Facts of the Case

The batch of writ petitions was filed by industrial units including Star Cement Ltd. and other eligible manufacturing units operating in the North-Eastern Region, which claimed fiscal incentives under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007).

The Government of India announced NEIIPP, 2007 with effect from 01.04.2007, providing a package of fiscal and other concessions for industrial development in the North-Eastern Region. Under Clause (v) of the Policy, 100% excise duty exemption was to continue on finished products manufactured in the North-Eastern Region, as was available under the earlier NEIP, 1997.

To implement the policy, the Ministry of Finance issued Notification No. 20/2007-CE dated 25.04.2007, granting excise duty exemption to eligible units located in Assam, Tripura, Meghalaya, Mizoram, Manipur, Nagaland, Arunachal Pradesh and Sikkim, subject to the terms and conditions prescribed therein. The benefit applied to qualifying new industrial units commencing commercial production within the stipulated period and to eligible existing units undertaking substantial expansion.

The petitioners contended that, relying upon the incentives promised under NEIIPP, 2007 and Notification No. 20/2007-CE, they established or expanded industrial units and made substantial investments. In the case discussed in the judgment, the petitioner asserted that its eligibility for the exemption had also been recognised by the Central Excise authorities.

Subsequently, Notification No. 20/2008-CE dated 27.03.2008 amended Notification No. 20/2007-CE and restricted the excise duty refund by prescribing maximum limits for different categories of goods. Thereafter, Notification No. 38/2008-CE dated 10.06.2008, issued in exercise of powers under Section 5A(1) of the Central Excise Act, 1944, further amended the earlier exemption framework.

The judgment also noted the decision in Union of India vs V.V.F. Ltd., wherein the Supreme Court upheld the validity of limiting the area-based excise exemption to the value-addition component.

With effect from 01.07.2017, the GST regime was introduced. Central excise and several other indirect taxes were subsumed into GST. Thereafter, Notification No. 21/2017-CE dated 18.07.2017 dealt with the earlier area-based exemption notifications, including Notification No. 20/2007-CE.

The Government subsequently introduced the Scheme of Budgetary Support dated 05.10.2017 for eligible manufacturing units operating under earlier industrial promotion schemes in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North-Eastern Region including Sikkim, for their residual eligibility period.

Under the Scheme, budgetary support was broadly determined with reference to:

58% of the Central Tax paid through debit in the cash ledger after utilisation of eligible input tax credit; and

29% of the Integrated Tax paid through debit in the cash ledger after utilisation of eligible input tax credit.

The petitioners challenged the curtailment of the earlier fiscal benefit and asserted that the post-GST Budgetary Support Scheme did not preserve the full extent of the benefits allegedly promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

Issues Involved

The principal issues before the Gauhati High Court were:

  1. Whether eligible industrial units that had established or expanded their units relying upon NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007 were entitled to continuation of the promised fiscal benefits for the entire residual eligibility period after introduction of GST.
  2. Whether the Scheme of Budgetary Support dated 05.10.2017, by limiting support to specified portions of CGST and IGST paid through the cash ledger, unlawfully curtailed the benefits earlier available to the petitioners.
  3. Whether the Union Government was bound by the doctrine of promissory estoppel because the petitioners had allegedly altered their position and made substantial investments on the basis of governmental representations and incentives.
  4. Whether the petitioners had a legally enforceable right to claim 100% refund or equivalent reimbursement of CGST after implementation of the GST regime.
  5. Whether the repeal and saving provisions contained in Section 174(2)(c) of the CGST Act, 2017 preserved the earlier exemption or incentive as a continuing privilege.
  6. Whether a writ of mandamus could be issued compelling the Union Government to provide fiscal support equivalent to the earlier excise exemption.
  7. Whether, despite absence of an enforceable legal claim to 100% CGST refund, the petitioners possessed a legitimate expectation requiring due consideration by the competent Government authorities and the GST Council.

Petitioners’ Arguments

The petitioners argued that the Government of India had made a clear and unequivocal representation under NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007, on the basis of which industrial units were established or substantially expanded in the North-Eastern Region.

It was submitted that the petitioners had altered their position and made substantial investments relying upon the promised fiscal incentives. Therefore, the Government could not subsequently resile from its representation by reducing or curtailing the benefits through the post-GST Budgetary Support Scheme.

The petitioners contended that the Scheme dated 05.10.2017, by restricting support to 58% of Central Tax and 29% of Integrated Tax paid through the cash ledger after utilisation of input tax credit, substantially reduced the benefit which they claimed had been promised under the earlier industrial policy and exemption notification.

They invoked the doctrine of promissory estoppel, contending that the Government was bound to honour its assurance for the promised eligibility period because the industrial units had acted upon the representation and changed their economic position.

The petitioners further relied upon principles of legitimate expectation, asserting that industrial units which had invested substantial capital on the strength of a declared governmental policy could not arbitrarily be deprived of the promised benefit.

It was also argued that the constitutional structure of GST and the role of the GST Council under Article 279A of the Constitution of India could not justify arbitrary deprivation of vested or legitimately expected fiscal benefits.

The petitioners accordingly sought continuation or restoration of benefits corresponding to those available under NEIIPP, 2007 and Notification No. 20/2007-CE for the remaining period of eligibility.

Respondents’ Arguments

The respondents contended that withdrawal or modification of a fiscal exemption in public interest is fundamentally a matter of governmental and fiscal policy. Courts should not permanently bind the Government to an earlier policy where a subsequent change becomes necessary in public interest.

It was argued that the Government must remain free to determine priorities concerning utilisation of public finances and that courts ordinarily do not interfere with fiscal policy decisions where there is no established fraud, mala fide exercise of power or illegality.

The respondents further submitted that promissory estoppel cannot compel the Government to act contrary to law or statutory provisions. The doctrine cannot be invoked to enforce a promise that has become inconsistent with the governing statutory framework.

Specific reliance was placed upon Section 174(2)(c) of the CGST Act, 2017, with the contention that an earlier tax incentive or exemption did not automatically continue as a protected privilege after the statutory transition to GST.

The respondents maintained that there was no enforceable statutory obligation requiring the Union Government to refund 100% of CGST, and consequently no writ of mandamus could be issued compelling such refund.

Court Order / Findings

The Gauhati High Court found that the controversy stood squarely covered by the Supreme Court’s recent judgment in Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022, together with the connected matter involving Sun Pharma Laboratories Ltd.

The High Court noted the Supreme Court’s authoritative conclusion that there was no duty cast upon the Union Government to refund 100% of CGST. Consequently, the relief seeking compulsory continuation of an equivalent 100% refund could not be granted.

The Court recognised the settled principle that a writ of mandamus ordinarily requires an enforceable public or statutory duty. Where no legal duty exists requiring the Union Government to provide 100% CGST refund, the Court cannot compel such payment merely by issuing a writ.

Following the Supreme Court’s ruling, the Gauhati High Court held that nothing further was required to be independently decided because the issues raised in the batch of writ petitions were squarely covered by the decision in Hero Motocorp Ltd.

Accordingly, the writ petitions were dismissed/closed in terms of the Supreme Court judgment.

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 accordance with the findings and observations of the Supreme Court in Hero Motocorp Ltd.

The Court further ordered that there would be no order as to costs, and all pending interlocutory applications, if any, were disposed of accordingly.

Important Clarification

The judgment is significant because it draws a clear distinction between:

(a) an enforceable legal right to 100% CGST refund, and
(b) a legitimate expectation that the claim deserves due governmental consideration.

The Court did not hold that eligible industrial units had a legally enforceable right to automatic reimbursement of 100% CGST merely because they had earlier enjoyed area-based excise incentives.

At the same time, following the Supreme Court in Hero Motocorp Ltd. vs Union of India, the Court recognised that affected industrial units could possess a legitimate expectation that their claims should receive due consideration.

Therefore, the petitioners were permitted to approach the State Government and GST Council through representations, but such liberty did not amount to a judicial declaration granting automatic 100% tax reimbursement.

The judgment further clarifies that promissory estoppel cannot be used to compel the Government to act contrary to statute, and fiscal policy may be altered where overriding public interest and the applicable statutory framework so require.

Sections / Constitutional Provisions / Notifications Involved

  • Section 174(2)(c) of the Central Goods and Services Tax Act, 2017 – Repeal and saving provisions; effect on prior tax exemptions and privileges.
  • Section 49(1) of the Central Goods and Services Tax Act, 2017 – Payment through electronic cash ledger.
  • Section 20 of the Integrated Goods and Services Tax Act, 2017 – Application of provisions of the CGST Act to integrated tax.
  • Section 5A(1) of the Central Excise Act, 1944 – Power of Central Government to grant exemption from excise duty.
  • Article 226 of the Constitution of India – High Court’s writ jurisdiction.
  • Article 279A of the Constitution of India – Constitution and functions of the GST Council.
  • Article 270 of the Constitution of India – Distribution and devolution of taxes between Union and States.
  • Constitution (One Hundred and First Amendment) Act, 2016 – Constitutional foundation of the GST regime.
  • Notification No. 20/2007-CE dated 25.04.2007 – Area-based excise exemption for eligible North-Eastern industrial units.
  • Notification No. 20/2008-CE dated 27.03.2008 – Amendment restricting refund with reference to prescribed limits/value addition.
  • Notification No. 38/2008-CE dated 10.06.2008 – Further amendment to the area-based exemption framework.
  • Notification No. 21/2017-CE dated 18.07.2017 – Relevant post-GST treatment of area-based excise exemption notifications.
  • Scheme of Budgetary Support dated 05.10.2017 – Budgetary support for eligible units during the residual period.
  • NEIIPP, 2007 – North East Industrial and Investment Promotion Policy, 2007.

Link to download the order -https://mytaxexpert.co.in/uploads/1783404081_1294compressed.pdf

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