Facts of the Case

The batch of writ petitions was instituted by several industrial units operating in the North Eastern Region, with Star Cement Ltd. being the petitioner in the lead matter. The petitioners had established and operated industrial units on the basis of incentives announced by the Government of India under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007).

Under NEIIPP, 2007 and the corresponding Notification No. 20/2007-CE dated 25.04.2007, eligible industrial units were extended fiscal incentives, including Central Excise Duty-related benefits for the prescribed period. The petitioners asserted that they had made substantial investments, established manufacturing facilities and altered their commercial position relying upon the incentives and assurances contained in the industrial policy and exemption framework.

Following the introduction of the GST regime, the earlier area-based Central Excise exemption notifications were rescinded through Notification No. 21/2017-CE dated 18.07.2017. Thereafter, the Government introduced a Scheme of Budgetary Support through Notification F.No. 10(1)/2017-DBA-II/NER dated 05.10.2017.

Under the new scheme, eligible units were provided budgetary support for the residual period by way of reimbursement linked to the Central Government’s share of CGST and/or IGST retained after the prescribed devolution of taxes to the States.

The petitioners challenged the Budgetary Support Scheme primarily on the ground that it curtailed the fiscal benefits earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE. They invoked the doctrines of promissory estoppel and legitimate expectation, contending that the Government could not withdraw or substantially reduce the promised benefits after industries had acted upon the representation and made significant investments.

Issues Involved

The principal issues before the High Court were:

Whether the Budgetary Support Scheme dated 05.10.2017, insofar as it restricted reimbursement to the Central Government’s retained share of CGST and/or IGST, unlawfully curtailed the benefits promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

Whether the petitioners could invoke the doctrine of promissory estoppel to compel the Union Government to continue the earlier fiscal benefits after the introduction of GST.

Whether the petitioners had a legally enforceable legitimate expectation that the earlier incentive benefits would continue for the entire residual period.

Whether a writ of mandamus could be issued directing reimbursement of the full tax benefit or effectively requiring 100% refund/reimbursement of CGST.

Whether the statutory effect of Section 174(2)(c) of the CGST Act, 2017, particularly its proviso concerning rescinded tax exemption notifications granted as investment incentives, prevented continuation of the earlier exemption as a vested privilege.

Whether the change from the pre-GST Central Excise regime to the GST framework justified restructuring the manner and extent of fiscal support.

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 regarding the availability of fiscal incentives for eligible industrial units.

It was argued that, relying upon these representations, the petitioners had:

established industrial units in the North Eastern Region;

made substantial financial investments;

employed personnel and developed manufacturing infrastructure;

altered their commercial and financial position; and

continued business operations on the legitimate understanding that the promised incentives would remain available for the stipulated period.

According to the petitioners, the Budgetary Support Scheme dated 05.10.2017 substantially reduced the benefit that had earlier been promised. They argued that limiting reimbursement to the Central Government’s retained share of CGST and/or IGST defeated the assurance embodied in NEIIPP, 2007.

The petitioners further submitted that withdrawal or curtailment of the benefit during the subsistence of the promised incentive period violated the doctrine of promissory estoppel. Their case was that the Government could not induce industries to invest on the basis of a fiscal promise and thereafter resile from that promise after the industries had altered their position to their detriment.

They also invoked the doctrine of legitimate expectation, asserting that eligible units had a reasonable and enforceable expectation that the fiscal support promised under the industrial policy would continue for the residual period.

Accordingly, the petitioners sought setting aside or quashing of the impugned Budgetary Support Scheme to the extent it curtailed the earlier benefits and requested directions requiring the authorities to extend the full benefit contemplated under NEIIPP, 2007 and Notification No. 20/2007-CE.

Respondents’ Arguments

The Union authorities opposed the writ petitions and argued that the earlier tax structure had fundamentally changed after the introduction of GST.

The respondents submitted that:

GST constituted a new statutory and constitutional tax regime;

the erstwhile Central Excise Duty framework had ceased to operate in the same manner;

the earlier area-based Central Excise exemption notifications had become ineffective upon transition to GST and were formally rescinded;

there was no direct one-to-one correlation between the former Central Excise Duty exemption and liabilities arising under CGST, SGST and IGST; and

no industrial unit possessed a perpetual vested right to continuation of a particular tax exemption despite a fundamental change in the statutory regime.

The respondents placed substantial reliance on Section 174(2)(c) of the CGST Act, 2017. It was argued that the statutory framework expressly contemplated that a tax exemption granted as an investment incentive through a notification would not continue as a privilege where the relevant notification had been rescinded.

The respondents further argued that the Budgetary Support Scheme was introduced as a policy measure to alleviate hardship faced by eligible units after migration to GST. According to them, the scheme was a measure of governmental support and goodwill rather than a continuation of the former Central Excise exemption in an identical form.

It was also submitted that a portion of tax revenue was devolved to the States and, therefore, the Central Government could reasonably provide reimbursement only from its retained share. The respondents maintained that the Central Government could not be compelled to reimburse amounts that no longer remained with it after statutory devolution.

They further argued that:

there can be no promissory estoppel against legislative functions;

promissory estoppel cannot compel action contrary to statutory provisions;

tax exemptions are inherently susceptible to modification or withdrawal in public interest;

policy decisions relating to taxation and subsidies are ordinarily within the executive and legislative domain; and

the petitioners had neither successfully challenged the GST statutory structure nor established a statutory duty requiring the Union Government to grant 100% reimbursement.

Court Order / Findings

The Gauhati High Court noted that the issues raised in the batch of writ petitions stood squarely covered by the then-recent judgment of the Supreme Court of India in Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022, along with the connected matter concerning Sun Pharma Laboratories Ltd.

The High Court recorded that the Supreme Court had authoritatively examined the doctrine of promissory estoppel in the context of withdrawal of area-based tax exemptions following the introduction of GST.

The Court recognised the governing principles flowing from Hero Motocorp Ltd. vs Union of India, including:

there can be no promissory estoppel against the legislature in the exercise of legislative functions;

withdrawal of exemption notifications pursuant to the statutory mandate under Section 174(2)(c) of the CGST Act cannot be defeated through promissory estoppel;

enforcing continuation of the earlier exemption despite rescission would run contrary to the statutory framework;

the change in policy and statutory regime arising from the introduction of GST materially altered the legal position;

no writ of mandamus directing 100% refund of CGST could be issued in the absence of a statutory duty upon the Union Government to provide such refund.

The High Court therefore held that nothing further remained to be independently adjudicated because the issues raised by the petitioners were squarely governed by the Supreme Court’s decision in Hero Motocorp Ltd. vs Union of India.

Accordingly, the writ petitions were dismissed and closed, with no order as to costs.

However, 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 of the Supreme Court in Hero Motocorp Ltd. vs Union of India dated 17.10.2022.

Pending interlocutory applications, if any, were also disposed of.

Important Clarification

The judgment makes an important distinction between an enforceable legal right to continuation of a tax exemption and a legitimate expectation deserving governmental consideration.

The petitioners were not held entitled, as a matter of enforceable law, to compel continuation of the earlier exemption structure or obtain 100% reimbursement of CGST. The Court followed the Supreme Court’s view that promissory estoppel could not override the statutory consequences of Section 174(2)(c) of the CGST Act and the transition to the GST regime.

At the same time, following Hero Motocorp Ltd. vs Union of India, the High Court recognised that affected industrial units could have a legitimate expectation that their claims deserved due consideration. Therefore, although the writ petitions failed, liberty was granted to approach the State Government and GST Council through appropriate representations.

This clarification is significant because the judgment does not declare an unconditional right to full reimbursement. Instead, it preserves a limited avenue for policy-level consideration consistent with the Supreme Court’s directions.

Sections and Legal Provisions Involved

Section 174(2)(c), Central Goods and Services Tax Act, 2017

Proviso to Section 174(2)(c), CGST Act, 2017

Article 14, Constitution of India

Article 226, Constitution of India

Constitution (One Hundred and First Amendment) Act, 2016

NEIIPP, 2007

Notification No. 20/2007-CE dated 25.04.2007

Notification No. 21/2017-CE dated 18.07.2017

Budgetary Support Scheme Notification F.No. 10(1)/2017-DBA-II/NER dated 05.10.2017

Link to download the order -https://mytaxexpert.co.in/uploads/1783401570_1280compressed.pdf

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