Supreme Court upholds validity of withdrawal of area-based exemption on pan masala and tobacco products

In a recent case of UOI v. Unicorn Industries, 2019-VIL-33-SC-CE, the Supreme Court upheld the validity of amendment in area-based excise duty exemption Notification which made pan masala, tobacco and tobacco products ineligible for the benefit. The Court held that the principles of Promissory Estoppel cannot be invoked contrary to public interest and the larger public interest outweighs the Doctrine of Promissory Estoppel.

In this case, the Government had granted excise duty exemption (by way of refund) to manufacturing units located in specified areas in the North Eastern States. Subsequently, this Notification was amended to make it inapplicable to pan masala, tobacco and tobacco products.

Various writ petitions were filed invoking Doctrine of Promissory Estoppel against the amending Notification, stating that resile of promise is detrimental. The taxpayers submitted that they invested huge amount only because Government assured certain benefits, therefore, it cannot be withdrawn subsequently.

The Sikkim and Gauhati High Courts applied the Doctrine of Promissory Estoppel in this case and held that exemption will continue for the period originally contemplated in the Notification. Basis this, the Courts struck down the amending Notification. 

The Government relied on the case of Kasinka Trading v. UOI, 1994-VIL-11-SC-CU wherein the Court observed that Doctrine of Promissory Estoppel can be invoked against Government to prevent fraud. However, the principle cannot be used to compel Government to carry out an act which is contrary to law. Further, the Court held that the General Clauses Act, 1897 mentions that an authority which has power to issue a Notification, also has the power to rescind or modify the Notification in a like manner.

The Government also relied on the judgment in the case of DG of Foreign Trade v. Kanak Exports, 2015-VIL-174-SC-CU wherein the Court held that incentives or concessions are privileges conferred by Government which can be withdrawn in public interest.

The Supreme Court also considered that products in question are hazardous to health and results in severe diseases like oral cancer. Basis this, the Court held that withdrawal of benefit to manufacturers of such products is in larger public interest, and thus, the Doctrine of Promissory Estoppel cannot be invoked in this case.

NITYA Comments:

This decision of Supreme Court was rendered for peculiar products in question (i.e. pan masala, tobacco and tobacco products) which are hazardous to health. Hence, the decision will have limited applicability and will not impact other cases wherein the taxpayers are relying on the Doctrine of Promissory Estoppel for withdrawal of benefit.