Facts of the Case

The petitioner, Godrej Consumer Products Limited, is a Fast Moving Consumer Goods (FMCG) manufacturer having manufacturing units situated at Kathua and Samba in the erstwhile State of Jammu & Kashmir.

The petitioner had earlier availed the benefit of area-based Central Excise exemption under Notification No. 56/2002-CE dated 14.11.2002. Subsequently, relying upon Notification No. 01/2010-CE, the petitioner undertook substantial expansion of its manufacturing facilities with the expectation that the tax incentives available under the earlier Industrial Policy would continue even after implementation of the Goods and Services Tax (GST) regime.

After introduction of GST with effect from 01.07.2017, the Central Government rescinded the earlier Excise Exemption Notifications through Notification No.21/2017-Central Excise dated 18.07.2017 and introduced the Scheme of Budgetary Support under GST Regime through Notification dated 05.10.2017.

The petitioner applied for registration as an "Eligible Unit" and sought issuance of a Unique Identification (UID) for claiming budgetary support. However, the Assistant Commissioner rejected the application holding that the petitioner was not availing excise exemption immediately before 01.07.2017, which was an essential eligibility condition under the Scheme.

Aggrieved by the rejection order and challenging the validity of the Budgetary Support Scheme and related notifications, the petitioner approached the High Court.

 

Issues Involved

  1. Whether the petitioner qualified as an Eligible Unit under the Budgetary Support Scheme dated 05.10.2017.
  2. Whether restricting the benefit only to units availing excise exemption immediately before 01.07.2017 violated Article 14 of the Constitution.
  3. Whether rescinding the Central Excise exemption notifications after implementation of GST was illegal.
  4. Whether Section 174 of the CGST Act permitted issuance of rescinding notifications after repeal of the Central Excise provisions.
  5. Whether denial of Budgetary Support violated the doctrines of Promissory Estoppel and Legitimate Expectation.
  6. Whether the rejection of the petitioner's application for UID was legally sustainable.

 

Petitioner's Arguments

The petitioner contended that:

  • It had invested substantial capital relying upon the Industrial Policy and Excise Exemption Scheme.
  • Notification No.01/2010 permitted substantial expansion without prescribing any sunset clause.
  • The Budgetary Support Scheme ought to have protected ("grandfathered") the earlier tax incentives into the GST regime.
  • The expression "was availing exemption immediately before 01.07.2017" should be interpreted harmoniously with the Industrial Policy.
  • Restricting the benefit only to units actually availing exemption before GST resulted in hostile discrimination between similarly situated industries.
  • The impugned notifications violated Articles 14, 19(1)(g), 265 and 300A of the Constitution.
  • The Government was bound by the doctrines of Promissory Estoppel and Legitimate Expectation, since industries had invested relying upon the promised incentives.
  • The rescinding Notification dated 18.07.2017 was issued without statutory authority after repeal of the Central Excise provisions.

 

Respondent's Arguments

The Union of India submitted that:

  • The petitioner had originally commenced commercial production on 10.02.2007.
  • The benefit under Notification No.56/2002 expired on 09.02.2017 after completion of the prescribed ten-year period.
  • The petitioner was not availing any Central Excise exemption immediately before 01.07.2017.
  • The Budgetary Support Scheme is an entirely new scheme introduced only as a goodwill measure and is independent of the earlier excise exemption notifications.
  • Eligibility under the Scheme is governed strictly by Paragraph 4.1, which expressly requires actual availment of exemption immediately before GST implementation.
  • Fiscal incentives and exemption notifications must be interpreted strictly.
  • Withdrawal of exemption in public interest is a matter of Government policy and courts should not interfere.

 

Court Findings

The High Court dismissed both writ petitions and held that:

  • The Budgetary Support Scheme is a new and independent scheme introduced after GST and does not automatically continue the earlier excise exemptions.
  • Paragraph 4.1 clearly restricts eligibility to units actually availing exemption immediately before 01.07.2017.
  • The petitioner admittedly ceased enjoying exemption on 09.02.2017 and therefore did not satisfy the eligibility condition.
  • The language of the notification is plain and unambiguous; therefore, no liberal or purposive interpretation is permissible.
  • Exemption notifications in taxation statutes must be construed strictly.
  • Courts cannot enlarge the scope of an exemption by interpretation.
  • Withdrawal of tax exemption in public interest is a matter of fiscal policy.
  • The doctrines of Promissory Estoppel and Legitimate Expectation cannot override statutory provisions or compel continuation of a tax exemption contrary to law.
  • The rejection of the petitioner's UID application was valid.

Accordingly, the writ petitions were dismissed.

 

Court Order

The High Court upheld:

  • Notification dated 05.10.2017 introducing the Budgetary Support Scheme.
  • Notification No.21/2017-Central Excise dated 18.07.2017.
  • Circular No.1060/9/2017-CX dated 27.11.2017.
  • The order rejecting issuance of UID to the petitioner.

The writ petitions were dismissed, holding that the petitioner was not an Eligible Unit under the Budgetary Support Scheme.

 

Important Clarification

  • GST Budgetary Support is not a continuation of the earlier Central Excise exemption.
  • Only units actually availing excise exemption immediately before 01.07.2017 are entitled to Budgetary Support.
  • Exemption notifications must be interpreted strictly.
  • Fiscal policy decisions relating to withdrawal or modification of tax incentives generally fall within the Government's policy domain.
  • Promissory Estoppel cannot compel the Government to continue tax exemptions contrary to statutory provisions.

 

Sections Involved

  • Section 174, Central Goods and Services Tax Act, 2017
  • Section 5A, Central Excise Act, 1944
  • Section 49, CGST Act, 2017
  • Section 20, Integrated Goods and Services Tax Act, 2017
  • Articles 14, 19(1)(g), 265, 269A, 270, 279A, 300A of the Constitution of India
  • Notification No.56/2002-Central Excise
  • Notification No.01/2010-Central Excise
  • Notification No.21/2017-Central Excise
  • Notification F.No.10(1)/2017-DBA-II/NER dated 05.10.2017
  • Circular No.1060/9/2017-CX dated 27.11.2017
  • SRO 519 & SRO 521 dated 21.12.2017

Link to download the order - https://mytaxexpert.co.in/uploads/1782975110_4compressed.pdf

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