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. vs Union of India & Ors. being the lead matter. The petitioners had established and operated manufacturing units in the region and claimed eligibility for fiscal incentives announced by the Government of India under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007).

The Government of India had introduced industrial incentive policies with the object of promoting industrialisation and economic development in the North-Eastern Region. Under NEIIPP, 2007, eligible industrial units were promised various incentives, including benefits relating to Central Excise Duty. The policy was operationalised, inter alia, through Notification No. 20/2007-CE dated 25.04.2007.

The petitioners contended that they had established or expanded their industrial units, made substantial capital investments, employed personnel and altered their commercial positions on the strength of the representations and fiscal incentives offered under NEIIPP, 2007 and the relevant Central Excise exemption notification.

The Court recorded that there was no factual dispute regarding the eligibility of the industrial units before it. The petitioners had been receiving incentives under NEIIPP, 2007 in accordance with the applicable parameters.

The Court also noticed that, although the exemption was initially understood as extending to 100%, the benefit subsequently became available to the extent of value addition made by the concerned industries. The controversy concerning such reduction had travelled through litigation and was ultimately considered by the Supreme Court in Union of India & Anr. vs V.V.F. Limited & Anr., reported in AIR 2020 SC 2954.

With the introduction of the GST regime, the earlier Central Excise framework underwent a fundamental transformation and Central Excise Duty on the relevant supplies stood subsumed within the new indirect tax structure. Various area-based exemption notifications, including Notification No. 20/2007-CE, were affected in consequence of the transition.

Thereafter, the Government introduced the Scheme of Budgetary Support under the GST regime through Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017. The scheme provided budgetary support to eligible units for the residual period, broadly by reference to reimbursement linked to the Central Government’s share of CGST and/or IGST retained after the applicable devolution or adjustment.

The petitioners’ principal grievance was that the Budgetary Support Scheme curtailed the fiscal benefits earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE. They accordingly challenged the scheme on the grounds of promissory estoppel, legitimate expectation, arbitrariness and inconsistency with the earlier governmental assurances.

Issues Involved

The principal issues before the Gauhati High Court were:

  1. Whether the Scheme of Budgetary Support dated 05.10.2017, insofar as it allegedly curtailed the benefits available under NEIIPP, 2007 and Notification No. 20/2007-CE, was legally sustainable.
  2. Whether industrial units that had established or expanded their businesses in reliance upon NEIIPP, 2007 could compel the Government to continue the earlier level of fiscal benefit after implementation of GST.
  3. Whether the doctrine of promissory estoppel prevented the Union Government from reducing or restructuring the incentives originally contemplated under NEIIPP, 2007.
  4. Whether the petitioners possessed a legitimate expectation that the promised fiscal incentives would continue for the entire residual eligibility period.
  5. Whether Section 174(2)(c) of the CGST Act, 2017, including its proviso relating to tax exemptions, preserved an enforceable right to continuation of the earlier exemption benefits.
  6. Whether the Budgetary Support Scheme was arbitrary or discriminatory and therefore vulnerable under Article 14 of the Constitution of India.
  7. Whether a writ of mandamus under Article 226 of the Constitution could be issued directing continuation or restoration of the claimed fiscal benefit.
  8. What effect the Supreme Court’s subsequent judgment in Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, dated 17.10.2022, had upon the batch of writ petitions.

Petitioners’ Arguments

The petitioners argued that the Government of India had made a clear and definite representation through NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007 that eligible industrial units would receive fiscal incentives for the prescribed period.

They submitted that, relying upon those governmental assurances, they had materially altered their position by making substantial investments, establishing industrial units, expanding manufacturing activities, employing personnel and incurring long-term commercial commitments.

According to the petitioners, withdrawal or substantial curtailment of the promised benefits during the subsistence of the incentive period caused serious financial prejudice and defeated the very basis upon which the investments had been undertaken.

It was argued that the Government was bound by the doctrine of promissory estoppel because the petitioners had acted upon the promise and altered their position to their detriment.

The petitioners further invoked the doctrine of legitimate expectation, contending that eligible units had a reasonable and enforceable expectation that the fiscal support promised under NEIIPP, 2007 would remain available for the entire eligible period.

Reliance was also placed upon Section 174(2)(c) of the CGST Act, 2017. The petitioners sought to contend that accrued or subsisting rights and benefits could not simply be extinguished by the transition to GST, and that the Budgetary Support Scheme could not lawfully reduce benefits already assured under the earlier policy framework.

The petitioners contended that the Scheme dated 05.10.2017 was contrary to the object and promises underlying NEIIPP, 2007 and Notification No. 20/2007-CE.

They further argued that the curtailment was arbitrary, unreasonable and violative of Article 14 of the Constitution, particularly because industrial units had acted on the Government’s representations and had made irreversible investments in the North-Eastern Region.

The petitioners accordingly sought appropriate writ directions requiring the authorities to extend the full benefit allegedly promised under NEIIPP, 2007 and Notification No. 20/2007-CE for the residual eligibility period.

Respondents’ Arguments

The Union of India and other respondents defended the Scheme of Budgetary Support and contended that it was not contrary to law.

The respondents submitted that the introduction of GST represented a fundamental restructuring of the indirect tax system. The earlier Central Excise regime could not be treated as continuing unchanged after the implementation of GST.

It was argued that the Budgetary Support Scheme was a distinct policy measure formulated under the changed GST framework and did not constitute an exemption identical to the earlier Central Excise exemption.

The respondents relied upon the legal consequences flowing from Section 174(2)(c) of the CGST Act, 2017 and its proviso, contending that the statutory framework did not preserve an absolute right to continuation of the previous exemption in the same form.

They further submitted that there was no violation of Article 14 of the Constitution, as the Budgetary Support Scheme operated within the altered fiscal and constitutional structure introduced by GST.

The respondents disputed the applicability of promissory estoppel in a manner that would compel the Government to continue an earlier tax exemption despite a statutory and constitutional change in the indirect tax regime.

It was also contended that no writ of mandamus could be issued for enforcement of a claimed 100% refund or equivalent fiscal benefit in the absence of an enforceable legal or statutory duty requiring the Government to grant such benefit.

The respondents maintained that the Scheme of Budgetary Support was a policy decision and that the petitioners could not insist upon continuation of the former Central Excise benefit in an unchanged form under the GST regime.

Court’s Findings / Order

The Gauhati High Court examined the extensive pleadings, rival submissions and judicial authorities cited by the parties.

The Court noted that the petitioners had established industrial units in response to incentives offered under NEIIPP, 2007 and that there was no dispute concerning their eligibility under the applicable parameters.

The Court further recognised that the petitioners had been receiving benefits under NEIIPP, 2007. It also took note of the earlier controversy regarding restriction of benefits to the extent of value addition and the Supreme Court ruling in Union of India & Anr. vs V.V.F. Limited & Anr.

A decisive development occurred when the Supreme Court delivered its judgment dated 17.10.2022 in Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, involving materially similar questions concerning fiscal incentives, GST transition, promissory estoppel and legitimate expectation.

The Gauhati High Court held that the authoritative findings rendered by the Supreme Court in Hero Motocorp Limited squarely covered the issues raised in the present proceedings.

The High Court observed that the Supreme Court had dismissed the appeals before it and had found that there was no enforceable legal claim for the relief sought in the form asserted. At the same time, the Supreme Court had recognised that the appellants possessed a legitimate expectation that their claims deserved due consideration.

Following the Supreme Court’s approach, the Gauhati High Court held that nothing further was required to be independently decided in the present batch of proceedings.

Accordingly, the writ petitions were dismissed and closed.

However, the 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 therefore closed in those terms.

No order as to costs was passed.

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

Important Clarification

The judgment is significant because the dismissal of the writ petitions did not amount to a finding that the petitioners’ concerns were devoid of all consideration.

The crucial distinction drawn from the Supreme Court’s ruling in Hero Motocorp Limited vs Union of India was:

  • the petitioners could not establish an enforceable legal right compelling continuation of the claimed fiscal benefit in the precise earlier form; but
  • they could still possess a legitimate expectation that their claims should receive due governmental consideration.

Therefore, the High Court did not direct payment of 100% reimbursement or continuation of the earlier Central Excise exemption. Instead, it preserved a procedural avenue by permitting representations before the State Government and GST Council.

The judgment must also be understood in the context of the changed constitutional and statutory architecture brought about by GST. The Court’s order followed the binding Supreme Court precedent rather than independently restoring the pre-GST exemption mechanism.

Sections and Legal Provisions Involved

Section 174(2)(c) of the Central Goods and Services Tax Act, 2017 — Central provision concerning the effect of repeal and saving of rights, privileges, obligations and liabilities, read with the statutory treatment of tax exemptions.

Section 5A of the Central Excise Act, 1944 — Provision relating to the power to grant exemption from excise duty through notification.

Article 14 of the Constitution of India — Invoked in relation to allegations of arbitrariness, unreasonableness and unequal treatment in curtailing promised fiscal incentives.

Article 226 of the Constitution of India — Jurisdiction of the High Court to issue writs, including mandamus, and the question whether a direction could be issued compelling continuation or grant of the claimed fiscal benefit.

Constitution (One Hundred and First Amendment) Act, 2016 — Relevant to the constitutional introduction and restructuring of indirect taxation through GST.

NEIIPP, 2007 — North East Industrial and Investment Promotion Policy, 2007, forming the central policy basis of the petitioners’ incentive claims.

Notification No. 20/2007-CE dated 25.04.2007 — Central Excise notification implementing area-based incentive benefits relevant to eligible units.

Notification No. 20/2008-CE dated 27.03.2008 — Amendment relevant to the structure and extent of the earlier Central Excise benefit.

Notification No. 21/2017-CE dated 18.07.2017 — Relevant to the post-GST treatment of area-based Central Excise exemption notifications.

Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017 — Scheme of Budgetary Support under the GST regime, directly challenged in the writ petitions.

Link to download the order -https://mytaxexpert.co.in/uploads/1783402718_1286compressed.pdf

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