2024 (3) TMI 783 - HC - GST

VAT incentive scheme benefits continue under GST regime despite transition, promissory estoppel doctrine applies

Adani Wilmar Limited and another Versus The State of West Bengal and others

Calcutta HC held that petitioners remained entitled to benefits under a VAT-era incentive scheme despite transition to GST regime. The court found Clause ... Doctrine of promissory estoppel - Benefit under incentive Scheme - Scenarios of new Acts replacing the VAT Act, ensuring entitlement despite the GST regime - refusal to disburse the rest of the amount of the scheme on the plea that in the altered GST regime, the scheme cannot be continued, since the scheme did not contemplate of such tax - HELD THAT:- A close scrutiny of Clause 19.2 of the subsidy scheme indicates that the same specifically stipulates that in the event of the West Bengal Value Added Tax Act, 2003 “being replaced by any other Act”, the provision of the Scheme will apply mutatis mutandis even after the new Act comes into force - Thus, in the absence of any other Act being introduced apart from the GST Act, which has subsumed the VAT Act, the argument advanced by the respondents cannot be accepted. Admittedly and even as per such judgment as cited by the respondents, the said component is also envisaged within the GST scheme of things. Both the Centre and States have their respective shares in the GST taxes. Hence, it cannot be said that the respondents would be deprived of any component if the petitioners come within the purview of the GST scheme - In the present case, the petitioners were issued both RC-I and RC-II and the petitioners’ application under the subsidy scheme was duly sanctioned. The petitioners, in fact, have continued commercial production under the specific promise made by the State of giving the incentive/subsidy under the scheme-in question - the doctrine of promissory estoppel is squarely applicable in the present case. The sanction was granted to the petitioners under the said Scheme, thereby clearly admitting the fact and acquiescing to the position that the petitioners were entitled to the benefits of the scheme - the petitioners are squarely entitled to claim the benefits of the subsidy scheme-in-question even after coming into force of the GST Act, as per Clause 19. 2 of the Scheme. The respondent authorities have acted palpably de hors the scope of the scheme in passing the impugned order dated February 17, 2022 authored by the Managing Director, West Bengal Industrial Development Corporation Limited where it has been held that the petitioners are not eligible for disbursement/sanction for incentive under the Scheme. The said order is, thus, set aside - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an incentive/subsidy scheme's benefit continues to be payable after the introduction of the GST regime when the scheme contains a clause providing that provisions will apply mutatis mutandis if the State VAT Act is replaced by 'any other Act'. 2. Whether promissory estoppel (or related equitable estoppel) can be invoked to compel disbursal of incentives where the authority issued registration certificates and partially disbursed amounts, and the beneficiary continued commercial production in reliance on the scheme. 3. Whether an executive authority may, after issuing registration certificates and disbursing part payment, initiate a fresh scrutiny/hearing under a scheme provision (Clause 7.2) to deny entitlement-i.e., whether such a belated notice is permissible or barred by estoppel. 4. Whether the petitioner fell within the definitional ambit of 'new unit' (Clause 3.1.6.3) where the sanctioned expansion allegedly concerned a product that the unit previously produced, such that entitlement under the scheme is precluded. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of GST subsuming VAT on continuity of scheme benefits (Clause 19.2) Legal framework: The scheme contains Clause 19.2 stating that if the West Bengal Value Added Tax Act, 2003 is replaced by any other Act, the scheme provisions will apply mutatis mutandis after the new Act comes into force. The GST Act is acknowledged to have subsumed pre-existing indirect tax statutes, including VAT. Precedent Treatment: The court considered higher court observations that GST subsumed indirect taxes but noted no other statute replacing the VAT Act was invoked apart from the GST regime. A coordinate bench decision addressing the same clause was relied upon by petitioners and ultimately upheld on appeal up to the apex forum. Interpretation and reasoning: Clause 19.2 is unambiguous in addressing replacement of the VAT Act by 'any other Act'; GST, having subsumed VAT, falls within the natural reading of that clause. The respondent's narrower contention-that Clause 19.2 contemplates only a statute replacing VAT and not a broader subsuming tax regime-was rejected because GST in substance replaced the VAT statute for purposes of indirect taxation and the clause uses a broad expression 'any other Act'. The respondents' submission about Centre-State distinction in tax entitlement was held irrelevant where GST's design contemplates sharing between Centre and State. Ratio vs. Obiter: Ratio. The Court's conclusion that Clause 19.2 covers substitution by the GST regime and thereby preserves scheme applicability is central to the decision. Conclusions: The scheme continues to apply after GST; entitlement under the scheme is not negated merely because VAT was subsumed into GST. Issue 2 - Applicability of promissory estoppel to incentive schemes where representations and partial disbursal occurred Legal framework: Principles of estoppel/promissory estoppel, including that a public authority may be estopped from repudiating a representation where the beneficiary has acted to its detriment in reliance and the authority has acquiesced by conduct (granting registrations, sanctioning, part payment). Precedent Treatment: The respondents contended that incentives are concessional and estoppel doctrines do not apply; the Court examined both precedent and factual conduct, noting evolution of law permitting estoppel where clear representation and reliance exist. Interpretation and reasoning: The authority issued RC-I and RC-II, sanctioned the application, and disbursed a substantial sum including after GST came into force. The petitioner continued commercial production in reliance on the promise. Such conduct by the authority and detrimental reliance by the petitioner satisfy the elements of promissory estoppel; the plea that schemes are mere concessions and therefore immune to estoppel was held inapposite where the authority's conduct had created and reaffirmed the representation. Ratio vs. Obiter: Ratio. The Court applied promissory estoppel as a decisive ground for compelling disbursal where representation, reliance and partial performance/disbursement existed. Conclusions: Promissory estoppel applies; the authority is estopped from denying entitlement after issuing registrations and making part payment and after the petitioner's reliance by continuing production. Issue 3 - Validity of belated notice/hearing under Clause 7.2 following registration and part disbursal Legal framework: Scheme provisions permitting hearings or scrutiny (Clause 7.2) must be exercised consistently with representations already given and consistent with principles of fairness and estoppel. Precedent Treatment: The respondents relied on Clause 7.2 to justify issuance of a notice during pendency of litigation; the Court considered timing and substance of the notice vis-à-vis prior conduct and payments. Interpretation and reasoning: The notice issued after registration and substantial disbursal was characterized as a belated attempt to frustrate entitlement and render the writ infructuous. Given the prior clear representation (RC-II) and part disbursal, the respondents were barred by estoppel from reopening entitlement on flimsy grounds during pendency. The Court held the notice palpably contrary to prior representation and beyond the scheme's legitimate scope at that stage. Ratio vs. Obiter: Ratio. The setting aside of the belated notice is central to the remedy ordered. Conclusions: The belated notice and any consequential acts were unlawful and set aside; authorities cannot invoke Clause 7.2 to reopen finalized entitlements after acquiescence and disbursal. Issue 4 - Entitlement under the 'new unit' definition where the product was previously manufactured Legal framework: Clause 3.1.6.3 defines 'new unit' to include expansion for a new product in same location of an existing unit registered under a previous scheme; entitlement depends on whether the expansion concerned a genuinely new product. Precedent Treatment: Respondents raised the point belatedly at final hearing; no earlier challenge was taken during sanctioning or registration processes. Interpretation and reasoning: The contention that the product was not new was not pressed earlier and was implicitly accepted (or at least acquiesced to) by the authority when sanctioning the benefit and issuing registrations. Raising the objection only at final hearing was treated as an afterthought. In the circumstances, and given prior sanction and disbursal, respondents were precluded from asserting this ground belatedly. Ratio vs. Obiter: Ratio as applied to the facts: while the substantive question of whether the product qualifies as 'new' remains a matter of scheme interpretation, on the facts the authority's prior sanction and conduct estop it from denying entitlement on that basis now. Conclusions: The belated contention that the product was not 'new' is barred; petitioners are entitled to the benefits as sanctioned. Remedial Conclusion The impugned order denying entitlement and the subsequent notice fixing a hearing are set aside; the authority was directed to disburse the balance amount subject to compliance with remaining formalities within a stipulated timeframe. No costs were ordered.