Facts of the Case

The matter arose from a batch of writ petitions filed by industrial units, including Star Cement Ltd. and other eligible manufacturing units operating in the North-Eastern Region. The petitioners had established or expanded their industrial units relying upon fiscal incentives announced by the Central Government under the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) and the corresponding Central Excise Notification No. 20/2007-CE dated 25.04.2007.

The petitioners contended that the policy framework promised substantial fiscal incentives, including excise duty exemption/refund benefits for eligible units for the prescribed eligibility period. Acting upon those incentives, the industrial units allegedly made substantial investments, established new units, or undertook substantial expansion.

With the introduction of the GST regime from 01.07.2017, the earlier indirect tax framework underwent a fundamental statutory change. Thereafter, Notification No. 21/2017-CE dated 18.07.2017 rescinded various area-based Central Excise exemption notifications, including Notification No. 20/2007-CE applicable to eligible industrial units in the North-Eastern States.

The Central Government subsequently introduced the Scheme of Budgetary Support under the GST Regime dated 05.10.2017 for eligible manufacturing units situated in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North-East including Sikkim. The Scheme provided support for the residual eligibility period but restricted reimbursement to the Central Government’s specified share of taxes paid in cash after utilisation of input tax credit. The judgment records the Scheme mechanism, inter alia, with reference to 58% of Central Tax and 29% of Integrated Tax paid through the cash ledger, subject to the Scheme conditions.

The petitioners challenged the Budgetary Support Scheme insofar as it allegedly curtailed the fiscal benefits earlier available under NEIIPP, 2007 and Notification No. 20/2007-CE. Their principal case was founded upon the doctrines of promissory estoppel and legitimate expectation.

Issues Involved

The principal questions before the Gauhati High Court were:

  1. Whether the Central Government was bound to continue the earlier level of fiscal incentive for the residual eligibility period despite the introduction of GST.
  2. Whether the Budgetary Support Scheme dated 05.10.2017 unlawfully curtailed the benefits allegedly promised under NEIIPP, 2007 and Notification No. 20/2007-CE.
  3. Whether the doctrine of promissory estoppel could compel the Government to preserve the earlier exemption benefits after a fundamental statutory change brought about by the GST regime.
  4. Whether the petitioners had a legally enforceable legitimate expectation of receiving full or equivalent reimbursement for the residual period.
  5. What was the effect of the proviso to Section 174(2)(c) of the CGST Act, 2017, particularly where an exemption notification granted as an investment incentive had been rescinded.
  6. Whether eligible units could demand 100% reimbursement of CGST/IGST or equivalent continuation of the earlier excise exemption.

Petitioners’ Arguments

The petitioners argued that the Government had made a clear and definite representation under NEIIPP, 2007 and Notification No. 20/2007-CE, inducing industries to establish units or undertake substantial expansion in the North-Eastern Region.

They submitted that substantial investments had been made by altering their economic position in reliance upon the promised incentives. Therefore, according to them, the Government was bound by the doctrine of promissory estoppel and could not subsequently reduce the benefit during the promised eligibility period.

It was further contended that the introduction of GST did not, by itself, extinguish the Government’s obligation arising from the Industrial Policy. According to the petitioners, NEIIPP, 2007 had not been withdrawn in a manner that destroyed the accrued or promised benefits of eligible units.

The petitioners challenged the Budgetary Support Scheme because, instead of preserving the complete economic benefit of the earlier exemption, it allegedly limited reimbursement to a specified proportion of the tax paid in cash. They argued that this materially curtailed the promised incentive.

They also invoked the doctrine of legitimate expectation, asserting that Government policy representations and corresponding exemption notifications created a reasonable expectation that eligible fiscal benefits would continue throughout the residual eligibility period.

Respondents’ Arguments

The respondents contended that withdrawal or restructuring of fiscal exemptions pursuant to a change in statutory and taxation policy could not be defeated by invoking promissory estoppel.

It was argued that the Government must remain free to modify fiscal policy in public interest, particularly when the entire indirect tax system had undergone a structural transformation with the introduction of GST.

The respondents specifically relied upon Section 174(2)(c) of the CGST Act, 2017 and its proviso. Their case was that a tax exemption granted as an investment incentive through a notification under the repealed enactment would not continue as a privilege where the relevant notification had been rescinded.

They further argued that:

  • there can be no promissory estoppel against legislation or statutory provisions;
  • a public authority cannot be compelled to act contrary to law;
  • the exemption notification had been rescinded;
  • the petitioners had not successfully displaced the statutory consequences flowing from Section 174(2)(c); and
  • fiscal policy decisions taken in public interest ordinarily warrant limited judicial interference.

Court’s Findings and Order

The Gauhati High Court placed decisive reliance upon 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, along with the connected matter concerning Sun Pharma Laboratories Ltd.

The High Court observed that the Supreme Court had authoritatively examined substantially similar claims relating to continuation of area-based exemption benefits after introduction of GST.

The Court noted the Supreme Court’s conclusion that the consistent legal position is that there can be no estoppel against the legislature in the exercise of legislative functions.

The High Court further recorded that the rescission of the earlier exemption notifications was connected with the statutory framework of the GST regime and the mandate reflected in Section 174(2)(c) of the CGST Act, 2017.

Accordingly, the Court found that the issues raised in the batch of writ petitions were squarely covered by the Supreme Court’s judgment in Hero Motocorp Ltd. vs Union of India.

Final Order

The writ petitions were dismissed and closed.

However, the High Court granted the petitioners liberty to submit representations before:

  • the respective 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 Ltd. vs Union of India, judgment dated 17.10.2022.

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

Important Clarification

This judgment does not hold that industrial units possess an enforceable legal right to 100% reimbursement of CGST or IGST merely because they had previously enjoyed Central Excise exemption benefits.

The crucial distinction recognised through the Supreme Court precedent is that:

  • a claim for continuation of the earlier exemption may fail as a matter of enforceable legal right;
  • promissory estoppel cannot override a statutory change or legislative mandate;
  • there is no estoppel against the legislature;
  • yet affected industrial units may possess a legitimate expectation that their claims deserve due consideration.

Therefore, although the petitioners were denied the substantive relief of complete continuation or reimbursement of the earlier exemption benefit, they were permitted to approach the competent State Government and the GST Council through appropriate representations.

Sections and Legal Provisions Involved

Section 174(2)(c), Central Goods and Services Tax Act, 2017 – Savings provision following repeal of earlier indirect tax enactments.

Proviso to Section 174(2)(c), CGST Act, 2017 – Particularly relevant to tax exemptions granted as investment incentives through notifications and the consequences where such notifications are rescinded.

Section 49(1), CGST Act, 2017 – Relevant in the Budgetary Support Scheme concerning tax payment through the electronic cash ledger after utilisation of eligible input tax credit.

Section 20, Integrated Goods and Services Tax Act, 2017 – Relevant to the application of CGST provisions in the IGST framework.

Section 5A(1), Central Excise Act, 1944 – Power concerning exemption notifications under the erstwhile Central Excise regime.

Article 14, Constitution of India – Invoked in the broader context of fairness, non-arbitrariness, legitimate expectation and State action.

Article 226, Constitution of India – Writ jurisdiction of the High Court.

Link to download the order -https://mytaxexpert.co.in/uploads/1783404977_1298compressed.pdf

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