Industries can make representations to government after GST benefit cuts under NEIIPP 2007 despite legitimate expectations

HC dismissed writ petition challenging constitutional validity of notification curtailing GST reimbursement benefits under NEIIPP 2007. Industries established units in northeastern region based on promised incentives but faced reduced benefits after GST implementation. Court applied doctrine of promissory estoppel, noting government's solemn representation created legitimate expectations. However, following SC precedent in Hero Motocorp case, HC found no legal claim but acknowledged legitimate expectation deserving consideration. Industries permitted to make representations to State Government and GST Council for expeditious consideration of their grievances regarding withdrawn benefits.

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Issues Involved:

1. Validity of Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017.
2. Application of Doctrine of Promissory Estoppel.
3. Application of Doctrine of Legitimate Expectation.
4. Impact of GST regime on pre-existing tax exemptions under NEIIPP, 2007.
5. Jurisdiction and authority of the government to rescind tax exemptions.

Detailed Analysis:

1. Validity of Notification No. F.No.10(1)/2017-DBA-II/NER dated 05.10.2017:
The primary challenge in all the writ petitions was against the Notification dated 05.10.2017, which framed a scheme of budgetary support under the GST regime for units in the North East, among other regions. The petitioners argued that this notification curtailed the benefits promised under the North East Industrial and Investment Promotion Policy (NEIIPP), 2007, and was thus violative of the Doctrine of Promissory Estoppel and Legitimate Expectation. The government contended that the GST regime necessitated changes in the tax exemption structure and that the budgetary support scheme was introduced to mitigate the hardships faced by industries due to the rescission of the earlier exemption notifications.

2. Application of Doctrine of Promissory Estoppel:
The petitioners argued that the government was bound by the promises made under NEIIPP, 2007, which provided for 100% excise duty exemption. They claimed that they had altered their positions based on these promises, making substantial investments. The respondents countered that the doctrine of promissory estoppel could not be invoked against legislative functions, especially when public interest necessitated a change in policy. The court noted that while the doctrine of promissory estoppel prevents the government from going back on its promises, it must yield when overriding public interest demands it. The court referred to the Apex Court's decision in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P., which outlined the conditions for the application of the doctrine.

3. Application of Doctrine of Legitimate Expectation:
The petitioners also invoked the doctrine of legitimate expectation, arguing that the government's promise under NEIIPP, 2007, created a legitimate expectation of continued tax exemptions. The court observed that the doctrine of legitimate expectation is broader than promissory estoppel and encompasses expectations based on past conduct or policy statements. The court referred to the Apex Court's decision in Union of India v. Anglo Afgan Agencies, which emphasized that the government must act fairly and transparently, honoring its promises unless there is an overriding public interest.

4. Impact of GST regime on pre-existing tax exemptions under NEIIPP, 2007:
With the introduction of the GST regime on 01.07.2017, various central taxes, including excise duty, were subsumed under GST. The petitioners argued that the benefits under NEIIPP, 2007, should continue despite the new tax regime. The respondents contended that the GST regime necessitated the rescission of earlier exemption notifications, as provided under Section 174(2)(c) of the CGST Act. The court noted that the GST regime brought about significant changes in the tax structure, and the rescission of exemption notifications was a statutory requirement.

5. Jurisdiction and authority of the government to rescind tax exemptions:
The respondents argued that under Section 174(2)(c) of the CGST Act, any tax exemption granted as an incentive against investment through a notification would not continue as a privilege if the notification was rescinded. The court upheld this provision, noting that the legislature had the authority to rescind exemption notifications in the public interest. The court referred to the Apex Court's decision in Hero Motorcorp Limited v. Union of India, which held that there could be no estoppel against the legislature in the exercise of its legislative functions.

Conclusion:
The court dismissed the writ petitions, holding that the rescission of exemption notifications under the GST regime was in accordance with statutory provisions and public interest. The court granted the petitioners the liberty to make representations to the respective State Governments and the GST Council, which would be given due consideration in an expeditious manner. The decision was guided by the principles of promissory estoppel and legitimate expectation, balanced against the statutory requirements and public interest considerations under the GST regime.

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