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TMI Blog2020 (3) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... ive policies or promise made by Respondent No.1 at the time of introducing area-based exemptions - In the previous tax regime, taxes were being levied on different incidents, such as manufacturing in the case of the levy of excise duty. This is no longer a relevant consideration. GST is a destination based tax, the area based exemptions, under the GST regime have entirely different dimensions and therefore, for this reason, there are no area-based exemptions envisaged under the GST regime. Government has, instead, provided the necessary support to the industry for its economic development and has grandfathered the incentive Scheme. Whether the Budgetary Support Scheme reveals the half hearted approach of Respondent No.1, as has been sought to be projected by the Petitioner? - HELD THAT:- There are no irrational or arbitrary with respect to partial tax budgetary support. Firstly, the Budgetary Support is not an exemption under the Act. The rationale of providing support to the extent of Central Government s share of CGST and the IGST is also based on the reasoning which cannot be questioned by the Petitioner. Article 279A of the Constitution provides that the GST Council shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough: Mr. Amit Bansal, Mr. Aman Rewaria, Ms. Vipasha Mishra and Mr. Akhil Kulshrestha, Advocates for respondents No.2 and 5. J U D G M E N T SANJEEV NARULA, J. Brief Facts 1. The Petitioner is engaged in the business of manufacturing of two wheelers in the State of Uttarakhand. It was operating and registered under the Central Excise Act, 1944. With the introduction of Goods and Services Tax ( GST ) w.e.f. 01.07.2017, it now has registration under the said Central and State GST Acts. 2. In the year 2002, special packages of incentives were announced to promote industrial development in the State of Uttarakhand. In pursuance thereto, the 1st Respondent- Union of India through the 4th Respondent- Ministry of Commerce Industry issued an Office Memorandum dated 07.01.2003, detailing the package of incentives. The fiscal incentive provided under the memorandum included 100% ab inito Central Excise Duty Exemption to new industrial units for a period of 10 years from the date of commencement of commercial production. The relevant extract of Office Memorandum/Policy read as under: 3.1 Fiscal Incentives to new Industrial Units and to existing units on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply to industrial units for a period not exceeding 10 years from the date of publication of notification in the Official Gazette or from the date of commencement of commercial production, whichever is later. 4. Since the Petitioner s unit qualified for exemption under the aforementioned notification, it established a new industrial unit for manufacture of motor vehicles at Haridwar, Uttarakhand and commenced commercial production in its industrial unit from 07.04.2008 and continued to avail the benefits of the exemption notification till 01.07.2017. 5. Then, the Constitution 101st Amendment Act, 2016 was enacted by the Parliament to introduce the Goods and Services Tax. The said Act conferred concurrent taxing powers on the Union as well as the States including the Union Territories. In this regard, Article 246A was inserted, making a special provision with respect to levy of GST, by both the Union as well as the States. Article 269A was inserted to provide for levy of IGST on inter-state transactions exclusively by the Union. Post the aforesaid constitutional amendments, the GST and the IGST Act were enacted by the Parliament and the SGST Acts were enacted by various Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en pursuant to the promise made by the Government, manifested vide the policy contained in the notification dated 07.01.2003, followed by the exemptions provided by the exemption notification, confers a vested right in favour of the Petitioner. He elucidated that the object of the afore-noted policy decision and exemption notification was to grant incentive for promoting investment and industrial development in the State of Uttarakhand by granting complete exemption from excise duty for a period of 10 years from the date of commencement of commercial production. This is evident from the Office Memorandum No. 1(10)/2001-NER dated 07.01.2003 issued by Respondent No. 1 which provides that the new industrial units and existing industrial units on their substantial expansion, as defined, are entitled to 100% outright excise duty exemption for a period of 10 years from the date of commencement of commercial production . He argues that, even though the said exemption notification uses the words for a period not exceeding 10 years , the period of exemption has to be understood in line with the office memorandum/ policy statement. He submits even though the GST enactments have tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in exercise of its statutory powers under the respective charging Acts or, alternatively, grant full budgetary support instead of limiting it to 58% of the cash payments of CGST and 29% of IGST paid to industrial Units. He argued that the rationale behind the aforesaid limited budgetary support being the devolution of taxes on goods and services to the States as per the recommendation of the 14th Finance Commission, is totally irrelevant and an immaterial consideration. This aspect is of no consequence or relevance to the assesee, who pays the entire amount of tax to the Central Government. The first Respondent has an obligation to issue the exemption notification under the relevant provisions of the Acts. Submissions on behalf of the Respondent 12. Mr. Amit Bansal, learned counsel on behalf of the Respondent has countered these submissions and defended the withdrawal of the exemption notification and introduction of the limited budgetary support. He argued that the first contention of the petitioner that the policy will override the exemption notification is not correct, as the words of the notification are clear in providing that the said exemption will be granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby the Central Government granted exemptions from the payment of Central Excise Duty for a period of 10 years to the units in the State of Uttarakhand. Indisputably, the said exemption notification was under the Central Excise Act, 1944. With the coming in force of the GST regime, the Central Excise Act, 1944 itself has been repealed. For that matter, the entire indirect tax structure has been overhauled. Thus, the right to exemption, pitched by the Petitioner as a vested right can be meaningfully appreciated only if we understand the changes introduced with the advent of the GST laws. This would also help us understand if the Petitioner has indeed suffered a setback, as it has presented before us. 16. Having regard to the Constitutional Scheme with regard to the tax structure that existed in the country prior to the promulgation of the CGST and the IGST Acts, the same did not provide for any concurrent taxing powers to the Union as well as the States. The powers of both the governments under the Union list and State list were clearly delineated. Therefore, in order to introduce goods and services tax, the amendments to the Constitution of India were inevitably required, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most significant amendment carried out by the Constitutional Amendment Act, as a result whereof, now both Parliament and State legislatures are competent to concurrently legislate with respect to Goods and Services Tax. The dual GST structure which empowers the Centre and the States to levy and collect taxes through appropriate legislations is in conformity with the constitutional schemes. 18. Under the new taxing scheme, various central indirect taxes including the Central Excise Duty and several State indirect taxes have been subsumed in GST. It is a destination-based tax, - i.e. Goods and Services are taxed at the point where they are consumed, and not at the point of origin. Under GST law, the place of supply of goods and services assumes significance. There are several noticeable differences between the GST regime and the previous one pertaining to levies, taxes, exemptions etc. Once such area is the exemptions . The Legislature has sought to prune the exemptions that were provided by the Government in the previous regime. The GST predicates on the fact that there would be minimum exemptions. This was necessary in order to ensure that cascading of taxes is minimized and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner s claim in the present petition. As a result, vide Notification dated 18.07.2017 read with Section 174 (2) (c) of the CGST Act, the Petitioner lost all the privileges which it had in the erstwhile regime. 20. However, the stakeholders viz. Central and State Governments were conscious of the fact that in the previous regime, they had announced industrial and investment policies for promoting industrial growth and employment in industrially backward states. One of the prominent features of the framework of the policies was to provide exemption from excise duty on goods produced in the specified states. Similarly, some of the States had also granted exemptions from VAT or deferment of VAT, inter alia, as part of their industrial promotion policies to specific areas within the States or to specific industry. Insofar as the Central Government is concerned, the area based Central Excise Duty exemptions were applicable to certain states including the State of Uttarakhand, with which we are the presently concerned. Thus, an agenda item was taken up in the second GST Council Meeting held on 30.09.2016, regarding the treatment of existing tax incentives scheme of the Central and State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre. He pointed out that for the last 70 years, oil and natural gas were being taken out of Assam which was used for the benefit of all States. He pointed out that for small States to exist, the Centre should help them; otherwise smaller States might wither away. The Chairperson stated that no compensation was to be paid by the Centre to any State for reimbursements relating to tax incentive schemes and that States would need to make their own budgetary provisions for the same. 28. The Hon'ble Minister from Uttarakhand stated that the Government of lndia had given an area-based exemption for 10 years and that such exemptions were to continue up to 2020. She observed that the Centre must reimburse such units for the Central taxes as jobs of more than one lakh workers were at stake. The Hon'ble Minister from Jammu and Kashmir stated that his State was in a similar situation as Uttarakhand. The Chairperson observed that once incentive schemes were withdrawn, the taxes paid would be accounted for in the Consolidated Fund of India and 42% of the amount would be devolved to the States. The Centre, therefore, could be expected to only reimburse the units out of the remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a residual period for which each of the units is eligible, a new scheme is being introduced. The new scheme is offered, as a measure of goodwill, only to the units which were eligible for drawing benefits under the earlier excise duty exemption/refund schemes but has otherwise no relation to the erstwhile schemes. 1. 2 Units which were eligible under the erstwhile Schemes and were in operation through exemption notifications issued by the Department of Revenue in the Ministry of Finance, as listed under para 2 below would be considered eligible under this scheme. All such notifications have ceased to apply w.e.f 01.07.2017 and stands rescinded on 18.07.2017 vide notification no. 21/2017 dated 18.07.2017. The scheme shall be limited to the tax which accrues to the Central Government under Central Goods and Service Act, 2017 and Integrated Goods and Services Act, 2017, after devolution of the Central tax or the Integrated tax to the States, in terms of Article 270 of the Constitution . 3. SHORT TITLE AND COMMENCEMENT 3.1 The scheme shall be called Scheme of Budgetary Support under Goods and Services Tax (GST) Regime to the units located in State of Jammu Kashmir, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Notification giving effect to the said policy has also lost its relevance and is no longer in force. We cannot now selectively concentrate on the benefits under the policies that are no longer in vogue. The comprehensive picture can be grasped only if an exercise is undertaken of the evaluation of the taxes post the GST. The new law entitles the Petitioner the input tax credit of all the taxes and cross utilization thereof which was not the position back in the day. 23. In India, where taxation has been subject to both State and Central legislations, the exemptions were also granted under one or several taxation laws, both by the State and the Central Government. Exemption in simple terms is an act of providing immunity from liability to pay tax. Anything that is exempt under tax law means that the entity is not to be subject to tax by the Government authorities. The purpose for granting these exemptions was often to achieve the objective of attracting investments, or promoting trade and industry. In the instant case, we are concerned with area-based exemptions which were extended to the industries under the scheme of the Central Governments. Para 3.1 of the Office Memorand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to Himachal Pradesh and Uttranchal. 2.71. Para 3.3.2.(viii) of the draft of An Approach to the 11th Five Year Plan has also commented on the undesirability of the area based exemptions. To quote :- The existing incentive programmes such as those available for the North East, J K, Himachal Pradesh and Uttranchal need to be reviewed with a view to assessing their impact on industrialization in these regions. The extension of excise duty exemption to Himachal and Uttranchal has had an adverse impact on industrial investments in both the North Eastern region and the adjacent States. Consideration would need to be given to restricting these incentives to only hilly areas or to replacing these incentives by a special programme for roadways and railway development in these States. 2.72. The area based exemptions erode the tax base. The revenue foregone on account of area-based exemptions is estimated to be ₹ 8,073 crores in 2007-08. 2.73 Further, the case for providing area based exemption is extremely weakened in the face of our recommendation for a sharp reduction in the combined rates of CGST and SGST and the ease of compliance through a combined transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh and North East including Sikkim should be granted Budgetary Support Scheme as a measure of goodwill for a residual period for which each of the units was earlier eligible, it cannot be held that that the support is in lieu of exemptions. Recognizing hardships arising out to withdrawal of exemptions notifications cannot be understood or categorized as an admission of any such right in favour of the Petitioner. 25. Even otherwise, the Respondents acknowledgment cannot vest a right in favour of the Petitioner, if they did not have such right in law. We also do not perceive that the Petitioners have acquired vested right in terms of the policy. The fiscal benefits promised in return for making investments in the State of Uttarakhand were privileges which were granted under law that no longer holds the field. The rights and the obligations that were flowing under the tax regime originated from the tax structure that existed when the policy was framed. Such obligations cannot stay alive, if the legislation itself has undergone a complete overhaul by advent of introduction of GST legislations. Therefore, the Budgetary Support Scheme cannot said to be in contravention of the fisc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d after devolution of part of these taxes to the States. The apportionment of the tax between Central and States has also undergone complete reorganisation. In this regard, we may specifically mention that under Clause (1) of Article 269A of the Constitution of India, the Goods and Services Tax on supplies in course of inter-state trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and States in the manner as may be provided by the Parliament by law on recommendations of GST Council. This has been operationalized by the levy of tax under IGST Act. Since the entire gamut of taxation has been completely restructured, we fail to understand as to how the Petitioner is claiming, as a matter of right, that the Central Government should bear the burden and also give Budgetary support to the extent of the entire tax, irrespective of the fact that a portion thereof is passed on to the States. If the submissions of the Petitioner were to be accepted, it would mean that the Central Government would not only not pocket any tax from the Petitioner, it would also be out of pocket to the extent the collected tax devolves u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M Refineries (supra) is misplaced. We agree with the submissions of Mr. Bansal in this regard that in K.M Refineries (supra), the Court was dealing with only an executive order. As opposed to it, in the present case, the exemption from excise duty has been taken away by a legislative fiat of the Parliament. 30. The decision of the Court in Mannuelsons Hotels (supra), also, is not relevant to the present case. To better appreciate the findings of the Supreme Court, it is necessary to understand the factual matrix giving rise to this case. In this case, on 11.07.1986, a G.O. was issued which accepted the recommendations of the Government of India, suggesting that tourism be declared as an industry . Pursuant to the aforesaid G.O, the appellants began constructing a hotel building which was completed in the year 1991. In line with the said G.O, Kerala Building Tax Amendment Act, 1990 was passed w.e.f. from 06.11.1990 and Section 3-A was added, which granted the Government power by notification in the gazette to make exemption from the payment of building tax under the Act. However, no notification under Section 3-A was issued. Notice for fling returns under the Kerala Building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that no relief can be given to the appellants as the doctrine of promissory estoppel must yield when it is found that it would be contrary to statute to grant such relief (emphasis supplied) 31. Thus, Mannuelson s case (supra) is clearly distinguishable on facts from the present case before us. Noticeably, in Mannuelson s case (supra), the decision was rendered on the issue of promissory estoppel against the action of the Government, i.e, an executive action, but, more importantly, this case also goes against the Petitioner in as much as, the Supreme Court while granting the relief of promissory estoppel was also mindful of the fact that in case where there is no statutory provision for the grant of exemption, no relief can be given. In Paragraph 36 of the judgment, the Court notes that no mandamus could be issued to the legislature to amend the Kerala Building Tax Act, 1975, for that would necessarily involve the judiciary in transgressing into a forbidden field under the constitutional scheme of separation of power. 32. Ergo, in view of the proviso to Section 174 (2) (c) of the CGST Act, the issue that arises for our consideration is whether the doctrine of promiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to withdraw, modify, amend or cancel the notifications earlier issued. Thus, while deciding the case, one of the questions that fell for consideration before the three judge bench of the Supreme Court was whether a benefit given by a statutory notification can be withdrawn by the Government by another statutory notification under a different statute and whether the principle of promissory estoppel would be applicable to exercise of statutory powers. The Court observed as under: 31. It is an admitted position that the Notification dated 28-61996, granting rebate to the industries set up in hill areas, was issued in exercise of powers conferred by Section 49 of the Electricity (Supply) Act, 1948. By the said notification rebate in electricity charges to the extent of 33.33% was given to the industries, which were set up in the hill areas during the specified period. It is also an admitted position that thereafter, by Notifications dated 18-6-1998 and 25-1-1999, issued in exercise of the powers conferred by Section 49 of the Act of 1948, the percentage of rebate granted by the earlier notification was reduced to 17%. However, by Notification dated 7-8-2000 the benefit, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at publication of GOM in the Gazette was mandatory and the non-publication in the Gazette as required would render it invalid, yet, GOMs could be treated as a representation and a promise and the doctrine of promissory estoppel can be invoked to carry out such representation. The Court while dealing with this submission holds in paragraph 30 as under: 30. It is submitted that by allowing the Government to go back on such representation, the appellant will be prejudiced. The learned counsel also contended that where the Government makes a representation, acting within the scope of its ostensible authority, and if another person acts upon such representation, the Government must be held to be bound by such representation and that any defect in procedure or irregularity can be waived so as to render valid which would otherwise be invalid. The counsel further submitted that allowing the Government to go back upon its promise contained in GOMs No. 201 would virtually amount to allowing it to commit a legal fraud. For a proper appreciation of this contention, it is necessary to keep in mind the distinction between an administrative act and an act done under a statute. If the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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