Facts of the Case

The batch of writ petitions was filed by industrial units operating in the North Eastern Region, including Star Cement Ltd. and other eligible manufacturing units. The petitioners had established new industrial units or undertaken substantial expansion of existing 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, providing excise duty exemption benefits to eligible units subject to the prescribed conditions.

After the introduction of the GST regime with effect from 01.07.2017, the earlier indirect tax structure underwent substantial change. The Government thereafter introduced the Scheme of Budgetary Support through Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017 for eligible manufacturing units situated in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North Eastern States including Sikkim.

The Budgetary Support Scheme provided support for the residual eligibility period but restricted reimbursement 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 insofar as it allegedly curtailed the fiscal benefit earlier promised under NEIIPP, 2007 and Notification No. 20/2007-CE.

Issues Involved

The principal issues before the Gauhati High Court were whether the Budgetary Support Scheme dated 05.10.2017 unlawfully curtailed the benefits promised to eligible industrial units under NEIIPP, 2007 and Notification No. 20/2007-CE; whether the Government was bound by the doctrines of promissory estoppel and legitimate expectation; whether eligible units could claim continuation of the economic equivalent of the earlier excise duty exemption after implementation of GST; and what effect Section 174(2)(c) of the CGST Act, 2017, including its proviso, had on exemptions granted under the repealed tax regime.

The Court also considered whether the petitioners could obtain a writ of mandamus compelling continuation or restoration of the full benefit allegedly promised under the earlier industrial policy.

Petitioners’ Arguments

The petitioners contended that the Government of India had made a clear and unequivocal promise under NEIIPP, 2007 to continue 100% excise duty exemption for eligible industrial units for the prescribed period. Acting upon that representation, the petitioners had allegedly altered their position and made substantial investments, established industrial units or undertaken substantial expansion.

It was argued that the Budgetary Support Scheme dated 05.10.2017 substantially reduced the fiscal benefits available to the units and therefore defeated the promise forming the basis of their investments.

The petitioners relied upon the doctrine of promissory estoppel, contending that the Government could not withdraw or materially curtail the promised benefit after industrial units had acted upon the representation to their detriment.

They further invoked the doctrine of legitimate expectation, asserting that eligible units had a reasonable expectation that the fiscal incentives promised for the stipulated period would continue notwithstanding the transition to GST.

The petitioners also relied upon Section 174 of the CGST Act, 2017 and argued that the transition to the GST regime could not be used to defeat accrued or promised benefits under NEIIPP, 2007 and Notification No. 20/2007-CE.

Accordingly, they sought continuation of the full benefit promised under the earlier industrial incentive framework and challenged the Budgetary Support Scheme to the extent it curtailed such benefit.

Respondents’ Arguments

The Union of India and GST authorities contended that the earlier area-based Central Excise exemptions did not constitute an immutable vested right. According to the respondents, such exemptions were fiscal incentives or privileges subject to statutory conditions and changes in law and policy.

It was argued that after the constitutional and statutory transition to GST, the earlier Central Excise regime fundamentally changed and there was no one-to-one correlation between the erstwhile excise duty and GST levies.

The respondents submitted that the Budgetary Support Scheme was not an exemption from GST but a separate policy measure introduced to provide support to eligible units for the residual period.

They further contended that:

  • there can be no promissory estoppel against legislation or statutory provisions;
  • fiscal policy may be changed in public interest;
  • the petitioners had not successfully challenged the statutory basis governing discontinuance of the earlier exemption;
  • Section 174(2)(c) of the CGST Act expressly dealt with the effect of repeal and rescission of exemption notifications;
  • the Budgetary Support Scheme applied uniformly to similarly situated eligible industrial units; and
  • no violation of Article 14 of the Constitution was established.

The respondents also relied upon judicial precedents holding that exemption notifications may be modified or withdrawn in public interest and that courts ordinarily exercise restraint in interfering with economic and fiscal policy.

Court Order / Findings

The Gauhati High Court placed decisive reliance on the very 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.

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

The Court noted that although the Supreme Court had dismissed the appeals of Hero Motocorp Ltd. and Sun Pharma Laboratories Ltd., it had recognised that the appellants, though not possessing an enforceable claim in law for the relief sought, had a legitimate expectation that their claims deserved due consideration.

Following that binding precedent, the Gauhati High Court held that nothing further remained to be independently decided in the present proceedings.

Accordingly:

  • The writ petitions were dismissed and closed.
  • The petitioners were granted liberty to submit representations before the respective State Government and the GST Council.
  • Such representations were required to be in terms of the findings and observations of the Supreme Court in Hero Motocorp Ltd. vs Union of India.
  • No order as to costs was passed.
  • Pending interlocutory applications, if any, were also disposed of.

Important Clarification

The judgment does not hold that eligible industrial units possess an automatic or legally enforceable right to receive 100% reimbursement of CGST or the precise fiscal equivalent of the former Central Excise exemption after introduction of GST.

The crucial distinction recognised through the binding Supreme Court precedent is between:

  1. an enforceable legal right to compel continuation of the earlier tax exemption structure; and
  2. a legitimate expectation that the Government, State authorities and GST Council should duly consider representations concerning the adverse impact of the transition from the earlier incentive regime to GST.

Therefore, while the writ petitions seeking substantive continuation of the full earlier benefit were dismissed, the petitioners retained liberty to pursue their claims through representations before the competent governmental authorities and the GST Council.

Sections and Legal Provisions Involved

Section 174(2)(c), CGST Act, 2017: Concerns the effect of repeal on rights, privileges, obligations and liabilities under repealed enactments, subject to the statutory proviso concerning tax exemptions granted as incentives against investment.

Section 49(1), CGST Act, 2017: Relevant to payment of tax through the electronic cash ledger and the mechanism considered under the Budgetary Support Scheme.

Section 20, IGST Act, 2017: Relevant to the application of CGST provisions in the context of integrated tax and the computation mechanism under the Budgetary Support Scheme.

Section 5A, Central Excise Act, 1944: Statutory provision concerning exemption from excise duty under which the earlier area-based exemption framework operated.

Article 14, Constitution of India: Invoked in relation to allegations of arbitrariness and unequal treatment.

Article 226, Constitution of India: Source of the High Court’s writ jurisdiction and the petitioners’ claim for appropriate constitutional relief, including mandamus.

Link to download the order -https://mytaxexpert.co.in/uploads/1783404300_1295compressed.pdf

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