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					                               AIT-2009-20-HC

                IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

                                   CWP No.589 of 2008

                              Reserved on : December 11, 2008
                              Decided on : December 18, 2008

                   M/s Gillete India Ltd. & another …Petitioners.
                                          Versus
                      Union of India and others …Respondents.

Coram: Mr. Justice R.B. Misra and Mr. Justice Surjit Singh

For the Petitioners : Mr. L. Nageswara Rao, Senior Advocate, with Mr. K.D. Sood, Mr.
Sanjeev Sood, Mr. Kavin Gulati and Ms Ruby Singh Ahuja.

For the Respondents : Mr. Sandeep Sharma, Assistant Solicitor General of India, with Mr.
Janesh Mahajan & Mr. M.A. Khan, Central Government Counsel.

AIT Head Note: notification , amending notification 50/2003, is prospective, in the
sense that it affects those industrial units involved in the manufacturing processes of
packing, repacking, labelling, relabelling, etc., referred to therein, which came into
operation on and after the date of its issue and not the industrial units, like that of
the petitioners, which came into operation before the date of its issue, i.e. 18th
January, 2008. Consequently, we direct the respondents not to insist upon the
registration of the industrial unit of the petitioners at Baddi, under the Central Excise
Rules, 2002, and not to demand excise duty, in respect of the goods covered by
notification Annexure P-1 and subjected to any of the manufacturing processes,
mentioned in Section 2(f) of the Central Excise Act, 1944 at the Baddi unit of the
petitioners, until the expiry of ten years exemption period, which commenced on and
with effect from 20th December, 2006. (Para 38)

J U D G M E N             T

Per Surjit Singh, Judge

Petitioners are manufacturer of men’s grooming products, like double edged blades, razors,
shaving systems, pre and post shaving preparations, portable power, i.e. batteries and oral
care products, such as tooth-brushes. They have been manufacturing the aforesaid
products since the year 1993, at Bhiwadi, District Alwar of Rajasthan State. On and with
effect from 1st March, 2003, definition of “manufacture”, appearing in Section 2(f)(iii) of
Central Excise Act, 1944, was amended, by virtue of Section 135 of Finance Act, 2003 (Act




www.allindiantaxes.com                                                                   1
No.32 of 2003), read with clause (127) of Finance Bill, 2003 (8 of 2003). The amended
definition read as follows:
    “2(f) “manufacture” includes any process,-
        (i) xxx xxx xxx
        (ii) xxx xxx xxx
        (iii) which, in relation to the goods specified in the Third Schedule, involves packing
        or repacking of such goods in a unit container or labelling or re-labelling of
        containers including the declaration or alteration of retail sale price on it or
        adoption of any other treatment on the goods to render the products marketable to
        the consumer,
        and the word “manufacture” shall be construed accordingly and shall include not only
        a person who employs hired labour in the production or manufacture of excisable
        goods, but also any person who engages in their production or manufacture on his
        own account;”

Razors and razor blades, etc., which the petitioners have been manufacturing in Rajasthan
since 1993, are among the items specified in Third Schedule, per Serial No.64. On 10th
June, 2003, Central Government issued a notification No.50 of 2003, copy Annexure P-1,
exempting the goods, specified in the First and the Second Schedules of the Central Excise
Tariff Act, 1985, cleared from a unit located in Uttrakhand and Himachal Pradesh, from the
whole of duty of excise or additional duties of excise, if such a unit had commenced
commercial production on or after 7th day of January, 2003, but not later than the 31st
day of March, 2007. It may be noticed that razors and razor-blades (including razor blade
blanks in strips) are included in Second Schedule of Central Excise Tariff Act, 1985.
Lateron, vide notification dated 2nd August, 2006, Annexure P-4, the outer date for the
commencement of commercial production was extended upto 31st March, 2010. The
notification exempted the items, specified in the First and the Second Schedules of the
Central Excise Tariff Act, 1985, for a period of ten years, from the date of the publication
of the notification or the date of commencement of commercial production, whichever is
later. Petitioners set up a unit at Baddi in Himachal Pradesh for the packing of razors and
razor blades, etc., and their first consignment was cleared on 10 th March, 2007. Petitioners
started getting the benefit of exemption, allowed vide notification Annexure P-1. On 18th
January, 2008, another notification, Annexure P-11, was issued, whereby exemption
contained in Annexure P-1 was taken away, in respect of the goods, which had been
subjected to only one or more of the following processes, namely, preservation during
storage, cleaning operations, packing or re-packing of such goods in a unit container or
labelling or re-labelling of containers, sorting, declaration or alteration of retail sale price
and have not been subjected to any other process or processes amounting to manufacture in
the State of Uttrakhand or Himachal Pradesh.

2. Soon after the issuance of notification, Annexure P-11, notice Annexure P-12, was issued
to the petitioners’ unit at Baddi, calling upon it to get itself registered, under Rule 9 of the
Central Excise Rules, 2002, for the purpose of payment of excise duty, in respect of the
items packed, repacked, labelled or re-labelled at their unit. Petitioners made
representation Annexure P-13, claiming that notification Annexure P-11 did not affect their
status as exemptee from payment of excise duty, by virtue of their having commenced



www.allindiantaxes.com                                                                        2
commercial production of their items prior to the issuance of notification Annexure P-11,
which had prospective operation, and it also did not affect the right, which had accrued to
them, under notification Annexure P-1. Probably, there was no response from the
respondents and, therefore, the petitioners filed the present writ petition, under Article
226 of the Constitution of India, seeking the following reliefs:

   “(i)    Issue of writ of certiorari or a writ order or direction in the nature of certiorari
           quashing the communication dated 23.01.2008;
   (ii)    Issue of writ of certiorari or a writ order or direction in the nature of certiorari
           quashing the Notification No.1 of 2008 dated 18.01.2008, insofar it denies the
           benefit of the Notification No.50 of 2003 to the Petitioner-Company:
   (iii)   Issue a writ of mandamus or a writ order or direction in the nature of mandamus
           declaring that the Petitioner-Company is entitled to the benefits of the exemption
           Notification No.50 of 2003 and that Notification No.1 of 2008 is not applicable to
           units set up before 18.01.2008;
   (iv)    Issue a writ of mandamus or a writ order or direction in the nature of mandamus
           directing the Respondents not to insist upon seeking a registration under the
           Central Excise Rules, 2002 and to deposit excise duty for a period of 10 year from
           20.12.2006; and
   (v)     Pass such other or further orders/directions as this Hon’ble Court may deem fit
           and proper in the facts and circumstances of this case.
   (vi)    Allow the cost of the petition.”

3. It is averred that by virtue of notification Annexure P-1, a right had accrued to the
petitioners to continue to claim exemption from payment of excise duty, in respect of the
razors, razor blades, etc. packed at its Baddi unit and this right could not have been taken
away by issuance of notification Annexure P-11. It has been pleaded that clause (c) of
Section 38-A of the Central Excise Act, 1944, specifically saves a right accrued, under a
notification, from being taken away by a notification amending, repealing, superseding or
rescinding an earlier notification, under which such a right accrued. It is also pleaded that
by virtue of promissory estoppel, the respondents are not entitled to take away the benefit
of exemption, to which the petitioners became entitled, under notification Annexure P-1, as
acting on the promise held out, by means of the said notification, the petitioners had
invested a huge amount of Rs.32.00 crores, approximately, and employed 385 persons to
carry out the process of packing, repacking, labelling, etc.

4. Respondents filed reply, in which they admitted that the petitioners had set up a unit at
Baddi for packing razors, razor blades, etc. and that the first consignment of their goods
was cleared on 10th March, 2007 and benefit of exemption, under notification Annexure P-
1, was given. It was conceded that, under notification Annexure P-1, exemption was available
for all manufacturing activities, within the meaning of Section 2(f) of the Central Excise
Act, 1944, including packing or repacking of goods, but Lateron when it was realized that
inclusion of process of packing and repacking in the definition of “manufacture” was not
serving the purpose of industrialization of backward States, including the State of
Himachal Pradesh, as no goods were being manufactured and produced in such States but
only packing and labelling units had been set up to claim exemption, notification Annexure P-



www.allindiantaxes.com                                                                       3
11 was issued to withdraw the exemption, in respect of the goods, which were only being
packed, repacked, labelled or re-labelled, etc., and not actually manufactured in such States.
It was stated that the notification was prospective, it did not have retrospective effect
and so exemptions already available, before the issuance of notification Annexure P-11, were
not affected by the notification. It was stated that notification Annexure P-1 had been
issued in public interest and when it was found that it was not serving any public interest,
exemption, in respect of packing, repacking, labelling, re-labelling units, was withdrawn,
again in the public interest, vide notification Annexure P-11.

5. Placing reliance upon judgment of the Hon’ble Supreme Court in Kasinka Trading versus
Union of India, (1995) 1 SCC 274, it was pleaded that grant of exemption from duty
amounted to suspending the operation of provision regarding levy of charge and duty and
that the very fact that such an exemption amounted to suspension of the charging provision
implied that the suspension was liable to be revoked. It was also pleaded by making
reference to Sales Tax Officer versus Shree Durga Oil Mills, 1998 (97) E.L.T. 202
(S.C.) that public interest is superior equity which can always override individual equity or
any consideration of private loss or gain.

6. We have heard Mr. L. Nageshwara Rao, learned Senior Advocate, appearing for the
petitioners, and Mr. Sandeep Sharma, learned Assistant Solicitor General of India, on
behalf of the respondents.

7. Learned counsel for the petitioners raised the following points:
    (i)   With a view to claiming exemption, under Notification Annexure P-1, petitioners
          set up a unit at Baddi in Himachal Pradesh by spending a huge amount of Rs.32.00
          crores and employing 385 persons to run the unit and commenced commercial
          production before the issuance of Notification Annexure P-11, dated 18th
          January, 2008 and, thus, a right accrued to them to claim and continue to claim
          exemption, with respect to the whole of excise duty on the goods packed, re-
          packed, labelled or re-labelled by them at Baddi, for a period of ten years, as
          mentioned in Annexure P-1. This right is not affected by notification Annexure P-
          11, by virtue of the provision of clause (c) of Section 38-A of the Central Excise
          Act, 1944.
    (ii) Respondents are estopped to withdraw the exemption granted vide notification
          Annexure P-1 from the units, which commenced commercial production before the
          issuance of Notification Annexure P-11, dated 18th January, 2008, on account of
          doctrine of Promissory Estoppel.
    (iii) Contemplated action of respondents to withdraw the exemption from the date of
          issue of notification Annexure P-11, dated 18th January, 2008, is arbitrary and,
          hence, violative of Article 14 of the Constitution of India. The action of the
          respondents also violates the constitutional right guaranteed, under Article 301 of
          the Constitution of India.

8. We proceed to deal with the aforesaid points, raised on behalf of the petitioners, in the
seriatim, they have been mentioned, hereinabove.




www.allindiantaxes.com                                                                      4
Point (i):

9. It was submitted that clause (c) of Section 38-A of the Central Excise Act, 1944, saves
the right which accrued to the petitioners, under notification Annexure P-1, from being
taken away by Notification Annexure P-11. Section 38-A (c) of the Central Excise Act, 1944,
reads as follows:

    “38-A. Effect of amendments, etc., of rules, notifications or orders.- Where any
    rule, notification or order made or issued under this Act or any notification or order
    issued under such rule, is amended, repealed, superseded or rescinded, then, unless a
    different intention appears, such amendment, repeal, supersession or rescinding shall
    not___
      (a) xxx xxx xxx
      (b) xxx xxx xxx
      (c) affect any right, privilege, obligation or liability acquired, accrued or incurred
      under any rule, notification or order so amended, repealed, superseded or rescinded;”

It was submitted that the right that had accrued to the petitioners, by virtue of
notification Annexure P-1, was to avail exemption of whole of excise duty, for a period of
ten years, in respect of the goods, packing, repacking or labelling or relabelling of which had
commenced on commercial basis, prior to the issuance of notification dated 18th January,
2008, Annexure P-11. It was submitted that Annexure P-11 was to affect those industrial
units, which had not commenced packing, repacking, labelling, re-labelling, etc., of their
goods on commercial basis, prior to 18th January, 2008, the date of issue of notification
Annexure P-11.

10. Learned Assistant Solicitor General of India, while countering the aforesaid
submission, though conceded that the operation of notification Annexure P-11 was
prospective and not retrospective, urged that the right that had accrued to the petitioners,
within the meaning of clause (c) of Section 38- A of the Central Excise Act, 1944, was
exemption from payment of excise duty, in respect of the goods packed, repacked, labelled,
re-labelled, etc., in the unit at Baddi upto 18th January, 2008, and that prospectiveness of
notification Annexure P-11 was in that context.

11. For determining as to what right, if any, had accrued to the petitioners, before the
issue of notification, Annexure P-11, it is essential to refer to the contents of notification
Annexure P-1, because it is under this notification that the right is claimed to have accrued.
The same is reproduced below:

                                                                             “10th June, 2003
                           Notification No.50/2003 – Central Excise
        G.S.R (E).- In exercise of the powers conferred by sub-section (1) of section 5A of
        the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of
        the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of
        1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles
        and Textile Articles) Act, 1978 (40 of 1978), the Central Government, being



www.allindiantaxes.com                                                                       5
      satisfied that it is necessary in the public interest so to do, hereby exempts the
      goods specified in the First Schedule and the Second Schedule to the Central
      Excise Tariff Act, 1985 (5 of 1986), other than the goods specified in Annexure-I
      appended hereto, and cleared from a unit located in the Industrial Growth Centre or
      Industrial Infrastructure Development Centre or Export Promotion Industrial Park
      or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area, as
      the case may be, specified in Annexure-II appended hereto, from the whole of the
      duty of excise or additional duty of excise, as the case may be, leviable thereon
      under any of the said Acts.

   Provided that the exemption contained in this notification shall apply subject to the
   following conditions, namely:,

   (i) The manufacturer who intends to avail of the exemption under this notification shall
   exercise his option in writing before effecting the first clearance and such option shall
   be effective from the date of exercise of the option and shall not be withdrawn during
   the remaining part of the financial year;

   (ii) The manufacturer shall, while exercising the option under condition (i), inform in
   writing to the jurisdictional Deputy Commissioner of Central Excise or Assistant
   Commissioner of Central Excise, as the case may be, with a copy to the Superintendent
   of Central Excise giving the following particulars, namely:,

      (a) name and address of the manufacturer;

      (b) location/locations of factory/factories;

      (c) description of inputs used in manufacture of specified goods;

      (d) description of the specified goods produced;

      (e) date on which option under this notification has been exercised;

   (iii) The manufacturer may, for the current financial year, submit his option in writing on
   or before the 30th day of November, 2003.

      2. The exemption contained in this notification shall apply only to the following kinds
      of units, namely:-

          (i) new industrial units which have commenced commercial production on or after
          the 7th day of January, 2003, but not later than the 31st day of March, 2007
          (substituted as 31st day of March, 2010, vide notification dated 2nd August,
          2006, Annexure P-4);

          (ii) industrial units existing before the 7 th day of January, 2003, but which have
          undertaken substantial expansion by way of increase in installed capacity by not



www.allindiantaxes.com                                                                      6
           less than twenty five per cent on or after the 7 th day of January, 2003, but
           have commenced commercial production from such expanded capacity, not later
           than the 31st day of March, 2007 (substituted as 31st day of March, 2010, vide
           notification dated 2nd August, 2006, Annexure P-4).

       3. The exemption contained in this notification shall apply to any of the said units
       for a period not exceeding ten years from the date of publication of this
       notification in the Official Gazette or from the date of commencement of
       commercial production, whichever is later.”

   Now, according to this notification, Annexure P-1, exemption was granted, in respect of
   goods cleared from a new industrial unit, which commenced production on or after 7th
   day of January, 2003, but not later than 31st day of March, 2007, and the exemption
   was to remain effective for a period of ten years, from the date of the publication of
   notification Annexure P-1 or from the date of commencement of commercial production,
   whichever was later.

12. In the present case, admittedly, the first clearance of goods from petitioners’
industrial unit at Baddi took place on 10th March, 2007. That means, under the notification,
Annexure P-1, exemption was to have indisputably continued upto 9th March, 2017, had the
notification Annexure P-11 not been issued.
13. According to the petitioners, the right which had accrued to them and which is saved
by clause (c) of Section 38-A of the Central Excise Act, 1944, is the right to enjoy
exemption of excise duty, in respect of the goods packed and labelled by them, for the
entire period of ten years, commencing from 10th March, 2007. But, according to the
respondents, the right that had accrued to the petitioners and which is saved by the
aforesaid provision of Central Excise Act, 1944, is exemption from payment of duty, in
respect of the goods packed and labelled and cleared upto the date of issue of notification
Annexure P-11, i.e. 18th January, 2008.

14. No direct authority was cited by either side, with regard to the interpretation of the
provision of clause (c) of Section 38-A of the Central Excise Act, 1944. However, certain
authorities were cited on behalf of the petitioners, to the effect that when some
exemptions from payment of tax, by way of incentive for industrialization of any particular
area, are granted, under an order, and a person complying with the requirement of the order
granting such exemption, becomes eligible for such exemption, a right accrues to him to
avail the exemption, in terms of that order and any modification, change, supersession or
cancellation of such an order, by a subsequent order, will not affect his right and such
subsequent notification affects those units, which do not become entitled to exemption,
prior to the date of issue of such subsequent notification. The citations are: Union of India
and others versus Asian Food Industries, (2006) 13 SCC 542, and MRF Ltd. versus
Assistant Commissioner and others, (2006) 8 SCC 702.

15. In Asian Food Industries’ case (supra), it was held that by reason of a policy, a vested
or accrued right cannot be taken away. Such a right, therefore, cannot a fortiori be taken
away by an amendment.



www.allindiantaxes.com                                                                     7
16. In MRF’s case (supra), it was held that the settled position in law is that where a right
has already accrued, for instance, the right to exemption of tax for a fixed period and the
conditions for that exemption have been fulfilled, then the withdrawal of the exemption,
during that fixed period cannot affect the already accrued right.

17. In the instant case, Section 38-A of the Central Excise Act, 1944, saves the right
accrued to the petitioners, under notification Annexure P-1. The right saved, by virtue of
this provision, is not only the exemption availed upto the date of the issuance of the
amending notification Annexure P-11, but exemption for the entire period of ten years,
specified in Annexure P-1, in view of the law laid down by the apex Court in MRF’s case
(supra).

18. Learned counsel representing the respondents argued that the provision of Section 38-
A of the Central Excise Act, 1944, is not absolute and that it is subject to a different
intention appearing in the amending, repealing, superseding or rescinding notification.

19. We have carefully gone through Annexure P-11. We do not find anything in the
aforesaid notification indicative that the intention of the authorities issuing the
notification is to take away or in any other manner affect the right accrued to an
entrepreneur, under the unamended notification Annexure P-1.

Point (ii)

20. It was submitted that exemption granted to the petitioners cannot be taken away, not
only on account of the provision of clause (c) of Section 38-A of the Central Excise Act,
1944, but also independent of the said provision. It was urged that the respondents are
estopped from withdrawing the exemption, on account of their having promised, vide
notification Annexure P-1, to the entrepreneurs that they would be entitled to tax
exemption for ten years and acting on that promise the petitioners having set up their
industrial units at Baddi, by spending a huge amount of Rs.32.00 crores and employing about
400 persons in the unit and thereby putting themselves in a position, to come out of which,
at this stage, without incurring huge losses, is next to impossible.

21. Countering the aforesaid argument, learned Assistant Solicitor General of India, urged
that doctrine of Promissory Estoppel is not available against the State, especially in fiscal
matters and the State may withdraw any concession given to the public at any point of time.
In support of this argument, he placed reliance upon Kasinka Trading versus Union of
India, (1995) 1 SCC 274.

22. Learned counsel representing the petitioners submitted that the precedent {Kasinka
Trading case (supra)}, relied upon on behalf of the respondents is not an authority, on the
point that doctrine of Promissory Estoppel is not available against the State. He cited a
number of judgments, in which not only that it has been held that principle of Promissory
Estoppel can be invoked against the State even in fiscal matters, but also that Kasinka
Trading case does not lay down absolute rule that doctrine of Promissory Estoppel cannot be



www.allindiantaxes.com                                                                     8
pressed into service against the State. He submitted that only exception to the
enforcement of Promissory Estoppel against the State is that the promise made by the
State should not have been against the statute, under which it purports to have been made
or it is in the public interest that the doctrine should not be pressed into service.
Judgments relied upon in this behalf are: M/s Motilal Padampat Sugar Mills Co. Ltd.
versus State of Uttar Pradesh and others, (1979) 2 SCC 408; MRF Ltd., Kottayam
versus Asstt. Commissioner (Assessment) Sales Tax and others, (2006) 8 SCC 702;
Shrijee Sales Corporation and another versus Union of India, (1997) 3 SCC 398; U.P.
Power Corporation and another versus Sant Steels & Alloys (P) Ltd. and others (2008)
2 SCC 777; Pawan Alloys and Casting (P) Ltd., Meerut versus U.P. State Electricity
Board and others (1997) 7 SCC 251; State of Punjab versus Nestle India Ltd. and
another, (2004) 6 SCC 465;Pournami Oil Mills and others versus State of Kerala and
another, 1986 (Supp) SCC 728.

23. In M/s Motila Padampat Sugar Mills case (supra), it was held that equity of Promissory
Estoppel applies to Government or State in whichever capacity it acts and that the
Government may not be bound by Promissory Estoppel, in case it shows that equity lies in its
favour and for making such a claim the State must bring relevant facts and the
circumstances on record and prove them, for which burden lies heavy on the Government.

24. In MRF’s case (supra), not only that it was held that Kasinka Trading case (relied upon
by the respondents) did not disturb the settled position in law that where a right has
already accrued, for instance, the right to exemption of tax for a fixed period and the
conditions for that exemption have been fulfilled, then the withdrawal of exemption during
that fixed period cannot affect the already accrued right, it was also held that in such a
case principle of Promissory Estoppel does apply, though over-riding public interest would
prevail.

25. In Shrijee Sales case (supra), it was held that it is only in superior public interest that
the Government may withdraw the representation or promise held out by it, even though
someone having acted upon the representation or promise has adversely affected himself.
It was also held that Court has to be satisfied about the existence of such superior public
interest, when not enforcing principle of Promissory Estoppel against the Government or the
State, on the plea of superior public interest.

26. In U.P. Power Corporation Ltd. case (supra), it has been held that when the State
Government makes a representation and invites the entrepreneurs, offering various
benefits to make investment, by way of industrial development of backward areas or the hill
areas and acting on such representation entrepreneurs bonafide make investments, the
State Government cannot be allowed to back-out from such representation, except in the
case of public interest or on the ground of no estoppel against statute. Also, it has been
held in this very case that once the Government offers benefits and entrepreneurs acting
on such offer make investments, the pre-withdrawal of such benefits affects the
credibility of the Government. It has further been held that in order to keep the faith and
maintain good governance, it is necessary that where a representation is made by the




www.allindiantaxes.com                                                                       9
Government, which induces the other party to act, the Government should not be permitted
to withdraw from that, as this is a matter of faith.

27. In Pawan Alloys case (supra), distinguishing Kasinka Trading case, it was held that the
notification, which had been withdrawn in that case, was not intended to offer any incentive
for the import of PVC resin and, therefore, that notification could not be said to have
extended any representation, muchless a promise to a party getting the benefit of it to
enable it to invoke the doctrine of Promissory Estoppel, against the State. The said
notification was held to have been issued in the public interest, without making any
representation or promise and so it could be withdrawn any time, if the public interest so
required or the public interest, which existed, at the time of the issuance of the withdrawn
notification, ceased to exist. It was also held that Kasinka Trading case was not an
authority for the proposition that even if a claim of exemption from import duty was
resorted to in public interest, by way of an incentive for a class of importers and even
though such public interest continued to subsist during the currency of such an exemption
notification and that promisees for whose benefit, such exemption was granted, had
changed their position relying upon the said exemption notification, it could still be
withdrawn before the time mentioned therein, even though public interest did not require
the said exercise to be undertaken and even though there were subsisting equities in favour
of the promise importers.

28. In Nestle India Ltd. case (supra), again the Kasinka Trading was distinguished. It was
observed that Kasinka Trading is an authority for the proposition that the mere issuance of
an exemption notification, under a provision in fiscal statute, such as Section 25 of the
Customs Act, 1962, could not create any Promissory Estoppel, because such an exemption by
its very nature is susceptible to being revoked or modified or subjected to other conditions.
Further clarifying this observation, it was held that there was no unequivocal
representation. Dealing with the point whether plea of Promissory Estoppel is available
against the State or not, it was held that the said plea is available against the State,
subject to two exceptions; first there cannot be estoppel against the statute and so if the
representation or promise is made contrary to the statute then the same will not operate as
estoppel and second that larger public interest over-rides the plea of Promissory Estoppel.

29. In Pournami Oil Mills case (supra), it was held that where, in response to an order
offering concessions to promoters of small scale industries, such industries had been set up,
the promoters of such industries would be entitled to the plea of Promissory Estoppel, in
case such concessions or part of concessions are withdrawn by the Government by a
subsequent order.

30. In the present case, notification Annexure P-1 was issued to attract entrepreneurs to
set up industrial units in industrially backward States of Uttrakhand and Himachal Pradesh.
Writ petitioners, who have been in the business of manufacture of blades and their packing
and labelling, etc., since 1993, in the State of Rajasthan, attracted by notification Annexure
P-1, set up their industrial unit for packing and labelling of blades, etc., at Baddi in Himachal
Pradesh, to get the benefit of exemption from central excise duty. They have invested
Rs.32.00 crores and employed about 400 persons. Thus, acting upon the



www.allindiantaxes.com                                                                        10
representation/promise held out, by means of notification Annexure P-1, they have made
huge investment and if the benefit of exemption is unilaterally withdrawn, their financial
interests will be adversely affected. So, this factual position, when seen in the light of the
above referred to judgments of the Hon’ble Supreme Court, establishes the plea of
Promissory Estoppel, raised by the petitioners.

31. Respondents have pleaded that notification Annexure P-1 has been modified, vide
notification Annexure P-11, in superior public interest and so the plea of Promissory
Estoppel cannot be allowed.

32. Public interest, which prompted the respondents to issue the initial notification,
offering incentives to entrepreneurs, is spelt out in the written reply. In para-2 of the
preliminary submissions, it is stated that notification Annexure P-1 was issued, pursuant to
Office Memorandum No.1(10)/2001-NER, dated 7.01.2003, received from the Department
of Industrial Policy and Promotion, Ministry of Commerce and Industry, regarding new
Industrial Policy and other concessions for the States of Uttranchal and Himachal Pradesh.
This Office Memorandum made a reference to the announcement made by the Hon’ble Prime
Minister, during his visit to Uttranchal from 29th to 31st March, 2002, regarding tax and
central excise concessions to attract investment in the industrial sector. It is also stated in
para-2 of the preliminary submissions that the intention behind notification Annexure P-1
was to provide incentives to environment friendly industries, with potential for local
employment generation and use of local resources. Packing of blades, etc., is environment
friendly. Also, it is alleged that employment has been generated, on account of the setting
up of the industrial unit at Baddi by the petitioners, and 400 persons have been employed.
It is not the case of the respondents that the persons, who have been employed, are not
local.

33. Respondents have further submitted in para-3 of preliminary submissions that the
intention of the Government was to extend the benefit only to genuine industrial
manufacturing activities in the exempted areas and not to the activities that are peripheral
or incidental in nature, as peripheral or incidental activities may not bring investment and
employment commensurate with the fiscal cost of granting the exemption and so by the
impugned notification, Annexure P-11, the benefit, under notification Annexure P-1, has been
withdrawn, in respect of the units, which are engaged only in packing, repacking, labelling or
re-labelling, etc.

34. From the reading of para-3 of preliminary submissions, it appears that the benefits
offered by Annexure P-1 have been withdrawn, on the basis of apprehension that the
peripheral or incidental activities may not bring investment and employment commensurate
with the fiscal cost of granting the exemption. Admittedly, notification Annexure P-1
covered not only the production of goods by manufacturer, but also activities, like packing,
repacking, labelling, re-labelling, etc., irrespective of the fact whether the goods were
manufactured or not in the industrial unit or even in the State in some other unit. The
public interest that was sought to be achieved by this notification, Annexure P-1, was to
make use of local resources and to generate employment for local people. Petitioners have
made huge investment and have also generated employment and, therefore, it cannot be said



www.allindiantaxes.com                                                                      11
that the public interest, which existed at the time of the issuance of notification Annexure
P-1, atleast in the case of the industrial unit of the petitioners, had ceased to exist, when
notification Annexure P-11 was issued and, therefore, it cannot be said that notification
Annexure P-11 is in the superior public interest and so it affects even the industrial unit of
the petitioners, which had come into operation, before the issuance of notification
Annexure P-11. In our considered view, notification Annexure P-11 is prospective, in the
sense that the benefit of notification Annexure P-1 will not be available to those industrial
units, engaging only in so-called peripheral or incidental activities, which come into operation
and comply with the terms and conditions of notification Annexure P-1, after the issuance
of notification Annexure P-11.

Point (iii)

35. It was submitted that issuance of notices to the petitioners, for registration of their
unit at Baddi, for the purpose of payment of excise duty, pursuant to notification Annexure
P-11, is arbitrary, unfair and unreasonable, and is, therefore, violative of Article 14 of the
Constitution of India. In support of this contention, reliance was placed upon MRF Ltd.
versus Assistant Commissioner and others, (2006) 8 SCC 702, particularly para-39, at
page 723, which is a follows:

    “39. MRF made a huge investment in the State of Kerala under a promise held to it that
    it would be granted exemption from payment of sales tax for a period of seven years. It
    was granted the eligibility certificate. The exemption order had also been passed. It is
    not open to or permissible for the State Government to seek to deprive MRF of the
    benefit of tax exemption in respect of its substantial investment in expansion in respect
    of compound rubber when the State Government had enjoyed the benefit from the
    investment made by MRF in the form of industrial development in the State,
    contribution to labour and employment and also a huge benefit to the State exchequer
    in the form of the State’s share i.e. 40% of the Central excise duty paid on compound
    rubber of Rs.177 crores within the State of Kerala. The impugned action on the part of
    the State Government is highly unfair, unreasonable, arbitrary and, therefore, the same
    is violative of Article 14 of the Constitution of India. The action of the State cannot be
    permitted to operate if it is arbitrary or unreasonable. This Court in E.P. Royappa v.
    State of T.N. observed that where an act is arbitrary, it is implicit in it that it is
    unequal both according to political logic and constitutional law and is therefore violative
    of Article 14. Equity that arises in favour of a party as a result of a representation
    made by the State is founded on the basic concept of “justice and fair play”. The
    attempt to take away the said benefit of exemption with effect from 15-1-1998 and
    thereby deprive MRF of the benefit of exemption for more than 5 years out of a total
    period of 7 years, in our opinion, is highly arbitrary, unjust and unreasonable and
    deserves to be quashed. In any event the State Government has no power to make a
    retrospective amendment to SRO No.1729/93 affecting the rights already accrued to
    MRF thereunder.”

36. On account of our having held, hereinabove, that right had accrued to the petitioners,
under notification Annexure P-1 and that the said right cannot be affected by amending



www.allindiantaxes.com                                                                       12
notification Annexure P-11, because of the saving clause (c) of Section 38-A of the Central
Excise Act, 1944, and also that by virtue of doctrine of Promissory Estoppel, the
respondents are estopped to levy and charge duty upon the petitioners, we are of the
considered view that the action of the respondents in seeking to enforce notification
Annexure P-11 against the petitioners, is arbitrary, unfair and unreasonable, and, in this view
of the matter, we find support from Hon’ble Supreme Court’s judgment in MRF Ltd. Case
(supra) (para-39).

37. Another submission that was made on behalf of the petitioners was that amending
notification Annexure P-11 is violative of Article 301 of the Constitution of India. We do not
find any merit in the submission. Notification Annexure P-1 has granted certain incentives,
in the form of exemption from payment of excise duty for a certain period to promote
industrial development of industrially backward States of Himachal Pradesh and Uttrakhand
and if the concessions are withdrawn by amending the said notification, in respect of some
of the processes, which are included in the definition of “manufacture”, as appearing in
Section 2(f) of the Central Excise Act, especially when such processes are peripheral or
incidental, as in the present case, freedom of trade, commerce and intercourse, ensured by
Article 301 of the Constitution of India, cannot be said to have been affected in any way.

38. In view of the above discussion and findings, we allow the writ petition and hold that
notification Annexure P-11, amending notification Annexure P-1, is prospective, in the sense
that it affects those industrial units involved in the manufacturing processes of packing,
repacking, labelling, relabelling, etc., referred to therein, which came into operation on and
after the date of its issue and not the industrial units, like that of the petitioners, which
came into operation before the date of its issue, i.e. 18th January, 2008. Consequently, we
direct the respondents not to insist upon the registration of the industrial unit of the
petitioners at Baddi, under the Central Excise Rules, 2002, and not to demand excise duty,
in respect of the goods covered by notification Annexure P-1 and subjected to any of the
manufacturing processes, mentioned in Section 2(f) of the Central Excise Act, 1944 at the
Baddi unit of the petitioners, until the expiry of ten years exemption period, which
commenced on and with effect from 20th December, 2006. No order as to costs. Writ
petition stands disposed of accordingly.




www.allindiantaxes.com                                                                      13

				
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