2020 (3) TMI 292 - HC - GST

Court upholds withdrawal of GST exemption, introduces limited support scheme. Petitioner lacks vested right.

M/s. Hero Motocorp Ltd. Versus Union Of India & Ors.

The court upheld the validity of withdrawing the exemption notification and introducing a limited budgetary support scheme under the new GST regime. It ... Continuation of area Based Exemption under GST regime as granted under central excise - doctrine of promissory estoppel - benefit of N/N. 50/2003- C.E, dated 10.06.2003 - establishment of new industrial unit - complete exemption by way of reimbursement of the amount of Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) for the residual period of exemption notification. HELD 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 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. 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 make recommendations to the Union and States, inter alia, on issues relating to special provision with respect to the States of Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand. The GST Council in its meeting held on 30.09.2016, left it to the discretion of the Central Government and State Government to notify schemes of Budgetary Support to units where the erstwhile schemes were in operation on 18.07.2017 - Accordingly, the Central Government provided the Budgetary Support to eligible units for the residual period by way of part re-imbursement of goods and service tax paid by the unit, limited to Central Government’s share of CGST and IGST retained after devolution of part of these taxes to the States. 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? - HELD THAT:- The plea of promissory estoppel cannot be enforced against an act done in accordance with the statutory provisions of law. Under Section 174 (2) (c) of the CGST Act, express provision has been made by the Parliament to provide that any tax exemption granted as an incentive against investment through a notification under, inter alia, the erstwhile Central Excise Act, shall not continue as a privilege if the said notification is rescinded, and in the present case, the notification which granted 100% excise duty exemption was, in fact, rescinded. Thus, in the absence of any challenge by the Petitioner to the rescission of the said notification which granted exemption or to the vires of the proviso to Section 174 (2) (c) of the CGST Act, no plea of promissory estoppel is maintainable. The language used in the proviso to Section 174 (2) (c) is clear and unequivocal, and leaves no room for a different interpretation. Petition dismissed. Issues Involved:1. Whether the withdrawal of the exemption notification and introduction of the limited budgetary support scheme is valid.2. Whether the principle of promissory estoppel can be invoked against the legislative act of rescinding the exemption notification.3. Whether the petitioner has a vested right to claim complete exemption or full budgetary support under the new GST regime.Detailed Analysis:Issue 1: Validity of Withdrawal of Exemption Notification and Introduction of Limited Budgetary Support Scheme- The petitioner, engaged in manufacturing two-wheelers in Uttarakhand, was initially granted 100% Central Excise Duty exemption for 10 years under the 2003 notification. However, with the introduction of GST on 01.07.2017, this exemption was rescinded by Notification No. 21/2017-CE.- The petitioner argued that the withdrawal of the exemption caused financial hardships and sought complete exemption or full budgetary support for the residual period.- The court noted that the GST regime overhauled the entire indirect tax structure, making the Central Excise Act, 1944, and related exemptions obsolete. The new GST laws did not envisage such exemptions, and the government provided partial budgetary support instead.- The court concluded that the withdrawal of the exemption and the introduction of the limited budgetary support scheme were consistent with the new tax regime and the recommendations of the GST Council.Issue 2: Applicability of Promissory Estoppel Against Legislative Act- The petitioner invoked the principle of promissory estoppel, arguing that the government should adhere to its promise of granting 100% exemption for 10 years.- The court referred to several judgments, including Shree Sidhbali Steels Ltd. Vs. State of U.P and I.T.C Bhadrachalam Paperboards Vs. Mandal Revenue Officer, to establish that promissory estoppel cannot be invoked against legislative acts or statutory provisions.- The court emphasized that Section 174 (2) (c) of the CGST Act explicitly states that any tax exemption granted as an incentive through a notification shall not continue as a privilege if the notification is rescinded.- Therefore, the court held that the principle of promissory estoppel could not be applied to compel the government to continue the exemptions under the new GST regime.Issue 3: Vested Right to Complete Exemption or Full Budgetary Support- The petitioner claimed a vested right to complete exemption or full budgetary support under the new GST regime, based on the 2003 policy and exemption notification.- The court clarified that the fiscal benefits promised under the previous regime were privileges granted under laws that no longer existed. With the introduction of GST, the entire tax structure and the basis for exemptions had changed.- The court noted that the new GST laws provided for input tax credit and seamless transfer of credits, which were not available under the previous regime. This change fundamentally altered the nature of tax exemptions and benefits.- The court concluded that the petitioner did not have a vested right to claim complete exemption or full budgetary support under the new GST regime. The limited budgetary support provided by the government was a measure of goodwill and not a continuation of the previous exemptions.Conclusion:- The court dismissed the petition, holding that the withdrawal of the exemption notification and the introduction of the limited budgetary support scheme were valid and consistent with the new GST regime.- The principle of promissory estoppel could not be invoked against the legislative act of rescinding the exemption notification.- The petitioner did not have a vested right to claim complete exemption or full budgetary support under the new GST regime.