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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 ..... ommerce & 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 their substantial expansion: (1) New industrial units and existing industrial units on their substantial expansion as defined, set up in Growth Centres, Industrial Infrastructure Development Centres (IIDCs), Industrial Estates, Export Processing Zones, Theme Parks (Food Processing Parks, Software Technology Parks, etc.) as stated in Annexure-I and other areas as notified from time to time by the Central Government, are entitled to: (a) 100% (hundred percent) outright excise duty exemption for a period of 10 years from the date of commencement of commercial production. (b) 100% income tax exemption for initial period of five years and thereafter 30% for companies and 25% for other than companies for a further period of five years for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding 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 State legislatures for their respective States for the levy of the GST. 6. Petitioner migrated under the new GST regime and is now required to pay CGST and IGST under the provisions of the Goods and Services Tax (GST) regime in respect of intra-state, and also inter-state supplies made from the Uttarakhand unit. Immediately thereafter, CGST rules came into force on 18.07.2017 and Notification No. 21/2017-CE was issued by Respondent No.1 rescinding the various area-based exemption notifications, including the exemption notification no. 50/2003-CE with effect from 01.07.2017. Due to the rescission of the exemption notification, the beneficial incentives granted to the petitioner, ceased to continue w.e.f. 01.07.2017. 7. Since the withdrawal of the exemption notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 taken the place of, inter alia, Central Excise laws with effect from 01.07.2017, the burden of GST should have been relieved for the residual balance of the period of 10 years, i.e, the benefit of the exemption notification should have been available to the petitioner till 06.04.2018. Mr. Ganesh has placed reliance on the decision of the Supreme Court in State of Bihar and Ors. Vs. Supraphat Steel and Ors., (1999) 1 SCC 31, to advance his submission that the exemption notification was issued by the Government to carry out the objectives of the policy decisions taken in the industrial policy itself, and in case the notification is found to be repugnant to the industrial policy declared in a government resolution, then the said notification must be held to be bad to that extent, meaning thereby, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent 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 "for a period not exceeding 10 years", and therefore, the exemption could be provided for a maximum period of 10 years i.e. it could be lesser than 10 years. In view of the above, there is no bar in suspending the exemption before a period of 10 years has expired in respect of a particular beneficiary. He further submits that the Office Memorandum dated 07.01.2003 relied on by the petitioner was meant for internal communication, and was not released in the public domain. 13. According to Mr. Bansal, the decision of the Court in the case of K.M Refineries (supra) cannot be applied to the facts of the present case as the said decision was qua an executive order, whereas, in the present case, Petitioner is espousing the principle of promissory estoppel qua a legislative Act. In support of this submission, Mr. Bansal has f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, with the aim of conferring simultaneous powers on the Parliament as well as the State Legislature, including every Union Territory, to make laws for levying Goods and Services Tax on transaction of supply of goods, and services, or both. Thus, the genesis of the GST is the 101st Constitution Amendment, through which several amendments were introduced in the Constitution of India. In this regard, the 2014 Amendment Bill proposed insertion of new provisions i.e. Article 246A in the Constitution. The statement of objectives and reasons laid down the rationale behind the introduction of said provision in the following words: "The Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining 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 there is seamless transfer of the Input Tax Credit, which is one of the main cornerstones of the GST law. In this changed scenario, the Parliament being conscious of the exemptions that were granted as incentives against investments through a notification, while repealing the earlier legislations, specifically provided that such incentives shall not continue as privileges, if the notifications are rescinded on or after the appointed date provided under the Act. This objective has been embedded in Section 174 (2) (c) of the CGSCT Act, which reads as under: "174. Repeal and saving.- (1) Save as otherwise provided in this Act, on and from the date of commencement of this Act, the Central Excise Act, 1944 (1 of 1944) (except as respects goods included in entry 84 of the Union List of the Seventh Schedule to the Constitution), the Medicinal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased 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 Governments. The said agenda was taken up and the inputs of the States were evaluated. The extract of minutes of meeting of GST Council and conclusion with respect to above noted agenda item reads as under: "Agenda Item 3: Treatment of the existing tax incentive schemes of the Central and State Governments 25. The Secretary to the Council explained that the Central and State governments had given various incentives of Central Excise and Value Added Tax (VAT) and Central Sales Tax (CST). He pointed out that in the GST regime, such incentives could not be continued as supplies would need to be made on payment of tax in order to permit flow of tax to the destination state. Therefore, a decision would need to be arrived at regarding the treatment of such tax incentive schemes under the GST regime. He observed that one option could be to 'grandfather' such sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 remaining 58% of the fund which was not part of the devolution and the States would also need to correspondingly reimburse such units out of the share of revenue received through devolution. 29. The Council approved the following- (i) All entities exempted from payment of indirect tax under any existing tax incentive scheme shall pay tax in the GST regime. (ii) The decision to continue with any incentive given to specific industries in existing industrial policies of States or through any schemes of the Central Government, shall be with the concerned State or Central Government. (iii) In case the State or Central Government decides to continue any existing exemption/incentive/deferral scheme, then it shall be administered by way of a reimbursement mechanism through the budgetary route, the modalities for which shall be worked out by the concerned State/Centre. 30. In conclusion, aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, Uttarakhand, Himachal Pradesh and North Eastern States including Sikkim. The said Scheme shall come into operation w.e.f.01.07.2017 for an eligible unit (as defined in para 4.1) and shall remain in operation for residual period (as defined in para 4. 3) for each of the eligible unit in respect of specified goods (as defined in para 4.2 ). The overall scheme shall be valid upto 30.06.2027. 3.2 OBJECTIVE: The GST Council in its meeting held on 30.09.2016 had noted that exemption from payment of indirect tax under any existing tax incentive scheme of Central or State Governments shall not continue under the GST regime and the concerned units shall be required to pay tax in the GST regime. The Council left it to the discretion of Central and State Governments to notify schemes of budgetary support to such units. Accordingly, the Central Government in recognition of the hardships arising due to withdrawal of above exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Memorandum/policy, extracted above, does indeed indicate the intention to grant benefit to new industrial units such as that of the petitioner. This was implemented through the exemption notification issued by the Central Government allowing 100% excise duty exemption. This position continued till the introduction of the Constitution 101st Amendment Act, 2016 which sought to fundamentally and radically change the indirect tax regime in India. In fact, it was way back in 2009 when the Task Force on GST deliberated on the future of area-based exemptions under GST and recommended that area based exemptions should not continue under GST. The relevant extract of the Report of the Task Force on GST dated 15th December 2009 is reproduced herein below: "q. Area- Based Exemptions 2.68. Under the CENVAT, industries set up in the North East, Jammu & Kashmir, Sikkim, Uttaranchal and Himachal Pradesh (hereinafter referred to as 'specified areas') enjoy exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 transaction reporting and payment Form No. GST-I. 2.74. In view of the above, we recommend that the area based exemption in respect of CENVAT should not be continued under the GST framework. In case it is considered necessary to provide support to industry for balanced regional development, it would be appropriate to provide direct investment linked cash subsidy." (emphasis supplied) 24. GST has now enabled seamless flow of input tax credits across the chain. The Central Excise Duty exemptions did not envisage exemption from VAT, which is now available as input tax credit on account of being subsumed in GST and the credit thereof is now available for payment of duty. Similarly, VAT exemptions did not envisage exemption from service tax and excise duty, which is now available as input credit on account of being subsumed in GST. In this changed scenario, the Government has decided to grandfather the incentives that were given to specific industry under the existing industrial polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fiscal incentive 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. 26. Now let us also examine as to whether the Budgetary Support Scheme reveals the half hearted approach of Respondent No.1, as has been sought to be projected by the Petitioner. The Respondent No.1 is giving Budgetary Support Scheme to the extent of 58% on the premise that, to that extent, the share is devolved upon the Central Government and the remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 upon the States. The States are not bound to take a cut on the tax collected from the Petitioner under any statute or any equitable principle such as promissory estoppel. 27. The Finance Commission's Reports, which are recommendations in terms of Article 280 (3) (a) of the Constitution, are recommendations of the Finance Commission regarding, inter alia, the sharing of the Union Tax Revenue. The said 14th Finance Commission's Report is valid for a period of five years from 1st April 2015 till 31st March 2020. The Finance Commission Report does provide for tax devolution of 42% to the State. Mr. Ganesh has argued that the sharing of Revenue existed even in the erstwhile regime and, therefore, that cannot be the rationale behind the restriction of the budgetary support to the extent of the Central Government share therein. We however, do not agree with this contention of Mr. Ganesh. Firstly, for the reason, that it is not for the Petitioner to question the sharing of Revenues that have been reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tax Act was issued to the appellants and this was contested by the Appellants on the ground that they were under no obligation to furnish any return under the said Act as they were exempt from the payment of building tax as per the G.O and Section 3-A. By letter dated 06.02.1997, the exemption promised by the G.O of 1986 was denied to the appellants stating that as Section 3-A had been omitted w.e.f. 01.03.1993, the power to grant exemption had itself gone and, therefore, no such exemption could be given to the appellants. Thus, the issue for consideration before the Court was that whether the appellant was entitled to claim exemption from payment of property tax under the Kerala Building Tax Act, 1975, as amended, as per Section 3-A, on ground of promissory estoppel. The said Section 3-A came in force from 06.11.1990 and had been later omitted w.e.f. 01.03.1993. The Court in this case noted in paragraph 36 as follows: "36 ....This would make it clear that from 06.011.1990 to 01.03.1993, the power to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 promissory estoppel can be invoked against a legislative act, because in the present case, the government has clearly acted in accordance with the law laid down by the Parliament. When the law itself has undergone a complete revision, can the doctrine of promissory estoppel still be invoked, in light of Section 174(2) (c) of the CGST Act? The issue that arises in the present petition has been firmly established in a string of judgments and is no longer a point which is untouched by dictum. 33. We may in this connection refer to the decision of the Supreme Court in the case of Shree Sidhbali Steels Ltd. And Ors. Vs. State of U.P and Ors., (2011) 3 SCC 193. The facts of this case were that a new Industrial Policy dated 30.4.1990 was declared by the State Government assuring the grant of 33.33% hill development rebate on the total amount of electricity bills to new entrepreneurs for a period of 5 years. This period was extended by another period of 5 years to be made available to new industrial units set up till 31.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 granted to the industries set up in the hill areas regarding rebate in the electricity charges, was completely withdrawn. What is relevant to notice is that it is not in dispute that the Notification dated 7-8-2000 withdrawing the benefits granted earlier, was issued in exercise of powers conferred by Section 24 of the Uttar Pradesh Electricity Reforms Act, 1999. The abovementioned fact makes it evident that the benefits, which were granted and/or curtailed in exercise of statutory powers, were subsequently withdrawn in exercise of another statutory power conferred by another statute, namely, the Uttar Pradesh Electricity Reforms Act, 1999. In the light of the abovementioned facts, the question whether the principle of promissory estoppel would apply to exercise of statutory powers will have to be considered. 32. x x x 33. Where public interest warrants, the principles of promissory estoppel cannot be invoked. The Government can change the policy in public interest. However, it is well settled that taking c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation 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 requires that a particular act should be done in a particular manner and if it is found, as we have found hereinbefore, that the act done by the Government is invalid and ineffective for non-compliance with the mandatory requirements of law, it would be rather curious if it is held that notwithstanding such non-compliance, it yet constitutes a 'promise' or a 'representation' for the purpose of invoking the rule of promissory/equitable estoppel. Accepting such a plea would amount to nullifying the mandatory requirements of law besides providing a licence to the Government or other body to act ignoring the binding provisions of law. Such a course would render the mandatory provisions of the enactment meaningless and superfluous. Where the field is occupied by an enactment, the executive has to act in accordance therewith, particularly where the provisions are mandatory in nature. There is no room for any administrative action or for doing the thing ordained by the statute otherwise than in accordance therewith. Where, of course, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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