Promissory Estoppel on Govt. Clarifications, applied retrospectively in the Public Interest (Supreme Court 3 Judge Bench Judgment) Decided on 22.4.2020
Questions Framed (Important Points) :-
1. Whether in the facts and circumstances of the case the subsequent notification No. 16 of 2008 dated 27.03.2008 can be said to be clarificatory in nature and can it be said that it takes away the vested right conferred pursuant to the earlier notification of 2001?
Held – clarificatory in nature
2. Whether the same can be made applicable retrospectively ?
Held – Yes
3. Whether the same has been issued in the public interest ?
Held – Yes
4. Whether the same is hit by the Doctrine of Promissory Estoppel?
Held – Doctrine of Promissory Estoppel – not applicable since subsequent act/notification of Govt. is clarificatory in nature and is in larger public interest.
Section 5A -Central Excise Act- Exemption Notification – subsequent notifications – Object of -prevention of tax evasion – Whether the subsequent notification No. 16 of 2008 dated 27.03.2008 can be said to be clarificatory in nature and takes away the vested right conferred pursuant to the earlier notification of 2001? Held – No- subsequent notification clarificatory in nature – refund of excise duty which are manufactured on paper, not allowed. Exemption notification allowed on genuine manufacturing activities and cannot be read to be a source of tax evasion. Such subsequent notification clarificatory in nature and an Act to remove doubts, as such applied retrospectively. Further no benefits which were accrued/granted under the earlier notifications were taken away by subsequent notifications.
Evidence Act -Section 115 – Law of Evidence – doctrine of promissory estoppel – Refund of actual Excise Duty paid on actual value addition, clarified in subsequent notification – whether hit by the doctrine of promissory estoppel. Held- No. applied retrospectively and cannot be said to be irrational and/or arbitrary.
Further clarified present judgment shall not affect cases where the amount of excise duty already refunded prior to the subsequent notifications/industrial policies, but applicable on pending cases.
Facts before Gujarat High Court – Incentive Scheme (unlimited as there was no upper cap )offered under Central Excise Exemption Notification No. 39/2001-CE dated 31.07.2001 for setting up New Industries in the earthquake affected District of Kutch. Said incentive of refund of duty paid in cash/PLA (Personal Ledger Account) was available for a period of 5 years from the date of commencement of commercial production. The said Incentive Notification No. 39/2001-CE was amended by another notification No. 16/2008-CE dated 27.03.2008, that prescribed the benefit of refund would be granted with reference to the value addition, which was notionally fixed @ 34% for the commodity manufactured (impugned before the High Court), which was stated to be relating to a virtual withdrawal of the incentive scheme.
Petitioner claimed before the High Court that subsequent notification No. 16/2008-CE changed entire basis of the incentive exemption and had the effect of substantially reducing their entitlement of refund being reduced from nearly 100% of the duty paid to only 34% of such duty amount, before the expiry of the five years period therefore subsequent notification are in breach of doctorine of promissory estoppel and prayed to set aside the same. High Court allowed the respective Writ Petitions before the High Court and are challenged by the Union of India (Respondents) that are tagged herewith.
Facts before Sikkim High Court – industrial policy 2007 – provided the fiscal based incentive to new industrial units and their substantial expansion – As per this policy, 100% excise duty exemption was provided on the products manufactured in the North-Eastern region. By the subsequent notifications/industrial policies which were impugned before the High Court, the refund of excise duty was limited to the extent of the value addition.
High Court held that the impugned policy of withdrawal of the benefit/incentive to the original writ petitioners is retrospective and not retroactive. The Notification 16/2008 dated 27.03.2008, is quashed and set aside on the ground that bar of promissory estoppel would operate. Union of India preferred present Special Leave Petitions.
Supreme Court – Held – that though Doctorine of Promissory Estopple is applicable against the Govt., however, cannot be pressed to carry out a representation or promise which is contrary to law or outside the authority or power of the officer. Courts have to do equity and the fundamental principles of equity must for ever be present to the mind of court while considering applicability of doctrine of Promissory Estopple, Relied on Kasinka Trading v. Union of India (1995) 1 SCC 274 wherein Supreme court distinguished Indo-Afghan Agencies (1968) 2 SCR 366 and M.P. Sugar Mills (1979) 2 SCC 409 and held that because of categorical representation in writing, industry were set up, therefore doctrine of promissory estopple was applied in both these cases but the fact in the present case are not analogues. In M.P. Sugar Mills (supra) State sought to levy sales tax after the Correspondences were exchanged between State and petitioners to the effect that the industry would be exempted from sales tax and in Indo-Afghan Agencies(supra) wherein petitioner acted upon unequivocal promises and exported goods on specific assurances and held that authorities were bound by assurances and obliged to carry out promise.
Public Interest – withdrawal of exemption “in public interest” is a matter of policy and the courts would not bind the Government to its policy decisions for all times to come. The courts, do not interfere with the fiscal policy where the Government acts in “public interest” and neither any fraud or lack of bona fides is alleged much less established. Further the Govt. is left free to determine the priorities in the matter of utilisation of finances and to act in the public interest while issuing or modifying or withdrawing an exemption notification. Thus, doctrine of promissory estoppel cannot be invoked in the abstract and the courts are bound to consider all aspects including the objective to be achieved and the public good at large. Fundamental Principle of Equity must be present to the mind of court while considering the applicability of the doctrine. The Doctrine must yield when the equity so demands that it would be inequitable to hold the Government or the public authority to its promise, assurance or representation.
On Promissory Estoppel and Public Interest :
Principle of promissory estoppel though applicable against the Government, but determination of applicability against Govt. hinges upon balance of equity or “public interest”. The Govt. would be allowed to change its stand in supervening public interest, Shrijee Sales Corporation v. Union of India, (1997) 3 SCC 398.
Withdrawal of exemption is in public interest, the public interest must override any consideration of private loss or gain, Sales Tax Officer & Anr. vs. Shree Durga Oil Mills & Anr., (1998) 11 PHT 83 (SC).
Public interest would prevail over any promissory estoppels, Kasinka Trading (supra), followed in State of Rajasthan v. Mahaveer Oil Industries, (1999) 13 PHT 564 (SC).
Rule of promissory estoppel being an equitable doctrine has to be moulded to suit the particular situation. It is not a hard-and-fast rule but an elastic one, the objective of which is to do justice between the parties and to extend an equitable treatment to them. There is no promissory estoppel against the settled proposition of law, Shree Sidhbali Steels Ltd. v. State of U.P., (2011) 3 SCC 193.
Doctrine of promissory estoppel cannot be invoked for enforcement of a promise made contrary to law, because none can be compelled to act against the statute. Thus, the Government or public authority cannot be compelled to make a provision which is contrary to law.
On Retrospectivity and Clarificatory nature of Subsequent Notification :
Presumption against retrospective operation is not applicable to declaratory statutes. For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective, State Bank of India v. V. Ramakrishnan (2018) 17 SCC 394 and an amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect, Zile Singh v. State of Haryana (2004) 8 SCC 1.
Any legislation or instrument having force of law, if clarificatory, declaratory or explanatory in nature and purport, will have retrospective operation especially in the absence of any indication to the contrary, State of Bihar v. Ramesh Prasad Verma (2017) 5 SCC 665.
Whether a subordinate legislation or a parliamentary statute would be held to be clarificatory or declaratory would depend upon the nature and also the object it seeks to achieve, Union of India v. Martin Lottery Agencies Ltd. (2009) 12 SCC 209.
A clarificatory order can be given retrospective effect as it can throw light on substantive provision by principle of “contemporanea expositio” (contemporanea expositio – that a reader should read the document as it would have been read by someone at the time when it was written- Collins Dictionary of Law),T.N. Electricity Board v. Status Spg. Mills Ltd. (2008) 7 SCC 353.
On Interpretation of Fiscal Statutes :
Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid, R. K. Garg v. Union of India (1981) 4 SCC 675.
Every taxing statute including, charging, computation and exemption clauses, at the threshold stage should be interpreted strictly. Further, though in case of ambiguity in charging provisions, the benefit necessarily goes in favour of the assessee, but for an exemption notification or exemption clause the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. It is further observed and held that a person claiming exemption, therefore, has to establish that his case squarely falls within the exemption notification, and while doing so, a notification should be construed against the assessee in case of ambiguity. A person who claims exemption has to establish his case, Commissioner of Customs (Import) v. Dilip Kumar and Company (2018) 9 SCC 1.