Facts of the Case

Two connected writ petitions were decided together — W.P.(C) No. 20 of 2022 filed by Zydus Wellness Products Limited and W.P.(C) No. 27 of 2022 filed by Alkem Laboratories Limited — both against the Union of India and connected GST/DPIIT authorities. Before the GST regime, manufacturing units in Sikkim enjoyed an area-based Central Excise exemption under Notification No. 20/2007-CE, refunding excise duty equivalent to the value addition in manufacture, for a residual period of up to ten years from commencement of commercial production. When GST replaced Central Excise in 2017, this exemption could no longer continue in its original form, so the Government of India introduced a 'Budgetary Support Scheme' to compensate eligible units for the tax that would otherwise have been exempt, for the remaining eligible period. The petitioners were successor companies — Zydus Wellness Products Limited (formerly Zydus Nutritions Limited, registered under GST on 26.03.2019) and Alkem Laboratories Limited (registered on 03.10.2019) — who had taken over manufacturing units originally operated by Zydus Wellness-Sikkim (a partnership) and Cachet Pharmaceuticals Private Limited respectively, the entities that had originally availed the Notification No. 20/2007-CE exemption. The petitioners sought budgetary support for the residual period, which the authorities declined.

Issues Involved

  1. Whether the petitioner companies, as legally distinct successor entities to the original exemption-holders, qualified as 'eligible units' entitled to budgetary support under the post-GST Budgetary Support Scheme.
  2. How the definitions of 'manufacturer' and 'person' under the CGST Act, 2017 (Sections 2(72) and 2(84)) bear on eligibility for a scheme tied to the identity of the original exemption-holder.

Petitioner's Arguments

  • The petitioners were operating the same manufacturing units that had previously enjoyed the Notification No. 20/2007-CE exemption, and should be treated as entitled to the budgetary support for whatever residual period remained, regardless of the change in corporate ownership.
  • The Budgetary Support Scheme was intended to compensate for the value addition undertaken at the unit, which continued uninterrupted despite the change in the entity operating it.

Respondent's Arguments

  • The Budgetary Support Scheme, read with the definition of 'eligible unit' and the requirement that the 'manufacturer' apply for the benefit, was tied to the specific 'person' (as defined in Section 2(84) CGST Act) who had originally availed the Notification No. 20/2007-CE exemption.
  • Since Zydus Nutritions Limited/Zydus Wellness Products Limited and Alkem Laboratories Limited were separately registered under GST only in 2019, after acquiring the units, they were distinct legal persons from Zydus Wellness-Sikkim (partnership) and Cachet Pharmaceuticals Private Limited, and could not claim the residual-period benefit meant for the original eligible units.

Court Order / Findings

  • The Court undertook a detailed reading of the Budgetary Support Scheme together with Sections 2(72) (definition of 'manufacture'), 2(84) (definition of 'person') and Section 22 (registration) of the CGST Act, 2017, to hold that the scheme's benefit was linked to the specific 'person'/manufacturer who had originally been eligible under Notification No. 20/2007-CE.
  • Since the petitioners were separate and distinct legal entities, registered under GST only after acquiring the units (in 2019), they did not exist as 'persons' at the time the original exemption was availed and could not be treated as 'eligible units' under the Scheme.
  • The Court held the Budgetary Support Scheme was a measure of goodwill for existing manufacturing units that had not fully enjoyed the exemption's original term, and not a right that transferred automatically to any new owner of the same physical unit.
  • Both writ petitions were dismissed. However, the authorities were directed to dispose of Alkem Laboratories Limited's pending claim applications and any other pending applications in terms of the judgment.

Important Clarification

This decision is primarily about the GST-transition Budgetary Support Scheme and continuity of a pre-GST Central Excise exemption — the underlying legal question decided is essentially one of Central Excise/exemption-scheme eligibility, even though the Court had to interpret CGST Act definitions ('person', 'manufacturer') to resolve it. The key practical lesson for businesses that acquire units previously enjoying area-based exemptions is that scheme eligibility built around the identity of the original exemption-holder does not automatically transfer to a new corporate owner merely because the same physical unit and manufacturing activity continue — a fresh GST registration by an acquiring entity can, by itself, disqualify it from a benefit tied to the predecessor's registration.

Sections Involved

  • Notification No. 20/2007-CE dated 25.04.2007 — area-based Central Excise exemption for units in Sikkim (Central Excise Act, 1944).
  • Budgetary Support Scheme (Central Government, post-GST) — compensatory scheme for residual exemption period after GST replaced Central Excise.
  • Section 2(72), Central Goods and Services Tax Act, 2017 — definition of 'manufacture'.
  • Section 2(84), Central Goods and Services Tax Act, 2017 — definition of 'person'.
  • Section 22, Central Goods and Services Tax Act, 2017 — persons liable for registration.
  • Article 270, Constitution of India — devolution of central tax/integrated tax to States, relevant to the scope of the Budgetary Support Scheme.

Decision – In Favour of

Decided in favour of the respondents (Union of India and connected authorities) — both writ petitions were dismissed; the petitioner companies were held not entitled to budgetary support as they were not the 'eligible units' under the scheme.

Case Details

  • Court: High Court of Sikkim, Gangtok
  • Case Nos.: W.P.(C) No. 20 of 2022 (Zydus Wellness Products Ltd.) with W.P.(C) No. 27 of 2022 (Alkem Laboratories Ltd.)
  • Neutral Citation: 2023:SHC:144
  • Coram: Hon'ble Mr. Justice Bhaskar Raj Pradhan
  • Date of Judgment: 12 September 2023

Link to Download the Order

Click here to view/download the full order

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.