Facts of the Case

The petitioners were industrial units operating in the North Eastern Region and had established or expanded their manufacturing facilities in reliance upon fiscal incentives announced by the Government of India under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007).

Under NEIIPP, 2007, the Government had continued the policy of 100% Central Excise Duty exemption on finished products manufactured in the North Eastern Region. To implement the policy, Notification No. 20/2007-CE dated 25.04.2007 granted exemption to eligible new industrial units and units undertaking qualifying substantial expansion, subject to the prescribed conditions and for the stipulated period.

The petitioners contended that, encouraged by these incentives, they made substantial and irreversible investments in industrial units across the North Eastern Region. Star Cement Ltd., for example, established its cement manufacturing unit in Assam on the basis of the fiscal incentive framework.

With the introduction of GST from 01.07.2017, the earlier indirect-tax structure changed. The Central Government thereafter framed the Scheme of Budgetary Support under the GST Regime through Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017 for eligible units situated in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North Eastern States including Sikkim.

The petitioners’ principal grievance was that the new Budgetary Support Scheme did not preserve the full extent of the earlier fiscal benefit. The scheme broadly restricted support to the prescribed portion of Central taxes paid in cash after utilisation of eligible input tax credit, including 58% of Central Tax and 29% of Integrated Tax in the manner contemplated by the scheme. According to the petitioners, this materially curtailed the benefit promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

Issues Involved

The principal questions before the Gauhati High Court were whether the Central Government could lawfully curtail, under the post-GST Budgetary Support Scheme, the fiscal incentives earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE; whether Notification dated 05.10.2017 was vulnerable under the doctrines of promissory estoppel and legitimate expectation; whether industrial units that had made substantial investments relying upon the earlier incentive regime were entitled to insist upon full equivalent benefit for the residual exemption period; whether the transition to GST and the statutory effect of Section 174(2)(c) of the CGST Act, 2017 and its proviso defeated the claim for continuation of the earlier exemption as a privilege; and whether a writ of mandamus could be issued directing the Union of India to provide 100% reimbursement of CGST/IGST or an equivalent fiscal benefit.

Petitioners’ Arguments

The petitioners argued that NEIIPP, 2007 contained a clear governmental promise of fiscal incentives, including continuation of 100% excise duty exemption on eligible finished products manufactured in the North Eastern Region. Acting upon that representation, the industrial units altered their position and made substantial capital investments.

It was contended that the Government could not, before expiry of the promised incentive period, reduce the substantive economic benefit merely because the tax structure had changed after introduction of GST. According to the petitioners, the Budgetary Support Scheme dated 05.10.2017 was inconsistent with the original promise because it restricted reimbursement to the prescribed share of Central Tax and Integrated Tax rather than preserving the full benefit.

The petitioners invoked the doctrine of promissory estoppel, asserting that the Government could not resile from a promise that had induced irreversible investment decisions. They also relied upon the doctrine of legitimate expectation, arguing that the industrial units legitimately expected continuation of the promised fiscal advantage for the full residual period.

The petitioners further submitted that no sufficient supervening public interest had been demonstrated to justify curtailment of the promised benefits. They relied upon discussions associated with the GST transition to argue that the legal consequences of prematurely withdrawing area-based incentives had been recognised.

The petitioners specifically challenged the restricted formula under the Budgetary Support Scheme and sought quashing of the Notification dated 05.10.2017 to the extent it curtailed the earlier promised benefit. They requested directions requiring the authorities to extend the full benefit contemplated under NEIIPP, 2007 and Notification No. 20/2007-CE.

Respondents’ Arguments

The Union of India and GST authorities opposed the writ petitions and submitted that the earlier taxation structure had fundamentally changed with the introduction of GST.

The respondents argued that GST is a distinct, destination-based tax regime and that the earlier Central Excise exemption mechanism could not automatically continue after the statutory transition. According to them, the Budgetary Support Scheme was introduced to mitigate hardship and continue a measure of support to eligible units rather than to create an enforceable right to complete reimbursement equivalent to the earlier excise exemption.

Strong reliance was placed on Section 174(2)(c) of the CGST Act, 2017 and its proviso. The respondents argued that where an investment-linked tax exemption granted under the erstwhile law was rescinded, it would not continue as a privilege merely by invoking promissory estoppel.

It was further contended that fiscal policy could be modified in public interest; there could be no promissory estoppel against legislative functions or statutory provisions; courts ordinarily exercise restraint in fiscal and economic policy matters; and a writ of mandamus could not compel the Government to grant 100% reimbursement where no corresponding statutory duty existed.

The respondents also relied upon the legal position considered in Hero MotoCorp Ltd. vs Union of India, contending that the statutory effect of Section 174(2)(c) defeated the plea for compulsory continuation of the earlier exemption benefit.

Court Order / Findings

The Gauhati High Court dismissed the writ petitions.

The decisive development was the Supreme Court’s judgment dated 17.10.2022 in Hero MotoCorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, which was delivered shortly before the Gauhati High Court pronounced the present judgment.

The High Court found that the issues raised in the batch of petitions were squarely covered by the authoritative findings of the Supreme Court in Hero MotoCorp. The Court noted the Supreme Court’s conclusion that there can be no estoppel against the legislature in exercise of legislative functions and that the withdrawal of exemption notifications following the GST transition had statutory support in Section 174(2)(c) of the CGST Act.

The High Court applied the principle that accepting a claim for compulsory continuation of the earlier exemption despite the statutory framework would render the proviso to Section 174(2)(c) ineffective. The legislative provision specifically contemplated that an investment-linked tax exemption granted through notification would not continue as a privilege where the notification was rescinded.

The Court further accepted the controlling principle that, even in the context of a policy change, promissory estoppel cannot compel continuation of an incentive where the change is connected with larger public interest or a changed statutory regime.

On the prayer for 100% reimbursement, the Court followed the Supreme Court’s reasoning that mandamus requires an enforceable public or statutory duty. In the absence of a duty cast upon the Union of India to refund 100% CGST, the relief sought could not be granted.

Accordingly, the High Court held that nothing further remained for independent adjudication because the Supreme Court’s recent judgment in Hero MotoCorp Ltd. vs Union of India squarely governed the controversy. The writ petitions were dismissed and closed, with no order as to costs; pending interlocutory applications were also disposed of.

Important Clarification

The dismissal of the writ petitions did not mean that the petitioners were left without any avenue whatsoever.

The Gauhati High Court specifically noted that the Supreme Court in Hero MotoCorp Ltd. vs Union of India had recognised that, although the industrial units might not possess an enforceable claim in law for 100% reimbursement, they could still have a legitimate expectation that their claim deserved due consideration.

Therefore, following the Supreme Court’s approach, the Gauhati High Court granted similar liberty to the writ petitioners to submit representations before the State Government and the GST Council, provided such representations were made in terms of the findings and observations contained in the Supreme Court’s judgment dated 17.10.2022 in Hero MotoCorp Ltd..

Thus, the legal distinction is significant: no enforceable right to 100% GST reimbursement was recognised, but liberty to seek policy-level consideration through representation was preserved.

Sections / Statutory Provisions Involved

Section 174(2)(c) of the Central Goods and Services Tax Act, 2017 was the principal statutory provision governing the effect of repeal and transition from the earlier indirect-tax regime.

The proviso to Section 174(2)(c) of the CGST Act, 2017 was central to the controversy because of its effect upon tax exemptions granted as investment incentives through notifications under the repealed enactments where such notifications were rescinded.

Section 49(1) of the CGST Act, 2017 was relevant in the context of payment through the electronic cash ledger and the computation mechanism under the Budgetary Support Scheme.

Section 20 of the Integrated Goods and Services Tax Act, 2017 was referred to in relation to the application of relevant CGST provisions to Integrated Tax and the scheme’s reimbursement methodology.

Article 14 of the Constitution of India was relevant to the petitioners’ arguments concerning arbitrariness, fairness, legitimate expectation and State action.

Article 226 of the Constitution of India governed the writ jurisdiction and the petitioners’ prayer for mandamus.

The case also concerned NEIIPP, 2007, Notification No. 20/2007-CE dated 25.04.2007, Notification No. 21/2017-CE dated 18.07.2017, and Budgetary Support Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017.

Link to download the order -https://mytaxexpert.co.in/uploads/1783401273_1279compressed.pdf

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