Facts of the Case

The lead petitioner, Star Cement Ltd., along with several other industrial units situated in the North Eastern Region, had approached the Gauhati High Court through a batch of writ petitions raising common questions concerning the continuation of fiscal incentives after introduction of the GST regime.

The petitioners were industrial units engaged in diverse manufacturing activities, including cement, clinker, calcined petroleum coke, plywood, steel products, electrical goods, plastics, packaged drinking water and other manufactured products. Many of them had established new industrial units or undertaken substantial expansion on the strength of incentives announced under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007).

Under NEIIPP, 2007 and the consequential Notification No. 20/2007-CE dated 25.04.2007, eligible industrial units were granted area-based Central Excise benefits for the prescribed eligibility period. According to the petitioners, they made substantial investments and altered their commercial position relying upon the Government’s representation and assurance of fiscal incentives.

With the introduction of GST from 01.07.2017, the earlier indirect tax regime underwent a fundamental statutory change. The area-based Central Excise exemption notification was subsequently rescinded through Notification No. 21/2017-CE dated 18.07.2017.

The Central Government thereafter introduced a Scheme of Budgetary Support for eligible units for the residual period of their earlier eligibility. However, the support was not equivalent to a 100% refund of the earlier excise-duty benefit. Broadly, it was limited to:

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

The petitioners contended that this formula substantially curtailed the full exemption benefit allegedly promised under NEIIPP, 2007 and Notification No. 20/2007-CE. They therefore invoked the doctrines of promissory estoppel and legitimate expectation, seeking continuation of the full fiscal benefit for the unexpired/residual eligibility period.

Issues Involved

The principal issues before the Gauhati High Court were:

  1. Whether industrial units that had made investments on the strength of NEIIPP, 2007 and Notification No. 20/2007-CE possessed an enforceable right to continuation of the full exemption benefit for the residual eligibility period after introduction of GST.
  2. Whether the Central Government could restrict the post-GST benefit through the Budgetary Support Scheme to the prescribed percentage of CGST and IGST cash payments instead of providing a 100% equivalent refund.
  3. Whether rescission of the earlier area-based exemption notification and curtailment of the benefit violated the doctrine of promissory estoppel.
  4. Whether the petitioners had a legitimate expectation that the complete fiscal benefit promised under NEIIPP, 2007 would continue despite the transition to GST.
  5. Whether Section 174(2)(c) of the CGST Act, 2017, particularly its proviso concerning tax exemptions granted as investment incentives, prevented continuation of such exemption as a privilege once the relevant notification was rescinded.
  6. Whether a writ of mandamus could be issued directing the Union of India to grant 100% refund/reimbursement of CGST and/or IGST for the residual period.

Petitioners’ Arguments

The petitioners contended that the Government of India had made a clear and solemn representation under NEIIPP, 2007 and Notification No. 20/2007-CE that qualifying industrial units would enjoy the stipulated fiscal benefits for the prescribed period.

They argued that, acting upon this representation:

  • substantial capital investments were made;
  • new industrial units were established;
  • existing units undertook substantial expansion;
  • business and financial positions were materially altered.

Accordingly, the petitioners submitted that the doctrine of promissory estoppel operated against the Government and prevented it from resiling from the assurance by substituting a reduced Budgetary Support Scheme.

The petitioners further argued that the Budgetary Support Scheme itself demonstrated recognition by the Central Government of the continuing obligation arising from the earlier industrial policy. According to them, once the Government decided to continue support for the residual eligibility period, it could not lawfully reduce the quantum below the benefit promised under NEIIPP, 2007.

It was specifically contended that the formula of 58% of Central Tax and 29% of Integrated Tax paid through the cash ledger materially curtailed the benefit previously available and therefore defeated the assurance on which the investments had been made.

The petitioners also invoked legitimate expectation, contending that the solemn representation under NEIIPP, 2007 created an expectation that the fiscal incentive would remain available for the promised duration. They relied upon Article 14 principles of fairness and non-arbitrariness and cited decisions including Union of India vs Lt. Col. P.K. Choudhary and Food Corporation of India vs Kamdhenu Cattle Feed Industries.

Their further submission was that even after rescission of the exemption notification issued under Section 5A of the Central Excise Act, rights and privileges acquired on the basis of NEIIPP, 2007 could not be taken away, and full benefit under the Budgetary Support Scheme ought to be granted in conformity with the original industrial policy.

Respondents’ Arguments

The Union of India and GST authorities opposed the writ petitions and contended that the petitioners had no vested statutory right to insist upon continuation of the earlier Central Excise exemption after introduction of GST.

The respondents argued that:

  • GST constituted a fundamentally new and distinct tax regime;
  • GST is a destination-based tax;
  • there was no one-to-one correlation between the former Central Excise levy and the taxes imposed under GST;
  • the earlier area-based Central Excise exemptions became ineffective or inapplicable upon migration to the new statutory regime;
  • Notification No. 20/2007-CE conferred an exemption/incentive subject to statutory conditions and did not create an immutable vested right.

A central plank of the respondents’ case was Section 174(2)(c) of the CGST Act, 2017. It was submitted that a tax exemption granted as an incentive against investment does not continue as a privilege where the relevant notification is rescinded. The earlier 100% excise-duty exemption notification had been rescinded by Notification No. 21/2017-CE dated 18.07.2017.

The respondents further submitted that the Budgetary Support Scheme was introduced to mitigate hardship faced by eligible units and represented a policy measure following the transition to GST rather than continuation of an enforceable 100% exemption right.

They also explained the fiscal rationale behind the reimbursement formula: following collection of taxes, a portion of Central revenues was devolved to the States, and therefore the Centre structured support with reference to its retained share. The respondents maintained that the scheme was neither arbitrary nor contrary to promissory estoppel.

Court Findings / Order

The Gauhati High Court held that the controversy was squarely covered by the Supreme Court’s very recent decision in M/s Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022.

The High Court noted that the Supreme Court had authoritatively examined materially similar claims arising from withdrawal of area-based exemptions following introduction of GST and the subsequent Budgetary Support Scheme.

The Court adopted the governing principles emerging from Hero Motocorp Ltd., namely:

First, there can be no promissory estoppel against the legislature in the exercise of legislative functions.

Second, the withdrawal of exemption notifications through Notification dated 18.07.2017 was pursuant to the statutory framework under Section 174(2)(c) of the CGST Act.

Third, acceptance of the petitioners’ plea for continuation of the complete exemption despite rescission of the notification would undermine the statutory proviso to Section 174(2)(c).

Fourth, where an earlier incentive is withdrawn because of a change in policy in public interest, or because of a fundamental change in the statutory regime such as introduction of GST, promissory estoppel cannot compel continuation of the earlier concession contrary to law.

Fifth, a writ of mandamus directing 100% refund of CGST cannot be issued unless the petitioners establish a corresponding statutory or enforceable public duty upon the Union of India to grant such refund. The Court found no such duty.

Accordingly, the Gauhati High Court concluded that nothing further remained to be independently decided because the issues stood squarely covered by the Supreme Court’s authoritative ruling in Hero Motocorp Ltd. vs Union of India.

Final Result: The writ petitions were dismissed. However, following the Supreme Court’s approach, the petitioners were granted liberty to submit representations before the State Government and the GST Council, provided such representations were in terms of the findings and observations in Hero Motocorp Ltd. The petitions were closed accordingly, with no order as to costs, and pending interlocutory applications were also disposed of.

Important Clarification / Legal Principle Established

This judgment is significant because it clarifies that an industrial incentive promised under a pre-GST policy does not automatically create an indefeasible right to receive a 100% equivalent GST refund after the underlying exemption notification has been rescinded pursuant to the new statutory regime.

The principal legal clarifications are:

1. Section 174(2)(c) of the CGST Act is decisive: A tax exemption granted as an investment incentive cannot be claimed as a continuing privilege once the relevant notification is rescinded, subject to the statutory framework.

2. Promissory estoppel cannot override legislation: The doctrine cannot be employed to compel the Government to act contrary to an express statutory provision or legislative mandate.

3. Change to GST is legally material: Transition from Central Excise to GST was not merely an administrative modification; it represented a fundamental change in the tax structure.

4. Budgetary support is not necessarily identical to the old exemption: The Government may formulate a post-GST support mechanism different in structure and quantum from the earlier area-based excise exemption.

5. Mandamus requires an enforceable duty: Courts cannot direct 100% GST reimbursement unless a statutory or otherwise enforceable public duty to grant that reimbursement is demonstrated.

6. Legitimate expectation may justify consideration, not automatic payment: Although the petitioners had no enforceable legal right to 100% refund, their claims could still deserve due consideration through representations before the State Government and GST Council, consistent with the Supreme Court’s directions in Hero Motocorp Ltd.

Sections / Statutory Provisions 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
  • Section 5A, Central Excise Act, 1944
  • Article 14, Constitution of India
  • Article 226, Constitution of India
  • Notification No. 20/2007-CE dated 25.04.2007
  • Notification No. 21/2017-CE dated 18.07.2017
  • North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007)
  • Scheme of Budgetary Support under the GST regime

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783334005_1274compressed.pdf

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