Facts of the Case

The batch of writ petitions was filed by industrial units operating in the North Eastern Region and availing fiscal incentives under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) and the corresponding Central Excise Notification No. 20/2007-CE dated 25.04.2007.

The petitioners had established or expanded their industrial units on the basis of the incentive framework under which eligible units were granted Central Excise-related benefits for the prescribed period. According to the petitioners, substantial investments and business decisions had been undertaken relying upon the promises and representations contained in NEIIPP, 2007 and the exemption notification.

Following the introduction of the GST regime with effect from 01.07.2017, the earlier area-based Central Excise exemption notifications, including Notification No. 20/2007-CE, were rescinded through Notification No. 21/2017-CE dated 18.07.2017.

Thereafter, the Government introduced the Scheme of Budgetary Support under the GST Regime through Notification/F.No. 10(1)/2017-DBA-II/NER dated 05.10.2017 for eligible units situated in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North Eastern States including Sikkim.

The petitioners’ principal grievance was that the new Budgetary Support Scheme restricted reimbursement to the prescribed portion of the Central Government’s share of CGST and/or IGST instead of continuing the full extent of the benefits allegedly promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

Accordingly, the petitioners challenged the curtailment of benefits primarily on 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, insofar as it curtailed the fiscal benefit earlier available under NEIIPP, 2007 and Notification No. 20/2007-CE, was legally sustainable.
  2. Whether the Government was bound by the doctrine of promissory estoppel to continue the full benefit originally represented to eligible industrial units.
  3. Whether the petitioners had a legitimate expectation that the promised incentive benefits would continue for the entire originally contemplated period.
  4. Whether the transition from the Central Excise regime to GST legally altered the nature and extent of the petitioners’ entitlement.
  5. What was the effect of Section 174(2)(c) of the CGST Act, 2017, particularly where the earlier exemption notification had been expressly rescinded.
  6. Whether the petitioners could compel the Union Government to provide full reimbursement or 100% equivalent support under the GST regime.
  7. Whether the Budgetary Support Scheme could be interfered with under Article 226 of the Constitution of India.

Petitioners’ Arguments

The petitioners contended that the Government had made a clear and unequivocal promise through NEIIPP, 2007 and Notification No. 20/2007-CE, on the basis of which eligible industrial units had altered their position and made substantial investments.

It was argued that the Government could not withdraw or materially curtail the promised fiscal benefits after industries had acted upon such representations. The petitioners invoked the doctrine of promissory estoppel, relying upon the principle that where a clear promise is intended to be acted upon and is in fact acted upon, it may become inequitable to permit the promisor to resile from it.

Reliance was placed, inter alia, on Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409, in support of the doctrine of promissory estoppel.

The petitioners further argued that:

  • the benefit under NEIIPP, 2007 had been promised for a specified period;
  • industrial units had structured investments and commercial operations relying on the incentive package;
  • the introduction of GST could not justify substantial curtailment of the promised benefit;
  • the Budgetary Support Scheme dated 05.10.2017 failed to preserve the full economic benefit of the earlier incentive;
  • the action violated the doctrine of legitimate expectation;
  • the Government should be directed to extend the full benefit promised under NEIIPP, 2007 and Notification No. 20/2007-CE; and
  • the impugned Scheme, to the extent of curtailment, should be set aside or quashed.

The petitioners also advanced arguments concerning the constitutional and statutory structure of CGST and IGST, revenue distribution and the effect of the GST transition upon previously granted fiscal incentives.

Respondents’ Arguments

The respondents opposed the writ petitions and submitted that the earlier tax structure had fundamentally changed with the introduction of GST from 01.07.2017.

It was argued that GST was a new and distinct destination-based taxation system and that there was no direct one-to-one correlation between the erstwhile Central Excise Duty and the taxes imposed under the GST framework.

The respondents specifically relied upon Section 174(2)(c) of the CGST Act, 2017, contending that an exemption granted as an investment incentive under the erstwhile regime would not continue as a privilege where the relevant exemption notification had been rescinded.

The respondents submitted that:

  • Notification No. 20/2007-CE was rescinded through Notification No. 21/2017-CE dated 18.07.2017;
  • the earlier exemption was not an immutable vested right;
  • the Budgetary Support Scheme was introduced to mitigate hardship faced by eligible units after transition to GST;
  • the Scheme represented a policy measure and measure of support rather than automatic continuation of the former Central Excise exemption;
  • under the fiscal devolution structure, a portion of Central revenues was devolved to the States;
  • the Centre could reimburse only from its retained share in the manner contemplated by the Scheme;
  • exemption notifications are inherently susceptible to modification, withdrawal or alteration in public interest; and
  • promissory estoppel could not compel the Government to act contrary to statutory provisions or overriding public interest.

Court Order / Findings

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

The High Court found that the authoritative findings of the Supreme Court squarely covered the issues raised in the batch of writ petitions.

The Court noted the Supreme Court’s conclusion that there was no duty cast upon the Union Government to refund 100% of CGST, and therefore the relief seeking such full reimbursement could not be granted as a matter of legal right.

The High Court further recorded that although the Supreme Court had dismissed the appeals in Hero Motocorp Limited and the connected Sun Pharma Laboratories Limited matter, the Supreme Court had recognised that the appellants, though not possessing an enforceable claim in law for the full benefit sought, had a legitimate expectation that their claims deserved due consideration.

Accordingly, the Gauhati High Court held that nothing further remained to be independently adjudicated because the controversy was squarely governed by the Supreme Court’s ruling.

Final Order

The writ petitions were dismissed/closed in terms of the Supreme Court ruling.

However, the petitioners were granted liberty to submit appropriate representations before:

  • the concerned 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 v. Union of India, judgment dated 17.10.2022.

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

Important Clarification

This judgment does not recognise an absolute legal right to continuation of 100% equivalent fiscal benefits under the GST regime merely because an industrial unit had earlier enjoyed area-based Central Excise incentives.

The crucial clarification emerging from the decision is that:

  • Section 174(2)(c) of the CGST Act, 2017 assumes significance where an earlier exemption notification has been rescinded;
  • the shift to GST fundamentally altered the indirect tax structure;
  • promissory estoppel cannot automatically create an enforceable entitlement to 100% CGST reimbursement;
  • no legal duty was found requiring the Union Government to refund 100% of CGST;
  • nevertheless, eligible industries may possess a legitimate expectation of due consideration of their claims; and
  • representations before the State Government and GST Council must receive consideration consistently with the Supreme Court’s observations in the Hero Motocorp ruling.

Thus, the judgment draws a material distinction between an enforceable legal right to full reimbursement and a legitimate expectation that the claim deserves fair and due consideration.

Sections / Legal Provisions Involved

Section 174(1), CGST Act, 2017 — Repeal of specified enactments upon implementation of the GST regime.

Section 174(2)(c), CGST Act, 2017 — Savings provision concerning rights, privileges, obligations and liabilities under repealed enactments, subject to the statutory treatment of tax exemptions granted as investment incentives.

Section 11, CGST Act, 2017 — Power to grant exemption from tax in the public interest on recommendations of the GST Council.

Section 49 / Section 49A, CGST Act, 2017 — Provisions concerning payment of tax and utilisation of input tax credit, as referred to in the broader arguments concerning the GST structure.

Section 5A, Central Excise Act, 1944 — Statutory power concerning exemption from Central Excise Duty under the erstwhile regime.

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

Link to download the order -https://mytaxexpert.co.in/uploads/1783403444_1290compressed.pdf

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