Century Textiles and Industries Ltd. and Century Pulp and Paper and Siddeshwari Paper Udyog and Sidharth Papers Ltd. and Vishwakarma Paper & Boards Ltd V. Union of India and State of Uttarakhand

WPMS/1246/2008

AI Insights

The case involves multiple writ petitions filed by various paper manufacturing companies challenging the withdrawal of excise duty exemptions initially granted to them under an Office Memorandum (OM) dated 07.01.2003 and subsequent notifications. These exemptions were crucial for industries in Uttarakhand and Himachal Pradesh, providing 100% excise duty and income tax exemptions for new and substantially expanded units. The Central Government later issued an OM on 21.06.2005 and a notification on 27.06.2008, placing certain products, including those manufactured by the petitioners, in a negative list, thereby withdrawing the exemptions. The petitioners argued that this withdrawal was discriminatory and violated the principles of Article 14 of the Constitution, as it favored industries in these states over others in different regions, leading to unhealthy competition and discrimination.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 694341 (HC-UTTARAKHAND)
• Appeal Type: Others
• Pronouncement Date: 18-12-2014
• Assessment Year: misc
• Laws Referred To: Central Excise Tariff Act, Article 14 of the Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ANJALI BHARGAWA; SAYED NADIM
• Assessee Lawyers: PANKAJ SINGH
• Keywords: Excise duty exemption; Income tax exemption; Negative List; Promissory Estoppel; Substantial Expansion; Doctrine of reasonable expectations
• Section: 4804.90; 4802.90

Judgement Text

"IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Writ Petition No. 1246 (M/S) of 2008 Century Textiles and Industries Ltd. ..….Petitioner. versus. Union of India and others ……..Respondents With Writ Petition No. 499 (M/S) of 2008 Century Pulp and Paper ..….Petitioner. versus. Union of India and others ……..Respondents With Writ Petition No. 500 (M/S) of 2008 M/S Siddeshwari Paper Udyog ..….Petitioner. versus. Union of India and others ……..Respondents With Writ Petition No. 501 (M/S) of 2008 M/S Sidharth Papers Ltd. ..….Petitioner. versus. Union of India and others ……..Respondents With Writ Petition No. 502 (M/S) of 2008 M/S Siddeshwari Paper Udyog ..….Petitioner. versus. Union of India and others ……..Respondents With Writ Petition No. 503 (M/S) of 2008 M/S Vishwakarma Paper & Boards Ltd ..….Petitioner. versus. Union of India and others ……..Respondents Present: Mr. Pankaj Kumar Singh, Advocate for the petitioners. Mrs. Anjali Bhargawa, Standing Counsel for the Union of India/respondent nos. 1 and 2. Mr. Sayed Nadim, Standing Counsle for the State of Uttarakhand/respondent nos. 3 and 4. Hon’ble Alok Singh, J. (Oral) In all these writ petitions, identical questions of facts and law are involved, therefore, all these petitions are heard 2 together and are being disposed of by this common judgment with the consent of the learned counsel for the parties. Undisputedly, Ministry of Commerce and Industry, Government of India was pleased to issue Office Memorandum dated 07.01.2003, annexure no. 1 to the writ petition, whereby providing to such Industrial sectors, 100% outright exemption of excise duty for a period of 10 years 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, which are set up in such areas of the State of Uttarakhand and Himachal Pradesh as mentioned in Annexure no. 1 of the OM from the date of commencement of commercial production by new industrial units and to existing units on their substantial expansion. As per the Clause 3.1(III) of the OM dated 07.01.2003, thrust sector industries as mentioned in annexure no. 2 to the OM were also entitled to the similar concession in the entire areas of State of Uttarakhand and Himachal Pradesh, without any areas restrictions; as per Clause 3.4, industries producing products mentioned in the negative list i.e. Annexure III to OM, would not be entitled for tax exemptions. Substantial expansion has been defined in Notification dated 08.01.2003 which reads as under: “Substantial Expansion” means increase by not less than 25% in the value of fixed capital investment in plant and machinery of an industrial unit for the purpose of expansion if capacity/modernization and diversification.” 3 Central Government, thereafter, in continuation of the OM dated 07.01.2003 was pleased to issue Notification No. 49 of 2003 Central Excise as well as Notification No. 50 of 2003 Central Excise dated 10.06.2003 annexure no. 3 and 4 to the writ petition providing exemption of 100% excise duty on the goods specified in the first schedule and second schedule to the Central Excise Tariff Act other than goods specified in annexure no. 1 appended thereto and cleared from a unit located in the Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate or Scheme Areas, as the case may be, specified in Annexure II appended thereto. Vide Notification dated 19.05.2005, it was provided that exemption shall be available to those new units as well as existing units after substantial expansion who have commenced commercial production on or after OM dated 07.01.2003 but not later than 31.03.2007. All the petitioners industries are producing paper products as classified under 4802.90 and 4804.90. Undisputedly, 4802.90 and 4804.90 were not included in the negative list i.e. annexure no. 3 of the OM dated 07.01.2003. To understand the controversy and to decide the lis, facts of the Writ Petition no. 1246 of 2008 (M/S), are being narrated hereunder. Undisputedly, petitioner industry is located within the areas mentioned/specified in annexure no. 1 of the Notification No. 50 of 2003. Petitioner industry has decided to expand the existing industry enabling the petitioner industry to enjoy 4 100% excise duty exemption as per Clause 3.1 (III) of the OM dated 07.01.2003 and Notification nos. 49 and 50 of 2003. Vide letter dated 12.03.2005, General Manager, District Industries Centre, Haldwani, Deputy Commissioner, Central Excise and Customs, Haldwani, General Manager, State Industrial Development Corporation of Uttaranchal Limited and Deputy Commissioner Trade Tax (Assessment), Haldwani were informed that petitioner industry has commenced the activities towards the expansion of the industry enabling the industry to seek exemption as per OM dated 07.01.2003 and Notification nos. 49 and 50 of 2003. Vide letter dated 14.06.2005, Deputy Commissioner, Central Excise and Customs, Haldwani was informed that petitioner industry has entered into the several agreements with several manufacturers/suppliers to supply plant and machinery to the petitioner industry for the purpose of expansion of industry. Meanwhile, few other paper industries, which were situated outside the State of Uttarakhand and Himachal Pradesh, preferred several petitions before this Court as well as Himachal Pradesh High Court challenging the OM dated 07.01.2003 and subsequent Notification nos. 49 and 50 of 2003 granting 100% exemption of excise duty and Income Tax exemption in favour of the industries established in the State of Uttarakhand and Himachal Pradesh. It was contented that their cost of production would be much-much less in view of no liability of the excise duty and the income tax, therefore, it would amount giving extra benefits and monopoly in favour of the industries established and to be established in the State of Uttarakhand and Himachal Pradesh and would amount to 5 unhealthy competition. It has further been contended by those industries that it would amount to discrimination, therefore, OM dated 07.01.2003 and Notification nos. 49 and 50 of 2003 were against the spirit of Article 14 of the Constitution of India. In the writ petitions filed by the paper industries of other State, Central Government has taken definite stand by way of filing counter affidavit that OM dated 07.01.2003 and consequential subsequent Notification nos. 49 and 50 of 2003 were issued after taking into consideration all the financial and other aspects keeping in mind industrial and financial growth in two hill States that too without damaging the environment and keeping the ecological balance. Meanwhile, paper industries of the other States other than State of Uttarakhand and Himachal Pradesh were able to pressurize the Central Government to issue the OM dated 21.06.2005, whereby items classified under the headings of 4802.90 as well as 4804.90 were included in the negative list. Consequently, exemption earlier granted to the industries producing products classified as 4802.90 and 4804.90 stood withdrawn. Paper industries, adversely affected by OM dated 21.06.2005, approached this Court as well as the Himachal Pradesh High Court challenging the OM dated 21.06.2005, whereby items classified as 4802.90 and 4804.90 were placed in negative list. It was contended before the Himachal Pradesh High Court, hearing the writ petition, challenging the OM dated 21.06.2005 that Office Memorandum dated 21.06.2005 would be enforceable only after the notification is issued and since 6 notification has not been issued, therefore, legality of the office memorandum dated 21.06.2005 need not be examined and consequently, Himachal Pradesh High Court vide order dated 23.04.2008 was pleased to dispose of writ petitions challenging the OM dated 21.06.2005 saying no action would be taken only on the basis of OM dated 21.06.2005 until and unless notification in this regard is issued. After the judgment and order of the Himachal Pradesh High Court dated 23.04.2008, Central Government was pleased to issue Notification dated 27.06.2008 placing the products classified as 4802.90 and 4804.90 in the negative list. Feeling aggrieved, present petition has been filed challenging the notification dated 27.06.2008 annexure no. 20 as well. Undisputedly, this Court vide order dated 16.09.2005, 23.12.2005 and 15.09.2008, was pleased to stay the OM dated 21.06.2005 as well as the impugned notification dated 27.06.2008 and meanwhile petitioner industry was able to install the new plant and machinery and was further able to start manufacturing after expansion which was reported to the authorities in the year 2007. It has not been disputed by the Central Government as well as by the State Government that on 07.01.2003 the date of issuance of 1st OM, petitioner company was having production/manufacturing capacity of 121850 MT per annum which has been increased by the petitioner industry to 1, 97,810 MT and General Manager, District Industrial Centre, Kaladungi, Nainital was informed by letter dated 02.02.2007 that production/manufacturing capacity has already been increased, however, commercial production would start 7 with effect from 03.02.2007. It is also not in dispute that petitioner industry has incurred the expanses of 425 crore in substantial expansion of the industry and has started commercial production prior to 31.03.2007, last date as required by Notification dated 19.05.2005. The bare perusal of the office memorandum dated 07.01.2003 would demonstrate that exemption of excise duty and Income Tax was granted pursuant to the promise extended by the then Hon’ble Prime Minister of the country during his visit to Uttarakhand from 29th March to 31st March, 2002. A bare perusal of the OM dated 21.06.2005 would reveal that OM dated 21.06.2005 was issued merely because various associations of other manufacturer approached the Central Government. It is not made clear in the counter affidavit as to what prompted the Central Government to withdraw the concession earlier granted to the paper industries as well as existing paper industries, on their substantial expansion in the State of Uttarakhand and Himachal Pradesh. The reasoning given seems to be totally eye wash. Moreover, grounds taken in the counter affidavit filed by the Central Government in the petition challenging the subsequent OM dated 21.06.2005 are totally contrary to the stand taken by the Central Government in the counter affidavit filed in 1st set of petitions challenging 1st OM dated 07.01.2003. As observed, hereinbefore, paper products classified as 4802.90 and 4804.90 were not in the negative list of OM dated 07.01.2003 and Notification Nos. 49 and 50 of 2003, however, vide notification dated 27.06.2008, same were placed in the negative list. Notification dated 27.06.2008 does not 8 provide that products classified as 4802.90 and 4804.90 would be in the negative list from the retrospective effect. Moreover, petitioner has made substantive expansion and has commenced commercial production prior to 31.03.2007 i.e. before the cut off date as required by Notification dated 19.05.2005, therefore, every formalities required to be done by the petitioner were complete prior to issuance of Notification dated 27.06.2008. Central Government, by issuing OM dated 07.01.2003 and consequential Notifications no. 49 and 50 of 2003, has invited entrepreneurs to come to State of Uttarakhand and Himachal Pradesh to establish new industries and to increase the manufacturing capacity by substantial expansion of the existing units with object to provide development and employment in two hill States by promising to grant 100% excise duty exemption and income tax exemption. Having believed the statement of the Prime Minister of the country as narrated in the OM dated 07.01.2003 and promise made by the Central Government that 100% excise duty exemption would be available for 10 years, entrepreneurs came to both the hill States and have established new industries and have incurred heavy expanses for the substantial expansion to increase the manufacturing capacity with reasonable expectations to enjoy excise duty exemption for 10 years from the date of actual commencement of commercial production. In my humble opinion, Central Government is free to change/modify the exemption policy with prospective effect, however, is not free to withdraw the exemption earlier granted with retrospective effect. 9 In my further considered opinion, principle of promissory estopple shall come in the way of the Central Government and the Central Government is not legally permitted to withdraw the excise duty exemption, from the petitioners, granted earlier by placing the products classified as 4802.90 and 4804.90 in the negative list vide impugned OM and consequential Notification dated 27.06.2008. Moreover, doctrine of reasonable expectations shall also be pressed in service in the present case debarring the Central Government from withdrawing the exemption earlier granted to the petitioners. Only effect of impugned OM dated 26.06.2005 and Notification dated 27.06.2008 would be that the exemption shall not be available to those who intend to establish new industry after the impugned O.M. dated 26.06.2005 and notification dated 27.06.2008 or intend to commence the expansion thereafter. Consequently, I direct that petitioners industries shall continue to enjoy 100% excise duty exemption on the products classified as 4802.90 and 4804.90 for ten years from the date of a commencement of actual commercial production. All the petitions stand disposed of accordingly. (Alok Singh, J.) D ated: 18th December, 2014 Deepak 10 "