Companies denied budgetary support as separate legal entities from original manufacturers under exemption notification 20/2007-CE

The Sikkim HC dismissed writ petitions by two companies seeking budgetary support under the Budgetary Support Scheme. The court held that the scheme provided support to existing manufacturing units operating in Sikkim under previous industrial promotional schemes, not to new legal entities. Since both petitioners were separate legal entities from the original manufacturers who had invested in Sikkim and were eligible under exemption notification 20/2007-CE, they could not claim entitlement to budgetary support for the residual period. The scheme supported units that had made investments but couldn't enjoy full exemption benefits due to GST regime implementation.

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Issues Involved:
1. Entitlement to budgetary support under the Budgetary Support Scheme.
2. Effect of change in ownership on eligibility for budgetary support.
3. Interpretation of the Budgetary Support Scheme and related legal provisions.

Summary:

Issue 1: Entitlement to Budgetary Support under the Budgetary Support Scheme

The primary issue in both writ petitions is whether the petitioners, Zydus Wellness Products Limited and Alkem Laboratories Limited, are entitled to budgetary support under the Budgetary Support Scheme. Zydus Wellness Products Limited seeks budgetary support for the "residual period" for which Zydus Wellness Sikkim was entitled to exemption under Notification No. 20/2007-C dated 25.4.2007. Similarly, Alkem Laboratories Limited seeks direction to allocate a fresh Unique Identity (UID) for Unit-V and process the verification and claim applications under the Budgetary Support Scheme for the "residual period" for which Cachet Pharmaceuticals Private Limited was entitled to exemption under the same notification.

Issue 2: Effect of Change in Ownership on Eligibility for Budgetary Support

The respondents argue that the change in ownership and the grant of fresh UID and registration number disqualify the petitioners from availing budgetary support as they are considered new legal entities. The petitioners contend that the Budgetary Support Scheme provides support to "eligible units" and not to the owners thereof. The court examined the definitions of "eligible unit" and "residual period" under the Budgetary Support Scheme and concluded that the scheme was intended to support those "eligible units" for the "residual period" not exceeding ten years of commercial production during which they would have been eligible to avail exemption for the specified goods under exemption notification no. 20/2007-CE.

Issue 3: Interpretation of the Budgetary Support Scheme and Related Legal Provisions

The court noted that the Budgetary Support Scheme was a concession and not an exemption, and it must be strictly construed keeping in mind the intention of the Government of India. The scheme was limited to the tax which accrues to the Central Government under the CGST Act, 2017 and IGST Act, 2017. The court also referred to the definitions of "manufacture" and "person" under the CGST Act, 2017, and concluded that Zydus Nutritions Limited (later Zydus Wellness Products Limited) and Alkem Laboratories Limited were required to be registered under section 22 after the change in ownership. Consequently, both petitioners, being separate and distinct legal entities from the previous "persons," could not have filed the application for budgetary support under paragraph 7 of the Budgetary Support Scheme.

Conclusion:
The court dismissed both writ petitions, holding that neither Zydus Wellness Products Limited nor Alkem Laboratories Limited were "eligible units" as defined under the Budgetary Support Scheme and thus not entitled to the budgetary support. The respondents were directed to dispose of any pending applications from Alkem Laboratories Limited in terms of this judgment.

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