Facts of the Case

The batch of writ petitions involved a common challenge by industrial units that had established or expanded their manufacturing operations on the strength of incentives granted by the Government of India under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) and the corresponding Central Excise exemption framework.

The petitioners included Star Cement Ltd. and several other eligible industrial units operating in the North-Eastern Region. The petitioners contended that they had made substantial investments and altered their commercial position relying upon the incentives and assurances extended under NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007.

Under the earlier incentive regime, eligible units were entitled to Central Excise-related benefits for the prescribed eligibility period. Although the exemption was initially understood in broader terms, the benefit subsequently operated with reference to the extent of value addition. The dispute concerning such modification had earlier reached the Supreme Court in Union of India & Anr. vs V.V.F. Limited & Anr., where the Supreme Court upheld the incentive structure to the extent of value addition.

Following the introduction of the GST regime, the earlier indirect tax structure underwent substantial change and Central Excise Duty in relation to the relevant goods was subsumed into GST. 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18.07.2017, various area-based exemption notifications, including Notification No. 20/2007-CE dated 25.04.2007, were rescinded.

The consequence of such rescission was that the earlier incentive benefits ceased to continue from the relevant date in terms of the proviso to Section 174(2)(c) of the CGST Act, 2017.

Subsequently, the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, issued the Scheme of Budgetary Support dated 05.10.2017 for eligible manufacturing units situated in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North-Eastern States including Sikkim.

The Scheme provided budgetary support for the residual eligibility period but limited the support to the Central Government’s share of CGST and/or IGST after the prescribed devolution to the States. Under Clause 5 of the Scheme, the 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 challenged the Scheme dated 05.10.2017 insofar as it allegedly curtailed the benefits promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

Issues Involved

The principal issues before the Gauhati High Court were whether the Scheme of Budgetary Support dated 05.10.2017 unlawfully curtailed the fiscal incentives promised to eligible industrial units under NEIIPP, 2007 and Notification No. 20/2007-CE; whether the reduction or alteration of the incentive benefit after the introduction of GST violated the doctrines of promissory estoppel and legitimate expectation; whether eligible industrial units could insist upon continuation of the earlier exemption benefits for the residual eligibility period despite the rescission of the relevant Central Excise notification; whether the proviso to Section 174(2)(c) of the CGST Act, 2017 prevented continuation of the earlier tax exemption once the exemption notification stood rescinded; whether the Court could direct the Union Government to extend full or 100% equivalent CGST benefit; and whether the dispute was governed by the Supreme Court’s decision in M/s Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022.

Petitioners’ Arguments

The petitioners argued that the Government of India had made a clear and unequivocal promise under NEIIPP, 2007 and the corresponding exemption notifications to provide fiscal incentives for the stipulated period.

It was submitted that, acting upon such governmental representations and assurances, the petitioners had made huge capital investments, established industrial units, undertaken substantial expansion, employed personnel and materially altered their commercial position.

According to the petitioners, the Government could not withdraw or substantially curtail the promised incentives midway after industries had acted to their detriment in reliance upon the policy.

The petitioners contended that the Scheme of Budgetary Support dated 05.10.2017 did not preserve the full economic benefit previously available under NEIIPP, 2007 and Notification No. 20/2007-CE. Since the Scheme restricted support to specified percentages of tax paid through the cash ledger, it allegedly reduced the benefit that had originally been promised.

It was further argued that the Scheme was contrary to the doctrines of promissory estoppel and legitimate expectation, and that the Government was bound to honour its assurances for the residual period of eligibility.

The petitioners also maintained that the change in the tax regime from Central Excise to GST could not, by itself, justify denial of the substantive incentive promised to industries that had already qualified under the earlier industrial policy.

Their case was that the Government should extend the full benefit promised under NEIIPP, 2007 rather than substitute it with a reduced budgetary support mechanism.

Respondents’ Arguments

The Union of India and GST authorities opposed the writ petitions and contended that the Budgetary Support Scheme was lawful and consistent with the post-GST statutory framework.

The respondents argued that the earlier area-based Central Excise exemption notification had been validly rescinded by Notification No. 21/2017-CE dated 18.07.2017.

They relied substantially upon the proviso to Section 174(2)(c) of the CGST Act, 2017, submitting that Parliament had expressly provided that a tax exemption granted as an incentive against investment would not continue as a privilege where the relevant notification was rescinded.

Accordingly, once the earlier exemption notification stood rescinded, the petitioners could not claim an enforceable right to continuation of the same exemption under the new GST regime.

The respondents further argued that promissory estoppel cannot be invoked against statutory provisions or used to compel the Government to act contrary to law.

It was also contended that the petitioners had neither successfully challenged the rescission of the relevant exemption notification nor questioned the constitutional validity of the proviso to Section 174(2)(c) of the CGST Act.

The respondents maintained that the Budgetary Support Scheme was a separate policy measure framed by the Ministry of Commerce and Industry for existing eligible units and did not amount to continuation of the earlier exemption in identical form.

Reliance was also placed upon the judicial treatment of similar issues in the Hero Motocorp litigation.

Court Order / Findings

The Gauhati High Court observed that there was no factual dispute regarding the eligibility of the petitioner industries under NEIIPP, 2007. The petitioners had established industrial units in response to the incentives granted by the Government of India and had been receiving benefits in accordance with the applicable framework.

The Court noted that the GST regime fundamentally altered the indirect tax structure and that the earlier Central Excise regime had undergone statutory transition. The petitioners had not challenged the constitutional validity of the GST tax structure or the constitutional amendments underpinning it.

The Court identified the petitioners’ central grievance as one based upon promissory estoppel, namely that the Government had promised incentives under NEIIPP, 2007, the industries had acted upon those promises by making substantial investments, and the subsequent curtailment of benefits caused financial prejudice.

The High Court considered the legal principles governing promissory estoppel and legitimate expectation, including the relevant Supreme Court precedents.

Most importantly, the Court relied upon the then-recent Supreme Court judgment in M/s Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, dated 17.10.2022.

The High Court held that the authoritative findings in Hero Motocorp squarely covered the issues raised in the batch of writ petitions and that nothing further remained to be independently decided.

Accordingly, the writ petitions were dismissed.

However, following the approach adopted by the Supreme Court in Hero Motocorp, the Gauhati High Court recognised that although the petitioners might not possess an enforceable claim in law for the relief sought, they could have a legitimate expectation that their claims deserved due consideration.

Therefore, liberty was granted to the petitioners 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.

The writ petitions were closed accordingly, with no order as to costs, and 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 that the Government should duly consider the grievance of industries that invested on the strength of an earlier incentive policy.

The Court did not direct continuation of the pre-GST Central Excise exemption in its original form. Nor did it direct reimbursement of 100% CGST or grant a judicially created substitute for the rescinded exemption.

The Court followed the Supreme Court’s ruling in Hero Motocorp, under which the absence of an enforceable legal claim did not completely eliminate the equitable consideration arising from the industries’ reliance upon the earlier policy framework.

Thus, the practical relief preserved for the petitioners was the liberty to approach the appropriate State Government and the GST Council through representations for due consideration.

Sections and Legal Provisions Involved

Section 174(2)(c), CGST Act, 2017: The principal statutory provision concerning the effect of repeal and savings, including the treatment of privileges and tax exemptions granted as incentives against investment where the relevant exemption notification is rescinded.

Section 49(1), CGST Act, 2017: Relevant to the mechanism of payment through the electronic cash ledger, which formed part of the calculation mechanism under the Budgetary Support Scheme.

Section 20, IGST Act, 2017: Relevant in relation to the application of specified CGST provisions and the mechanism concerning Integrated Tax under the Scheme.

Article 270 of the Constitution of India: Relevant to the distribution and devolution of tax revenues between the Union and the States, which influenced the limitation of budgetary support to the Central Government’s retained share.

Article 226 of the Constitution of India: The constitutional source of the High Court’s writ jurisdiction.

Link to download the order -https://mytaxexpert.co.in/uploads/1783402302_1284compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.