Facts of the Case

A batch of writ petitions, led by Star Cement Ltd. vs Union of India & Ors., was filed before the Gauhati High Court by industrial units operating in the North Eastern Region. The petitioners had established or expanded their manufacturing units on the basis of fiscal incentives announced by the Government of India under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007).

Under NEIIPP, 2007, the Government continued the policy of 100% excise duty exemption on finished products manufactured in the North Eastern Region. To implement the policy, Notification No. 20/2007-CE dated 25.04.2007 was issued, granting eligible new units and qualifying substantially expanded units excise duty benefits for a period not exceeding ten years, subject to the terms of the notification.

With the introduction of the GST regime from 01.07.2017, the earlier indirect tax structure underwent a fundamental statutory change. Thereafter, Notification No. 21/2017-CE dated 18.07.2017 rescinded various area-based exemption notifications, including Notification No. 20/2007-CE.

The Government subsequently introduced the Scheme of Budgetary Support under the GST Regime through Notification dated 05.10.2017 for eligible units in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North Eastern States including Sikkim. Under the Scheme, support for the residual eligibility period was restricted broadly to:

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

The petitioners challenged the Scheme to the extent that it curtailed the benefits allegedly promised under NEIIPP, 2007 and Notification No. 20/2007-CE. They contended that the reduction in fiscal benefits violated the doctrines of promissory estoppel and legitimate expectation.

Issues Involved

The principal issues before the Court were:

  1. Whether eligible industrial units had an enforceable right to continuation of the earlier excise duty exemption benefits for the entire residual period after implementation of GST.
  2. Whether the Budgetary Support Scheme dated 05.10.2017, by restricting reimbursement to the specified Central Government share of CGST and IGST, unlawfully curtailed the benefits promised under NEIIPP, 2007 and Notification No. 20/2007-CE.
  3. Whether the Union Government was bound by the doctrine of promissory estoppel to preserve the earlier level of fiscal benefit despite introduction of a fundamentally different GST statutory regime.
  4. Whether the petitioners could invoke the doctrine of legitimate expectation for continuation of the earlier benefits.
  5. Whether the proviso to Section 174(2)(c) of the Central Goods and Services Tax Act, 2017 prevented continuation of an investment-linked tax exemption after the underlying exemption notification had been rescinded.
  6. Whether a writ of mandamus could be issued directing the Government to grant complete or equivalent reimbursement for the residual exemption period.

Petitioners’ Arguments

The petitioners argued that they had made substantial investments and established or expanded industrial units in reliance upon the representations and fiscal assurances contained in NEIIPP, 2007 and the corresponding exemption Notification No. 20/2007-CE.

According to them, the promised exemption was intended to remain available for a fixed eligibility period of ten years. Industrial investment decisions had been taken on the legitimate understanding that the fiscal incentive would continue for the promised tenure.

The petitioners contended that the Budgetary Support Scheme dated 05.10.2017 materially reduced the earlier benefit because it restricted support to 58% of specified CGST and 29% of specified IGST cash payments, instead of preserving the full fiscal benefit available under the earlier exemption framework.

It was submitted that a change in the tax regime could not, by itself, justify the Government resiling from a representation on the strength of which industries had altered their position and committed substantial capital.

The petitioners relied upon the doctrines of:

  • Promissory estoppel
  • Legitimate expectation
  • Fairness in State action
  • Article 14 of the Constitution of India

They further argued that governmental promises forming the basis of industrial investment policies should be honoured and that the State could not arbitrarily curtail the promised benefit after industries had acted upon the representation.

Respondents’ Arguments

The respondents opposed the petitions and submitted that the pre-GST tax structure had been replaced by an entirely new constitutional and statutory regime.

It was argued that the earlier Central Excise exemption was not a permanently vested right but a fiscal incentive or privilege operating subject to the governing statutory framework and exemption notifications.

The respondents specifically relied upon Section 174(2)(c) of the CGST Act, 2017, contending that where an exemption granted as an investment incentive under the earlier regime was rescinded, such exemption could not continue as a privilege.

The respondents further submitted that:

  • Notification No. 20/2007-CE had been rescinded by Notification No. 21/2017-CE dated 18.07.2017;
  • there could be no promissory estoppel against legislative or statutory action;
  • GST was a new destination-based tax system with no exact one-to-one correspondence with the former Central Excise regime;
  • after tax devolution, a portion of Central tax revenue accrued to the States;
  • the Budgetary Support Scheme was introduced as a measure of goodwill to mitigate hardship faced by eligible units;
  • the Central Government could reasonably provide support from the portion of revenue retained by it;
  • the Scheme applied on common criteria and did not single out the petitioners for discriminatory treatment; and
  • in the absence of a challenge to the rescission notification or the vires of the proviso to Section 174(2)(c), the plea of promissory estoppel was not maintainable.

The respondents also relied upon the principle that fiscal and economic policies are ordinarily matters within the domain of the Government and are not to be interfered with merely because a different policy might appear more beneficial.

Court Order / Findings

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

The High Court noted that the Supreme Court had authoritatively examined substantially similar claims involving withdrawal of area-based excise exemptions following introduction of GST and the subsequent Budgetary Support Scheme.

The Court recorded the Supreme Court’s position that:

  • there is no estoppel against the legislature in exercise of legislative functions;
  • rescission of earlier exemption notifications was connected with the statutory mandate under Section 174(2)(c) of the CGST Act;
  • accepting a claim for mandatory continuation of the earlier exemption would render the statutory proviso ineffective;
  • the legislature had expressly contemplated that an investment-linked tax exemption would not continue as a privilege where the relevant notification was rescinded;
  • a change in policy in public interest or a fundamental change in the statutory regime may prevent enforcement of the earlier representation through promissory estoppel; and
  • there was no public duty cast upon the Union Government to refund 100% of CGST, and therefore mandamus for such reimbursement could not be granted.

Accordingly, the High Court held that the issues raised in the batch of writ petitions were squarely covered by the Supreme Court judgment in Hero Motocorp Ltd.

The writ petitions were therefore dismissed and closed, with no order as to costs.

However, following the approach adopted by the Supreme Court, the High Court granted liberty to the petitioners to submit appropriate representations before the State Government and the GST Council, provided such representations were in terms of the findings and observations in Hero Motocorp Ltd. The pending interlocutory applications 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 a claim should receive due governmental consideration.

The Court did not hold that every expectation arising from an industrial policy automatically creates an enforceable right to full tax reimbursement. Rather, following the Supreme Court’s ruling in Hero Motocorp Ltd., it recognised that even where industries may not possess a legally enforceable claim to continuation of the earlier exemption after statutory change, their representations may still deserve appropriate and expeditious consideration.

Therefore:

  • Promissory estoppel cannot override an express statutory framework or legislative change.
  • A rescinded exemption notification does not automatically survive as a vested privilege under the GST regime.
  • Legitimate expectation may support consideration of a representation but does not necessarily compel continuation of the previous tax exemption.
  • Courts cannot ordinarily direct 100% CGST reimbursement in the absence of a corresponding public or statutory duty.

Sections and Legal Provisions Involved

Section 174(2)(c), Central Goods and Services Tax Act, 2017 – Repeal and saving provision; central to the dispute concerning survival of investment-linked tax exemptions after rescission of the relevant notification.

Proviso to Section 174(2)(c), CGST Act, 2017 – Relevant to the principle that a tax exemption granted as an investment incentive does not continue as a privilege where the notification granting such exemption is rescinded.

Section 49(1), CGST Act, 2017 – Relevant to payment of tax through the electronic cash ledger for computation of support under the Budgetary Support Scheme.

Section 20, Integrated Goods and Services Tax Act, 2017 – Relevant in the context of the mechanism referred to for IGST payment and budgetary support.

Article 14, Constitution of India – Invoked in relation to arbitrariness, fairness and equality in State action.

Article 226, Constitution of India – Writ jurisdiction of the High Court and the petitioners’ claim for appropriate directions or mandamus.

Article 270, Constitution of India – Relevant to distribution and devolution of tax revenues between the Union and the States, as considered in the structure of the Budgetary Support Scheme.

Section 5A, Central Excise Act, 1944 – Relevant to the statutory framework governing exemption notifications under the erstwhile Central Excise regime.

Link to download the order -https://mytaxexpert.co.in/uploads/1783403273_1289compressed.pdf

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