Facts of the Case

A batch of writ petitions was filed by industrial units operating in the North Eastern Region, including Star Cement Ltd. and other eligible manufacturing entities that had established or expanded their industrial units on the basis of incentives announced by the Central Government under the North East Industrial and Investment Promotion Policy, 2007 (“NEIIPP, 2007”) and corresponding Central Excise exemption arrangements, particularly Notification No. 20/2007-CE dated 25.04.2007.

The industrial policy framework had been introduced to encourage investment and industrial development in the North Eastern Region by extending fiscal incentives, including Central Excise-related benefits for the prescribed eligibility period. According to the petitioners, substantial investments had been made and commercial decisions had been taken relying upon the Government’s representation that the promised benefits would remain available for the stipulated period.

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 specified States, including the North Eastern States and Sikkim.

Under the new scheme, eligible units were provided budgetary support for the residual eligibility period by way of reimbursement linked to the Central Government’s share of CGST and/or IGST retained after the prescribed tax devolution or adjustment. The petitioners contended that this mechanism substantially curtailed the fiscal benefit earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

The primary challenge was therefore directed against the Budgetary Support Scheme dated 05.10.2017 insofar as it allegedly reduced the benefit promised to eligible industrial units for the remaining period of their original entitlement.

Issues Involved

  1. Whether the Scheme of Budgetary Support dated 05.10.2017 unlawfully curtailed the fiscal incentives promised under NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007.
  2. Whether the Union Government was bound by the doctrine of promissory estoppel to continue the full economic benefit of the pre-GST exemption for the residual eligibility period.
  3. Whether eligible industrial units had a legitimate expectation that the promised tax incentives would continue notwithstanding the introduction of the GST regime.
  4. Whether the change in the statutory tax regime permitted the Government to replace the earlier exemption mechanism with a limited budgetary support arrangement.
  5. Whether Section 174(2)(c) of the CGST Act, 2017 prevented continuation of a tax 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 reimburse or refund the full amount of CGST corresponding to the earlier incentive structure.
  7. Whether the controversy stood concluded by the Supreme Court’s ruling in Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022.

Petitioners’ Arguments

The petitioners argued that the Central Government had made a clear, unequivocal and solemn representation under NEIIPP, 2007 and the related exemption framework that eligible industrial units would receive specified fiscal benefits for the promised period.

It was submitted that, acting upon those representations, industrial units had made substantial and irreversible investments in the North Eastern Region. Therefore, the Government could not subsequently reduce the promised benefit after inducing businesses to alter their economic position.

The petitioners invoked the doctrine of promissory estoppel, relying upon the principle that the Government is ordinarily bound by a clear representation intended to be acted upon where the promisee has altered its position in reliance upon that representation.

Reliance was placed upon judicial precedents including:

  • Motilal Padampat Sugar Mills Co. Ltd. vs State of U.P.
  • MRF Ltd. vs Assistant Commissioner of Sales Tax
  • State of Jharkhand vs Brahmaputra Metallics Ltd.

The petitioners contended that the Government could not resile from the promises contained in NEIIPP, 2007 merely by introducing a budgetary support mechanism that materially reduced the extent of the original benefit.

It was further argued that the curtailment was arbitrary and contrary to the doctrine of legitimate expectation. According to the petitioners, the transition from the Central Excise regime to GST did not justify reducing the economic substance of the promised incentive. If continuation through an upfront exemption was technically impossible under GST, an equivalent reimbursement mechanism should have been provided.

The petitioners also relied upon discussions surrounding the GST transition to contend that the Government itself was conscious that premature curtailment of time-bound exemptions could attract a challenge based on promissory estoppel, particularly where businesses had made irreversible investments relying upon the promised incentives.

It was argued that no overriding or supervening public interest had been established that could legally justify curtailment of the residual benefits.

The petitioners further referred to constitutional provisions concerning GST and distribution of tax revenues, including Articles 246A, 269A, 270 and 279A of the Constitution, in support of their broader challenge to the restricted reimbursement framework.

Respondents’ Arguments

The Union of India and GST authorities opposed the writ petitions and contended that fiscal incentives and tax exemptions are matters of governmental and economic policy.

The respondents argued that the Government is legally entitled to alter or withdraw an exemption where public interest or a change in policy so requires. Courts ordinarily do not compel the Government to continue a fiscal policy indefinitely, particularly where no fraud, mala fides or legally sustainable arbitrariness is established.

It was submitted that the doctrine of promissory estoppel cannot operate against a statute and cannot compel the Government to perform an act prohibited by law.

Specific reliance was placed upon Section 174(2)(c) of the CGST Act, 2017, particularly the statutory treatment of tax exemptions granted as investment incentives. The respondents argued that where the earlier exemption notification had been rescinded, the incentive could not continue as an enforceable privilege contrary to the statutory scheme.

The respondents further contended that:

  • the pre-GST exemption notifications had been rescinded;
  • the petitioners had not successfully challenged the statutory framework governing the consequences of rescission;
  • promissory estoppel could not override the express language of Section 174(2)(c);
  • there was no statutory duty requiring the Union of India to reimburse 100% of CGST; and
  • in the absence of a corresponding public or statutory duty, a writ of mandamus directing full reimbursement could not be issued.

The respondents relied substantially upon the legal position ultimately affirmed by the Supreme Court in Hero Motocorp Limited vs Union of India.

Court Order / Findings

The Gauhati High Court held that the controversy was squarely governed by the Supreme Court’s recent judgment dated 17.10.2022 in M/s Hero Motocorp Limited vs Union of India, Civil Appeal No. 7405 of 2022, which also dealt with claims arising from the transition of area-based tax incentives into the GST regime.

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

The Court recognised that the withdrawal of the earlier exemption framework occurred pursuant to the changed statutory regime and the mandate flowing from Section 174(2)(c) of the CGST Act, 2017.

The Court further accepted the principle that enforcing the earlier representation in a manner contrary to the statutory consequences contemplated by Section 174(2)(c) would effectively permit estoppel to operate against legislative action.

The High Court also noted the Supreme Court’s finding that a change of policy in public interest, particularly alongside a fundamental change in the statutory regime caused by the introduction of GST, could not justify holding the Union perpetually bound by an earlier representation.

A crucial finding was that no statutory duty was cast upon the Union of India to refund or reimburse 100% of CGST. Therefore, the relief seeking a writ of mandamus for full reimbursement could not be granted.

Accordingly, the High Court held that nothing further remained to be independently adjudicated because the issues raised in the batch of writ petitions were squarely covered by the Supreme Court’s ruling in the Hero Motocorp case.

Final Order

The writ petitions were dismissed and closed.

However, following the approach adopted by the Supreme Court in Hero Motocorp, the Gauhati High Court granted similar liberty to the petitioners to submit representations before:

  • the concerned State Government; and
  • the GST Council.

Such representations were required to be made in terms of the findings and observations contained in the Supreme Court’s judgment dated 17.10.2022 in Hero Motocorp.

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

Important Clarification

The judgment does not hold that industrial units had no genuine expectation arising from the earlier incentive framework. Rather, following the Supreme Court’s reasoning in Hero Motocorp, the Court recognised the distinction between:

  • an enforceable legal right to full reimbursement, and
  • a legitimate expectation deserving governmental consideration.

Although the petitioners could not compel continuation of the full pre-GST benefit through a writ of mandamus, they were permitted to approach the State Government and the GST Council through representations.

Therefore, the case is significant because it confirms that legitimate expectation may justify consideration of a representation even where the claimed fiscal incentive is not enforceable as an absolute legal right against the post-GST statutory regime.

Sections and Constitutional Provisions Involved

Section 174(2)(c), Central Goods and Services Tax Act, 2017 – Savings and consequences arising from repeal of the earlier indirect tax enactments; particularly relevant to the continuation or cessation of tax exemptions granted as investment incentives after rescission of exemption notifications.

Proviso to Section 174(2)(c), CGST Act, 2017 – Central to the dispute concerning whether a tax exemption granted as an investment incentive could continue as a privilege after rescission of the relevant notification.

Article 226 of the Constitution of India – Jurisdiction of the High Court to issue writs, including writs in the nature of mandamus.

Article 246A of the Constitution of India – Special legislative power concerning Goods and Services Tax.

Article 269A of the Constitution of India – Levy and collection of GST in the course of inter-State trade or commerce.

Article 270 of the Constitution of India – Distribution of specified taxes between the Union and the States.

Article 279A of the Constitution of India – Constitutional framework governing the GST Council.

Link to download the order -https://mytaxexpert.co.in/uploads/1783403803_1292compressed.pdf

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