[Union of
India & Anr. vs. M/s. V.V.F Limited] (JUDGMENT DT. 22.04.2020)
BACKGROUND
The doctrine promissory estoppel is that when one individual with the intention of creating or affecting lawful relationship makes a promise with another individual and that individual acts on it, that promise must be binding for the individual who is making it. It would not be allowed to go back from its words. The doctrine is based on the principles of justice, fair play, as well as a good conscience.
FACTS OF THE CASE:
The present case deals with a batch of matters arising
from the High Court of Gujarat, High Court of Sikkim, and High Court of
Guwahati. The High Court while invoking the doctrine of promissory estoppel
against the Government held that, the withdrawal of the benefit/incentive to
the industries is retrospective and not retroactive. On these grounds, the High
Court quashed and set aside the notification(s) withdrawing the
benefit/incentive. Aggrieved against the order(s), Union of India (‘Petitioner’) filed an appeal before
the Hon’ble Supreme Court of India. The lead matter in the batch of appeals is
Union of India & Anr. vs. M/s. V.V.F Limited (‘Respondent’) facts of which are dealt as hereunder:
i.
The district of Kutch was hit by a
massive Earthquake in the year 2001, resulting in damage to infrastructure and
huge casualties. Pursuant to the same, in order to attract large scale
investment and generate employment opportunities, the Government of India
announced an incentive scheme for setting up new industries in the earthquake
affected District of Kutch, by issuing Central Excise Exemption Notification
No. 39/2001-CE dated 31.07.2001(‘Original
Incentive Scheme’);
ii.
In terms of the Original Incentive
Scheme, exemption was granted to the goods cleared from a new industrial unit
set up in the Kutch District of Gujarat prior to 31.07.2003 (subsequently
extended to 31.12.2005) from so much of duty of excise as was equivalent to the
amount of duty paid in cash/Personal Ledger Account (PLA) on the finished
goods. That the said incentive of refund of the duty paid in cash/PLA was
available for the period of 5 years from the date of commencement of commercial production;
iii.
On 09.11.2001, the Government of
Gujarat announced an Incentive Scheme, 2001 under which Sales Tax exemption was
available, to only to those industries which were eligible for excise exemption
under the Original Incentive Scheme;
iv.
Various amendments were made in the
Original Incentive Scheme. One of the major amendments was made vide
Notification No. 16/2008-CE dated 27.03.2008 (‘Impugned Notification’). The said notification provided that, the
benefit of refund would be granted with reference to the value addition, which
was notionally fixed @ 34% for the commodity manufactured. It further provided for determination of a
special rate by the Commissioner, in a situation where the actual value
addition was more than the deemed value addition as specified;
v.
The present Respondents filed an
appeal before the High Court of Gujarat against the Impugned Notification.
Simultaneously, the Respondents also filed representations to the Government
for re-consideration. Pursuant to the representations, another notification was issued
by the Central Government vide Notification No. 33/2008-CE dated
10.06.2008 (‘Notification
No. 33/2008). That thereafter the Central Government vide Notification No. 51/2008 dated
3.10.2008 revised the deemed value addition at 75% in respect of the products
manufactured by the original writ petitioners without giving them any option of
applying for a special rate;
vi.
The High Court in its judgement
quashed the Impugned Notification on the ground that, the same is retrospective
and not retroactive, thereby barred by the doctrine of promissory estoppel.
PETITIONER’S SUBMISSIONS BEFORE THE HON’BLE SUPREME COURT
i.
That the High Court did not
properly appreciate the Impugned Notification and erred in considering it to be
a withdrawal of exemption benefit/ incentive provided by the Original Incentive Scheme;
ii.
That the Impugned Notification was
merely clarificatory in nature and cannot be said to be withdrawal of exemption
benefit incentive provided earlier by Original Incentive Scheme;
iii.
That the High Court ought to have
appreciated that the power of such a kind to grant exemption from levy and
collection of duty includes in itself the power to rescind, modify or withdraw
such exemption;
iv.
That the provision of granting of
refund of cash paid portion of duty prompted certain unscrupulous manufacturers
to indulge in different type of tax evasion tactics. As such activities went
against the object and purpose of grant of exemption/incentive, the Government
came out with the Impugned Notification which as such can be only be said to be
clarificatory in nature;
v.
The entire genesis of the Original
Incentive Scheme was to provide exemption only to actual value addition made.
It was in this background and with a view to give effect to such genesis, the
Government in exercise of powers conferred under Section 5A of the Central
Excise Act, 1944 modified the refund mechanism so as to provide that excise
duty refund would be allowed only to the extent of duty payable on actual value
addition made by the manufacturers undertaking manufacturing activities in
these areas;
vi.
That the High Court has erred in
not appreciating that the Impugned Notification was issued by the Government in
public interest and in the interest of revenue.
RESPONDENT’S SUBMISSIONS BEFORE THE HON’BLE SUPREME COURT
i.
That the Impugned Notification
offered refund of the total amount of Central Excise Duty paid in cash/PLA. On
the basis of this promise held out by the Government of India to refund the
Central Excise Duty paid in cash/PLA, heavy investments were made. Therefore,
the Impugned Notification is in violation of the doctrine of promissory
estoppel;
ii.
That mere misuse of the exemption
notification by some of the manufacturers cannot justify the withdrawal of
incentive since there is an adequate machinery available with the Revenue under
the Central Excise Act and under the notification itself, to curb, deduct, as
well as punish the offenders for any such misuse, otherwise the Revenue would
suffer adverse consequences for no fault of theirs;
iii.
That the object and purpose for
issuing the Impugned Notification is irrational and arbitrary and as such cannot be a ground to withdraw the
Original Incentive Scheme.
QUESTIONS BEFORE THE HON’BLE SUPREME COURT
i.
Whether in the facts and
circumstances of the case, the Impugned Notification which has been quashed and
set aside by the High Court of Gujarat, can be said to be clarificatory in
nature?
ii.
Whether it can be said that the
Impugned Notification takes away the vested right conferred pursuant to the
Original Incentive Scheme?
iii.
Whether the Impugned Notification can be made
applicable retrospectively?
iv.
Whether the Impugned Notification has been issued in
the public interest?
v.
Whether the same is hit by the Doctrine of
Promissory Estoppel?
JUDGMENT BY THE HON’BLE SUPREME COURT OF INDIA
-
The principles of promissory
estoppel cannot be invoked, in case the circumstances warrant public interest.
Also, the rule of promissory estoppel being an equitable doctrine has to be moulded
to suit the particular situation. It is
not a hard-and-fast rule but an elastic one,
where the objective is to do justice between the parties and to extend
an equitable treatment to them;
-
Every taxing statute including,
charging, computation and exemption clauses, at the threshold stage should be
interpreted strictly. In case of ambiguity in charging provisions, the benefit
necessarily goes in favour of the assesse although in case of an exemption
notification or exemption clause the benefit of ambiguity must be strictly
interpreted in favour of the Revenue/State;
-
The Impugned Notifications are
clarificatory in nature and do not take away any vested rights conferred under
the earlier notifications/industrial policies. It is well settled that if a statute is curative or merely
declaratory of the previous law retrospective operation is generally intended.
An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which
was already implicit. A clarificatory amendment of this nature will have
retrospective effect;
-
That the object of granting the
refund was to refund the excise duty paid on genuine manufacturing activities,
which is not being taken away by the Impugned Notification. The Impugned
Notification was introduced for the prevention of tax evasion. It can be said that the said Notification
only rationalizes the quantum of exemption and proposing rate of refund on the
total duty payable on the genuine manufactured
goods.
-
That the entire genesis of the
policy manifesting the intention of the Government to grant excise duty
exemption/refund of excise duty paid was to provide such exemption only to
actual value addition made in the respective areas. As it was found that there
was misuse of excise duty exemption it was considered expedient in the public
interest and with a laudable object of having genuine industrialization, the
Impugned Notification was issued. Thereby, the Impugned Notification was in the
public interest, which cannot be said to be bad in law, arbitrary and/or hit by
the doctrine of promissory estoppel.
-
That the Impugned Notification does
not take away any vested right conferred under the Original Incentive Scheme,
it only clarifies that the refund of the excise duty shall be on the actual
excise duty paid on actual value addition made by the manufacturers undertaking
manufacturing activities. Further, as the Impugned Notification are “to
explain” the Original Incentive Scheme, it would be without object unless
construed retrospectively.
-
While concluding, the Court held
that the Impugned Notification does not take away any vested rights conferred under the Original Incentive Scheme and therefore
cannot be said to
be hit by the doctrine of promissory estoppel, the same
is to be applied retrospectively and cannot be said to be irrational and/or
arbitrary.
-
The Court while allowing the
appeals held that the respective High Courts have committed a grave error in
quashing and setting aside the Impugned Notification on the ground that they
are hit by the doctrine of promissory estoppel and that they are retrospective
and not retroactive.
-
However, the Court clarified that
the present judgment would not affect the cases where the excise duty is
already refunded prior to the Impugned Notification and the same are not to be
reopened. Further, the Court also clarified, that the pending refund
applications shall be decided as per Impugned Notification in accordance with
the law and on merits.
TBM Comments:
The judgement once again reiterates the well settled
principle that, in case of public interests, doctrine of promissory estoppel
shall not apply. However, it is important to note that the bearing of such a
stance shall be interpreted on case to case basis and not as an inflexible
rule.
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