2022 (10) TMI 677 - SC - GST

Supreme Court rules promissory estoppel cannot override statutory provisions when government withdraws tax exemptions under Section 174(2)(c)

The SC held that promissory estoppel cannot operate against statutory provisions. The Union Government withdrew tax exemption notifications under Section ... Doctrine of promissory estoppel - promissory estoppel against the State - estoppel vis-a -vis legislative change - proviso to Section 174(2)(c) of the CGST Act - rescission of tax exemption notifications - writ of mandamus - requirement of statutory duty - legitimate expectation - GST Council recommendations and budgetary support mechanismProviso to Section 174(2)(c) of the CGST Act - rescission of tax exemption notifications - estoppel vis-a -vis legislative change - Whether the Union of India can be compelled to adhere to the representation made in the Office Memorandum of 2003 after enactment of the CGST Act - HELD THAT: - The Court held that Section 174(2)(c) of the CGST Act preserves rights accrued under repealed enactments but its proviso explicitly provides that any tax exemption granted as an incentive through a notification shall not continue as a privilege if the notification is rescinded on or after the appointed day. Notification No.21/2017 rescinded earlier area based exemption notifications in exercise of that statutory mandate. To permit enforcement of the 2003 representation would render the statutory proviso otiose and operate as an estoppel against the legislative function of Parliament. Established precedents (including Constitution Bench and subsequent authorities) consistently hold that promissory estoppel cannot be made to operate so as to frustrate valid legislative change or to override a statutory rescission made in the public interest. Applying those principles, the claim to compel the Union to continue the 2003 exemption after the CGST enactment was rejected. [Paras 30, 31, 55, 56, 58]The Union cannot be compelled to adhere to the 2003 Office Memorandum in lieu of the statutory rescission effected under the proviso to Section 174(2)(c) of the CGST Act; the estoppel claim fails.Doctrine of promissory estoppel - promissory estoppel against the State - Whether the doctrine of promissory estoppel can operate against a change in law or statute enacted in public interest (i.e., whether estoppel can be invoked to prevent withdrawal of an exemption following legislative or policy change) - HELD THAT: - Surveying the Court's jurisprudence, including Constitution Bench and multi judge decisions, the Court reiterates the settled principle that promissory estoppel cannot be applied to fetter the legislative power of the State or to prevent the State from changing policy where such change is in the larger public interest. While representations made by public authorities may bind officers acting within their authority and may be enforced where equity requires, that equitable principle yields when the State validly exercises legislative power or when a statutory provision expressly rescinds earlier privileges. The Court applied these authorities to conclude that promissory estoppel will not rescue the appellants' claim in the face of a valid statutory scheme and public interest considerations underlying GST reform. [Paras 36, 38, 54, 56, 57]Promissory estoppel cannot be invoked to restrain or negate a valid legislative change or rescission of exemptions enacted in public interest; the appellants' estoppel-based claims fail.Writ of mandamus - requirement of statutory duty - Whether a writ of mandamus can be issued against the Union to direct reimbursement of 100% of CGST in place of the 58% budgetary support - HELD THAT: - A writ of mandamus issues to compel performance of a public duty imposed by statute or to correct failure or mala fide exercise of statutory discretion. The Court found no statutory obligation on the Union to reimburse 100% of CGST; the decision to reimburse (and its quantum) is a policy choice made after GST implementation and under recommendations of the GST Council. In absence of a legal duty cast on the Union to provide the full reimbursement, mandamus would not lie. The Court further noted established authorities that mandamus cannot be used to compel exercise of discretionary policy power in a particular manner unless that discretion is shown to be exercised unlawfully. [Paras 60, 61, 62, 63, 64]A writ of mandamus compelling the Union to reimburse 100% of CGST cannot be issued because no statutory duty to that effect is shown to exist.Legitimate expectation - GST Council recommendations and budgetary support mechanism - Whether the appellants' reliance on the 2003 policy gives rise to any relief or remedial avenue despite legal rejection of estoppel and mandamus claims - HELD THAT: - The Court acknowledged that the appellants established units in reliance on the 2003 policy and, although their legal claims failed, they possess a legitimate expectation deserving consideration. The GST Council had deliberated on treatment of earlier incentives and resolved that continuance would be by way of budgetary reimbursement, with Centre's share at 58% and States expected to consider corresponding reimbursement out of devolved shares. In light of this, the Court declined to grant the substantive relief sought but permitted the appellants to make representations to their respective State Governments and to the GST Council, and requested that those representations be considered expeditiously and in accordance with the Court's observations. [Paras 76, 77, 78, 79, 80]While no legal entitlement to 100% reimbursement was recognised, the appellants have a legitimate expectation; they are permitted to make representations to State Governments and the GST Council, which are requested to consider them expeditiously.Final Conclusion: The appeals are dismissed. The Court held that the representation in the 2003 Office Memorandum cannot be enforced against the Union by promissory estoppel or by mandamus after the statutory rescission effected under the proviso to Section 174(2)(c) of the CGST Act and in the light of GST related public interest considerations; however, the appellants' legitimate expectation is recognised and they are permitted to make representations to the State Governments and the GST Council for consideration of reimbursement in accordance with the Court's observations. Issues Involved:1. Whether the Union of India can be directed to adhere to the representation made in the Office Memorandum dated 7th January 2003 after the enactment of the Central Goods and Services Tax Act, 2017.2. Whether the doctrine of promissory estoppel applies against the Union of India in this context.3. Whether a writ of mandamus can be issued to the Union of India to provide 100% reimbursement of CGST for the remainder of the period.Issue-wise Detailed Analysis:1. Adherence to Representation in Office Memorandum of 2003 Post-CGST Act, 2017:The appellants argued that the Union of India should adhere to the representation made in the Office Memorandum dated 7th January 2003, which promised 100% tax exemption for ten years. However, the enactment of the CGST Act, 2017, and the subsequent Notification No.21/2017-CE dated 18th July 2017 rescinded the earlier tax exemptions. The court noted that the legislative change brought about by the 101st Amendment Act and the CGST Act introduced a uniform tax structure across the country, which superseded the earlier tax exemption schemes. The court emphasized that the proviso to Section 174(2)(c) of the CGST Act specifically states that any tax exemption granted as an incentive against investment through a notification shall not continue as a privilege if the said notification is rescinded.2. Doctrine of Promissory Estoppel:The appellants contended that the Union of India is estopped from resiling from the representation made in the Office Memorandum of 2003. The court, however, held that promissory estoppel cannot operate against a statute. It cited various precedents, including Constitution Bench judgments, which consistently held that there can be no promissory estoppel against the exercise of legislative functions. The court concluded that the claim of the appellants on the basis of promissory estoppel is without merit, as accepting such a claim would render the proviso to Section 174(2)(c) of the CGST Act redundant and otiose.3. Issuance of Writ of Mandamus:The appellants sought a writ of mandamus directing the Union of India to provide 100% reimbursement of CGST for the remainder of the period. The court reiterated that a writ of mandamus can only be issued where there is a statutory duty imposed upon the officer concerned, and there is a failure to discharge that duty. In this case, there was no statutory duty cast on the Union of India to grant 100% refund of CGST. The court also noted that the discretion to grant exemptions under Section 11 of the CGST Act lies with the Central Government, which must act on the recommendations of the GST Council. The court found that the relief sought by the appellants could not be granted as there was no statutory duty or obligation on the Union to provide the claimed reimbursement.Conclusion and Observations:The court dismissed the appeals, holding that the appellants' claims based on promissory estoppel and the request for a writ of mandamus were without substance. However, the court acknowledged the legitimate expectation of the appellants, given their reliance on the 2003 policy to establish their industrial units. The court suggested that the respective State Governments and the GST Council consider providing corresponding reimbursements from the share of revenue received through devolution. The court permitted the appellants to make representations to the State Governments and the GST Council and requested these bodies to consider such representations expeditiously.Final Disposition:The appeals were dismissed, with the court making specific observations regarding the legitimate expectations of the appellants and suggesting that the State Governments and the GST Council consider the appellants' representations for reimbursement. Pending applications were disposed of, and no order as to costs was made.