Facts of the Case

The lead petitioner, Star Cement Ltd., along with several industrial units in connected writ petitions, had established and operated manufacturing units in the North-Eastern Region and had availed or claimed fiscal incentives under the North East Industrial and Investment Promotion Policy, 2007 (“NEIIPP, 2007”) and the corresponding Central Excise exemption framework, including Notification No. 20/2007-CE.

The petitioners’ case arose from the transition from the erstwhile indirect tax regime to the Goods and Services Tax regime. Upon introduction of GST, the earlier Central Excise framework underwent a substantial statutory change, and area-based exemption notifications were rescinded, including through Notification No. 21/2017-CE.

Thereafter, the Government framed the Scheme of Budgetary Support dated 05.10.2017 for eligible industrial units situated in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North-Eastern States, including Sikkim. The Scheme provided budgetary support for the residual period of the earlier exemption, but the reimbursement was limited broadly to the Central Government’s share of CGST and/or IGST retained after the prescribed devolution of taxes to the States.

The petitioners challenged the Budgetary Support Scheme insofar as it allegedly curtailed the fiscal benefit earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE. They asserted that they had made substantial investments and altered their economic position in reliance upon the Government’s representation and promise of tax incentives.

The primary challenge was directed against the Budgetary Support Scheme contained in Notification/File No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017, on the ground that restricting reimbursement violated the doctrines of promissory estoppel and legitimate expectation and was contrary to the incentives promised under NEIIPP, 2007.

Issues Involved

  1. Whether industrial units that had availed or were eligible for benefits under NEIIPP, 2007 and Notification No. 20/2007-CE could claim continuation of the earlier tax exemption benefit for the residual period after introduction of GST.
  2. Whether the Budgetary Support Scheme dated 05.10.2017, by restricting reimbursement to the specified Central Government share of CGST and/or IGST, unlawfully curtailed the benefits promised under NEIIPP, 2007.
  3. Whether the Union Government was barred by the doctrine of promissory estoppel from reducing or altering the fiscal incentive after industrial units had made investments relying upon the earlier policy.
  4. Whether the petitioners had a legitimate expectation that the full benefit of the earlier exemption would continue during the residual eligibility period.
  5. Whether Section 174(2)(c) of the CGST Act, 2017 permitted continuation of an exemption granted as an investment incentive after the relevant exemption notification had been rescinded.
  6. Whether a writ of mandamus could be issued directing the Union of India to provide 100% refund or equivalent reimbursement of CGST for the residual period.

Petitioners’ Arguments

The petitioners contended that the Government had made a clear and unequivocal promise under NEIIPP, 2007 and the corresponding exemption notifications. Acting upon that representation, the industrial units had altered their position by making substantial capital investments, establishing manufacturing facilities, employing personnel and arranging their commercial affairs on the basis of the promised incentives.

It was argued that curtailment of the promised benefits through the Budgetary Support Scheme was illegal, arbitrary and contrary to the doctrine of promissory estoppel. According to the petitioners, the respondents were liable to provide full exemption and/or equivalent support in terms of the promise contained in NEIIPP, 2007.

The petitioners relied substantially upon the principles stated in Motilal Padampat Sugar Mills Co. Ltd. vs State of U.P., (1979) 2 SCC 409, contending that where the Government makes a clear promise intending that it be acted upon, and the promisee alters its position in reliance upon such promise, equity may prevent the Government from resiling from its representation.

They further submitted that the doctrine of promissory estoppel was not confined to contractual relationships and could operate against governmental action in appropriate administrative or statutory contexts.

The petitioners maintained that the earlier industrial policy had induced large-scale investment in the North-Eastern Region and that withdrawal or substantial reduction of the benefit midway caused serious financial prejudice. They asserted that the Budgetary Support Scheme failed to preserve the complete economic benefit of the earlier incentive.

It was also argued that the Budgetary Support Scheme was outside the core GST tax structure and that the Government could still honour the earlier promise through an appropriate reimbursement mechanism.

Respondents’ Arguments

The respondents contended that the Budgetary Support Scheme did not violate the doctrine of promissory estoppel and that the Government had not unlawfully withdrawn any enforceable vested right.

They submitted that the earlier area-based Central Excise exemptions became ineffective or incapable of operating in their original form following the transition to GST because GST constituted a new tax regime and there was no exact one-to-one correlation between the erstwhile Central Excise duty and the new GST levies.

According to the respondents, the Budgetary Support Scheme was introduced precisely to mitigate hardship faced by eligible industrial units that had earlier enjoyed area-based excise exemptions. The support was therefore a policy measure under the changed statutory regime and could validly be restricted to the extent specified by the Government.

The respondents further argued that promissory estoppel is subject to overriding public interest and cannot be invoked to compel governmental action contrary to law. Reliance was placed upon the principle that a change in policy based on larger public interest may justify withdrawal or modification of an earlier incentive.

A central submission of the respondents was based upon Section 174(2)(c) of the CGST Act, 2017. It was argued that, by virtue of the statutory proviso, a tax exemption granted as an incentive against investment would not continue as a privilege where the relevant notification had been rescinded.

The respondents also emphasized that the petitioners had not successfully challenged the rescission of the 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.

Court’s Findings / Order

The Gauhati High Court held that the controversy stood squarely covered by the authoritative decision of the Supreme Court of India in M/s Hero Motocorp Limited vs 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 noted the Supreme Court’s conclusion that there can be no estoppel against the legislature in the exercise of legislative functions. The withdrawal of the earlier exemption notifications had taken place pursuant to the statutory framework associated with Section 174(2)(c) of the CGST Act.

The Court recognized that the proviso to Section 174(2)(c) specifically contemplated that a tax exemption granted as an incentive against investment through a notification would not continue as a privilege where the notification was rescinded. Accepting the petitioners’ plea for continuation of the full benefit despite the statutory provision would effectively permit promissory estoppel to operate against legislative action.

The High Court further accepted the principle, as settled by the Supreme Court, that an earlier exemption may be withdrawn upon a change in policy, particularly where public interest or a changed statutory regime is involved. The introduction of GST represented a fundamental change in the indirect tax structure.

The Court also noted that there was no statutory duty cast upon the Union of India to refund 100% of CGST. In the absence of such an enforceable public or statutory duty, a writ of mandamus directing full reimbursement could not be issued.

Consequently, following the Supreme Court’s ruling in Hero Motocorp Limited vs Union of India, the Gauhati High Court dismissed the writ petitions.

However, the Court granted the petitioners liberty to submit 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. The writ petitions were accordingly closed, with no order as to costs. Pending interlocutory applications, if any, were also disposed of.

Important Clarification

The judgment does not hold that the industrial units had no factual basis for expecting continuation of the earlier incentives. Rather, following Hero Motocorp Limited vs Union of India, the Court recognized the distinction between an enforceable legal right to 100% refund and a legitimate expectation deserving governmental consideration.

Thus, while the petitioners could not compel continuation of the full pre-GST exemption or obtain 100% CGST refund through a writ of mandamus, they were permitted to approach the State Government and the GST Council through appropriate representations.

The crucial legal position is that the doctrine of promissory estoppel cannot be invoked to defeat an express statutory provision or operate against legislative action. Further, once an investment-linked exemption notification is rescinded, the proviso to Section 174(2)(c) assumes decisive significance.

Sections / Legal Provisions Involved

Section 174(2)(c) of the CGST Act, 2017: Deals with the effect of repeal and saving upon rights, privileges, obligations and liabilities under repealed enactments, subject to the statutory proviso concerning tax exemptions granted as incentives against investment where the relevant notification is rescinded.

Proviso to Section 174(2)(c) of the CGST Act, 2017: Central to the dispute because it prevents an investment-linked tax exemption from continuing as a privilege after rescission of the relevant exemption notification.

Article 226 of the Constitution of India: Invoked for writ jurisdiction and the relief of mandamus.

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

Constitution (One Hundred and First Amendment) Act, 2016: Relevant to the transition to the GST regime and restructuring of indirect taxation.

Link to download the order -https://mytaxexpert.co.in/uploads/1783403657_1291compressed.pdf

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