CA Nihar Mehta
The true principle of promissory estoppel is where one party (Promisor) has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or a legal relationship would arise in the future, knowing or intending that it would be acted upon by the other party (Promise) to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it.
Essentials of a Promissory Estoppel:
1. Promisor made a promise knowing promise would act on it
2. Promisor intends to create legal relation
3. Promise has relied on the promise and has acted on the basis of such promise
Facts of the Case
By issuing Central Excise Exemption Notification No. 39/2001-CE dt. 31-7-2001, with a view to generate employment, the GOI announced an Incentive Scheme for setting up New Industries in the earthquake affected District of Kutch and granted exemption to Industrial Units set up prior to 31.07.2003 (which was 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.
With effect from 06.08.2003 vide notification No. 65/2003-CE to provide that PLA payments could be made to discharge duty liabilities on the finished products only after exhausting the CENVAT Credit balances. Another amendment was made vide notification No. 16/2008-CE dt. 27-3-2008 provided that the benefit of refund would be granted with reference to the value addition, which was notionally fixed @ 34% for the commodity manufactured and later increased to 75%.
Further, Explanatory Memorandum to the notification as also the Press Release issued by the Press Information Bureau wherein it noted that due to the economic activity has come to a standstill, new employment opportunities could be created if new investments take place. Taking note of the Excise Duty exemption, the State Government also introduced a Sales Tax incentive scheme which would be available to those industries.
Aggrieved by the reduced refund benefit, VVF Ltd approached The High Court, Ahmedabad wherein these impugned notifications were quashed and set aside since it is barred by the doctrine of promissory estoppel. Dissatisfied Union then appealed to the apex court.
Verdict of the Supreme Court
The primary issue of consideration here is that, whether the government was well within its right to issue subsequent clarificatory notifications without changing the subject matter of the notification and whether they can alter the vested right granted via earlier notifications/circulars.
In this case, it was observed that there was gross misuse of the exemption notification by unscrupulous manufacturers who only showed manufacturing activities on paper without actually undertaking any manufacturing activities. In light of this exploitation, the government issued clarificatory notifications. The Court was of the opinion that the respective notifications/industrial policies impugned before the High Courts can be said to be clarificatory in nature and it can be defined as an Act to remove doubts. It cannot be said that by the subsequent notifications/industrial policies the benefits which were accrued/granted under the earlier notifications were sought to be taken away. The purpose of the incentive was to attract entrepreneurs to generate employment. As it was found that there was misuse of excise duty exemption, the subsequent notifications were considered expedient in the public interest and with a laudable object of having genuine industrialization in the concerned areas to achieve original objective policies, the same is to be applied retrospectively and they cannot be said to be irrational and/or arbitrary. Therefore, cannot be said to be hit by the doctrine of promissory estoppel.
Facts of the Case
The Central Government, issued Notification No. 50/2003-CE, dated 10-6-2003 (Exemption Notification) in exercise of powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944to promote industrial development in the State of Uttarakhand. This Notification exempted certain goods from whole of the duty of excise or additional duty of excise, as the case may be, leviable thereon under any of the said Acts in respect of certain industrial units located in the State of Uttarakhand and Himachal Pradesh. (for a period not exceeding 10 years). After coming into force of the GST regime, the Central Government issued another Notification No. 21/2017-CE, dated 18-7-2017 rescinding the aforesaid Exemption Notification dated 10-6-2003 with effect from 1-7-2017, which provided area-based exemptions.
Aggrieved assessee, Hero Motocorp Ltd, filed writ petitions praying to hold the Central Government to its promise made vide exemption notification no.50/2003-CE by invoking doctrine of promissory estoppel.
Verdict of the Delhi High Court
The issue under consideration was whether promissory estoppel can be invoked in case of legislative acts against acts done in accordance to statutory provisions of the law, especially when the law has undergone complete revision. Upon introduction of GST regime, various central indirect taxes including the Central Excise Duty and several State indirect taxes have been subsumed. In this changed scenario, the Parliament being conscious of the exemptions that were granted as incentives against investments through a notification, while repealing the earlier legislations, specifically provided that such incentives shall not continue as privileges, if the notifications are rescinded on or after the appointed date provided under the Act which has been embedded in Section 174(2)(c) of the CGSCT Act.
Hence, the Court held that promissory estoppel cannot be enforced against an act done in accordance with the statutory provisions of law. Under Section 174(2)(c) of the CGST Act, express provision has been made by the Parliament to provide that any tax exemption granted as an incentive against investment through a notification under, inter alia, the erstwhile Central Excise Act, shall not continue as a privilege if the said notification is rescinded, and in the present case, the notification which granted 100% excise duty exemption was, in fact, rescinded.
Based on judicial dictum and precedents, we understand that the Doctrine of Promissory Estoppel cannot be invoked under the following circumstances:
While determining whether this doctrine can be used to prevent the government from reneging on its words, an overwhelming importance placed on whether it is warranted by public interest.
Typically, when exemption notifications are issued, they may be subject to modification/ revisions/ revocation and this is an exercise allowed under the law itself. However, it has also been established that abuse of power under the law is not tolerated and all alterations must be just.
The doctrine of promissory estoppel is an equitable doctrine has to be moulded to suit the particular situation. It is not a hard-and-fast rule but an elastic one, the objective of which is to do justice between the parties and to extend an equitable treatment to them.
Disclaimer: The views taken in this document are for guidance only and cannot be taken or used as legal advisory.
(Author is partner at Sutaria Associates)