Facts of the Case

The proceedings arose from a batch of writ petitions filed by industrial units operating in the North Eastern Region, with Star Cement Ltd. being the petitioner in the lead writ petition. The petitioners included industrial entities that had established new units or undertaken substantial expansion in reliance upon fiscal incentives and concessions announced by the Central Government under industrial promotion policies applicable to the North Eastern Region.

The Central Government had earlier announced an Industrial Policy Resolution dated 24.12.1997 providing a package of incentives and concessions for the North Eastern Region. The policy contemplated, among other benefits, tax incentives for qualifying industrial activities. Pursuant to the policy framework, Central Excise exemption notifications, including Notification Nos. 32/99-CE and 33/99-CE dated 08.07.1999, were issued for eligible industrial units.

Thereafter, the Government of India announced the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) with effect from 01.04.2007. The policy provided a package of fiscal and other concessions for the North Eastern Region and contemplated continuation of 100% excise duty exemption on finished products manufactured in the region, subject to the applicable legal framework.

To implement the excise-related incentive, the Ministry of Finance issued Notification No. 20/2007-CE dated 25.04.2007, granting exemption in relation to eligible goods cleared from qualifying units situated in Assam, Tripura, Meghalaya, Mizoram, Manipur, Nagaland, Arunachal Pradesh and Sikkim. The benefit applied to qualifying new industrial units and eligible existing units undertaking substantial expansion, subject to the conditions prescribed in the notification.

The petitioners asserted that, induced by the incentives and assurances under NEIIPP, 2007 and Notification No. 20/2007-CE, they made substantial investments, established industrial units or undertook expansion and altered their economic position.

With effect from 01.07.2017, the GST regime was introduced throughout India. Central Excise, insofar as relevant to the goods covered by the new GST framework, was subsumed into the new indirect tax regime. 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18.07.2017, various area-based exemption notifications, including Notification No. 20/2007-CE dated 25.04.2007, were rescinded.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 effect of the rescission was considered in light of the proviso to Section 174(2)(c) of the CGST Act, 2017, under which a tax exemption granted as an incentive against investment through a notification does not continue as a privilege where the notification is rescinded.

Subsequently, the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, issued Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017, framing a Scheme of Budgetary Support under the GST Regime for eligible units located in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North Eastern States including Sikkim.

Under the Scheme, budgetary support for specified goods manufactured by eligible units was broadly determined with reference to:

  • 58% of Central Tax (CGST) paid through debit in the cash ledger after utilization of eligible input tax credit; and
  • 29% of Integrated Tax (IGST) paid through debit in the cash ledger after utilization of eligible input tax credit.

The petitioners challenged the Scheme insofar as it allegedly curtailed the fiscal benefit earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE. They invoked, inter alia, the doctrines of promissory estoppel and legitimate expectation.

Issues Involved

The principal issues before the Gauhati High Court were:

  1. Whether the Scheme of Budgetary Support dated 05.10.2017 unlawfully curtailed the benefits allegedly promised to eligible industrial units under NEIIPP, 2007 and Notification No. 20/2007-CE.
  2. Whether industrial units that had made investments or undertaken substantial expansion relying upon the earlier incentive framework could invoke the doctrine of promissory estoppel against the Union of India.
  3. Whether the petitioners possessed a legitimate expectation that the earlier fiscal benefit would continue for the entire residual eligibility period notwithstanding the introduction of GST.
  4. Whether the Government could, after introduction of the GST regime and rescission of the earlier Central Excise exemption notification, restrict budgetary support to the Central Government’s retained share of CGST and/or IGST.
  5. Whether the proviso to Section 174(2)(c) of the CGST Act, 2017 prevented the continuation of a rescinded tax exemption as a privilege.
  6. Whether a writ of mandamus could be issued directing reimbursement equivalent to the earlier benefit where no statutory duty existed requiring the Union Government to grant 100% refund or reimbursement.
  7. Whether the challenge was sustainable in the absence of a successful challenge to the statutory framework governing the discontinuation of the earlier incentive.

Petitioners’ Arguments

The petitioners contended that the Central Government had made a clear and unequivocal promise under NEIIPP, 2007 and through Notification No. 20/2007-CE dated 25.04.2007 to provide fiscal benefits to qualifying industrial units for the prescribed eligibility period.

They argued that, relying upon these representations and assurances, they had:

  • established industrial units in the North Eastern Region;
  • made substantial capital investments;
  • undertaken substantial expansion and modernization;
  • altered their financial and commercial position; and
  • incurred long-term liabilities on the legitimate understanding that the promised fiscal incentives would continue for the stipulated period.

According to the petitioners, the Government could not resile from its representation after industrial units had materially altered their position. The doctrine of promissory estoppel was therefore invoked to prevent curtailment of the promised benefit.

The petitioners further argued that the Budgetary Support Scheme dated 05.10.2017, by restricting support broadly to 58% of eligible CGST cash payment and 29% of eligible IGST cash payment, substantially reduced the benefit that they claimed had earlier been assured.

It was contended that the transition to GST could not, by itself, justify denial of the substantive economic benefit promised for the residual eligibility period. According to them, the form or mechanism of tax collection might have changed, but the Government remained bound to preserve the promised incentive in an equivalent form.

The petitioners also relied upon the doctrine of legitimate expectation, asserting that the policy representations and the earlier exemption notification created a reasonable expectation that qualifying units would receive the fiscal benefit for the full promised tenure.

They further questioned the legality and jurisdictional basis of the Budgetary Support Scheme insofar as it curtailed the earlier benefit and contended that governmental action should satisfy the requirements of fairness and non-arbitrariness under Article 14 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 exemption did not constitute an immutable or permanently vested right. It was an incentive or privilege governed by the applicable statutory regime and the conditions of the relevant notification.

The respondents submitted that after introduction of GST:

  • the earlier indirect tax structure fundamentally changed;
  • Central Excise and other taxes were substantially replaced or subsumed within the GST framework;
  • there was no direct one-to-one correlation between the erstwhile Central Excise duty and GST;
  • the earlier exemption notifications became ineffective or were expressly rescinded; and
  • the petitioners could not insist upon continuation of an earlier tax regime merely because they had previously enjoyed exemption benefits.

A central plank of the respondents’ case was Section 174(2)(c) of the CGST Act, 2017. They argued that the proviso expressly contemplated that a tax exemption granted as an investment incentive through a notification would not continue as a privilege where the relevant notification was rescinded.

The respondents further submitted that Notification No. 20/2007-CE had been rescinded through Notification No. 21/2017-CE dated 18.07.2017. Consequently, the petitioners could not invoke promissory estoppel to compel an outcome contrary to an express statutory provision.

It was also argued that:

  • there can be no estoppel against legislation or statutory provisions;
  • fiscal and taxation policies may be changed in public interest;
  • exemption notifications are inherently susceptible to modification, withdrawal or rescission;
  • courts ordinarily do not compel continuation of a tax concession contrary to a changed statutory regime;
  • no industrial unit has a perpetual right to identical tax treatment; and
  • the petitioners had not been subjected to discriminatory treatment because the Budgetary Support Scheme applied on common eligibility criteria.

The respondents explained that under the post-GST fiscal arrangement, a portion of Central tax revenue was devolved to the States. Accordingly, the Central Government could reasonably frame support with reference to the share retained by it. The Budgetary Support Scheme was described as a goodwill measure intended to mitigate hardship to eligible existing units rather than as a continuation of the former Central Excise exemption.

Court Order / Findings

The Gauhati High Court placed decisive reliance upon the recent judgment of the Supreme Court in Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022, together with the connected matter involving Sun Pharma Laboratories Limited.

The High Court noted that the Supreme Court had authoritatively dealt with materially similar issues concerning the transition from the earlier area-based fiscal incentive regime to the GST framework.

The Supreme Court’s governing principles, as applied by the High Court, included the following:

  • There can be no promissory estoppel against the legislature in the exercise of legislative functions.
  • The rescission of earlier exemption notifications pursuant to the statutory framework could not be neutralized through promissory estoppel.
  • Accepting a claim for continuation of the earlier benefit contrary to the proviso to Section 174(2)(c) of the CGST Act would effectively permit estoppel to operate against a legislative provision.
  • A change in fiscal policy made in public interest, particularly in the context of a fundamental statutory transition to GST, could justify discontinuation or alteration of an earlier incentive framework.
  • The Government could not be compelled through mandamus to reimburse 100% CGST in the absence of a statutory duty requiring such reimbursement.
  • No duty was cast upon the Union Government to grant a 100% refund of CGST merely because the industrial units had earlier enjoyed excise-related incentives.

The High Court specifically found that the issues raised in the batch of writ petitions were squarely covered by the Supreme Court’s judgment in Hero Motocorp Limited.

Accordingly, the Court held that nothing further remained to be independently decided in the proceedings.

Final Order

The Gauhati High Court:

  • dismissed the writ petitions;
  • granted the petitioners liberty to submit representations before the respective State Government and the GST Council;
  • directed that such representations must be in terms of the findings and observations of the Supreme Court in Hero Motocorp Limited;
  • closed the writ petitions accordingly;
  • made no order as to costs; and
  • disposed of all pending interlocutory applications in terms of the final order.

Important Clarification

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

The High Court recognized that the Supreme Court in Hero Motocorp Limited had rejected the legal claim for compulsory continuation of the earlier benefit or 100% CGST reimbursement. However, the Supreme Court had also observed that the concerned industrial units could possess a legitimate expectation that their claims deserved due consideration.

Therefore, although the petitioners did not succeed in obtaining a judicial direction compelling restoration of the earlier exemption equivalent, they were not left without any avenue. They were granted liberty to make representations to:

  • the respective State Government; and
  • the GST Council.

This liberty did not amount to a judicial declaration of entitlement to 100% reimbursement. It only preserved the petitioners’ opportunity to seek policy-level consideration consistent with the Supreme Court’s observations.

Sections and Legal Provisions Involved

Section 174(2)(c), Central Goods and Services Tax Act, 2017 – Saving of rights, privileges, obligations and liabilities following repeal and amendment of earlier enactments, read with the proviso concerning tax exemptions granted as investment incentives through notifications.

Section 49(1), Central Goods and Services Tax Act, 2017 – Relevant to payment through the electronic cash ledger and the mechanism used under the Budgetary Support Scheme.

Section 20, Integrated Goods and Services Tax Act, 2017 – Application of provisions of the CGST Act to integrated tax, relevant to the Budgetary Support computation mechanism.

Article 14, Constitution of India – Equality before law and protection against arbitrary State action.

Article 226, Constitution of India – High Court’s writ jurisdiction and the principles governing issuance of mandamus.

Article 270, Constitution of India – Distribution of taxes between the Union and the States, relevant to the rationale underlying the Central Government’s retained revenue share.

Article 279A, Constitution of India – Constitutional framework relating to the GST Council.

Notification No. 20/2007-CE dated 25.04.2007 – Area-based Central Excise exemption framework for eligible units in the North Eastern Region.

Notification No. 21/2017-CE dated 18.07.2017 – Rescission of specified area-based exemption notifications after introduction of GST.

Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017 – Scheme of Budgetary Support under the GST regime.

Link to download the order -https://mytaxexpert.co.in/uploads/1783402551_1285compressed.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.