Facts of the Case

The petitioners were industrial units operating in Assam and other parts of the North Eastern Region. They were engaged in diverse manufacturing activities, including cement, clinker, calcined petroleum coke, plywood, steel products, plastic products, electronic energy meters, packaged drinking water and other manufactured goods.

The lead petitioner, Star Cement Ltd., was engaged in the manufacture and sale of cement and had an industrial factory in Assam. The connected petitioners similarly claimed eligibility under the industrial incentive framework applicable to the North Eastern Region.

The petitioners relied upon NEIIPP, 2007, under which fiscal incentives had been announced to encourage industrial investment in the North Eastern States. Pursuant to the industrial policy, Notification No. 20/2007-CE dated 25.04.2007 provided area-based Central Excise benefits to qualifying industrial units.

According to the petitioners, acting upon the Government’s policy representations and fiscal assurances, they made substantial investments, established new units or undertook substantial expansion of existing industrial units.

After the Constitution (One Hundred and First Amendment) Act, 2016, the GST regime came into operation from 01.07.2017. The CGST Act, 2017, IGST Act, 2017, and corresponding State GST enactments replaced the earlier indirect-tax structure.

Thereafter, through Notification No. 21/2017-CE dated 18.07.2017, area-based exemption notifications, including Notification No. 20/2007-CE, were rescinded. The judgment records the statutory consequence of the proviso to Section 174(2)(c) of the CGST Act, 2017 in this context.

Subsequently, the Central Government introduced the Scheme of Budgetary Support dated 05.10.2017 for eligible manufacturing units in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and the North Eastern States including Sikkim, for their residual eligibility period.

Under the Scheme, budgetary support was linked to the Central Government’s retained share of GST. The petitioners highlighted that the computation was restricted, inter alia, to 58% of Central tax paid through the cash ledger and 29% of Integrated tax paid through the cash ledger, after utilisation of eligible input tax credit. According to them, this was substantially less than the fiscal benefit promised under the earlier industrial incentive and excise framework.

Issues Involved

  1. Whether the petitioners had acquired enforceable rights or legitimate expectations on the basis of NEIIPP, 2007 and Notification No. 20/2007-CE dated 25.04.2007.
  2. Whether the Central Government could curtail the promised fiscal incentives before expiry of the residual eligibility period merely because GST had replaced the earlier indirect-tax regime.
  3. Whether the Scheme of Budgetary Support dated 05.10.2017, by providing only partial reimbursement linked to the Central Government’s retained GST share, violated the doctrine of promissory estoppel.
  4. Whether industrial units that had made substantial investments relying on Government representations could invoke the doctrine of substantive legitimate expectation under Article 14 of the Constitution.
  5. Whether Section 174(2)(c) of the CGST Act, 2017, particularly its proviso concerning tax exemptions granted as incentives against investment, defeated the petitioners’ claims after rescission of the exemption notification.
  6. Whether promissory estoppel could be invoked when the relevant exemption notification had been statutorily rescinded and the validity of the rescission or the relevant statutory provision had not been successfully displaced.
  7. Whether the Budgetary Support Scheme represented continuation of the earlier excise exemption or constituted a distinct post-GST fiscal support mechanism.

Petitioner’s Arguments

The petitioners contended that the Government had made a clear and solemn representation through NEIIPP, 2007 and the corresponding Central Excise notification that eligible industrial units would receive fiscal incentives for the stipulated eligibility period.

They argued that, relying upon these assurances, they had materially altered their position by making substantial capital investments, establishing industrial units and undertaking substantial expansion. Consequently, the Government was bound by the doctrine of promissory estoppel and could not withdraw or materially reduce the promised benefits before expiry of the committed period.

The petitioners submitted that the introduction of GST did not extinguish the underlying promise contained in the industrial policy. According to them, the Government could redesign the mechanism for granting the benefit, but could not reduce the substantive quantum of the promised incentive.

They specifically challenged the limited formula under the Budgetary Support Scheme, arguing that reimbursement confined to the prescribed portion of tax paid through the cash ledger substantially curtailed the earlier benefit.

The petitioners further argued that the Scheme dated 05.10.2017 itself demonstrated governmental recognition of continuing obligations toward eligible industrial units for the residual period. Therefore, once budgetary support was introduced to address the transition from the earlier regime, it ought to preserve the full substantive benefit promised under NEIIPP, 2007.

They relied heavily upon the doctrine of legitimate expectation, contending that the Government’s express policy representations created a substantive expectation that the promised incentives would continue for the stipulated period. The petitioners linked this doctrine with the constitutional guarantee against arbitrariness under Article 14.

They also referred to discussions in GST Council meetings and argued that the Government itself was conscious that premature withdrawal of time-bound concessions could attract challenges based on promissory estoppel. According to them, no sufficient supervening public interest had been demonstrated to justify curtailment of the promised benefits.

The petitioners further contended that rights and privileges acquired on the basis of NEIIPP, 2007 could not simply be taken away because the earlier notification issued under Section 5A of the Central Excise Act, 1944 had been rescinded following GST implementation.

Respondent’s Arguments

The Union of India and GST authorities opposed the petitions and argued that the earlier area-based Central Excise exemption did not create an immutable vested right. It was a fiscal privilege or incentive subject to statutory conditions and to the governing legal framework.

The respondents submitted that after migration to GST, the existing area-based Central Excise exemptions became infructuous because GST was a fundamentally different tax regime with no exact one-to-one correlation with the erstwhile Central Excise duty.

They argued that the Budgetary Support Scheme was introduced to mitigate hardship faced by units that had been availing the earlier benefits, but the Scheme was a separate policy measure and not a continuation of the earlier Central Excise exemption in identical form.

The respondents further submitted that exemption notifications are inherently capable of modification, withdrawal or rescission in public interest. Fiscal policy decisions are ordinarily entitled to judicial deference where no fraud, mala fides or lack of bona fides is established.

They relied upon the principle that promissory estoppel cannot compel the Government to act contrary to statute. According to them, Section 174(2)(c) of the CGST Act, 2017 expressly addressed the continuation of privileges arising from tax exemptions granted as investment incentives when the relevant notification stood rescinded.

The respondents stressed that, absent a sustainable challenge to the rescission notification or to the vires of the relevant proviso to Section 174(2)(c), the petitioners could not use promissory estoppel to revive an exemption that had ceased under the statutory framework.

They relied particularly upon the reasoning in Hero Motocorp Ltd. vs Union of India and Union of India vs V.V.F. Ltd., among other authorities dealing with fiscal incentives, public interest and promissory estoppel.

Court Order / Findings

The Gauhati High Court examined the controversy in the context of the transition from the Central Excise regime to GST, the statutory effect of Section 174(2)(c) of the CGST Act, 2017, the rescission of the earlier exemption notification and the principles governing promissory estoppel and legitimate expectation.

A central legal consideration emerging from the judgment was that promissory estoppel cannot be enforced to compel action contrary to an express statutory provision. The statutory language of Section 174(2)(c), together with the rescission of the earlier notification, was therefore crucial to the adjudication.

The Court considered the reasoning that where an exemption notification granting investment-linked incentives has been rescinded, the earlier privilege cannot automatically be treated as continuing notwithstanding the statutory framework. It also considered that the petitioners had not displaced the statutory foundation by successfully challenging the relevant rescission or the governing proviso to Section 174(2)(c).

The judgment further examined the distinction between the erstwhile Central Excise exemption mechanism and the post-GST Budgetary Support Scheme. The latter was structured with reference to the GST framework and the Central Government’s share of CGST/IGST after constitutional devolution, rather than as a simple replication of the earlier excise refund arrangement.

Accordingly, the petitioners’ demand for continuation of the earlier full excise-equivalent benefit could not be sustained merely by invoking promissory estoppel or legitimate expectation against the post-GST statutory and policy structure.

Important Clarifications

1. Promissory Estoppel Cannot Override Express Statutory Provisions

The case is significant for the proposition that equitable doctrines cannot compel the Government to act contrary to an express legislative provision. The effect of Section 174(2)(c) of the CGST Act, 2017 was therefore central.

2. GST Budgetary Support Is Not Automatically Identical to Earlier Excise Exemption

The transition from Central Excise to GST changed the tax structure. The Budgetary Support Scheme was linked to post-GST collections and the Central Government’s retained tax share; it was not necessarily a rupee-for-rupee continuation of the previous excise exemption mechanism.

3. Rescission of Notification No. 20/2007-CE Was Legally Material

The rescission of the earlier area-based exemption notification through Notification No. 21/2017-CE dated 18.07.2017 materially affected the petitioners’ claim to continuation of the earlier privilege.

4. Legitimate Expectation Is Broader Than Promissory Estoppel but Is Not Absolute

The judgment discussed the doctrine of legitimate expectation as an aspect of fairness and non-arbitrariness in State action. However, such expectation must be examined against statutory provisions, the precise representation made, the governing policy framework and any overriding public interest.

5. Fiscal Incentive Claims Must Be Tested Against the Governing Statute

An industrial policy representation, exemption notification and subsequent tax reform cannot be considered in isolation. The statutory transition provisions enacted by Parliament remain legally significant.

Sections / Constitutional Provisions / Notifications Involved

  • Section 174(2)(c), Central Goods and Services Tax Act, 2017
  • Proviso to Section 174(2)(c), CGST Act, 2017
  • Section 49(1), CGST Act, 2017
  • Section 20, Integrated Goods and Services Tax Act, 2017
  • Section 5A, Central Excise Act, 1944
  • Article 14, Constitution of India
  • Article 270, Constitution of India
  • Constitution (One Hundred and First Amendment) Act, 2016
  • NEIIPP, 2007 – North East Industrial and Investment Promotion Policy
  • Notification No. 20/2007-CE dated 25.04.2007
  • Notification No. 21/2017-CE dated 18.07.2017
  • Scheme of Budgetary Support under GST Regime dated 05.10.2017

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783333492_1272compressed.pdf

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