HIGH COURT OF UTTARAKHAND AT NAINITAL Writ Petition No. 194 of 2009 (M/S) Bajaj Auto Limited, Through its Senior Manager. ………..Petitioner Versus Union of India and others. …….Respondents Mr. Arshad Hidayatullah, Senior Advocate assisted by Ms. Pooja Banga, Advocate for petitioner. Mr. Arvind Vashishtha, Advocate for respondent nos. 1 & 2, Mr. K.P. Uppadhyay, Addl. C.S.C. and Mr. R.C. Arya, Brief Holder for the State/ respondent no.4. Mr. Vipul Sharma, Advocate for respondent no.7. Dated: June 29, 2010 Hon’ble V.K. Bist, J. This petition has been filed by the petitioner company for the following reliefs:- i) “To issue a writ, order or direction in the nature of certiorari quashing the Notification no. 1/2008 dated 18.01.2008 (annexure no. 15 to the writ petition) amending Notification No. 50/2003 CE dated 10.06.2003, (annexure no.3 to the writ petition), as prospective, in that it will affect those industrial units, involved in the manufacturing processes of packing, repacking, labelling, re-labelling 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. ii) issue a writ, order or direction in the nature of mandamus commanding the respondents to allow the petitioner company to avail of the benefits of the exemption Notification No. 50/2003 CE dated 10.06.2003. iii) issue a writ, order or direction in the nature of mandamus commanding the respondents not to insist upon the petitioner company to pay and or to deposit excise duty for a period of ten years from April, 2007 i.e. the 2 commencement of commercial production by the petitioner company. iv) pass any other suitable writ, order or direction, as this Hon’ble Court may deem fit and proper in the facts and circumstances of this case. v) to award the cost of the petition in favour of the petitioner.” 2. Brief facts of the case, as emerge out from the record, are that the petitioner is a company registered under the Companies Act, 1956 (hereinafter referred to as the Company). The Company is mainly engaged in the manufacture of 2/3 wheeled motor vehicles which are chargeable to excise duty under Central Excise Act, 1944 (hereinafter referred to as the Act) and vehicles are classified under Chapter 87 of Central Excise Tariff Act, 1985 (hereinafter referred to as the Tariff Act). 3. The petitioner has its factory at IIE Pant Nagar. The respondent no.3 is the immediate jurisdictional officer having their offices at Rudrapur. The fiscal incentive package declared by the Industrial Policy and put into effect by the Notifications issued by the respondents was restricted, interalia, to the State of Uttarakhand where the petitioner’s unit is situated. 4. The Company for the purposes of servicing various components and replacement thereof due to wear and damage either manufactures or procures such replacement components from the manufacturers suppliers/vendors on the specifications required by it. These components are brought into the factory location at Pant Nagar where, after carrying out the requisite quality control checks, the same are segregated/sorted and then 3 packed in unit containers bearing BAJAJ logo. In terms of the provisions of Standards of Weights and Measures Act and Packaged Commodities Rules 1979, the Company is required to affix a printed label on the said packages containing the components, interalia affixing thereon the Maximum Retail Price of the respective motor vehicle part/ component/assembly, which are then cleared to the dealers. 5. In order to provide a package of incentives to enable environment of industrial development, improve availability of capital and increase market access to provide a fillip to the private investment for the State of Uttarakhand and Himachal Pradesh, the respondent no.1 by Memorandum dated 7th January, 2003 published its Policy document. As per the Policy document (annexure no.2) the major fiscal incentives promised to new industrial units and to existing units on their substantial expansion were 100% outright excise duty exemption for a period of ten years from the date of commencement of commercial production and 100% Income Tax exemption for initial period of five years and thereafter 30% for companies and 25% for other than companies for a further period of five years from the date of commencement of commercial production. 6. The respondent no.2, in exercise of power conferred under Section 5A of the Act issued a Notification No. 50/2003-CE dated 10.06.2003 thereby granting full exemption from duty of excise levied under Schedule I and Schedule II of the Tariff Act, in respect of specified excisable goods, subject to, amongst other, the fulfillment of condition that the excisable goods are 4 manufactured in a new industrial undertaking set up or substantial expansion of an existing unit, located in specified area(s) of the State of Uttarakhand or Himachal Pradesh, during the period of June 2003 upto 31st March, 2007. By the amended Notification no. 38/2006 dated 2nd August, 2006 (annexure no.3) the aforesaid time limit for setting up/ substantial expansion of units and start of commercial production for being eligible for excise duty exemption, was extended from 31st March, 2007 to 31st March, 2010. It is stated that vide letter dated 24th February, 2006, the petitioner submitted an application to State Industrial Development Corporation of Uttarakhand Limited (for brevity SIDCUL) for allotment of a plot in the notified location of IIE, Pant Nagar and in response, the SIDCUL vide letter no. 1199/ AGM/ SIDCUL/ 06 dated 17th March, 2006 informed the petitioner for allotment of Plot No. 2, Sector 10, IIE Pant Nagar with the assertion that the terms and conditions of the allotment shall be complied with. Accordingly, the petitioner invested a large sum approximately Rs. 150 crores in setting up the industrial unit at the allotted site. The petitioner submitted that even though the deadline for commencement of commercial production set out in the aforesaid Notification dated 10.06.2010 was extended to 31.03.2010 vide amended Notification dated 02.08.2006, the petitioner stuck to the original time limit and were successful in completing the setting up of the new unit. Thereafter, the petitioner vide letter dated 11.12.2006 moved an application to the Central Excise Authority for grant of Central Excise Registration and the Superintendent Central Excise Rampur Division in turn on 21.12.2006 called upon the petitioner to furnish further documents specified therein, to which the 5 petitioner duly responded on 02.01.2007 by submitting the documents and further requesting the authority for grant of registration. After yet another correspondence i.e. on 08.02.2007 by the Department and dated 12.02.2007 by the petitioner, the petitioner was granted a Central Excise Registration Certificate in the prescribed format (annexure no.10). Vide letter dated 23.03.2007, the petitioner submitted a declaration required under Notification no. 50/2003-CE dated 10.06.2003, regarding petitioner’s intention to avail benefit of the exemption as well as the other detailed mandate under the said Notification, such as description of specified goods produced and against the item; the date on which option under the Notification was exercised, the petitioner specified the date as 23.03.2007. Thereafter the petitioner commenced commercial production on 2nd April, 2007. Vide letter dated 13.08.2007, the Superintendent (Special Cell) Central Excise Division, Rampur called upon the petitioner and in response to this letter, the petitioner vide letter dated 25.08.2007 submitted the copies of the documents required by the Department. In the letter dated 25.08.2007, the petitioner submitted on record the date of commencement of commercial production and copy of First Invoice of clearance of goods from Pant Nagar factory belonging to the petitioner. 7. It is further asserted in the petition that the respondents by virtue of amended Notification No. 1/2008-CE dated 18.01.2008 (annexure no. 15) inserted a new para-4 in the preceding Notification No. 50/2003- CE dated 10.06.2003 whereby it was sought to exclude from the scope of exemption certain peripheral activities from the scope of the benefit of exemption. It is further 6 asserted in the petition that the effect of the amended Notification was that the benefit of full exemption from excise duty under the preceding Notification dated 10.06.2003 would not be available to goods which have been subjected only to one or more of the following processes viz. 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 which goods have not been subjected to any other process or processes amounting to manufacture in the States of Uttarakhand or Himachal Pradesh. 8. In the petition, the petitioner has further submitted that petitioner has paid duty and cleared goods believing that the above amended Notification no. 1/2008 had the effect of curtailing the benefit of full exemption w.e.f. 18.01.2008, although the benefit was promised to them to be continued for a period of continuous ten years from the date of commencement of commercial production. The petitioner’s products that were affected adversely by the said amending Notification No. 1/2008 were various motor vehicle parts/components procured from manufacturers outside Uttarakhand on payment of duty and which are packed in unit containers and affixed with MRP labels by the petitioner in their Pant Nagar plant. Such parts that were earlier cleared by the petitioner without payment of any excise duty by availing the exemption under Notification No. 50/2003 CE, after the amending Notification No. 1/2008 effective from 18.01.2008 stood excluded from the area based exemption benefit and held to be liable to pay duty once again on MRP assessment basis at the time of clearance to 7 market from Pant Nagar plant. The petitioner had affected clearances of the various motor vehicle parts from Pant Nagar industrial unit by availing full exemption of excise duty irrespective of fact whether or not all the activities viz. manufacture, packing in unit container, MRP label affixing etc. were carried out, entirely or only partially, in the State of Uttarakhand. 9. It is averted in the petition that from May 2007 upto 17th January, 2008 i.e. before the amending Notification dated 18.01.2008, the petitioner company had availed of the duty exemption and had affected clearance of various motor vehicle parts procured from outside Uttarakhand, after carrying out only unit-packing and MRP labelling at Pant Nagar plant. In terms of the fiscal incentives declared in the said Industrial Policy and further confirmed by the Notification No. 50/2003-CE, the petitioner has all along nurtured a legitimate expectation that the benefit of full exemption from excise duty is available and would continue to be available to the petitioner company for the entire promised period of ten years. 10. It is stated that this issue has been answered in favour of the petitioner by the judgment of Hon’ble Himachal Pradesh High Court at Shimla in M/s Gillete India Ltd. vs. Union of India wherein the said amending Notification was held to be not applicable to existing units on the ground that such withdrawal was arbitrary, unfair and unreasonable in the light of the judgment of Hon’ble Supreme Court in MRF vs. Assistant Commissioner (2006) 8 SCC-702 as also against the doctrine of promissory estoppel. 8 11. Lastly the petitioner has submitted that by the amending Notification dated 18.01.2008, the respondents purported to exclude goods on which activities, such as packing re-packing in a unit container, MRP labelling etc. only, are carried out in the State of Uttarakhand, from the benefit of full duty exemption available under Notification No. 50/2003 CE dated 10.06.2003, thereby arbitrarily breaking the promise of full excise duty exemption for a period of ten years from the date of commencing commercial production, held out to entities the petitioner and inducing the company for setting up new industrial unit in specified locations in the State of Uttarakhand. Therefore the aforesaid amending Notification dated 18.01.2008 is militates against the doctrine of promissory estoppel apart from causing immense financial losses, present and future. 12. The respondent nos. 5 & 6 filed a joint counter affidavit in which they have stated that by the amended Notification No. 1/2008-CE dated 18.01.2008 the manufacturers who have set up manufacturing plant in Uttarakhand and opted for the areas based exemption are restrained from availing the exemption in respect of those items which are covered under Section 4A of the Act. It is further stated that the issue has been answered by the decision of Shimla High Court in the case of Gillete India Ltd. vs. UOI CWP No. 598 of 2008 decided on 18.12.2008. The Ministry of Commerce vide Memorandum bearing no. 1(10)/2001-NER dated 07.01.2003 published policy document providing package of incentive to existing and new unit carrying out substantial expansion:- 9 (i) 100% outright excise duty exemption for ten years from the date of commencement of commercial production. (ii) 100% Income Tax exemption for five years from the date of commencement of commercial production. 13. It is further stated in the counter affidavit that M/s Bajaj Auto Ltd. applied for Central Excise Registration on 11.12.2006 and was granted Central Excise Registration on 15.02.2007. The Ministry of Finance vide Notification 1/2008-CE dated 18.01.2008 amended Notification No. 50/2003-CE dated 10.06.2003 withdrew area based exemption in respect of items covered under Section 4A of the Act. In para-18 these respondents have admitted that what was promised, cannot be denied. But they placed reliance upon Kasinka Trading vs. UOI, 1994 (74) E.L.T. 782 (SC), wherein Hon’ble Supreme Court has held 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. According to respondents, in the instant case, Notification was issued in public interest, when it was found that it was not serving any public interest hence exemption in respect of packing, repacking, labelling, re-labelling units, was withdrawn. Reliance was also placed in the judgment rendered in Sales Tax Officer vs. Shri Durga Oil Mills, 1998 (97) E.L.T.-202 (S.C.), wherein it is held that “public interest is superior equity which can always override individual equity or any consideration of private losses or gain”. 10 14. In their counter affidavit, the respondents further submitted that Ministry of Finance has correctly withdrawn the benefits offered by Notification No. 50/2003 CE dated 10.06.2003, on the basis of date on record that the peripheral or incidental activities have not brought investment and employment commensurate with the fiscal cost of granting the exemption. Notification 50/2002-CE dated 10.06.2003 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 units. The public interest that was sought to be achieved by this Notification 50/2003-CE dated 10.06.2003, was not achieved hence Notification 1/2008-CE dated 18.01.2008 was issued in the superior public interest. The party has not been able to prove that the exemption was withdrawn for any oblique or extraneous consideration and was not in ‘public interest’. 15. In the rejoinder affidavit filed against the counter affidavit of respondent nos. 5 & 6, the petitioner has stated that vide amending Notification 8/2008 dated 18.01.2008, the respondents have purported to exclude goods on which activities such as packing, repacking in a unit container, MRP labelling etc. are carried out in the State of Uttarakhand, from the benefit of all excise duty exemptions under the Notification no. 50/2003 dated 10.06.2003 thereby breaking the promise of full excise duty exemption for a period of 10 years from the date of the commencement of commercial production, held out to the entrepreneurs such as the petitioner and inducing the 11 petitioner company for setting up new industrial units in specified locations in the State of Uttarakhand. 16. A counter affidavit has also been filed by respondentno.7 in which it is stated that respondent no.7 is governed by the policies framed by the respondent nos. 1 and 2. 17. I have heard Mr. Arshad Hidayatullah, Senior Advocate assisted by Ms. Pooja Banga, Advocate for petitioner, Mr. Arvind Vashishtha, Advocate for respondent nos. 1 & 2, Mr. K.P. Uppadhyay, Addl. C.S.C. and Mr. R.C. Arya, Brief Holder for the State/ respondent no.4, Mr. Vipul Sharma, Advocate for respondent no.7 and perused the entire material available on record. 18. Mr. Hidayatullah, the learned Senior Advocate for the petitioner submitted that 2/3-wheeled motor vehicles manufactured by the petitioner are chargeable to excise duty under the Central Excise Act and the said vehicles are classified under Chapter 87 of the Central Excise Tariff Act, 1985. He submitted that under Notification no. 50/2003, concessions were sought to be given to those industries, which would be set up in the areas mentioned in the same Notification no. 50/2003 in terms of excise duty exemptions and Income Tax exemptions/ concessions. The petitioner, in view of the aforesaid Notification, took a policy decision to set up a plant in the State of Uttarakhand to avail the benefit of the said Notification no. 50/2003. He submitted that the issue which arises for consideration before this Court is the constitutional validity of amending Notification no. 1/2008 dated 18.01.2008 whereby under the exemption 12 of payment of excise duty for a specified period to promote industrial development was sought to be withdrawn prior to the said period, which has been answered in favour of the petitioner by the judgment of Himachal Pradesh High Court where the same Notification by which benefit given under the Notification No. 50/2003 was sought to be withdrawn, in the matter of Gillette India vs. Union of India, wherein the amending Notification was held to be not applicable in the existing units on the ground that such withdrawal was arbitrary unfair and unreasonable in the light of the judgment of the Hon’ble Supreme Court in MRF vs. Assistant Commissioner, reported in (2006) SCC-702 and also against the doctrine of promissory estoppel and was quashed by the Court. 19. Learned Senior Counsel for the petitioner argued that the amending Notification dated 18.01.2008, in fact, and in law militates against the doctrine of promissory estoppel apart from causing immense financial losses to the petitioner, who having acted on the promise given to it by the Central Govt. He vehemently argued that where a Notification has been issued granting exemption from excise duty under a policy of the Government and exemption from paying excise duty for a certain period of time specified in the Notification, the Government is not entitled to resile from the same and/or to withdraw the rights accrued thereunder unless it is able to show that such withdrawal was in public interest and if such public interest is not established despite opportunity, then the amending Notification is arbitrary. In this regard learned counsel for the petitioner relied on the decisions of Hon’ble the Apex Court in the matter of 13 MRF Ltd. Kottayam vs. Assistant Commissioner Sales Tax and others, reported in (2006) 8 SCC-702 wherein it was held that “action of the Government cannot be permitted to operate if it is arbitrary or unreasonable. Equity that arises in favour of a party as a result of such a representation is founded on the basic concept of justice and fair play”. It was also held in this judgment 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 exemption during the fixed period cannot affect the already accrued right. In MRF’s case (supra) the Hon’ble Apex Court has further held that “MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from the payment of sales tax for a period of 7 years. It was granted the eligibility certificate. The exemption order had already been passed. It is not open or permissible for the State Government to deprive the MRF of the benefit of tax exemption in respect of its substantial investment in expansion in respect of compound rubber when the State had enjoyed the benefit from the investment made by MRF in the form of industrial development in the State, contribution to labour and employment; the impugned action on part of the State Government is highly unfair, unreasonable, arbitrary and therefore violative of Article 14 of the Constitution. The action of the State cannot be permitted to operate if it is arbitrary or unreasonable. The attempt to take away the said 14 benefit of exemption with effect from 15.01.1998 and thereby deprive MRF of the benefit of exemption for more than 5 years from a total period of 7 years 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.” 20. Learned Senior Counsel for the petitioner further relied on the judgment of the Apex Court in the matter of State of Punjab vs. Nestly India Ltd. and another 2004-(SC3)- GJX-0494-SC wherein it was held that “promissory estoppel long recognized as a legitimate defence in equity was held to be found a cause of action against the Government, even when, and this needs to be emphasized, the representation was sought to be enforced was legally invalid in the sense it was not in conformity with the procedure prescribed in the statute.” 21. The learned Senior Advocate submitted that the petitioner fulfilled all the parameters on which the doctrine of promissory estoppel can be invoked by it against the State acting on the promise of the Government for full excise duty exemption for a period of 10 years the petitioner acting on the promise established its industry in Uttarakhand and has made an investment of 150 crores and has generated employment which has not been disputed by the respondents. 15 22. The learned Senior Counsel for the petitioner further argued that position regarding incentive Notification is a fortiori, subject to the principle of promissory estoppels. He submitted that incentive Notification are those where the Government makes a representation and invites the entrepreneurs by showing various benefits for encouraging to make investment by way of industrial development of backward and for hill areas. These Notifications are subject to promissory estoppels. He relied on U.P. Power Corporation’s case (Supra) and submitted that even in Kasinka’s case (supra) the earlier cases dealing with such incentive Notification are distinguished as falling into a separate class. He argued that the Notification dated 50/2003 is clearly an incentive Notification issued under a policy decision adopted by the Central Government granting incentives, including total exemption from levy of Excise Duty. 23. On the other hand, Shri Arvind Vashishtha, the learned Advocate for respondent nos. 1 & 2 has submitted that by the amended Notification No. 1/2008- CE dated 18.01.2008 the manufacturers who have set up manufacturing plants in Uttarakhand and opted for the areas based exemption are restrained from availing the exemption in respect of those items which are covered under Section 4A of the Act. He further stated that M/s Bajaj Auto Ltd. applied for Central Excise Registration on 11.12.2006 and were granted Central Excise Registration on 15.02.2007. The Ministry of Finance vide Notification 1/2008-CE dated 18.01.2008 amended Notification No. 50/2003-CE dated 10.06.2003 withdrew area based exemption in respect of items covered under Section 4A of 16 the Act. He admitted that the issue has been answered by the decision of Shimla High Court in the case of Gillete India Ltd. vs. UOI CWP No. 598 of 2008 decided on 18.12.2008 but placing reliance upon the judgment of Hon’ble Apex Court in Kasinka Trading vs. UOI, 1994 (74) E.L.T. 782 (SC) he argued 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. He submitted that in the instant case, Notification was issued in public interest,