Supreme Court Upholds Withdrawal of Excise Duty Exemption on Tobacco Products: Union of India vs. Unicorn Industries (2019)

Date of the Judgment: 19 September 2019

Citation: 2019 INSC 929

Judges: Arun Mishra, J., M. R. Shah, J., B.R. Gavai, J.

Can the government be stopped from changing its policies, especially when public health is at stake? The Supreme Court of India recently addressed this crucial question in a case concerning the withdrawal of excise duty exemptions on tobacco products. The core issue was whether the Union of India could revoke an exemption it had previously granted, citing public interest, even if businesses had relied on that exemption. The bench, comprising Justices Arun Mishra, M. R. Shah, and B.R. Gavai, delivered the judgment, with the opinion authored by Justice B.R. Gavai.

Case Background

The case revolves around notifications issued by the Union of India regarding excise duty exemptions for goods manufactured in specific areas of states like Sikkim and Assam. Initially, these notifications provided exemptions to encourage industrial development in these regions. However, subsequent notifications amended these exemptions, specifically including tobacco products and pan masala in the list of goods not eligible for exemptions. This change led to legal challenges by manufacturers who had invested in these areas based on the initial exemptions.

The primary parties involved were the Union of India (the appellant) and various manufacturers of pan masala and tobacco products (the respondents), including M/s Unicorn Industries and M/s Dharampal Satyapal Ltd. The manufacturers sought to continue receiving the excise duty exemptions, arguing that they had made investments based on the government’s initial promises.

Timeline:

Course of Proceedings

The manufacturers of pan masala and tobacco products challenged the 2007 notifications in the High Courts. The High Court of Sikkim ruled in favor of M/s Unicorn Industries, stating that they were entitled to the exemption for 10 years from the start of their commercial production. The Gauhati High Court initially dismissed the petitions filed by M/s Dharampal Satyapal Ltd. However, on appeal, the Appellate Bench of the Gauhati High Court overturned the Single Judge’s decision and ruled in favor of the manufacturers, directing the authorities to refund the excise duty. The Union of India, dissatisfied with these judgments, appealed to the Supreme Court.

Legal Framework

The case primarily involves the interpretation of Section 5A of the Central Excise Act, 1944, which grants the government the power to issue notifications for exemptions from excise duty. This section also implies the power to modify or withdraw such exemptions. The notifications were also issued under Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Section 3(3) of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978. The court also considered the principle of promissory estoppel and its applicability against the government.

The relevant legal provisions include:

• Section 5A of the Central Excise Act, 1944: This section empowers the Central Government to grant exemptions from excise duty. It states:
  “Power to grant exemption from duty of excise. — (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, goods of any specified description from the whole or any part of the duty of excise leviable thereon.”
• Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957: This section deals with the power to grant exemptions from additional duties of excise.
• Section 3(3) of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978: This section deals with the power to grant exemptions from additional duties of excise on textiles.

These provisions are part of the legislative framework that allows the government to manage excise duties and provide exemptions in the public interest. The Supreme Court’s interpretation of these provisions is crucial in determining the extent of the government’s power to withdraw exemptions.

Arguments

Arguments of the Union of India (Appellants):

• The Union of India argued that the 2007 Notifications were issued in public interest, as the consumption of pan masala and tobacco products is hazardous to health.
• They contended that the government has the power to modify or withdraw exemptions under Section 5A of the Central Excise Act, 1944, especially when it is necessary in the public interest.
• The Union of India submitted that the High Courts erred in applying the doctrine of promissory estoppel without considering the larger public interest.
• They relied on several judgments, including Kasinka Trading vs. Union of India, Darshan Oils (P) Ltd. vs. Union of India, and Shree Sidhbali Steels Ltd. vs. State of U.P., to support their argument that public interest should override individual interests.

Arguments of the Manufacturers (Respondents):

• The manufacturers argued that they had invested in the notified areas based on the assurance of 100% excise duty exemption by the Union of India and State Governments.
• They contended that the doctrine of promissory estoppel should apply, preventing the government from withdrawing the exemptions.
• The manufacturers submitted that the exemption notifications were issued to promote industrialization in backward areas.
• They relied on judgments such as M/s Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh and Ors., Union of India & Ors. Vs. Godfrey Philips India Ltd. & Ors., and Pawan Alloys & Casting Pvt. Ltd. vs. U.P. State Electricity Board & Ors., to support the applicability of promissory estoppel.

[TABLE] of Submissions

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. “Whether, by invoking the doctrine of promissory estoppel, can the Union of India be estopped from withdrawing the exemption from payment of Excise Duty in respect of certain products, which exemption is granted by an earlier notification; when the Union of India finds that such a withdrawal is necessary in the public interest.”

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Cases:

• Kasinka Trading vs. Union of India, (1995) 1 SCC 274 – Supreme Court of India: The Court held that promissory estoppel cannot be invoked in the abstract and must yield when equity demands, especially when public interest is involved.
• Darshan Oils (P) Ltd. vs. Union of India, (1995) 1 SCC 345 – Supreme Court of India: This case reinforced the principle that public interest outweighs individual interests in matters of policy.
• STO vs. Shree Durga Oil Mills, (1998) 1 SCC 572 – Supreme Court of India: The Court held that withdrawal of exemption in public interest is valid and public interest must override private loss.
• Shrijee Sales Corpn. vs. Union of India, (1997) 3 SCC 398 – Supreme Court of India: The Court held that the government can resile from a promise even if no manifest public interest is involved, provided reasonable notice is given.
• State of Rajasthan vs. Mahaveer Oil Industries, (1999) 4 SCC 357 – Supreme Court of India: This case affirmed that public interest can override private interests and the government can change its policy in public interest.
• Shree Sidhbali Steels Ltd. vs. State of U.P., (2011) 3 SCC 193 – Supreme Court of India: The Court held that promissory estoppel cannot be invoked against the settled proposition of law and the government can change the policy in public interest.
• DG of Foreign Trade vs. Kanak Exports, (2016) 2 SCC 226 – Supreme Court of India: The Court held that withdrawal of incentives in public interest is a policy decision and courts should not interfere.
• Pappu Sweets and Biscuits vs. Commr. Of Trade Tax, U.P., (1998) 7 SCC 228 – Supreme Court of India: This case dealt with the issue of promissory estoppel in the context of tax exemptions.
• Commr. of Customs vs. Dilip Kumar & Co., (2018) 9 SCC 110 – Supreme Court of India: This case discussed the interpretation of exemption notifications.
• M/s Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh and Ors., (1979) 2 SCC 409 – Supreme Court of India: This case discussed the principle of promissory estoppel and its application against the government.
• Union of India & Ors. Vs. Godfrey Philips India Ltd. & Ors., (1985) 4 SCC 369 – Supreme Court of India: This case dealt with the application of promissory estoppel in the context of tax exemptions.
• Pawan Alloys & Casting Pvt. Ltd. vs. U.P. State Electricity Board & Ors., (1997) 7 SCC 251 – Supreme Court of India: This case discussed the applicability of promissory estoppel against public authorities.
• R.C. Tobacco (P) Ltd. and Another Vs. Union of India and Another, 2005(7)SCC 725 – Supreme Court of India: This case upheld the vires of Section 154 of the Finance Act, 2003, which rescinded the exemption granted to cigarette manufacturers.

Legal Provisions:

• Section 5A of the Central Excise Act, 1944: This section empowers the government to grant exemptions from excise duty.
• Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957: This section deals with the power to grant exemptions from additional duties of excise.
• Section 3(3) of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978: This section deals with the power to grant exemptions from additional duties of excise on textiles.
• Section 154 of the Finance Act, 2003: This section rescinded the exemption granted to the manufacturers of cigarettes with retrospective effect.

[TABLE] of Authorities Considered

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Kasinka Trading vs. Union of India [CITATION]*: The Court followed this case to emphasize that promissory estoppel cannot be invoked in the abstract and must yield when equity demands, especially when public interest is involved.
• Darshan Oils (P) Ltd. vs. Union of India [CITATION]*: The Court followed this case to reinforce the principle that public interest outweighs individual interests in matters of policy.
• STO vs. Shree Durga Oil Mills [CITATION]*: The Court followed this case to hold that withdrawal of exemption in public interest is valid and public interest must override private loss.
• Shrijee Sales Corpn. vs. Union of India [CITATION]*: The Court followed this case to hold that the government can resile from a promise even if no manifest public interest is involved, provided reasonable notice is given.
• State of Rajasthan vs. Mahaveer Oil Industries [CITATION]*: The Court followed this case to affirm that public interest can override private interests and the government can change its policy in public interest.
• Shree Sidhbali Steels Ltd. vs. State of U.P. [CITATION]*: The Court followed this case to hold that promissory estoppel cannot be invoked against the settled proposition of law and the government can change the policy in public interest.
• DG of Foreign Trade vs. Kanak Exports [CITATION]*: The Court followed this case to hold that withdrawal of incentives in public interest is a policy decision and courts should not interfere.
• M/s Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh and Ors. [CITATION]*: The Court distinguished this case, acknowledging the principle of promissory estoppel but emphasizing the overriding public interest in the present case.
• Union of India & Ors. Vs. Godfrey Philips India Ltd. & Ors. [CITATION]*: The Court distinguished this case on the basis that the present case involved a larger public interest concern related to health hazards.
• Pawan Alloys & Casting Pvt. Ltd. vs. U.P. State Electricity Board & Ors. [CITATION]*: The Court distinguished this case on the grounds that the public interest in preventing health hazards outweighed the individual interests of the manufacturers.
• R.C. Tobacco (P) Ltd. and Another Vs. Union of India and Another [CITATION]*: The Court followed this case to emphasize that the legislative policy was to withdraw the exemption granted to the manufacturers of cigarettes as well as pan masala with tobacco.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the public health concerns associated with the consumption of pan masala and tobacco products. The Court emphasized that the government’s decision to withdraw the excise duty exemption was a policy decision taken in the larger public interest. The Court noted that scientific studies have established the hazardous nature of these products, and the government has a duty to protect its citizens from health risks. The Court also took into account the legislative intent to discourage the consumption of these products.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

The Court’s reasoning was primarily based on the legal framework and the principle that public interest should override individual interests. The factual aspects of the case, such as the manufacturers’ investments, were considered but given less weight compared to the legal and public health considerations.

Logical Reasoning:

The Court rejected the argument that the government was bound by its earlier promise of exemption because the larger public interest in preventing health hazards outweighed the individual interests of the manufacturers. The Court emphasized that the government’s policy decision to withdraw the exemption was valid and should not be interfered with.

The Supreme Court’s decision was based on the principle that the doctrine of promissory estoppel cannot be invoked to prevent the government from acting in public interest. The Court emphasized that the government’s power to modify or withdraw exemptions is essential for effective governance. The Court also held that the public interest in preventing health hazards outweighs the individual interests of the manufacturers.

The majority opinion was delivered by Justice B.R. Gavai, with Justices Arun Mishra and M.R. Shah concurring. There were no dissenting opinions.

The Court’s decision has significant implications for future cases involving government policies and exemptions. It reinforces the principle that public interest is paramount, and the government has the right to change its policies when necessary. The decision also clarifies the limitations of the doctrine of promissory estoppel when it conflicts with public interest.

The Supreme Court did not introduce any new doctrines or legal principles but reaffirmed the existing principles of law related to promissory estoppel and public interest. The Court’s analysis focused on the application of these principles to the specific facts of the case.

The Court considered the arguments for and against the application of promissory estoppel and ultimately rejected the argument that the government was bound by its earlier promise. The Court emphasized that the government’s policy decision to withdraw the exemption was valid and should not be interfered with.

The Supreme Court quoted the following from the judgment:

• “The power to grant exemption from payment of duty, additional duty etc. under the Act, as already noticed, flows from the provisions of Section 25(1) of the Act. The power to exempt includes the power to modify or withdraw the same.”
• “The 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, irrespective of the satisfaction of the Government that a change in the policy was necessary in the “public interest”.”
• “The larger public interest would outweigh an individual loss, if any. In that view of the matter we find that the appeals deserve to be allowed.”

Key Takeaways

• The government has the power to withdraw exemptions, even if they were previously granted, when it is in the public interest.
• The doctrine of promissory estoppel cannot be invoked to prevent the government from acting in the larger public interest, especially in matters of public health.
• Public interest will always override individual or private interests.
• The decision reinforces the government’s authority to make policy decisions and modify them when necessary.
• Businesses should be aware that government policies and exemptions can be changed, and they should not rely solely on these for long-term planning.

Directions

The Supreme Court did not give any specific directions other than allowing the appeals of the Union of India and setting aside the judgments of the High Courts.

Specific Amendments Analysis

The judgment does not discuss any specific amendments.

Development of Law

The ratio decidendi of this case is that the doctrine of promissory estoppel cannot be invoked against the government when the withdrawal of exemption is in the larger public interest. This judgment reinforces the principle that public interest must override individual interests and that the government has the power to modify or withdraw exemptions in public interest. The court’s decision clarifies the limitations of the doctrine of promissory estoppel when it conflicts with public interest, particularly in matters of public health.