WP(C) 2508/2008 BEFORE HON’BLE MR JUSTICE I A ANSARI JUDGMENT & ORDER By this common judgment and order, I propose to dispose of all these writ petiti ons inasmuch as all these writ petitions, involving identical facts and having r aised same questions of law for determination, have been heard together on the r equest made by the learned counsel for the parties. 2. In order to correctly appreciate as to what the grievances of the petiti oners are, what reliefs they have sought for and on what basis, the respondents resist the writ petitions, certain material facts, not being in dispute, are set out as under: (i) Taking into account the continuing backwardness of the North-Eastern reg ion, it was felt by the Government of India that a new synergetic incentive pack age would stimulate development of industries, for, such incentive package would attract investors. Thus, with a view to fostering industrial growth in North-Ea stern region, the then Prime Minister of India made, on 27.10.96, at Guwahati, a statement that new incentives would be announced for industrial development of the North-Eastern region. Expert groups/committees were accordingly constituted to concretize the initiatives. By a notification, dated 24.12.1997, Government o f India, eventually, announced a new Industrial Policy Resolutions (hereinafter referred to as ’1997 IPR’) containing a package of incentives and concessions fo r the investors in the North-Eastern region. As a measure of fiscal incentives, Government approved conversion of the growth centers into total tax free zones f or a period of ten years. All industrial activities, in these zones, were to be, under the 1997 IPR, free from payment of income tax and excise duty for a perio d of ten years from the date of commencement of production and the State Governm ents were to be requested to grant exemptions in respect of sales and municipal taxes. The 1997 IPR also announced that the Ministry of Finance, Government of I ndia, would be moved to amend the existing rules/notifications for giving effect to the decisions embodied in the IPR. Apart from exemption from, inter alia, pa yment of income tax and excise duty, the 1997 IPR envisaged various other incent ives and concessions like capital investment subsidy, interest subsidy, assistan ce in obtaining term loan as well as working capital, etc. (ii) In terms of the promises made by the Government of India under the 1997 IPR, various notifications conferring benefits, in tune with the promises made i n the 1997 IPR, were issued by various departments of the Central Government. In so far as exemption from payment of central excise duty was concerned, Ministry of Finance, Department of Revenue, Government of India, brought out notificatio ns No.32/99-CE and 33/99-CE, both dated 08.07.99, granting exemption in respect of certain specified excisable goods from a unit located in the Growth Center or Integrated Infrastructure Development Center or Export Promotion Industrial Par k or Industrial Estates or Industrial area or Commercial Estate, as the case may be. The exemption from payment of excise or additional excise duty was to be eq uivalent to the amount of duty paid by the manufacturer of goods from the accoun t current maintained under Rule 9 read with Rule 173G of the Central Excise Rule s, 1944. The exemption, contained in the said notifications, were made applicabl e to new industrial units, which commenced their commercial production on or aft er 24.12.1997. The excise duty exemption, as declared under the said notificatio ns, were also to be applicable to those industrial units, which existed even bef ore 24.12.1997, but which undertook substantial expansion by way of increase in the installed capacity by not less than 25% on or after 24.12.1997. The exemptio n, contained in the said notifications, were made applicable to the industrial u nits of such descriptions, as mentioned hereinbefore, for a period of 10 (ten) y ears from the date of publication of the notification in the official gazette or from the date of commencement of commercial production, whichever was earlier. (iii) Some of the writ petitioners, in the present set of writ petitions, clai m to have set up, acting upon the promises made in the 1997 IPR and taking into account the relevant notifications issued in this regard, industries for manufac ture of various commercial products, which the said notifications, granting exem ption from payment of excise duty, had envisaged. Another set of writ petitioner s plead that their industrial units had already existed, when the 1997 IPR came into force and, acting upon the incentives promised, they made substantial expan sion by increasing the installed capacity of their respective industrial units t o the extent as mentioned in the relevant notifications. (iv) In course of time, the petitioners were granted certificates of eligibil ity showing that they were entitled to receive various exemptions from payment o f excise duty, which was, otherwise, leviable on their products. In fact, many o f the petitioners, having set up their industries, started receiving refund of c entral excise duty in terms of the notifications issued in this regard. Those, w ho claim to have expanded the installed capacity of their respective industrial units, in terms of the relevant notifications, too claim that they are entitled to receive refund of excise duty in terms of the notifications aforementioned. (v) Be it mentioned that the earliest notification No.32/99-CE, dated 08.07. 99, aforementioned, whereby exemption from payment of central excise duty was gr anted, underwent several amendments. Notwithstanding such issuance of subsequent notifications, the petitioners claim that they have had remained entitled to, a nd had, in fact, been receiving, full excise duty exemption. Thus, the basic in centives, which had, according to the petitioners, lured the petitioners to set up their respective industries, in Assam, continued without any modification. (vi) As already indicated, a new industrial unit was, under the notification No.32/99-CE, dated 08.07.99, entitled to refund of excise duty equivalent to the amount of the duty paid by the manufacturer for the finished goods from the acc ount current maintained under Rule 9 read with Rule 173G of the Central Excise R ules, 1944. However, in the year 2001, the CENVAT Credit Rules were framed simpl ifying the credit provisions, and procedure for availing credit of the duty paid on input and capital goods used, whether directly or indirectly, in, or in resp ect of, manufacture of final products. The credit of the duty, so allowed, coul d be used for payment of excise duty leviable on the finished goods subject to t he conditions laid down in the relevant Rules. The basic object of allowing cred it on CENVAT was to ensure that there is no cascading effect of levy of excise d uty. The Rules framed aimed at collecting excise duty on the finished goods and thereby the manufacturer of finished goods were enabled to take credit of the d uty paid on the inputs or the capital goods used in the manufacture of finished products and could utilize the said credit for payment of excise duty on the fin al finished products. (vii) Some of the manufacturers did not, however, utilize the CENVAT for payme nt of excise duty on the finished goods; they rather, continued to make full pay ment of excise duty on finished products through the account current and claimed refund of the same. Such manufacturers, thus, allowed the CENVAT credit to be accumulated in their books of account with the object of utilizing the same at a latter stage. In other words, instead of utilizing the CENVAT credit, some of t he manufacturers continued to make full payment of excise duty on finished produ cts through the account current and claimed refund of the same. They let the CEN VAT credit to so accumulate with the object of utilizing the same after expiry o f a period of 10 years of exemption. This apart, the manufacturers, who did not use the CENVAT credit, were able to utilize the accumulated amount for payment of excise duty on such products, which were not eligible for exemption under the Notification Nos. 32/99-CE and/or 33/99-CE aforementioned. Since the inputs, i n respect of which CENVAT credit had been taken, were to be utilized in the manu facture of finished goods, which were eligible for exemption as per Notification Nos.32/99-CE and 33/99-CE, dated 08.07.99, the CENVAT credit, in respect of suc h inputs, could not have been utilized for payment of excise duty in respect of finished products, which were not eligible for exemption under the said notifica tions, dated 08.07.99. Similarly, the act of accumulating CENVAT credit (in resp ect of the inputs, used in the manufacture of finished products, eligible for ex emption, under Notification Nos.32/99-CE and 33/99-CE), with the object of utili zation the same for payment of excise duty after expiry of the period of ten yea rs of promised exemption, was against the spirit of Notification Nos.32/99-CE an d 33/99-CE aforementioned as well as 1997 IPR. The modus operandi, so adopted, would have, thus, defeated the aim and objectives of the 1997 IPR. The Notifica tion No.32/99-CE, dated 08.07.99, was, therefore, amended by Notification No.35/ 2001-CE, dated 29.06.2001. By the Notification, dated 29.06.2001, aforementioned , it was made clear that those industries, which were, otherwise, exigible to ex cise duty, shall be eligible for refund of the amount of duty paid other than th e duty paid by utilization of CENVAT credit under the CENVAT Credit Rules, 2001. The effect of the Notification, dated 29.06.2001, aforementioned, thus, did two things, namely, (a) it required the manufacturers to, first, utilize CENVAT cre dit towards payment of excise duty on the inputs and, (b) it made the eligible i ndustries entitled to receive refund of only such amount of excise duty, which w ere paid after utilization of the CENVAT credit. Similar amendments were introd uced in the notification No.33/99-CE too. In course of time, Notification No.32/ 99-CE was, again, amended by Notification No.61/2002-CE, dated 23.12.2002, where by a proviso was added to Clause (b) of the second paragraph making it clear tha t the refund shall not exceed the amount of duty paid less the CENVAT credit ava iled off in respect of the duty paid on the inputs used or in respect of the man ufacture of goods cleared under Notification No.32/99-CE. The Notification No.32 /99-CE underwent yet another amendment by notification No.65/2003-CE, dated 06.0 8.2003. (viii) In the Notification, dated 06.08.2003, aforementioned, paragraph 1A was inserted, which read as under: In cases where all the goods produced by a manufacturer are eligible for exempt ion under this notification, the exemption contained in this notification shall be available subject to the condition that the manufacturer first utilize whole of the CENVAT credit available to him on the last day of the month under conside ration for payment of duty on goods cleared during such month and pays only the balance amount in cash. The proviso to Clause (b) of paragraph 2 was also substituted by the following: Provided that in cases, where the exemption contained in this notification is n ot applicable to some of the goods produced by a manufacturer, such refund shall not exceed the amount of duty paid less the amount of the CENVAT credit availed of, in respect of the duty paid on the inputs used in or in relation the manufa cture of goods cleared under this Notification. (ix) The amendments, so introduced, made it mandatory for a manufacturer of t hose goods, which were made eligible for exemption under Notification No.32/99-C E, to, first, utilize the CENVAT credit available to him on the last day of the month under consideration for payment of duty on goods cleared during such month and to pay balance amount only in cash. The substituted proviso further took ca re to see that refund is not claimed in respect of the duty paid on goods, which were not eligible for exemption. (x) Before expiry of the 1997 IPR, the Government of India announced a new indus trial policy resolution by a Memorandum, dated 01.04.2007, namely, North-East In dustrial and Investment Promotion Policy, 2007 (NEIIPP), (hereinafter referred t o as the ’2007 IPR’), whereunder a package of fiscal concessions and other conce ssions for the North-Eastern region were promised. (xi) Under the 2007 IPR too, the incentives were promised in respect of those industrial units, which were to be set up, on coming into force of the 2007 IPR , as well as those industrial units, which had existed before coming into force of the 2007 IPR, but which would undertake substantial expansion of their respec tive industrial units, in terms of the requirement of the 2007 IPR. In terms of the promises made by the 2007 IPR, requisite notification, making the promised e xcise duty exemption available for the industrial units, was issued on 25.04.200 7, the Notification being 20 of 2007, dated 25.04.2007. On the question of exci se duty exemption, Clause (v) of 2007 IPR mentions thus: hundred percent excise duty exemption will be continued on finished products made in the North-Eastern Region as was available in NEIP, 1997. (xii) The IPR 2007 made it clear that the 1997 IPR and other concessions, made thereunder, in the North-Eastern Region, announced by the Office Memorandum, da ted 24.12.97, would cease to operate with effect from 01.04.2007, but the Indust rial Units, which had commenced commercial production, on or before 31.03.2007, would continue to receive benefits/incentives under the NEIP, 1997 (i.e., 1997 I PR) until expiry of the promised period of ten years from the respective date of commencement of their commercial production. (xiii) In the present set of writ petitions, thus, there are four distinct cate gories of investors, namely, (i) those, who had set up their industrial units un der the 1997 IPR and claim 100% exemption from payment of excise duty; (ii) thos e, who had in existence such industrial units, as specified under the 1997 IPR, when the 1997 IPR came into force, but undertook substantial expansion as were r equired under the 1997 IPR and, having made such substantial expansion, they cla im to be entitled to the benefits as were promised and assured to them by the 19 97 IPR; (iii) those, who have set up their respective industrial units under th e 2007 IPR and claim to be entitled to receive such benefit as were promised and assured to them under the 2007 IPR; and (iv) those, who have expanded the insta lled capacity of their respective industrial units to the extent as were necessa ry under the 2007 IPR, and claim, therefore, to have become entitled to receive the benefits as were promised and assured to them by the 2007 IPR. All these pet itioners claim to have commenced their commercial production in terms of the rel evant IPRs, namely, 1997 IPR and 2007 IPR, as the case may be. The petitioners claim that having established their industrial units, or having expanded their i ndustrial units, and having started production from such industrial units within the prescribed period, they had been receiving, without any interruption, 100% refund of the amount of excise duty paid in terms of the notification Nos.32/99- CE, 33/99-CE and 25.04.2007. (xiv) The grievance of the petitioners is that with the help of the Notificati on No.17/2008, dated 27.03.2008, the Ministry of Finance, Department of Revenue, Govt. of India has amended the notification, dated 32/99-CE, aforementioned and by the notification, dated 27.03.2008, the excise duty refund has been restrict ed to the maximum limits as specified in the rate column of the table appended t o the said notification, whereunder different rates of maximum limits of exempti on have been specified in respect of different goods. For instance, the goods pr oduced by the petitioners, as stated in WP(C) No.2143/2008, fall under Chapter 8 5 of the Schedule to the Central Excise Tariff Act, 1985. The maximum limits of excise duty refund in respect of such goods would, now, be 31%, whereas, accordi ng to the petitioners, in WP(C) No. 2143/2008, they were entitled to receive 100 % refund as had been promised under the 1997 IPR and also the subsequent notific ations issued in this regard. The petitioners have, therefore, impugned the not ification, dated 27.03.2008, aforementioned by contending, inter alia, that the amendments, which the notification No.32/99-CE, dated 08.07. 1999, had undergone , continued to provide the promised exemption of excise duty without any curtail ment except that the Government, with the help of the amendments, which were mad e, took care to ensure that the benefit of exemption was not used for purposes o ther than what the 1997 IPR and the exemption notifications had envisaged, but t he impugned notification, dated 27.03.2008, has changed the entire scenario by r educing promised limit of exemption inasmuch the exemptions were, until before t he issuance of the impugned notification, available to the extent of 100%, where as the impugned notification reduces the same to a limited percentage. 3. Before proceeding further, it may be appropriate to point out that justi fying the issuance of the impugned notifications, the respondents alleged that s ome unscrupulous manufacturers showing bogus production and thereby gaining undu e benefit in the form of excise duty exemption and, it was for this reason, that the impugned notifications have been issued without affecting the interest of t he genuine manufacturers. The respondents further clarified by reiterating that the genuine manufacturers would continue to receive exemption from payment of ex cise duty to the same extent as they were entitled to receive and had, in fact, been receiving under the earlier notifications. The respondents claim that the 1 997 IPR and the notifications, earlier issued thereunder, all aimed at giving ex emption from payment of excise duty to the extent of value addition and not anyt hing beyond and this exemption remains still available with the genuine manufact urers. In this regard, in their affidavit, the respondents justify the issuance of the impugned notification in the following words: 7. An analysis of cases booked by the Excise department and the representations received from the Industry Associations has revealed that the following modus o perandi is broadly being followed. i. Reporting of bogus production by mere issuance of sale invoices without actua l production of goods and supply/ clearance of excisable goods. This would resul t in availment of cenvat credit by buyers of such excisable goods in other parts of the country without actual production being carried out and in absence of ac tual receipt of goods. ii. Reporting of bogus production by such units in these areas where actual production takes place elsewhere in the country. iii. Over valuation of goods resulting in availment of excess of credit by bu yer. IV. Goods are supplied by manufacturers, importers to these units without issuan ce of sales invoice and these are backed by bogus sale invoices issued by trader s who do not undertake actual supply of goods. The actual supplier of these good s issue bogus duty paid invoices to other manufacturers who take credit based on such invoices without receipt of goods. To elaborate the above modus operandi, I beg to give the following illustration. Illustration 1: - A Unit in North east reports fictitious production of Rs 100, which has actually not taken place and pays full duty of Rs.16/- in cash. It is submitted that obviously there is no Cenvat credit available in as much no input or raw material has been purchased by him. Such a purchaser claims full refund from the Government under the scheme. No-doubt one can argue that there is no lo ss to the Government as the Government has collected Rs.16/- and refunded only t he same amount. However, the fact remains that the said manufacturer issues sale s invoices showing excise duty payment to another buyer/manufacturer in other pa rts of the country entitling and making the buyer eligible to take Cenvat credit of Rs.16/-. The subsequent buyer/ manufacturer utilizes this credit of Rs.16/ - for payment of excise duty on goods manufactured by him and as a result, he pay s excise duty less in cash to the extent of Rs.16/ - for which Cenvat credit tho ugh ineligible (on account of actual non production of goods) is availed by him. In this way, there is a clear loss to the Government of Rs.16/- and the manufac turer in North East illegally gains that amount as he is recovering this amount from his customers. Illustration 2: - If an input valued at Rs.100/- is manufactured in Ahmedabad an d cleared on payment of duty of Rs.14/ - to a unit in the North East, who in tur n makes a value addition of Rs.50/-, in such a case the Government wants to give excise duty refund of Rs.7/- to the unit in North East on the value addition of Rs.50/- and to this extent the product manufactured in North East should become cheaper by Rs.7/-. However, if the same manufacturer in North East shows the pu rchase of these inputs from a trader on a non duty paid invoice which is in fact a non duty paid invoice, in that case, he pays a total duty of Rs 21 in cash i. e. excise duty at 14% on Rs.150/- (the sum total of Rs.100/- because of input an d Rs.50/- value addition as mentioned hereinabove) and gets the refund of Rs.21/ - after paying duty in cash from the personal ledger account. At the same time, such manufacturer recovers a duty ofRs.21/›from his customers and gives him the net benefit ofRs.21/- entitled to be claimed as Cenvat credit against the intend ed benefit of Rs.7/- which should be the only entitlement. In other words, the G overnment has to give refund for the goods manufactured in other parts of the co untry as a result of manipulation indulged into by such a manufacturer. These are general illustrations of misuse exemption given by the Government , which was meant to be available only for genuine manufacturers. Your humble applicant submits that by adopting such modus operandi, the unit in these areas were wanting to pay maximum amount of duty in cash so that t hey become entitled to a claim of refund of entire amount of duty paid in cash. In order to verify this aspect, a study has been made by the Excise department o n receipt of information from the Director General, Central Excise Intelligence and other such agencies to find out the percentage of excise duty paid in cash a nd from the Cenvat Credit account by the units availing this area based exemptio n. On receipt of these details they were compared with the duty payment details of the same industry groups for all the units across the country to find out whe ther the percentage of duty paid by the units in cash in the specified areas is comparable with the units in the rest of the country. An analysis of these detai ls, clearly shows that the industry sectors in the specified areas were paying a very high percentage of duty in cash i.e. through Personal Ledger Account in co mparison to the all India, payment of duty through PLA on similar goods. It is s ubmitted that had these units in the specified areas paid excise duty without in dulging in deliberate manipulations, as referred to hereinabove, there was no re ason why the cash portion of the excise duty in the specified region would be so alarmingly high vis a vis the payment of excise duty by cash by in respect of s imilar product in the rest of the country. The above analysis coupled with the d etails of the cases booked by the Excise department as well as the details recei ved on representations of Industry associations, which