Facts of the Case

The Government of India introduced the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007) with the objective of encouraging industrial development in the North-Eastern Region. Under the policy, various fiscal incentives and tax-related benefits were extended to eligible industrial units that established or expanded their manufacturing facilities in the region.

The petitioners, including Star Cement Ltd. and several other industrial units, established their industries and factories in response to the incentives offered by the Government under NEIIPP, 2007. The Court recorded that there was no dispute regarding the eligibility of the industrial units before it and that the petitioners had been receiving incentives in accordance with the applicable parameters of the policy.

Initially, the exemption benefit was available to the extent of 100%, though subsequently it came to be restricted to the extent of value addition made by the concerned industries. The issue relating to such reduction had earlier been considered in litigation culminating in the Supreme Court decision in Union of India & Anr. vs V.V.F. Limited & Anr., reported in AIR 2020 SC 2954.

With the introduction of the GST regime following the Constitution (One Hundred and First Amendment) Act, 2016, the earlier Central Excise Duty structure underwent a fundamental statutory transformation and Central Excise Duty, to the relevant extent, was subsumed into GST. The area-based exemption framework under which the petitioners had earlier enjoyed fiscal benefits ceased to operate in its previous form.

The petitioners contended that their eligibility under NEIIPP, 2007 and the investments made by them on the strength of governmental assurances entitled them to continuation of the promised fiscal benefits for the residual period. They challenged the denial of full benefits and relied substantially upon the doctrine of promissory estoppel.

The controversy also arose in the context of the Government’s Budgetary Support Scheme, under which eligible units were granted partial reimbursement linked to the Central Government’s share of CGST and/or IGST rather than continuation of the earlier 100% excise exemption structure.

Issues Involved

The principal issues before the High Court were:

  1. Whether eligible industrial units that had invested and established industries under NEIIPP, 2007 could claim continuation of the earlier tax exemption benefits after the introduction of GST.
  2. Whether the Union of India was bound by the doctrine of promissory estoppel to continue the fiscal incentives originally offered under NEIIPP, 2007 for the residual eligibility period.
  3. Whether the petitioners could demand 100% reimbursement/refund of CGST or equivalent fiscal benefit after the earlier exemption notifications stood rescinded under the changed GST regime.
  4. Whether Section 174(2)(c) of the CGST Act, 2017, particularly the statutory treatment of rescinded tax exemption notifications granted as investment incentives, defeated the petitioners’ claim for automatic continuation of such exemptions.
  5. Whether the introduction of GST and the corresponding change in the statutory tax regime constituted a valid basis for discontinuance of the earlier exemption mechanism.
  6. Whether a writ of mandamus could be issued directing the Union of India to provide full reimbursement where no specific statutory duty existed to refund 100% of CGST.
  7. Whether, notwithstanding the absence of an enforceable legal claim, the petitioners had a legitimate expectation that their representations should receive due consideration.

Petitioners’ Arguments

The petitioners argued that the Government of India had made a clear representation through NEIIPP, 2007 by offering substantial fiscal incentives to industries willing to establish manufacturing units in the North-Eastern Region.

Acting upon such governmental representations, the petitioners altered their position and made substantial financial investments in setting up factories, establishing infrastructure, employing personnel and carrying on manufacturing operations.

According to the petitioners, the Government could not withdraw or substantially reduce the promised benefits midway after industries had already acted to their detriment on the basis of the policy assurances.

The petitioners strongly invoked the doctrine of promissory estoppel, contending that:

  • they had relied upon the Government’s promise;
  • they had made substantial and irreversible investments;
  • eligibility certificates had been issued to eligible industrial units;
  • benefits under NEIIPP, 2007 had already been availed;
  • withdrawal of the promised benefits during the subsisting incentive period caused serious financial prejudice; and
  • the Government should be compelled to honour the promised fiscal incentives for the residual eligibility period.

The petitioners further contended that the Budgetary Support Scheme introduced after GST did not provide benefits equivalent to those originally promised under the earlier exemption framework and therefore could not fully satisfy the Government’s prior commitment.

Respondents’ Arguments

The respondents opposed the writ petitions and maintained that the introduction of GST represented a fundamental change in the constitutional and statutory indirect tax regime.

It was argued that the earlier area-based exemption notifications could not automatically continue after the statutory restructuring brought about by GST.

The respondents relied upon the legal principle that there can be no estoppel against the legislature in the exercise of legislative functions. The doctrine of promissory estoppel could not be invoked to compel the Government to act contrary to an express statutory framework.

Particular reliance was placed upon Section 174(2)(c) of the CGST Act, 2017, under which the consequences of repeal and rescission of earlier notifications were statutorily addressed.

The respondents also relied upon the judicial treatment of a materially similar controversy in Hero Motocorp Ltd. vs Union of India, where the demand for complete reimbursement equivalent to the earlier excise exemption had not been accepted.

It was further contended that no statutory duty was cast upon the Union of India to refund 100% of CGST, and therefore a writ of mandamus directing such reimbursement could not be issued.

Court Order / Findings

The Gauhati High Court examined the claims in the background of the Supreme Court’s very recent judgment dated 17 October 2022 in Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, along with the connected matter concerning Sun Pharma Laboratories Ltd.

The High Court found that the authoritative findings of the Supreme Court in the said matter squarely covered the issues raised in the present writ petitions.

The Court noted the following key legal conclusions:

  • There can be no estoppel against the legislature in the exercise of legislative functions.
  • The withdrawal of the earlier exemption framework pursuant to the changed GST statutory regime could not be defeated merely by invoking promissory estoppel.
  • The rescission of exemption notifications had statutory backing under the CGST framework.
  • Accepting a claim for automatic continuation of the earlier exemptions would run contrary to the statutory scheme concerning rescinded investment-linked tax exemption notifications.
  • A change in policy made in public interest, particularly in the context of a fundamental statutory transition to GST, could prevent enforcement of the earlier representation through promissory estoppel.
  • There was no statutory duty upon the Union of India to refund 100% of CGST.
  • In the absence of such statutory duty, a writ of mandamus directing full reimbursement could not be issued.

Accordingly, following the Supreme Court ruling in Hero Motocorp Ltd. vs Union of India, the Gauhati High Court dismissed the writ petitions.

However, the Court granted the petitioners 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 the Hero Motocorp judgment.

The writ petitions were therefore closed in those terms, with no order as to costs. Pending interlocutory applications, if any, were also disposed of.

Important Clarification

The judgment makes an important distinction between an enforceable legal right to continuation of tax exemption and a legitimate expectation that a claim deserves consideration.

The petitioners were not held entitled, as a matter of law, to automatic continuation of the earlier 100% fiscal benefit or to 100% reimbursement of CGST merely because investments had been made under NEIIPP, 2007.

At the same time, following the Supreme Court’s approach in Hero Motocorp, the Court recognised that industrial units may possess a legitimate expectation that their claims deserve due consideration.

Therefore, although the substantive writ relief was denied and the petitions were dismissed, the petitioners were granted liberty to approach:

  • the concerned State Government; and
  • the GST Council

through appropriate representations consistent with the Supreme Court’s findings.

This clarification is significant because the judgment does not hold that the petitioners’ economic grievances are irrelevant. Rather, it holds that such grievances do not translate into an enforceable legal right to 100% CGST reimbursement contrary to the changed statutory regime.

Sections / Legal Provisions Involved

Section 174(2)(c) of the Central Goods and Services Tax Act, 2017 – Considered in relation to the effect of repeal/rescission under the GST transition and the legal status of earlier tax exemption notifications, including investment-linked incentives.

Proviso to Section 174(2)(c) of the CGST Act, 2017 – Material to the finding that a tax exemption granted as an incentive against investment does not automatically continue as a privilege where the relevant notification has been rescinded.

Article 226 of the Constitution of India – Jurisdiction invoked by the petitioners for writ relief, including directions in the nature of mandamus.

Article 14 of the Constitution of India – Considered in the broader judicial discussion concerning arbitrariness, fairness in State action and legitimate expectation.

Constitution (One Hundred and First Amendment) Act, 2016 – Relevant to the constitutional introduction and restructuring of the indirect tax system under GST.

Link to download the order -https://mytaxexpert.co.in/uploads/1783405112_1299compressed.pdf

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