Facts of the Case

The batch of writ petitions arose from the transition from the erstwhile Central Excise regime to the Goods and Services Tax regime and its impact upon industrial units established in the North Eastern Region on the basis of fiscal incentives announced by the Central Government.

The Government of India had introduced the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) with effect from 01.04.2007. Under the policy, a package of fiscal incentives and concessions was provided to eligible industrial units in the North Eastern Region. In relation to Central Excise Duty, the policy contemplated continuation 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. Broadly, the notification extended excise duty exemption benefits to eligible new industrial units commencing commercial production within the prescribed period and to qualifying existing units undertaking substantial expansion. The benefit was available for the stipulated period, subject to the terms and conditions of the notification.

The petitioners contended that, relying upon the governmental policy and fiscal assurances, they established new industrial units or undertook substantial expansion and made substantial investments. The lead petitioner, Star Cement Ltd., stated that it established its industrial unit for manufacture and production of cement and claimed eligibility for the promised incentives.

Subsequently, the fiscal arrangement underwent changes. Notification No. 20/2008-CE dated 27.03.2008 amended Notification No. 20/2007-CE and restricted the refund to specified maximum limits for different categories of goods.

Thereafter, upon implementation of GST with effect from 01.07.2017, the earlier indirect tax structure substantially changed. Notification No. 21/2017-CE dated 18.07.2017 rescinded various area-based exemption notifications, including the relevant Central Excise exemption framework.

The Central Government thereafter introduced the Scheme of Budgetary Support dated 05.10.2017 for eligible manufacturing units operating under specified industrial promotion schemes. The budgetary support was broadly limited 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, subject to the terms of the Scheme.

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

Issues Involved

The principal questions before the Gauhati High Court were:

  1. Whether industrial units that had acted upon the incentives promised under NEIIPP, 2007 and Notification No. 20/2007-CE could claim continuation of the equivalent of the earlier 100% excise duty exemption for the residual eligibility period after introduction of GST.
  2. Whether limiting the benefit under the Scheme of Budgetary Support to the prescribed percentage of CGST and IGST violated the doctrine of promissory estoppel.
  3. Whether the petitioners had acquired a vested or enforceable legal right to continuation of the earlier tax exemption despite the change in the statutory taxation regime.
  4. What was the legal effect of Section 174(2)(c) of the CGST Act, 2017, particularly where the earlier exemption notification had been rescinded.
  5. Whether the petitioners could invoke the doctrine of legitimate expectation to seek consideration of their claims.
  6. Whether a writ of mandamus could be issued directing the Union Government to provide full or 100% equivalent refund/support under the GST regime.

Petitioners’ Arguments

The petitioners argued that NEIIPP, 2007 and Notification No. 20/2007-CE contained a clear governmental promise of fiscal incentives, including the relevant excise duty exemption benefit for the prescribed period.

They submitted that, acting upon the promise, they had materially altered their position by establishing industrial units, undertaking substantial expansion and making huge capital investments. Therefore, according to them, the Government was bound by the doctrine of promissory estoppel and could not withdraw or substantially curtail the promised benefit during the eligibility period.

The petitioners further argued that the industrial policy itself had not been withdrawn and, therefore, the underlying governmental assurance continued to subsist. According to them, introduction of the Budgetary Support Scheme with a restricted reimbursement formula materially reduced the fiscal benefit that had induced their investments.

It was contended that the Budgetary Support Scheme, by restricting support broadly to 58% of the relevant Central Tax component and 29% of the relevant Integrated Tax component in the manner prescribed, failed to preserve the full exemption benefit promised under the earlier regime.

The petitioners also relied upon Section 174 of the CGST Act, 2017 and contended that their accrued rights and legitimate expectations arising from the earlier policy framework could not be arbitrarily defeated.

Their case was that the Government, having induced industrial investment in the North Eastern Region through a declared fiscal policy, could not resile from its representation after industries had acted to their detriment.

The petitioners accordingly sought continuation of the full fiscal benefit or equivalent support for the residual period of their original eligibility.

Respondents’ Arguments

The Union authorities opposed the writ petitions and argued that the introduction of GST fundamentally altered the indirect taxation structure. The earlier Central Excise Duty, State-level VAT and Service Tax framework was replaced by a new constitutional and statutory GST regime involving CGST, SGST and IGST.

The respondents relied substantially upon Section 174(2)(c) of the CGST Act, 2017 and argued that a tax exemption granted as an investment incentive through an earlier notification did not continue as a privilege where the relevant notification had been rescinded. According to them, the earlier exemption notification stood rescinded through Notification No. 21/2017-CE dated 18.07.2017.

It was argued that the earlier excise exemption was not an immutable vested right but a fiscal privilege or incentive subject to the statutory framework and applicable conditions.

The respondents further contended that there was no one-to-one correlation between the erstwhile Central Excise Duty and GST, since GST constituted a new taxation structure. Consequently, continuation of the earlier excise exemption in an identical form was neither legally automatic nor structurally feasible.

The Budgetary Support Scheme was defended as a policy measure introduced to mitigate hardship and continue support to eligible units. The respondents explained that, upon tax collection, a substantial portion of Central revenues was devolved to the States, and the Centre structured its support with reference to the portion retained by it.

They further submitted that:

  • promissory estoppel cannot operate against statutory provisions;
  • fiscal exemptions may be modified or withdrawn in public interest;
  • there can be no estoppel against legislation or a change in statutory regime;
  • the petitioners had not established any enforceable statutory duty requiring the Union Government to provide 100% refund of CGST;
  • policy choices concerning taxation and subsidies ordinarily fall within the executive domain unless shown to be arbitrary, unconstitutional or contrary to law; and
  • the Budgetary Support Scheme applied on common criteria and did not single out the petitioners for hostile treatment.

Court Order / Findings

The Gauhati High Court found that the controversy was squarely governed by the very recent judgment 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, along with the connected matter concerning Sun Pharma Laboratories Limited.

The High Court noted the Supreme Court’s authoritative determination that there was no duty cast upon the Union Government to refund 100% of CGST, and therefore the relief seeking such mandatory refund could not be granted.

The Court further recognised the governing principle that a writ of mandamus ordinarily requires an enforceable legal right and a corresponding public or statutory duty. In the absence of a legal duty requiring the Union to grant 100% refund of CGST, the petitioners could not secure such relief merely through a writ petition.

At the same time, the High Court took note of the Supreme Court’s finding that although the industrial units might not possess an enforceable claim in law, they could have a legitimate expectation that their claims deserved due consideration.

Accordingly, following the Supreme Court ruling, the Gauhati High Court held that nothing further was required to be independently decided in the writ proceedings because the controversy stood covered by the Supreme Court judgment.

Final Order

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

However, the petitioners were granted liberty to submit representations before the State Government and the GST Council, provided such representations were made in terms of the findings and observations of the Supreme Court in M/s Hero Motocorp Limited vs Union of India dated 17.10.2022.

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

Important Clarification

This judgment does not hold that every industrial unit enjoying an earlier area-based excise exemption automatically becomes entitled to 100% refund of CGST after the introduction of GST.

The central clarification is that the earlier excise exemption regime and the post-GST Budgetary Support Scheme operate within materially different statutory and fiscal frameworks. An industrial unit cannot claim an automatic one-to-one substitution of the former Central Excise exemption with a 100% CGST refund unless such entitlement is supported by law.

The Court also clarified, by applying the Supreme Court’s ruling, that legitimate expectation is distinct from an enforceable statutory right. The absence of a legal right to 100% CGST refund does not necessarily mean that the Government may ignore the representations of units that made investments on the basis of earlier industrial incentive policies. Their claims may deserve due and expeditious consideration in accordance with the Supreme Court’s observations.

The judgment is therefore important for distinguishing between:

(a) a legally enforceable right to tax refund; and
(b) a legitimate expectation that a claim arising from prior governmental incentives will receive fair consideration.

Sections and Legal Provisions Involved

Section 174(2)(c), CGST Act, 2017: Central to the dispute concerning the effect of repeal, rescission of earlier exemption notifications and continuation or non-continuation of tax incentives as privileges under the GST transition.

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

Section 20, IGST Act, 2017: Relevant in relation to the application of CGST provisions and the IGST component considered under the Budgetary Support Scheme.

Section 5A, Central Excise Act, 1944: Relevant to the statutory framework governing exemption notifications under the erstwhile Central Excise regime.

Article 226, Constitution of India: Relevant to the petitioners’ request for writ relief and the principles governing issuance of a writ of mandamus.

Article 14, Constitution of India: Relevant to the challenge alleging arbitrariness and unequal or unreasonable governmental action.

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