2022 (12) TMI 810 - HC - GST

Doctrine of Promissory Estoppel - Area Based Exemption - North-Eastern region - Constitutional Validity of N/N. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017 issued by the Ministry of Commerce Industry, Department of Industrial Policy Promotion - scheme for providing budgetary support to the eligible unit for the residual period by way of reimbursement of Goods Service Tax paid by the unit limited to the Central Government s share of CGST and/or IGST retained after deduction of a part of their taxes to the States in so far as the same curtails the benefit as promised under NEIIPP, 2007 and Notification No. 20/2007. HELD THAT - The Government of India had by way of the NEIIPP, 2007 had granted incentives to various industries to set up and open their industrial units within the northeastern region. In order to bring about industrial progress in this region, several incentives were granted for such industries who in response to the Industrial Policy announced, will set up their industries and carry on the manufacturing of the various articles and items which are notified in the policy itself. The petitioners are some of such industries who have set up their industries and factories in response to the incentives granted by the Government of India through the NEIIPP, 2007. There are several requirements which are to be fulfilled by these industries in order to make themselves eligible for the benefits/incentives offered under the NEIIPP, 2007. There is no dispute of facts with regard to the eligibility of the industries who are before this Court. All these petitioners have been receiving the incentives offered under the NEIIPP, 2007 in terms of the parameters provided therein. There is also no dispute that although initially the exemptions was to the extent of 100% subsequently, it came to be available only to the extent of value addition made by the concerned industries. Such reduction of the benefits during the currency of the NEIIPP, 2007 by the respondents were also assailed before several High Courts including this Court at an earlier point in time. These issues came to be decided by a Judgment of Apex Court rendered in UNION OF INDIA ANOTHER ETC. ETC. VERSUS M/S V.V.F LIMITED ANOTHER ETC. ETC. 2020 (4) TMI 669 - SUPREME COURT . The Apex Court upheld the grant of exemptions/benefit/incentives to be extent of value addition made by the industries including the petitioners industries. There is also no dispute that after the advent of GST, the Central Excise Duty which was imposed earlier came to be subsumed. The GST came to be enforced with effect from 01.01.2017. It is also noteworthy that the GST Tax Structure required a constitutional amendment which was brought in w.e.f. 19.09.2016 by the 101st Constitutional Amendment. As such, it is seen that the petitioners are aware of the nature and structure of the GST which have been in force with effect from 01.01.2017. The denial of the benefits under the NEIIPP, 2007 has caused severe financial losses to the petitioners industries. Such withdrawal of the promise midway without taking into consideration of the grievances of the petitioners is completely opposed to the doctrine of promissory estoppel as developed by catena of Judgments rendered by the Apex Court over the years. It is contended that the budgetary scheme which is presently enforced by the respondents is outside the purview of the GST Scheme of the Tax Structure. The Apex Court in THE STATE OF JHARKHAND AND ORS. VERSUS BRAHMPUTRA METALLICS LTD. AND ORS. 2020 (12) TMI 1241 - SUPREME COURT after referring to the earlier judgments of the Apex Court held that the doctrine of legitimate expectation cannot be claimed as a right in itself, but can be used only when the denial of a legitimate expectation leads to the violation of Article 14 of the Constitution. After elaborately examining the doctrines of promissory estoppels and the doctrine of legitimate expectation, the Apex Court held that the State having held out a solemn representation in the above terms, it would be manifestly unfair and arbitrary to deprive industrial units within the State of their legitimate entitlement. The State government did as a matter of fact, issue a statutory notification under Section 9 but by doing so prospectively with effect from 8 January 2015 it negated the nature of the representation which was held out in the Industrial Policy 2012 - The Apex Court observed that the pleadings are completely silent on the reasons for the delay on the part of the government and offer no justification for making the exemption prospective, contrary to the terms of the representation held out in the Industrial Policy 2012. It is one thing for the State to assert that the writ petitioner had no vested right but quite another for the State to assert that it is not duty bound to disclose its reasons for not giving effect to the exemption notification within the period that was envisaged in the Industrial Policy 2012. It was held that both the accountability of the State and the solemn obligation which it undertook in terms of the policy document militate against accepting such a notion of state power and the state must discard the colonial notion that it is a sovereign handing out doles at its will. In view of the very recent Judgment of the Apex Court rendered in M/S HERO MOTOCORP LTD. VERSUS UNION OF INDIA ORS. 2022 (10) TMI 677 - SUPREME COURT and in view of the authoritative findings rendered by the Apex Court in the said Judgment, nothing further is required to be decided in the present proceedings. The findings rendered in the said Judgment by the Apex Court also squarely covers the issue raised in the present proceedings. It is seen that although the Apex Court has dismissed the appeals preferred by the appellants, herein, namely, Hero Motorcorp Limited, the Apex Court also arrived at a finding that although the appellants therein may not have a claim in law, they do have a legitimate expectation that their claim deserves due consideration. The Apex Court therefore, permitted the appellants therein to make representation to the respective State Government as well as to the GST Council and the said representations if made will be given due consideration in expeditious manner. Writ petition dismissed.

Summary

Issues Involved:

1. Validity of Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017.
2. Application of Doctrine of Promissory Estoppel.
3. Application of Doctrine of Legitimate Expectation.
4. Impact of GST regime on pre-existing tax exemptions under NEIIPP, 2007.
5. Jurisdiction and authority of the government to rescind tax exemptions.

Detailed Analysis:

1. Validity of Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017:
The primary challenge in all the writ petitions was against the Notification dated 05.10.2017, which framed a scheme of budgetary support under the GST regime for units in the North East, among other regions. The petitioners argued that this notification curtailed the benefits promised under the North East Industrial and Investment Promotion Policy (NEIIPP), 2007, and was thus violative of the Doctrine of Promissory Estoppel and Legitimate Expectation. The government contended that the GST regime necessitated changes in the tax exemption structure and that the budgetary support scheme was introduced to mitigate the hardships faced by industries due to the rescission of the earlier exemption notifications.

2. Application of Doctrine of Promissory Estoppel:
The petitioners argued that the government was bound by the promises made under NEIIPP, 2007, which provided for 100% excise duty exemption. They claimed that they had altered their positions based on these promises, making substantial investments. The respondents countered that the doctrine of promissory estoppel could not be invoked against legislative functions, especially when public interest necessitated a change in policy. The court noted that while the doctrine of promissory estoppel prevents the government from going back on its promises, it must yield when overriding public interest demands it. The court referred to the Apex Court's decision in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P., which outlined the conditions for the application of the doctrine.

3. Application of Doctrine of Legitimate Expectation:
The petitioners also invoked the doctrine of legitimate expectation, arguing that the government's promise under NEIIPP, 2007, created a legitimate expectation of continued tax exemptions. The court observed that the doctrine of legitimate expectation is broader than promissory estoppel and encompasses expectations based on past conduct or policy statements. The court referred to the Apex Court's decision in Union of India v. Anglo Afgan Agencies, which emphasized that the government must act fairly and transparently, honoring its promises unless there is an overriding public interest.

4. Impact of GST regime on pre-existing tax exemptions under NEIIPP, 2007:
With the introduction of the GST regime on 01.07.2017, various central taxes, including excise duty, were subsumed under GST. The petitioners argued that the benefits under NEIIPP, 2007, should continue despite the new tax regime. The respondents contended that the GST regime necessitated the rescission of earlier exemption notifications, as provided under Section 174(2)(c) of the CGST Act. The court noted that the GST regime brought about significant changes in the tax structure, and the rescission of exemption notifications was a statutory requirement.

5. Jurisdiction and authority of the government to rescind tax exemptions:
The respondents argued that under Section 174(2)(c) of the CGST Act, any tax exemption granted as an incentive against investment through a notification would not continue as a privilege if the notification was rescinded. The court upheld this provision, noting that the legislature had the authority to rescind exemption notifications in the public interest. The court referred to the Apex Court's decision in Hero Motorcorp Limited v. Union of India, which held that there could be no estoppel against the legislature in the exercise of its legislative functions.

Conclusion:
The court dismissed the writ petitions, holding that the rescission of exemption notifications under the GST regime was in accordance with statutory provisions and public interest. The court granted the petitioners the liberty to make representations to the respective State Governments and the GST Council, which would be given due consideration in an expeditious manner. The decision was guided by the principles of promissory estoppel and legitimate expectation, balanced against the statutory requirements and public interest considerations under the GST regime.