Facts of the Case

The petitioners were industrial units operating in the North Eastern Region and engaged in diverse manufacturing activities, including cement, clinker, calcined petroleum coke, plywood, steel products, electrical products, plastics and other goods. Several units had established new industrial units or undertaken substantial expansion on the basis of the North East Industrial and Investment Promotion Policy, 2007 (NEIIPP, 2007).

Under NEIIPP, 2007, eligible industrial units were promised fiscal incentives for a specified period. Pursuant to the policy, the Central Government issued Notification No. 20/2007-CE dated 25.04.2007, providing Central Excise duty exemption through a refund mechanism to eligible units.

According to the petitioners, acting upon these governmental representations and incentives, they made substantial and irreversible investments in the North Eastern Region and became entitled to the promised benefits for the stipulated eligibility period.

With the introduction of the GST regime from 01.07.2017, the earlier indirect tax structure underwent a fundamental statutory change. Area-based Central Excise exemption notifications were rescinded, and the Central Government subsequently introduced the Scheme of Budgetary Support dated 05.10.2017 for eligible units during their residual eligibility period.

The Scheme, however, did not provide reimbursement equivalent to the entire earlier Central Excise exemption. Budgetary support was limited broadly to the sum of:

  • 58% of Central Tax (CGST) paid through debit in the cash ledger after utilisation of eligible input tax credit; and
  • 29% of Integrated Tax (IGST) paid through debit in the cash ledger after utilisation of eligible input tax credit.

The petitioners contended that this arrangement substantially curtailed the fiscal incentives originally promised under NEIIPP, 2007 and Notification No. 20/2007-CE. The judgment records this challenge and the petitioners’ case that the Budgetary Support Scheme reduced the earlier promised benefit.

Issues Involved

The principal issues before the Gauhati High Court were:

  1. Whether eligible industrial units that had acted upon NEIIPP, 2007 and Notification No. 20/2007-CE could insist upon continuation of the full fiscal benefit for the entire promised eligibility period notwithstanding introduction of GST.
  2. Whether the Union of India was bound by the doctrine of promissory estoppel from reducing or altering the quantum of incentives after industrial units had made substantial investments relying upon the Government’s representations.
  3. Whether the Scheme of Budgetary Support dated 05.10.2017, insofar as it provided only partial reimbursement linked to CGST and IGST paid in cash, unlawfully curtailed the benefits promised under NEIIPP, 2007.
  4. Whether the rescission of the earlier area-based exemption notifications under the new GST statutory regime could be challenged on the ground of legitimate expectation.
  5. Whether a writ of mandamus could be issued directing the Union of India to provide 100% reimbursement of CGST/IGST for the residual eligibility period.
  6. What effect Section 174(2)(c) of the CGST Act, 2017 and its proviso had upon the continuation of tax exemptions granted as investment incentives under rescinded notifications.

Petitioners’ Arguments

The petitioners argued that NEIIPP, 2007 constituted a clear and unequivocal governmental promise intended to attract industrial investment into the North Eastern Region. In reliance upon this policy and Notification No. 20/2007-CE, the industrial units altered their position by making substantial capital investments and undertaking expansion.

They contended that once the Government induced industrial units to invest on the assurance of fiscal incentives for a fixed period, the Government could not resile from that promise before expiry of the promised period.

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

  • substantial investments had been made relying upon the Government’s promise;
  • the eligibility period had not expired;
  • the introduction of GST did not justify reducing the substantive value of the promised incentive;
  • NEIIPP, 2007 itself had not been withdrawn;
  • the Scheme of Budgetary Support did not preserve the full economic benefit earlier available; and
  • there was no demonstrated supervening public interest sufficient to justify curtailment of the promised benefits.

The petitioners further relied upon discussions in meetings of the GST Council to contend that the Government itself was conscious that premature withdrawal of time-bound area-based incentives could lead to challenges based upon promissory estoppel.

They argued that the Budgetary Support Scheme, by restricting support to 58% of CGST and 29% of IGST paid through the cash ledger, did not provide an equivalent substitute for the earlier exemption and therefore unlawfully reduced the promised incentive. Their recorded case was that the Government could not use the Budgetary Support Scheme to deny the full benefit promised under the industrial policy.

The petitioners relied upon several judgments on promissory estoppel and legitimate expectation, including MRF Ltd. vs Assistant Commissioner (Assessment), Sales Tax, and State of Jharkhand vs Brahmaputra Metallics Ltd., contending that governmental representations must be honoured where parties have altered their position in reliance upon them. The judgment records the specific reliance on Brahmaputra Metallics and the plea that curtailment of NEIIPP benefits violated promissory estoppel.

Respondents’ Arguments

The Union of India and GST authorities opposed the writ petitions and maintained, in substance, that the introduction of GST represented a fundamental change in the statutory indirect-tax regime.

The respondents’ position was that the earlier Central Excise exemption framework could not continue unchanged after the advent of GST because the statutory structure itself had changed and the relevant exemption notifications had been rescinded in accordance with law.

They contended that:

  • there can be no promissory estoppel against legislation or legislative functions;
  • the rescission of earlier exemption notifications flowed from the statutory framework of the CGST Act;
  • the proviso to Section 174(2)(c) of the CGST Act, 2017 specifically dealt with tax exemptions granted as investment incentives where the relevant notification was rescinded;
  • the Budgetary Support Scheme represented a policy decision taken to provide support to eligible units during the residual period;
  • no statutory duty existed requiring the Union of India to refund 100% of CGST or IGST; and
  • in the absence of such a statutory or enforceable public duty, a writ of mandamus directing 100% reimbursement could not be issued.

The respondents also relied upon judicial authority recognising that fiscal exemptions may be modified or withdrawn in public interest and that promissory estoppel cannot override a contrary statutory mandate.

Court Order / Findings

The Gauhati High Court dismissed the writ petitions.

The Court treated the controversy as squarely governed by the Supreme Court’s very recent judgment in Hero Motocorp Ltd. vs Union of India, Civil Appeal No. 7405 of 2022, decided on 17.10.2022.

The High Court recorded the Supreme Court’s authoritative findings that:

First, there can be no estoppel against the legislature in the exercise of legislative functions. A claim based upon promissory estoppel cannot be used to defeat an express statutory framework.

Second, withdrawal of the exemption notifications was in pursuance of the statutory mandate under Section 174(2)(c) of the CGST Act, 2017.

Third, acceptance of the industrial units’ claim for continuation of the earlier exemption notwithstanding rescission would render the proviso to Section 174(2)(c) redundant or otiose.

Fourth, the legislature had specifically provided that a tax exemption granted as an incentive against investment through a notification would not continue as a privilege where the notification was rescinded.

Fifth, the Court held that the plea of promissory estoppel could not compel continuation of a benefit contrary to the post-GST statutory regime.

Sixth, even where an earlier exemption was promised for a particular period, fiscal incentives may be withdrawn upon a change of policy in larger public interest; the State cannot necessarily be prevented from changing such policy by invoking promissory estoppel.

Seventh, there was no statutory duty cast upon the Union of India to refund 100% of CGST. Consequently, the essential foundation for issuing a writ of mandamus directing complete reimbursement was absent.

The Gauhati High Court concluded that the issues raised before it were squarely covered by the Supreme Court’s ruling in Hero Motocorp Ltd. vs Union of India and that nothing further remained to be independently decided.

Accordingly, the writ petitions were dismissed.

Important Clarification

The dismissal of the writ petitions did not mean that the industrial units were left without any avenue for seeking policy consideration.

The High Court specifically noted that, although the Supreme Court in Hero Motocorp Ltd. had rejected an enforceable legal claim for 100% reimbursement, it had recognised that the affected industries could possess a legitimate expectation that their claim deserved due consideration.

Therefore, following the Supreme Court’s approach, the Gauhati High Court granted similar liberty to the petitioners to submit representations before:

  • the concerned State Government, and
  • the GST Council,

provided such representations were made in terms of the findings and observations contained in the Supreme Court’s judgment in Hero Motocorp Ltd.

Thus, the crucial distinction is:

No enforceable legal right to 100% GST reimbursement was recognised, but liberty to seek policy-level consideration based on legitimate expectation was preserved.

The Court closed the writ petitions on this basis, with no order as to costs, and disposed of pending interlocutory applications.

Sections / Statutory Provisions Involved

Section 174(2)(c), Central Goods and Services Tax Act, 2017 — Saving of rights, privileges, obligations and liabilities under repealed enactments, read with the relevant proviso concerning tax exemptions granted as investment incentives through notifications that are subsequently rescinded.

Section 49(1), Central Goods and Services Tax Act, 2017 — Relevant in the Budgetary Support Scheme for determining Central Tax paid through debit in the electronic cash ledger after utilisation of input tax credit.

Section 20, Integrated Goods and Services Tax Act, 2017 — Relevant to the application of CGST provisions in the IGST framework and the computation structure referred to under the Budgetary Support Scheme.

Article 14, Constitution of India — Invoked in the context of alleged arbitrariness and unreasonable curtailment of promised fiscal incentives.

Article 226, Constitution of India — Writ jurisdiction of the High Court and the petitioners’ prayer for mandamus.

Notification No. 20/2007-CE dated 25.04.2007 — Area-based Central Excise exemption/refund notification associated with NEIIPP, 2007.

Notification No. 21/2017-CE — Relevant rescinding notification in the transition to GST.

Scheme of Budgetary Support dated 05.10.2017 — Post-GST support mechanism for eligible industrial units for the residual eligibility period.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783333743_1273compressed.pdf

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