Facts of the Case

  • Corporate Profile & Infrastructure: The Petitioner, M/s Godrej Consumer Products Limited, is a Fast-Moving Consumer Goods (FMCG) company manufacturing household insecticides, personal care, and home products. It operates two manufacturing units in the State of Jammu and Kashmir: one located at Chak Pratap Singh, Kathua, and another at SIDCO Industrial Complex, Bari Brahmana, Samba.
  • Historical Incentive Availment: The petitioner’s Kathua unit originally commenced commercial production in the financial year 2005–06. It availed area-based central excise exemption benefits under the erstwhile Notification No. 56/2002-Central Excise (dated November 14, 2002). This incentive scheme provided for a refund of the cash component of central excise duty for a maximum duration of ten years from the date of commercial production.
  • Substantial Expansion & Sunset Clause Arguments: The respondents established that the commercial production from the petitioner's expanded capacity officially began on February 10, 2007, making the 10-year exemption valid strictly up to February 9, 2017. The petitioner argued that pursuant to Notification No. 1/2010-Central Excise (dated February 6, 2010), existing units could undertake substantial expansion without any limitation since no sunset clause was explicitly prescribed. Relying on this, the petitioner secured expansion permissions from the District Industries Centre (DIC) on October 13, 2016, and made heavy investments under the anticipation that benefits would be grandfathered into the GST regime.
  • GST Transition & The Impugned Rejection: Following the introduction of the Goods and Services Tax (GST) on July 1, 2017, the Central Government rescinded the old excise exemption notifications via Notification No. 21/2017-Central Excise on July 18, 2017. In its place, a new "Scheme of Budgetary Support" was introduced via Notification No. F.No.10(1)2017-DBA-II/NER dated October 5, 2017, along with State SRO 519 and 521. The petitioner completed its expansion and commenced production on September 25, 2017. However, when they applied for a Unique ID to claim budgetary support, the Assistant Commissioner of Central GST, Samba Division, rejected the application on August 20, 2018, because the unit was not actively availing any excise exemption immediately prior to July 1, 2017.

Issues Involved

  1. Whether the Proviso to Section 174(2)(c) of the CGST Act, 2017 is illegal, unconstitutional, or inconsistent with the main provisions of the Act to the extent that it restricts certain classes of assessees from availing historical tax incentives post-July 1, 2017.
  2. Whether the definition of an "Eligible Unit" under Paragraph 4.1 of the Budgetary Support Notification dated October 5, 2017—which restricts benefits strictly to units that were actively drawing exemptions immediately before July 1, 2017—creates an arbitrary and discriminatory classification violative of Article 14 and Article 19(1)(g) of the Constitution.
  3. Whether the Rescinding Notification No. 21/2017-Central Excise issued on July 18, 2017, under Section 5A(1) of the Central Excise Act is valid, considering the Central Excise Act was already repealed effective July 1, 2017.
  4. Whether the Government is bound by the principles of Promissory Estoppel and Legitimate Expectation to extend tax benefits under the GST regime to units that undertook capital investments under the erstwhile industrial policies.

Petitioner’s Arguments

  • Lack of Statutory Basis for Rescission: The petitioner argued that Notification No. 21/2017-Central Excise was issued on July 18, 2017, under Section 5A(1) of the Central Excise Act. Because Section 174 of the CGST Act had already repealed the Central Excise Act effective July 1, 2017, the rescinding notification was issued without legal backing, making it a violation of Articles 265 and 300A of the Constitution.
  • Harmonious and Purposive Construction: It was asserted that the phrase "was availing the said exemption immediately before 1st day of July 2017" in Paragraph 4.1 of the Budgetary Support Scheme must be interpreted harmoniously with the overarching intent of the Industrial Policy. A literal reading would render the Cabinet decisions and prior industrial policy permissions entirely nugatory and otiose.
  • Arbitrary Discrimination: The petitioner contended that the policy creates hostiles and artificial divisions between similarly placed manufacturing units. A unit operating on June 30, 2017, receives the benefit, while a unit like the petitioner’s, which diligently undertook substantial expansions and had crystalized its eligibility under Notification No. 01/2010, is entirely deprived without any intelligible differentia.
  • Protection of Capital Investments: The petitioner heavily relied on landmark decisions such as State of Bihar v. Suprabhat Steel Ltd. and Lloyds Electric and Engineering Ltd. v. State of Himachal Pradesh to plead that the government cannot back out of promised incentives once an enterprise has altered its position by making massive capital investments.

Respondent’s Arguments

  • Absolute Expiry of Historical Exemption: The Revenue department demonstrated that the petitioner’s original eligibility under Notification No. 56/2002-CE ended on February 9, 2017, because the 10-year period from its expanded commercial production (February 10, 2007) had fully run its course. Thus, between February 10, 2017, and June 30, 2017, the petitioner was not availing any functional fiscal exemptions.
  • Independent Status of the Budgetary Support Scheme: The respondents clarified that the Budgetary Support Scheme introduced under the GST regime is an entirely new, standalone measure of goodwill. It provides a part-reimbursement (58% of CGST / 29% of IGST paid in cash) strictly for the residual period of pre-existing, operational units. It possesses no legal or structural continuity with the erstwhile Central Excise exemption regimes.
  • The Supreme Court Precedent on Public Interest: The respondents invoked the Supreme Court judgment in Union of India v. V.V.F. Industries and others (2020), highlighting that the withdrawal or modification of a tax exemption in public interest is an unreviewable matter of executive policy. Under the General Clauses Act, an authority that has the power to issue a notification inherently possesses the absolute power to modify or rescind it.

Court Order / Findings

  • Strict Interpretation of Exemption Clauses: The High Court observed that in a taxing statute, plain, unambiguous language must be preferred and given a strict interpretation. Citing Commr. of Customs v. Dilip Kumar & Co. (2018) and Krishi Upaj Mandi Samiti v. CCE (2022), the court ruled that any exemption notification or exception clause must be strictly construed in favor of the Revenue. The beneficiary must fall squarely within the four corners of the eligibility parameters, leaving no room for liberal or implied expansions.
  • Failure to Meet "Eligible Unit" Criterion: The bench highlighted that the petitioner explicitly stated its new commercial production date as September 25, 2017. Because it was not actively availing any exemption immediately before July 1, 2017, the petitioner failed the fundamental statutory test outlined in Paragraph 4.1 of the Budgetary Support Notification.
  • Subordination of Promissory Estoppel to Public Interest: The court explicitly rejected the invocation of promissory estoppel against economic policies. Citing Kasinka Trading v. Union of India (1995) and Shree Sidhbali Steels Ltd v. State of U.P. (2011), the bench remarked that the doctrine of promissory estoppel must yield when public equity and macro-economic overhauls demand it. The implementation of GST constitutes a massive structural tax reorganization across India, and courts will not interfere with such fiscal policies when the government acts in public interest.
  • Pragmatism in Fiscal Legislation: Referencing the historic ruling in R. K. Garg v. Union of India (1981), the court emphasized that economic legislation is experimental and empiric by nature. It cannot be struck down merely because it displays minor crudities, inequalities, or fringe hardships. Consequently, the High Court found no merit in the petitions, vacated all interim protections, and dismissed both writ petitions.

Important Clarification

  • Goodwill, Not a Right: The Budgetary Support Scheme under the GST regime is a discretionary measure of goodwill engineered by the Government of India upon recommendations of the GST Council. It is not an extension of a vested right.
  • Calculation of Support Limits: The 58% and 29% part-reimbursements under the scheme were mathematically calibrated because the Central Government devolves 42% of its collected tax revenues to the States in accordance with the mandates of the 14th Finance Commission.
  • Strict Anti-Fraud Safeguards: The scheme features stringent verification mechanisms. If an investigation reveals that a manufacturing unit has overstated its production, hidden input tax credits, or sourced inputs from unregistered suppliers to artificially inflate claims, its benefits will be denied ab initio, and recoveries will be pursued at an interest rate of 15% per annum.

Section Involved

  • Proviso to Section 174(2)(c) of the Central Goods and Services Tax (CGST) Act, 2017.
  • Section 5A(1) of the Central Excise Act, 1944.
  • Section 49(1) of the Central Goods and Services Tax (CGST) Act, 2017.
  • Section 10 and Section 20 of the Integrated Goods and Services Tax (IGST) Act, 2017.
  • Articles 14, 19(1)(g), 265, 269A, 270, 279A, and 300A of the Constitution of India.

Link to download the order -https://mytaxexpert.co.in/uploads/1782887509_1.pdf

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