2024 (10) TMI 970 - HC - GST

Withdrawal of the Budgetary Support Scheme by SO 239 dated 16-07-2021 - violation of doctrines of promissory estoppel and legitimate expectation - violation of Article 14 of the Constitution of India - HELD THAT - The Supreme Court in Brahmputra Mettalics 2020 (12) TMI 1241 - SUPREME COURT has also drawn distinction between the doctrine of promissory estoppel and doctrine of legitimate expectation. The doctrine of legitimate expectations is founded on the principles of fairness in government dealings and would come into play if a public body leads an individual to believe that they will be a recipient of a substantive benefit. So far as difference between the doctrine of promissory estoppel and doctrine of legitimate expectation under English law is concerned; under English law the doctrine of legitimate expectation initially developed in the context of public law as an analogy to the doctrine of promissory estoppel found in private law. Another difference is that the legitimate expectation can constitute a cause of action whereas the doctrine of promissory estoppel can only be used as a shield. The scope of legitimate expectation is wider than the promissory estoppel because it not only takes into consideration a promise made by a public body but also official promise, as well. For invoking the principle of promissory estoppel there has to be a clear and unequivocal promise and on that basis the party concerned must have acted to its prejudice, whereas the basis of doctrine of legitimate expectation is in reasonableness and fairness. True it is that the doctrine of legitimate expectation cannot be claimed as a matter of right and can be used when the denial of legitimate expectation leads to violation of Article 14 of the Constitution. While the benefit of CST was being extended on year to year basis awaiting implementation of Integrated Goods and Services Tax Act, 2017 (IGST) and adoption of GST regime, the GST regime came to be adopted by the State with effect from 08-07-2017 and with that the entire tax structure in the State underwent a change. It was no longer possible to continue with the exemption from payment of GST as the scheme was now replaced by IGST payable under the Integrated Goods and Services Tax, 2017. However, with a view to continue supporting the entrepreneurs, who had established their industrial units in the State, the Government came up with a Budgetary Support Scheme which was promulgated vide SRO 431 of 2018 dated 25-09-2018. Initially it was envisaged in the scheme that the benefit of budgetary support to the manufacturing units in the shape of IGST shall be continued till 31-03-2026. It is thus clear that under the Budgetary Support Scheme envisaged under SRO 431 of 2018, the budgetary support was in the shape of reimbursement of IGST paid under IGST Act, 2017 in respect of interstate supplies, whereas under the Turnover Incentive Scheme 2021, the incentive was to be calculated on the gross turnover of the Industrial Unit subject, of course, to the maximum provided under clause 7. The incentive in terms of percentage of gross turnover of Industrial Unit would include the incentive on the taxable turnover with respect to interstate supplies made by the industrial unit under IGST Act as well - overlapping of the Turnover Incentive Scheme 2021 and the Budgetary Support Scheme promulgated by SRO 431 of 2018. It is with a view to set the record straight and also to remove the ambiguity, the impugned SO 239 dated 16-07-2021 was issued and the Budgetary Support Scheme envisaged under SRO 431 of 2018 was withdrawn with effect from 01-04-2021 i.e. with effect from the date the Turnover Incentive Scheme came into force. The petitioners are not deprived of the incentives but have been extended the same in different form. In the absence of any prejudice pleaded by the petitioners, the action of the respondents, replacing the Budgetary Support Scheme by the other scheme, both aimed at providing incentives to the industrial units like the petitioners, cannot be said to be irrational, unreasonable or arbitrary. Firstly, there is nothing in the conduct exhibited by the Government of Jammu and Kashmir to raise any legitimate expectation in the petitioners and, secondly, even if it were there, the Government has not acted arbitrarily, unjustly or in an unfair manner. The benefit of incentives in the shape of reimbursement paid under IGST Act, 2017 is continued to be paid now under the Turnover Incentive Scheme 2021. It is only the mode and manner which has been changed. The Turnover Incentive Scheme 2021 came into operation with effect from 01-04-2021 and, therefore, it was necessary to do away with the Budgetary Support Scheme promulgated vide SRO N431 of 2018. It is because of this reason the impugned SO was issued and given effect from 01-04-2021. Thus, both the doctrines i.e. doctrine of promissory estoppel and the doctrine of legitimate expectations are not attracted nor do we find issuance of the impugned SO in violation of Article 14 of the Constitution of India - petition dismissed.

Summary

Issues Involved:

1. Whether the withdrawal of the Budgetary Support Scheme by SO 239 dated 16-07-2021 violates the doctrine of promissory estoppel.
2. Whether the withdrawal of the Budgetary Support Scheme violates the doctrine of legitimate expectation.
3. Whether the withdrawal of the Budgetary Support Scheme is arbitrary or in violation of Article 14 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Doctrine of Promissory Estoppel:

The petitioners argued that the withdrawal of the Budgetary Support Scheme violated the doctrine of promissory estoppel. They claimed that they set up their industrial units based on the incentives offered by the government, including the reimbursement of IGST under SRO 431. The petitioners contended that the government made a clear and unequivocal promise that the scheme would remain in force until 31-03-2026, and thus, could not withdraw it prematurely. However, the court found that the representation made in SRO 431 was conditional, as clause 7 of the SRO allowed for an annual review of the scheme's viability. The court concluded that the petitioners failed to demonstrate that they acted to their detriment based on a clear promise, and thus, the doctrine of promissory estoppel was not applicable.

2. Doctrine of Legitimate Expectation:

The petitioners also argued that the withdrawal of the scheme violated their legitimate expectation that the scheme would continue until 2026. The court noted that legitimate expectation is based on reasonableness and fairness, and can be invoked if the denial of expectation leads to a violation of Article 14 of the Constitution. The court observed that the Budgetary Support Scheme was replaced by the Turnover Incentive Scheme 2021, which provided similar incentives based on gross turnover. The court found that the petitioners were not deprived of incentives, but rather received them in a different form. Therefore, the court held that the doctrine of legitimate expectation was not violated, as the government acted reasonably and fairly.

3. Arbitrariness and Violation of Article 14:

The petitioners claimed that the withdrawal of the scheme was arbitrary and violated Article 14 of the Constitution. The court examined the transition from the Budgetary Support Scheme to the Turnover Incentive Scheme and found that the change was made to avoid overlapping benefits and to streamline the incentive process. The court concluded that the government's action was not arbitrary, as it continued to provide incentives to the industrial units, albeit in a different manner. The court emphasized that the two schemes could not operate simultaneously, and the new scheme subsumed the benefits of the old one. Consequently, the court determined that there was no violation of Article 14.

Conclusion:

The court dismissed the writ petitions, finding no merit in the petitioners' claims. The doctrines of promissory estoppel and legitimate expectation were not applicable, and the government's actions were neither arbitrary nor in violation of Article 14. The court upheld the withdrawal of the Budgetary Support Scheme and the implementation of the Turnover Incentive Scheme 2021.