Facts of the Case

A batch of writ petitions was filed before the Gauhati High Court by several industrial units, with Star Cement Ltd. being the lead petitioner in W.P.(C) No. 2208 of 2019. The petitioners comprised industrial undertakings engaged in various manufacturing activities and operating in the North Eastern Region.

The petitioners had established new industrial units and/or undertaken substantial expansion of existing industrial units in reliance upon incentives announced by the Central Government under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) and the corresponding Central Excise exemption framework.

Under Notification No. 20/2007-CE dated 25.04.2007, eligible industrial units in specified North Eastern States were granted excise duty-related benefits for the prescribed eligibility period. The petitioners contended that, relying upon the Government’s policy representations and fiscal incentives, they had altered their position and made substantial investments in their industrial units.

The exemption structure was subsequently modified. The Supreme Court, in Union of India & Anr. Etc. vs V.V.F. Ltd. & Anr., upheld the validity of the modification restricting the excise duty benefit to the value-addition component. Consequently, the entitlement of eligible units stood governed by the legally sustainable value-addition-based exemption mechanism.

With effect from 01.07.2017, the Goods and Services Tax regime was introduced across India. The CGST Act, 2017, IGST Act, 2017 and corresponding State GST enactments fundamentally altered the indirect tax framework, and central excise duty on relevant goods was subsumed into the GST structure.

Thereafter, by Notification No. 21/2017-CE dated 18.07.2017, various area-based exemption notifications, including Notification No. 20/2007-CE dated 25.04.2007, were rescinded. As a result, the earlier exemption benefits ceased to continue under the previous excise framework.

The Central Government subsequently introduced the Scheme of Budgetary Support dated 05.10.2017 for eligible manufacturing units operating in specified States, including the North Eastern Region, for the residual period of their earlier eligibility.

Under the Scheme, budgetary support was broadly determined with reference 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 budgetary support mechanism substantially curtailed the fiscal benefits earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE. They therefore approached the High Court, principally invoking the doctrines of promissory estoppel and legitimate expectation.

Issues Involved

The principal issues before the Gauhati High Court were:

  1. Whether the Central Government was bound by the doctrine of promissory estoppel to continue the earlier excise exemption benefits for the entire promised eligibility period despite introduction of the GST regime.
  2. Whether the petitioners could claim full or 100% reimbursement/refund equivalent to the earlier fiscal incentive after the GST regime came into force.
  3. Whether the Scheme of Budgetary Support dated 05.10.2017 unlawfully curtailed the benefits promised under NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007.
  4. Whether Section 174(2)(c), particularly its proviso, permitted the continuation of an investment-linked tax exemption after the underlying exemption notification had been rescinded.
  5. Whether promissory estoppel could operate against a legislative or statutory change introduced through the GST regime.
  6. Whether the petitioners possessed a legitimate expectation that their claims for continuation of fiscal benefits would receive due consideration.
  7. Whether a writ of mandamus could be issued directing the Union of India to provide 100% reimbursement of CGST or an equivalent benefit in the absence of a statutory duty.
  8. Whether the transition from the Central Excise regime to GST constituted a valid change in statutory and fiscal policy sufficient to defeat the claim founded on promissory estoppel.

Petitioners’ Arguments

The petitioners contended that the Central Government had made a clear and solemn representation through NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007, promising fiscal incentives to eligible industrial units.

According to the petitioners, acting upon these representations, they had:

  • made substantial investments;
  • established new industrial units;
  • undertaken substantial expansion of existing units;
  • altered their financial and commercial position; and
  • located or expanded their industries in the North Eastern Region in reliance upon the promised incentives.

It was argued that once the petitioners had materially altered their position on the basis of the Government’s representation, the Government could not subsequently resile from its promise.

The petitioners relied heavily upon the doctrine of promissory estoppel, including the principles recognised in Motilal Padampat Sugar Mills Co. Ltd. vs State of Uttar Pradesh, to contend that a Government is not free to disregard a clear representation merely on undefined grounds of expediency.

They argued that the Industrial Policy itself had not been withdrawn and, therefore, the benefits promised under the policy continued to subsist. According to them, the transition to GST could not lawfully destroy the substantive promise made to industries that had already acted upon the incentive policy.

The petitioners further contended that the Scheme of Budgetary Support was inadequate because it did not preserve the full fiscal benefit earlier available. The restriction of support to the prescribed proportion of tax paid through the cash ledger allegedly resulted in substantial curtailment of the promised incentive.

It was submitted that:

  • the Government could not use the introduction of GST as a basis to defeat vested or accrued expectations;
  • the petitioners were entitled to support equivalent to the promised exemption for the residual eligibility period;
  • reduction of benefits was arbitrary and contrary to the doctrine of promissory estoppel;
  • the Government was required to honour its policy commitment; and
  • the petitioners had a legitimate expectation that the promised benefits would continue for the full eligible period.

The petitioners also advanced constitutional submissions concerning fairness, non-arbitrariness and the institutional framework of GST, including arguments touching upon Articles 14 and 279A of the Constitution of India.

Respondents’ Arguments

The Union of India and GST authorities opposed the writ petitions and contended that the earlier area-based Central Excise exemptions had become ineffective and incapable of continuation after the introduction of the GST regime.

The respondents argued that:

  • GST was a fundamentally new tax regime;
  • there was no one-to-one correlation between the erstwhile Central Excise Duty and GST;
  • the earlier excise exemption notifications had been rescinded;
  • the Budgetary Support Scheme was introduced to mitigate hardship faced by eligible industrial units;
  • the Scheme represented budgetary assistance and not continuation of the earlier tax exemption;
  • the support was extended as a policy measure to eligible units for their residual eligibility period; and
  • the Scheme could not be treated as legally identical to the previous excise exemption mechanism.

The respondents further contended that an exemption, by its very nature, is capable of being modified, withdrawn or subjected to conditions, particularly where fiscal policy and public interest are involved.

Reliance was placed on the principle that the Government may alter its fiscal policy in public interest and that courts ordinarily do not compel the executive or legislature to perpetuate a fiscal concession indefinitely.

The respondents relied upon decisions including Shrijee Sales Corporation vs Union of India to argue that promissory estoppel is subject to overriding considerations of public interest and equity.

A central argument of the respondents was founded upon Section 174(2)(c) of the CGST Act, 2017 and its proviso. They contended that an investment-linked tax exemption granted through a notification does not continue as a privilege where the relevant notification has been rescinded.

The respondents maintained that:

  • there can be no promissory estoppel against legislation;
  • no authority can be compelled to act contrary to statute;
  • the exemption notification had been validly rescinded;
  • the petitioners had not successfully displaced the statutory consequence of Section 174(2)(c);
  • there was no statutory duty upon the Union of India to refund 100% of CGST; and
  • therefore, no writ of mandamus directing full reimbursement could be issued.

Court Order / Findings

The Gauhati High Court found that the controversy was squarely governed by the Supreme Court’s very recent judgment in Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022, along with the connected matter concerning Sun Pharma Laboratories Limited.

The High Court noted the Supreme Court’s authoritative findings that:

  • there can be no estoppel against the legislature in the exercise of legislative functions;
  • the withdrawal of the earlier exemption notifications was undertaken pursuant to the statutory framework of Section 174(2)(c) of the CGST Act, 2017;
  • accepting a claim for continuation of the previous exemption despite statutory rescission would render the proviso to Section 174(2)(c) redundant or otiose;
  • a representation under an earlier industrial policy cannot be enforced contrary to a subsequent statutory provision;
  • the plea of promissory estoppel cannot override the legislative consequences of the GST regime;
  • a change in policy made in public interest or arising from a fundamental change in the statutory regime may defeat a claim based on promissory estoppel; and
  • in the absence of a statutory duty requiring the Union of India to refund 100% of CGST, a writ of mandamus for such refund cannot be issued.

The Gauhati High Court held that the issues raised in the batch of writ petitions were squarely covered by the Supreme Court’s ruling in Hero Motocorp Limited vs Union of India.

Accordingly, the writ petitions were dismissed.

However, the High Court also recognised the important qualification made by the Supreme Court: although the industrial units might not possess an enforceable legal claim to 100% refund or continuation of the earlier exemption, they could still have a legitimate expectation that their claims deserved due consideration.

Therefore, following the Supreme Court’s approach, the Gauhati High Court granted the petitioners liberty to submit representations before:

  • the State Government; and
  • the GST Council,

provided such representations were made in terms of the findings and observations of the Supreme Court in Hero Motocorp Limited vs Union of India, judgment dated 17.10.2022.

The writ petitions were consequently closed on those terms, with no order as to costs. Pending interlocutory applications, if any, were also disposed of.

Important Clarification

The judgment makes a crucial distinction between an enforceable legal right and a legitimate expectation deserving administrative consideration.

The petitioners were not held entitled as a matter of law to 100% reimbursement of CGST or continuation of the earlier Central Excise exemption after the GST transition.

At the same time, the Court did not hold that the Government could simply ignore the position of industries that had invested on the strength of earlier incentive policies. Following the Supreme Court in Hero Motocorp Limited vs Union of India, the High Court preserved the petitioners’ liberty to seek due consideration of their claims through representations before the appropriate State Government and the GST Council.

Therefore, the judgment should not be interpreted as granting automatic continuation of the earlier exemption. Nor should it be read as completely extinguishing the possibility of policy-level consideration for eligible industries.

The legal position emerging from the judgment is that:

  • promissory estoppel cannot override an express statutory provision;
  • there can be no promissory estoppel against legislative action in exercise of legislative functions;
  • rescission of an exemption notification attracts the statutory consequence contemplated by the proviso to Section 174(2)(c) of the CGST Act;
  • 100% CGST refund cannot be directed through mandamus unless a corresponding public or statutory duty exists;
  • a legitimate expectation may nevertheless justify due consideration of a representation by the competent governmental authorities.

Sections and Constitutional Provisions Involved

Section 174(2)(c) of the CGST Act, 2017: Central provision governing the effect of repeal and savings after the transition to GST. The proviso concerning tax exemptions granted as investment incentives was central to the dispute.

Proviso to Section 174(2)(c) of the CGST Act, 2017: Material to the Court’s conclusion that an investment-linked tax exemption granted through notification does not continue as a privilege where the relevant notification has been rescinded.

Section 49(1) of the CGST Act, 2017: Relevant to payment of Central Tax through the electronic cash ledger and computation under the Budgetary Support Scheme.

Section 20 of the IGST Act, 2017: Relevant to the statutory framework applied in relation to Integrated Tax and the Budgetary Support Scheme.

Section 5A(1) of the Central Excise Act, 1944: Relevant to the earlier Central Excise exemption notification framework.

Article 14 of the Constitution of India: Invoked in relation to arbitrariness, fairness and legitimate expectation.

Article 226 of the Constitution of India: Source of the High Court’s writ jurisdiction and relevant to the claim for mandamus.

Article 270 of the Constitution of India: Relevant to tax devolution and the design of budgetary support limited to the Central Government’s share.

Article 279A of the Constitution of India: Relevant to the constitutional framework and functioning of the GST Council.

Link to download the order -https://mytaxexpert.co.in/uploads/1783402042_1283compressed.pdf

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