another State. 42. As regards the rejection of the investment on the ground that the plants and machineries were not installed and were found in the original packed condition, the provision of the CBEC circular dated 25.07.2006, cannot be wholly ruled out by merely providing that the IAC is a statutory authority comprising of senior officials and therefore, it is not bound by the provisions of the circular of the CBEC. Further, the requirement of the various notifications is that such investments should be made for a period of ten years, meaning thereby that the plants and machineries, where the investments were made, should remain in place for at least ten years. In the absence of any appropriate material before the IAC that the manufacturer would remove the plants and machineries before expiry of the period of ten years by keeping the same in the original packed condition, the conclusion arrived by the IAC that such investments are unacceptable, are found to be without any basis and hence, be deemed to be arbitrary. A more rational view would be that the IAC could have required the manufacturer to install the plants and machineries before accepting the investments, rather than to straight away reject the same. 43. As regards the other conclusion of the IAC that the payment for Consultancy Service incurred while setting up the plants and machineries as well as the TDS, Service Tax and ESI Payment are unacceptable towards being included in the investments made, a more rational approach on the part of the IAC would have been to consider as to whether the investments so claimed upon plants and machineries could have been made without incurring the required expenditure for Consultancy Service, TDS, Service Tax and ESI Payment. 44.
44. In paragraph-14 of the judgment of the Supreme Court rendered in Commissioner of Income Tax, Lucknow vs. M/s U.P cooperative Federation Ltd, reported in (1989) 1 SCC 747 , the word ‘investment ‘ has been dealt as under:- “The term invest is used in a sense broad enough to cover the loaning of the money but is not restricted to that mode of investment or loans made on commercial paper. The word invest has been judicially defined as follows: To place property in business; to place so that it will be safe and yield a profit. It is also commonly understood as giving money for other property (as) investing funds on lands and houses. Investment means in common parlance, putting out money on interest, either by the way of loan or by the purchase of income producing property.......” 45. From the said meaning of the term investment as contemplated by the Supreme Court, investment in common parlance would mean putting of money for the purpose for which it is required to be put. Now, whether the purpose for which it is required to be put, can still be achieved without putting the required money for the purpose of Consultancy Service, TDS, Service Tax and ESI Payment would have to be the question to be decided by the authorities concerned. 46. In the instant case, such decision would have to be taken by the IAC and the IAC cannot merely conclude without any decision that the amount spent on Consultancy Service, TDS, Service Tax and ESI Payment, would not be a part of the investment. In other words, the IAC would have to examine the matter as to whether the investments in the plants and machineries can still be achieved without paying for the related amount in respect of Consultancy Service, TDS, Service Tax and ESI Payment. 47. The IAC had rejected the investment claimed by the petitioner in respect of social project by giving an interpretation that the investment in social project would have to be capital investment for the benefit of the society. Capital investment would have to be understood to be an investment to meet the acquisition price of a capital asset, where the word capital means accumulated goods, possessions and assets used for the production of profits and wealth.
Capital investment would have to be understood to be an investment to meet the acquisition price of a capital asset, where the word capital means accumulated goods, possessions and assets used for the production of profits and wealth. When the aforesaid meaning of the expression capital investment is taken into consideration, the reasoning of the IAC that the social project has to be interpreted to mean a capital investment appears to be self contradictory. On one hand we have the concept of social project, which would mean some activity which would lead to the benefit of the society and on the other hand in order to be qualified to be a social project, it must also be a capital investment which ultimately would lead to the concept of production of profit and wealth. It would be difficult to find a purpose where if invested, the same would also lead to the benefit of the society as well as create profit and wealth. In such view of the matter, a more rational approach to examine whether an investment is for the social projects in the State or not, would be to examine as to what was the requirement of the authorities of the Government under whom the social projects were undertaken and as to whether the investments made by the manufacturer conforms to such requirements. 48. In view of the above, and also in the absence of the procedure being followed by the IAC as indicated above, the minutes of the meeting held on 25.06.2014 of the IAC, rejecting the investments claimed by the petitioner, is hereby set aside. Consequent upon the minutes of 25.06.2014 being set aside, the demand notice dated 15.09.2014 is also accordingly set aside. 49. The setting aside of the minutes of the IAC held on 25.06.2014 and the demand notice dated 15.09.2014 shall not preclude the respondent authorities from further pursuing the matter with the petitioner as to whether they are entitled to the exemption from payment of excise duty, additional excise duty, special excise duty and national calamity duty in respect of the investments claimed to have been made under the notifications dated 21.01.2004 and 09.07.2004, respectively. The writ petition stands allowed to the extent indicated above.