Facts of the Case

A batch of writ petitions was filed by industrial units operating in the North-Eastern Region, including Star Cement Ltd., Assam Enterprise LLP, Assam Roofing Ltd., PDP Steels Ltd., Century Plyboards (I) Ltd., India Carbon Ltd., Carbon Resources Pvt. Ltd., Calcom Cement India Ltd., Genus Power Infrastructures Ltd., Barak Valley Cements Ltd. and several other eligible manufacturing units.

The petitioners had established new industrial units or undertaken substantial expansion based on the incentives announced under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) and the corresponding Central Excise Notification No. 20/2007-CE dated 25.04.2007. Their case was that the policy framework promised excise-duty exemption/refund benefits for the prescribed eligibility period, generally extending for ten years subject to applicable conditions.

Following the introduction of GST pursuant to the constitutional and statutory restructuring of indirect taxation, Notification No. 21/2017-CE dated 18.07.2017 rescinded various area-based Central Excise exemption notifications, including Notification No. 20/2007-CE. The judgment recorded that the consequence of such rescission was governed by the proviso to Section 174(2)(c) of the CGST Act, 2017.

Thereafter, the Central Government introduced the Scheme of Budgetary Support under the GST Regime through Notification dated 05.10.2017 for eligible units in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North-Eastern States including Sikkim. The Scheme provided support for the residual eligibility period but restricted reimbursement to the prescribed portion of taxes retained by the Central Government.

The Scheme broadly determined budgetary support with reference to:

  • 58% of Central Tax (CGST) paid through debit in the cash ledger after utilisation of eligible input tax credit; and
  • 29% of Integrated Tax (IGST) paid through debit in the cash ledger after utilisation of eligible input tax credit,

subject to the terms and conditions of the Scheme.

The petitioners challenged the Scheme dated 05.10.2017 insofar as, according to them, it curtailed the benefits promised under NEIIPP, 2007 and Notification No. 20/2007-CE for the residual eligibility period. The principal challenge was founded upon the doctrines of promissory estoppel and legitimate expectation.

Issues Involved

  1. Whether eligible industrial units that had made substantial investments relying upon NEIIPP, 2007 and Notification No. 20/2007-CE possessed an enforceable right to continuation of the earlier level of fiscal benefits for the entire promised eligibility period.
  2. Whether the Scheme of Budgetary Support dated 05.10.2017 unlawfully curtailed the incentives promised under NEIIPP, 2007 and the earlier area-based Central Excise exemption regime.
  3. Whether the Central Government was barred by the doctrine of promissory estoppel from reducing the quantum of benefits after industrial units had altered their position and made substantial investments relying upon governmental representations.
  4. Whether the petitioners could invoke legitimate expectation against the restructuring of incentives following the introduction of GST.
  5. Whether the proviso to Section 174(2)(c) of the CGST Act, 2017 prevented continuation of a tax exemption granted as an investment incentive once the relevant exemption notification had been rescinded.
  6. Whether a writ of mandamus could be issued compelling the Government to provide the equivalent of the earlier/full fiscal benefit under the GST regime.
  7. Whether the controversy stood governed by the Supreme Court’s subsequent judgment in M/s Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022.

Petitioners’ Arguments

The petitioners contended that the Government had made a clear and solemn promise under NEIIPP, 2007 and Notification No. 20/2007-CE to provide specified fiscal incentives for the prescribed period.

They submitted that, acting upon such governmental representations, the industrial units had materially altered their position by making huge capital investments, setting up new manufacturing facilities, undertaking substantial expansion, employing personnel and organising their commercial affairs on the legitimate assumption that the promised incentives would continue for the full eligibility period.

According to the petitioners, the Budgetary Support Scheme dated 05.10.2017 substantially reduced the benefit because it was confined to the prescribed percentages of CGST and IGST paid through the cash ledger after utilisation of input tax credit, rather than maintaining the full extent of the earlier excise exemption/refund benefit.

The petitioners argued that the introduction of GST did not, by itself, extinguish the Government’s underlying promise under NEIIPP, 2007. They stressed that the Industrial Policy had not been withdrawn and that eligible units had already acted to their detriment based upon the promised incentives.

It was further contended that the Government could not resile from its promise unless a demonstrable supervening or overriding public interest justified such departure. According to the petitioners, no such overriding public interest had been established.

The petitioners also relied upon discussions in the GST Council context to argue that the possible impact of premature withdrawal of time-bound exemptions and the resulting claims based upon promissory estoppel had been recognised. Their contention was that a direct budgetary transfer equivalent to the promised tax benefit was legally and administratively possible.

The petitioners placed substantial reliance upon the development of the doctrine of promissory estoppel and legitimate expectation through Supreme Court precedents, particularly State of Jharkhand vs Brahmputra Metallics Ltd., and argued that public authorities must adhere to solemn representations where businesses have arranged their affairs and made irreversible investments on that basis.

Respondents’ Arguments

The Union of India and GST authorities contended that promissory estoppel cannot operate against statutory provisions.

The respondents relied heavily upon the proviso to Section 174(2)(c) of the CGST Act, 2017, arguing that Parliament had expressly provided that a tax exemption granted as an investment incentive under the erstwhile regime would not continue as a privilege where the relevant notification had been rescinded.

They further submitted that the petitioners had neither successfully challenged the rescission of the earlier exemption notification nor the constitutional validity of the proviso to Section 174(2)(c). Therefore, according to the respondents, no enforceable claim based on promissory estoppel could survive contrary to the statutory scheme.

The respondents also argued that:

  • the earlier area-based Central Excise exemptions became ineffective following migration to the GST regime;
  • GST constituted a fundamentally restructured tax system with no exact one-to-one correlation with the erstwhile Central Excise levy;
  • the Budgetary Support Scheme was introduced to mitigate likely hardship faced by existing eligible units;
  • the Scheme was a measure of governmental support or goodwill and not a continuation of the earlier exemption in an identical form;
  • fiscal exemptions are inherently capable of being modified, rescinded or subjected to new conditions;
  • tax policy and subsidy structures can be altered in public interest; and
  • no entity has a perpetual right to insist upon identical tax treatment despite statutory and constitutional changes in the tax regime.

The respondents also relied upon Hero Motocorp vs Union of India, contending that the same legal principles applied to the present batch of petitions.

Court Findings / Order

The Gauhati High Court noted that the controversy had been substantially and authoritatively addressed by the Supreme Court in the very recent judgment of M/s Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, dated 17.10.2022.

The High Court held that the Supreme Court’s findings in Hero Motocorp squarely covered the issues raised in the present proceedings. Consequently, the Court concluded that nothing further was required to be independently decided in the batch of writ petitions.

The High Court recognised the crucial distinction drawn by the Supreme Court: although the industrial units might not possess an enforceable claim in law to compel continuation or 100% reimbursement of the earlier tax benefit, they could nevertheless have a legitimate expectation that their claim deserves due consideration.

Accordingly, the Court:

  • dismissed the writ petitions;
  • granted the petitioners liberty to make representations before the State Government and the GST Council, provided such representations were in terms of the findings and observations of the Supreme Court in Hero Motocorp Ltd. vs Union of India;
  • closed the writ petitions in those terms;
  • made no order as to costs; and
  • disposed of all pending interlocutory applications.

Important Clarification / Legal Principle Established

1. Promissory Estoppel Cannot Override an Express Statutory Framework

Where Parliament has expressly enacted a statutory provision governing the survival or extinguishment of fiscal incentives, promissory estoppel cannot ordinarily be invoked to compel an outcome contrary to the statute.

In this controversy, the proviso to Section 174(2)(c) of the CGST Act, 2017 assumed central importance because it specifically addressed tax exemptions granted as investment incentives where the relevant notification stood rescinded.

2. No Automatic Right to 100% GST Refund or Equivalent Reimbursement

The judgment, applying Hero Motocorp, makes clear that industrial units cannot automatically demand 100% refund of CGST or an exact fiscal equivalent of the erstwhile Central Excise exemption merely because they had enjoyed incentives under the earlier regime.

3. Legitimate Expectation Survives as a Ground for Due Consideration

The absence of a legally enforceable right to full reimbursement does not necessarily render the industrial units’ grievance irrelevant. The Supreme Court’s approach, followed by the Gauhati High Court, recognises that affected units may have a legitimate expectation that their representations receive fair and due consideration.

4. Legitimate Expectation Is Linked with Article 14 Review

The judgment discussed the Supreme Court’s analysis in Brahmputra Metallics, under which legitimate expectation is not necessarily an independent right in itself; however, denial of a legitimate expectation may become legally significant where the State action is arbitrary, unreasonable or violative of Article 14 of the Constitution of India.

5. Writ of Mandamus Requires an Enforceable Public Duty

The Court’s reasoning, through the controlling Supreme Court precedent, reinforces that a writ of mandamus cannot ordinarily compel the Government to grant 100% refund unless a corresponding legal/public duty to provide such refund is established.

6. GST Transition Can Fundamentally Alter the Earlier Tax-Incentive Mechanism

The transition from Central Excise to GST was not treated as a simple substitution of one identical tax by another. The altered constitutional and statutory structure of GST was materially relevant in assessing whether the exact earlier exemption could be judicially compelled to continue.

Sections / Constitutional Provisions / Notifications Involved

  • Section 174(2)(c), Central Goods and Services Tax Act, 2017
  • Proviso to Section 174(2)(c), CGST Act, 2017
  • Section 49(1), CGST Act, 2017
  • Section 20, Integrated Goods and Services Tax Act, 2017
  • Article 14, Constitution of India
  • Article 226, Constitution of India
  • Article 270, Constitution of India
  • Constitution (One Hundred and First Amendment) Act, 2016
  • North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007)
  • Notification No. 20/2007-CE dated 25.04.2007
  • Notification No. 21/2017-CE dated 18.07.2017
  • Scheme of Budgetary Support Notification dated 05.10.2017
  • Erstwhile Central Excise Act and Rules

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783333233_1271compressed.pdf

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