Facts of the Case

A batch of writ petitions, led by Star Cement Ltd. vs Union of India, was filed by industrial units operating in the North Eastern Region. The petitioners included manufacturing entities that claimed entitlement to fiscal incentives under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) and the corresponding Central Excise exemption framework.

The background of the dispute originated from the Government of India’s industrial incentive policies for the North Eastern Region. Under the Industrial Policy Resolution dated 24.12.1997, a package of incentives and concessions had been announced for industrial development in the region. Among other measures, specified industrial activities were contemplated as enjoying tax-related incentives for prescribed periods.

Pursuant to the earlier industrial policy, Central Excise exemption Notifications No. 32/99-CE and 33/99-CE dated 08.07.1999 were issued for eligible industrial units situated in specified areas.

Subsequently, the Government of India announced NEIIPP, 2007 with effect from 01.04.2007. Under the policy, the Government stated that 100% excise duty exemption would continue on finished products manufactured in the North Eastern Region, as available under the earlier policy framework.

To implement the policy in relation to Central Excise, Notification No. 20/2007-CE dated 25.04.2007 was issued. Broadly, the notification granted exemption to eligible goods manufactured by qualifying industrial units in the specified North Eastern States through a refund-based mechanism, subject to the terms and conditions of the notification. The benefit applied to qualifying new units and eligible existing units undertaking the prescribed substantial expansion, for the stipulated period.

The petitioners contended that, encouraged by and relying upon the incentives announced under NEIIPP, 2007 and the corresponding exemption notification, they had established, expanded or made substantial investments in their industrial units.

With the introduction of the GST regime, the earlier indirect tax structure underwent a fundamental statutory change. Thereafter, the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, issued the Scheme of Budgetary Support dated 05.10.2017 for eligible units situated in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North Eastern States including Sikkim.

Under the new scheme, budgetary support for the residual period was provided by reference to the Central Government’s share of CGST and/or IGST retained after the prescribed adjustments. The petitioners challenged the scheme insofar as, according to them, it curtailed the fiscal benefit earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

The principal challenge was founded upon the doctrines of promissory estoppel and legitimate expectation. The petitioners asserted that the Government could not reduce or alter the promised fiscal benefit after industrial units had changed their position and made substantial investments in reliance upon the announced policy.

Issues Involved

The principal issues arising before the Court were:

  1. Whether the Budgetary Support Scheme dated 05.10.2017 unlawfully curtailed the fiscal incentives promised to eligible industrial units under NEIIPP, 2007 and Notification No. 20/2007-CE.
  2. Whether the Union of India was bound by the doctrine of promissory estoppel to continue the earlier level of tax benefit for the unexpired or residual eligibility period despite the introduction of GST.
  3. Whether the petitioners had a legally enforceable legitimate expectation that the full benefit promised under the earlier industrial policy and Central Excise exemption regime would continue.
  4. Whether the change from the Central Excise regime to the GST regime legally altered the nature and enforceability of the earlier exemption incentives.
  5. Whether Section 174(2)(c) of the CGST Act, 2017, particularly its proviso concerning tax exemptions granted as incentives against investment, prevented the petitioners from asserting continuation of the earlier exemption as a vested privilege after rescission of the relevant notification.
  6. Whether a writ of mandamus could be issued directing the Union of India to provide a higher or full reimbursement where no corresponding statutory duty existed.
  7. Whether the controversy stood concluded by the Supreme Court’s ruling in Hero Motocorp Ltd. vs Union of India, delivered shortly before the Gauhati High Court pronounced its judgment.

Petitioners’ Arguments

The petitioners argued that the Government of India had made a clear and unequivocal representation through NEIIPP, 2007 and the corresponding fiscal notifications that eligible industrial units in the North Eastern Region would receive the promised tax incentives for the prescribed period.

It was submitted that the petitioners had altered their position on the strength of those representations by making substantial investments, establishing manufacturing facilities, undertaking expansion and arranging their commercial affairs in reliance upon the promised incentives.

According to the petitioners, the subsequent Budgetary Support Scheme could not lawfully reduce the benefit available under the earlier policy framework merely because GST had been introduced. They maintained that the Government remained bound by its earlier representation for the balance eligibility period.

The petitioners invoked the doctrine of promissory estoppel, contending that a public authority which induces industrial investment by holding out a fiscal promise cannot subsequently resile from that promise after investors have acted to their detriment.

They further relied upon the doctrine of legitimate expectation, asserting that industrial units which had fulfilled the eligibility criteria and made investments on the basis of the Government’s declared policy had a legitimate expectation that the promised benefits would continue for the stipulated duration.

The petitioners also challenged the rationale of restricting budgetary support to only the specified portion of CGST and/or IGST. Their case was that the substituted mechanism did not preserve the full economic benefit of the earlier incentive and therefore effectively curtailed the promised exemption.

It was further contended that the constitutional and statutory transition to GST should not be used to deprive already eligible units of benefits that had accrued or were promised under the pre-existing industrial incentive framework.

The petitioners sought appropriate directions requiring the respondents to preserve and grant the full benefit allegedly promised under NEIIPP, 2007 and the related exemption notification for the residual eligibility period.

Respondents’ Arguments

The respondents opposed the writ petitions and contended that the Budgetary Support Scheme was not contrary to the doctrine of promissory estoppel and did not amount to an unlawful withdrawal of the petitioners’ rights.

It was argued that after the transition to GST, the earlier area-based Central Excise exemptions had become ineffective or incapable of operating in their original form because GST constituted a new statutory tax regime. According to the respondents, there was no direct one-to-one correlation between the erstwhile Central Excise duty and the taxes imposed under the GST framework.

The respondents maintained that the Budgetary Support Scheme was introduced to mitigate likely hardship to industrial units that had earlier been availing Central Excise exemptions. Thus, according to the Government, the scheme represented a policy response to the new statutory regime rather than an unlawful deprivation of vested rights.

It was further submitted that fiscal exemptions are inherently capable of being modified, withdrawn or subjected to altered conditions, particularly where a change is justified by public interest or a fundamental change in statutory policy.

The respondents argued that the doctrine of promissory estoppel cannot compel the Government to act contrary to law. There can be no enforceable estoppel against legislation or statutory provisions.

Specific reliance was placed on Section 174(2)(c) of the CGST Act, 2017. The respondents contended 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.

It was also argued that the petitioners had not successfully challenged the rescission of the earlier exemption notification or the constitutional validity of the proviso to Section 174(2)(c). Therefore, the plea of promissory estoppel could not override the express statutory framework.

The respondents further relied upon judicial principles recognising that where larger public interest requires a change of fiscal policy, individual expectations cannot prevent the Government from modifying or withdrawing an earlier concession.

Court Order / Findings

The Gauhati High Court found that the controversy was squarely covered by the very recent judgment of the Supreme Court in Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022.

The High Court noted the Supreme Court’s authoritative finding that there can be no promissory estoppel against the legislature in the exercise of its legislative functions.

The Court took note of the Supreme Court’s conclusion that the withdrawal of the earlier exemption notifications followed the statutory mandate reflected in Section 174(2)(c) of the CGST Act, 2017. Accepting a claim for continuation of the earlier incentive contrary to that provision would effectively permit estoppel to operate against Parliament’s legislative function.

The High Court further recognised the Supreme Court’s finding that even where an exemption had earlier been promised for a specified period, the Government could change its policy in the larger public interest. A change arising from the introduction of a fundamentally new statutory regime such as GST could not be neutralised merely by invoking promissory estoppel.

The Court also adopted the principle that a writ of mandamus requiring the Union of India to provide full reimbursement could not be issued unless the petitioners established the existence of a corresponding statutory or public duty.

Following the Supreme Court’s ruling, the High Court concluded that nothing further remained to be independently decided in the batch of writ petitions, since the issues raised were squarely covered by Hero Motocorp Ltd. vs Union of India.

Accordingly, the writ petitions were dismissed and closed.

However, the 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 Ltd. vs Union of India.

The Court made no order as to costs, and all pending interlocutory applications, if any, were also disposed of.

Important Clarification

The judgment does not hold that industrial units possess an enforceable statutory right to continuation of the earlier 100% Central Excise-related benefit after the introduction of GST.

The crucial legal clarification is that a fiscal incentive granted under an earlier tax regime cannot automatically be treated as an immutable privilege after the governing statutory regime has fundamentally changed and the relevant exemption notification has been rescinded.

At the same time, the Court recognised the distinction drawn by the Supreme Court in Hero Motocorp Ltd. vs Union of India: although the industrial units may not possess an enforceable claim in law to the full benefit sought, they may nevertheless have a legitimate expectation that their claim deserves due consideration.

Therefore, dismissal of the writ petitions did not completely foreclose administrative consideration. The petitioners were expressly permitted to approach the State Government and the GST Council through representations consistent with the Supreme Court’s observations.

Sections and Legal Provisions Involved

Section 174(2)(c), Central Goods and Services Tax Act, 2017 — Saving clause dealing with rights, privileges, obligations and liabilities following repeal and amendment of earlier enactments, together with the significant proviso concerning tax exemptions granted as incentives against investment.

Proviso to Section 174(2)(c), CGST Act, 2017 — Central to the dispute because it addresses the continuation of tax exemptions granted as investment incentives where the relevant notification is rescinded.

Article 226 of the Constitution of India — High Court’s writ jurisdiction and the petitioners’ prayer for appropriate writs and directions, including relief in the nature of mandamus.

Article 279A of the Constitution of India — Relevant in the broader context of the GST Council and the constitutional GST framework.

Notification No. 20/2007-CE dated 25.04.2007 — Central Excise exemption notification issued in furtherance of the NEIIPP, 2007 incentive framework.

Notifications No. 32/99-CE and 33/99-CE dated 08.07.1999 — Earlier area-based Central Excise exemption notifications connected with the industrial incentive framework for the North Eastern Region.

NEIIPP, 2007 — North East Industrial and Investment Promotion Policy, 2007, forming the principal policy basis of the petitioners’ claim.

Scheme of Budgetary Support dated 05.10.2017 — The post-GST scheme challenged by the petitioners insofar as it allegedly curtailed the benefit promised under the earlier incentive regime.

Link to download the order -https://mytaxexpert.co.in/uploads/1783403092_1288compressed.pdf

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