In its recent decision in Union of India & Anr. v. M/s. V.V.F. Limited & Anr.,[1] the Hon’ble Supreme Court held that government notifications which are issued in public interest are not hit by the doctrine of promissory estoppel.
Facts
The Gujarat Notifications
Post the devastating earthquake that struck the District of Kutch (in the State of Gujarat) in 2001, the Government of India issued a notification (“2001 Notification”) inter alia exempting those goods from excise duty which were manufactured in a new industrial unit (set up in the District of Kutch) for the purpose of sale. These new industrial units could claim a refund (in the manner stipulated in the 2001 Notification) of the excise duty paid on the goods manufactured by them. Further, July 31, 2003 was decided as the cut-off date for setting up of new industrial units in the District of Kutch with manufacturers allowed to claim excise refunds for a period of five years from the date of commencement of the commercial production of goods. The 2001 Notification was amended from time to time to inter alia extend the cut-off date for setting up new industrial units, from July 31, 2003 to December 31, 2005
Pursuant to two subsequent amendments to the 2001 Notification in 2008 (“2008 Notifications”), the benefit of refund granted under the 2001 Notification was restricted/ limited to the ‘value addition’ to the goods made by the new industrial units. Consequently, the new industrial units could now only claim a refund of 34% of the total duty paid by them, as opposed to the entire amount under the earlier notifications. The 2008 Notifications were challenged by way of several writ petitions before the Hon’ble Gujarat High Court and were quashed and set aside inter alia on the ground that the bar of promissory estoppel would operate.
Simultaneously, another batch of writ petitions were filed before the Hon’ble Gujarat High Court challenging the order of the excise authorities granting refunds in terms of the 2008 Notifications and seeking refund in terms of the 2001 Notification. The Hon’ble Court dismissed the said writ petitions in view of the fact that an alternate remedy was available to the petitioners (in the said writ petitions) under the Central Excise Act, 1944. Further, the Hon’ble Court refused to deal with the challenge to the 2008 Notifications in view of its decision in the writ petitions thereon (discussed above).
2007 Industrial Policy
The Government of India issued an Industrial Policy on April 1, 2007 which provided 100% excise duty exemption on the products manufactured in the North Eastern region. However, subsequent notifications/ industrial policies, similar to the 2008 Notifications, were issued under which refund of excise duty was limited to the ‘value addition’. The subsequent notifications/ industrial policies amending the said Industrial Policy were challenged by way of writ petitions before the Hon’ble Sikkim High Court and Hon’ble Guwahati High Court which quashed and set aside the same inter alia on the ground that they are hit by the doctrine of promissory estoppel.
The aforesaid judgments of the Hon’ble Gujarat High Court, Hon’ble Sikkim High Court and Hon’ble Guwahati High Court quashing the respective notifications/ industrial policies inter alia on the ground that the same are hit by the doctrine of promissory estoppel were challenged before the Hon’ble Supreme Court by way of a batch of Special Leave Petitions.
Issues
The three broad issues before the Hon’ble Supreme Court were (a) whether the subsequent notifications/industrial policies were clarificatory in nature, (b) can the subsequent notifications/industrial polices be applied retrospectively, and (c) whether the subsequent notifications/ industrial policies were hit by the doctrine of promissory estoppel.
The Doctrine of Promissory Estoppel
The doctrine of promissory estoppel is where one party, by his word or conduct, makes a clear and unequivocal promise or representation to the other party knowing that such a promise would be acted upon by the other party and if so acted upon, the promise or representation would be binding on the party making it.[2] In order to avoid injustice, the courts have, periodically, evolved the doctrine of promissory estoppel on the principle of equity.
The doctrine of promissory estoppel also applies to government and public authorities. The Hon’ble Supreme Court has dealt with a series of cases wherein it applied the doctrine of promissory estoppel to government actions. In its landmark decision of Motilal Padampat Sugar Mills Co. Ltd. v. The State of U.P.,[3] the Hon’ble Supreme Court held that where the government makes a promise knowing or intending that it would be acted on by the promisee and in fact the promisee acting in reliance on such promise alters his position, the government will be held bound by the promise and it will be enforceable against the government at the instance of the promisee. It was further held that the government cannot claim any immunity from the doctrine of promissory estoppel.
However, given the fact that the doctrine of promissory estoppel is an equitable doctrine, the Hon’ble Supreme Court has, while considering such cases, carefully considered the argument of public interest before ruling on such cases. While passing its judgement in V.V.F. Limited (supra), the Hon’ble Supreme Court re-visited its earlier judgements on the issue of promissory estoppel against government actions which laid down the following principles:
In V.V.F. Limited (supra), the Hon’ble Supreme Court particularly emphasised on Kasinka Trading v. Union of India[9] wherein it was held that withdrawal of exemption notification in public interest is a matter of policy and the courts would not bind the Government to its policy decision for all times to come, irrespective of the satisfaction of the Government that a change in the policy was necessary in public interest. It was further held that where the Government acts in public interest and where no fraud or lack of bonafides is alleged, it would not be appropriate for the courts to interfere with such government actions.
Decision
The Hon’ble Supreme Court held that the subsequent notifications/ industrial policies were clarificatory in nature, as they only explained and inter alia clarified the refund mechanism (i.e. excise duty refund would be allowed only to the extent of duty payable on actual value addition made by the manufacturer undertaking genuine manufacturing activities in the concerned areas). It was further held that the subsequent notifications/ industrial policies cannot be construed to take away the vested rights conferred under the earlier notifications/ industrial policies. Relying on its earlier decisions,[10] the Hon’ble Supreme Court held that the subsequent notifications/ industrial policies, being clarificatory and explanatory in nature, will be applied retrospectively.
On the issue of promissory estoppel, the Hon’ble Supreme Court considered the main objective of the earlier notifications/ industrial policies (i.e. to encourage the entrepreneurs to have new industries in the affected areas to generate employment). Keeping the said objective in mind, the Hon’ble Supreme Court observed that the Government had issued subsequent notifications/ industrial policies to overcome the fact that certain unscrupulous manufacturers had indulged in various types of tax evasion tactics to frustrate the purpose of these earlier notifications/ industrial policies. Therefore, the Hon’ble Court concluded that such an action was taken by the Government in public interest and with a laudable object of having genuine industrialisation in backward areas or concerned areas.
Further, relying upon its earlier judgment in Commissioner of Customs (Import) v. Dilip Kumar and Company,[11] the Hon’ble Supreme Court held that the subsequent notifications/ industrial policies were issued in larger public interest and in the interest of revenue generation with the intention of achieving the original objective of the earlier notifications/ industrial policies. Therefore, subsequent notifications were not hit by the doctrine of promissory estoppel.
Comment
The Government has always been and must always be held responsible for the promises made by it. No exemption ought to be granted to the Government for its failure to abide by the promise made by it unless such a promise is contrary to law or public interest. A careful analysis of this decision of the Hon’ble Supreme Court shows that there is no straight-jacket formula for applying the doctrine of promissory estoppel to government actions. Cases where government actions are questioned on the ground of promissory estoppel have to be analysed on the basis of its facts and circumstances to see the interplay between such a promise and public interest. Where it is inequitable to enforce liability against the Government keeping in mind larger public interest, the Hon’ble Supreme Court has, and will continue to keep the doctrine of promissory estoppel aside. Whilst such decisions may cause loss to some bona fide parties, it appears to be a price paid for the larger good.
[1] 2020 SCC Online SC 378
[2] Sharma Transport v. Government of A.P. & Ors. (2002) 2 SCC 188
[3] (1979) 2 SCC 409
[4] Shrijee Sales Corporation v. Union of India (1997) 3 SCC 398
[5] Kasinka Trading v. Union of India (1995) 1 SCC 274
[6] Shree Sidhbali Steels Ltd. v. State of U.P. (2011) 3 SCC 193
[7] STO v. Shree Durga Oil Mills (1998) 1 SCC 572
[8] Shree Sidhbali Steels Ltd. v. State of U.P. (2011) 3 SCC 193
[9] (1995) 1 SCC 274
[10] State Bank of India v. V. Ramakrishnan (2018) 17 SCC 394, State of Bihar v. Ramesh Prasad Verma (2017) 5 SCC 665, Union of India v. Martin Lottery Agencies Ltd. (2009) 12 SCC 209, T.N. Electricity Board v. Status Spg. Mills Ltd. (2008) 7 SCC 353, Zile Singh v. State of Haryana (2004) 8 SCC 1,
[11] (2018) 9 SCC 1. In this decision, the Hon’ble Supreme Court held that in case of any ambiguity in an exemption notification / clause, the benefit must be strictly interpreted in favour of the revenue / state
