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May 19, 2020


by facelesscompliance in Legal Court Judgement


This is a very old proverb which our Indian governments relishes in making it true. Its 20 years now and we have left it for the world to judge us. My Government My Rules exist.

They say India does not attract good FDI. But why do they do so. Here’s proof enough. In a recent landmark judgment the Supreme Court of our country has held that “Doctrine of Promissory Estoppel” does not exist above larger public interest. To sum up the 55 pager order of Union of India vs VVF LTd and Others (approx. 92 applicants) in a line – “We promise to give incentives and when it comes to fulfilling the same we will back out giving the excuse of larger public interest”.

Facts of the case:

20 years ago the state of Gujarat suffered the biggest blow in terms of the earthquake. The state was nearly in shambles.  A dynamic move was made to attract large scale investment and to generate new employment opportunities in the District of Kutch. The Government of India announced an Incentive Scheme for setting up New Industries in the earthquake affected District of Kutch, by issuing Central Excise Exemption Notification No. 39/2001-CE dated 31.07.2001. The state granted incentive of excise duty equivalent to the amount of excise paid through PLA on finished goods to industries set-up by the year 2003, upto a period of 5 years.

Change of Game by the Government

Now this was a great time for industries willing to procure this incentive and putting fresh investment in the state of Gujarat. Now exactly 5 years later when the time came to give the exemption, the Government of India issued another amendment by way of Notification No. 16/2008-CE dated 27.03.2008 (impugned before the High Court), which according to the writ petitioners was relating to a virtual withdrawal of the earlier incentive scheme. The amended notification provided that the benefit of refund would be granted with reference to the value addition, which was notionally fixed @ 34% for the commodity manufactured.

Notification No. 16/2008-CE also provided for determination of a special rate by the Commissioner (a government officer), in a situation where the actual value addition was more than the deemed value addition as specified. According to the original writ petitioners, as a consequence of the said amendment, the inventive available to them stood reduced from the refund of the entire of the duty paid in cash/PLA to 34% of the total duty paid. The original writ petitioners challenged the subsequent notification No. 16/2008-CE before the High Court of Gujarat by way of the aforesaid writ petitions.

It was the case of the original writ petitioners that the subsequent notification No. 16/2008-CE changed the entire basis of the incentive exemption and had the effect of substantially reducing their entitlement of refund. It was also the case on behalf of the original writ petitioners that as a result of the said amendment which resulted in their entitlement for refund being reduced from nearly 100% of the duty paid to only 34% of such duty amount. According to the original writ petitioners, since the promised incentive was curtailed midway before the expiry of the five years period, the subsequent notification was in breach of the principle of promissory estoppel.

The aforesaid writ petitions were challenged by the government by submitting as under: i) the Exemption Notification prompted certain unscrupulous manufacturers to indulge in different type of tax evasion tactics; ii) the intention behind the Exemption Notification was to incentivise genuine manufacturers only to the extent of actual value addition made by them; iii) duty paid in cash by units set up in District of Kutch pursuant to the Exemption Notification was found to be inordinately high as compared to other similarly placed units in other parts of India; iv) the Central Government by the very same power by which it grants exemption is empowered to withdraw the same; v) the impugned notifications are only a modification to give effect to the real intention of the Government and are not withdrawal of the benefit; and vi) in light of the misuse of the exemption pleaded by UOI, public interest warrants such withdrawal.

Simultaneously, the manufacturing units also filed representations to the Government for re-consideration. Pursuant to the representations, another notification was issued by the Central Government vide Notification No. 33/2008- CE dated 10.6.2008. Therefore, the original writ petitioners amended the writ petitions challenging the subsequent notification dated 10.6.2008 also. Thereafter the Central Government vide notification No. 51/2008 dated 3.10.2008 revised the deemed value addition at 75% in respect of the products manufactured by the original writ petitioners without giving them any option of applying for a special rate.  The aforesaid writ petitions were heard by the Division Bench. The members of the Division Bench differed. One learned Judge allowed the writ petitions and another learned Judge held that the writ petitions deserve to be dismissed. In view of the difference of opinion between the two learned Judges of the Division Bench, the matter was referred to a third learned Judge. By the impugned judgment and order, the third learned Judge has agreed with the view taken by the learned Judge who allowed the writ petitions. Consequently, by the impugned judgment and order, the writ petitions are allowed mainly on the ground of doctrine of promissory estoppel. Consequently, it is held by the High Court that the incentive as originally envisaged by notification No. 39/2001-CE was required to be implemented and the differential amount was directed to be refunded to the writ petitioners.

The revenue department aggrieved by the said order of Gujarat High Court,  filed an appeal with Supreme court and challenged the same. While admitting the appeal Supreme court by its order dated 13.1. 2012 (copy attached) styed the Gujarat High Court order and directed to release 50% Excise refund due  as per notification to Industries with an obligation to return back the same by executing the necessary Surety Bond.

Decision of the Supreme Court

AMIDST, the entire world under a Lockdown due the the COVID-  19, the Supreme Court of India was able to “Work from home” and deliver this LANDMARK judgement amidst the crisis on 22 April 2020. We are not surprised though.  The Supreme court full reversed and negated the order of the HIGH Court and  allowed the appeal filed by Revenue department and restored the amended  notifications affecting approx. 93 writ petitioners in this case.


Ironic it is, the judgment took 20 years (from the date scheme was announced) to be passed in the year 2020 when our government plans to give Rs 20 lakh crore stimulus. Some indication or a prophecy.   

The world is looking at us as the new visionary leader, a country to lead by example and at the same time we are showing them how we break our promises. How we will use excuses to not deliver what we promised. The FDI is reading FM and PM. We are promising various things and showing them 20 years from 2020, we will not act as we promised.

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