Central Goods And Services Tax Act, 2017: ss.. 11 , 174(2)(c) – Repeal and saving – Tax exemption – Office Memorandum of 2003 provided 100 % exemption of excise duty for 10 years from the date of commencement of commercial production in the State of Uttrakhand and Himachal Pradesh to new industrial units and existing industrial units – Appellants availed the exemption for the said period whereafter the Goods and Service Tax regime came into existence and the benefit being enjoyed by the appellants was reduced to 58% through the Budgetary Support Policy – Writ petitions challenging the same, dismissed by the High Court – On appeal, held: Though the first part of clause (c) of sub-section (2) of s. 174 would protect any right, privilege, obligation, etc. under the amended Act or repealed Acts, the proviso thereto provides that any tax exemption granted as an incentive against investment shall not continue as a privilege if the said notification is rescinded on or after the appointed day – Benefit which was granted under the 2003 Notification stands rescinded in view of the notification issued under proviso to clause (c) of sub-section (2) of s. 174 – When the legislature exercises its powers for the public good, the earlier representation would not operate against the Government as equitable estoppels – There can be no promissory estoppel against the exercise of the legislative functions of the State – If the plea of appellants is accepted, it would amount to enforcing a representation made in the said O.M. and Notification of 2003 contrary to the legislative incorporation in the proviso to s. 174(2)(c) – Thus, the claim of the appellant on estoppel is rejected – However, the appellants permitted to make representations to the respective State Government and the GST Council.
Doctrine of promissory estoppel – Applicability of, against the the legislature in the exercise of its legislative functions – When a subsequent statute specifically providing for rescinding the benefits granted under an earlier statute, can the Union Government be compelled to stand by the representation made by it through the earlier notification – Explained and discussed.
Writ of Mandamus – Issuance of – When – Held: Writ of mandamus can be issued where the Authority has failed to exercise the discretion vested in it or has exercised such a discretion malafidely or on an irrelevant consideration – A writ of mandamus cannot be issued to the Central Government to exercise power under Section 11 of the CGST Act in a particular manner –This Court cannot interfere in policy matters of the Government unless such policy is found to be palpably arbitrary and irrational.
Dismissing the appeals, the Court
HELD: 1.1 Though the first part of clause (c) of sub-section
(2) of Section 174 of the Central Goods And Services Tax Act, 2017 would protect any right, privilege, obligation, etc. under the amended Act or repealed Acts, the proviso thereto provides that any tax exemption granted as an incentive against investment shall not continue as a privilege if the said notification is rescinded on or after the appointed day. Admittedly, vide Notification No.21/2017 dated 18th July 2017, various earlier area-based exemption notifications have been rescinded. It is thus clear that the benefit which was granted under the 2003 Notification stands rescinded in view of the notification issued under proviso to clause (c) of sub-section (2) of Section 174 of the CGST Act. [Para 30][610-GH; 611-A-B]
1.2 There can be no estoppel against the legislature in the exercise of its legislative functions. The Constitution Bench in the case of M. Ramanatha Pillai’s case has approved the view in American Jurisprudence that the doctrine of estoppel will not be applied against the State in its governmental, public or sovereign capacity. It further held that the only exception with regard to applicability of the doctrine of estoppel is where it is necessary to prevent fraud or manifest injustice. [Para 54][624-E-G]
1.3. Undisputedly, the Notification dated 18th July 2017 withdrawing the exemption notifications was issued in pursuance of the statutory mandate as provided under Section 174(2)(c) of the CGST Act. If the contention as raised by the appellants is to be accepted, it would make the provisions under the proviso to Section 174(2)(c) of the CGST Act redundant and otiose. The legislature in its wisdom has specifically incorporated the proviso to Section 174(2)(c) providing therein that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded. If the contention is accepted, it will amount to enforcing a representation made in the said O.M. of 2003 and 2003 Notification contrary to the legislative incorporation in the proviso to Section 174(2)(c) of the CGST Act. In other words, it will permit an estoppel to be operated against the legislative functions of the Parliament. The claim of the appellants on estoppel is without merit and is to be rejected. [Para 55][624-G-H; 625-A-C]
1.4 When an exemption granted earlier is withdrawn by a subsequent notification based on a change in policy, even in such cases, the doctrine of promissory estoppel could not be invoked. Where the change of policy is in the larger public interest, the State cannot be prevented from withdrawing an incentive which it had granted through an earlier notification. [Para 56][625-C-E]
1.5 Even on the ground of change of policy, which is in public interest or in view of the change in the statutory regime itself on account of the GST Act being introduced as in the instant case, itwould not be correct to hold the Union bound by the representation made by it, i.e. by the said O.M. of 2003. Further, this would be contrary to the statutory provisions as enacted under Section 174(2)(c) of the CGST Act. [Para 58][626-B-C]
1.6 Unless the appellants show any statutory duty cast upon the respondent-Union of India to grant them 100% refund, a writ of mandamus as sought could not be issued. A writ of mandamus can be issued where the Authority has failed to exercise the discretion vested in it or has exercised such a discretion malafidely or on an irrelevant consideration. In the instant case, there is no duty cast on the Union to refund 100% of CGST. as such, the relief as sought cannot be granted. [Para 61, 62, 64][627C-D; 627-H; 628-A; 628-F-G]
1.7. A writ of mandamus cannot be issued to the Central Government to exercise power under Section 11 of the CGST Act in a particular manner. In any case, it is a matter of policy which has to be determined by the Union/State while taking a decision as to whether it should grant exemption from payment of CGST or make a budgetary allocation for refund of the tax paid. In any case, such power can be exercised by the Central Government only on the recommendations of the GST Council. The Central Government was not bound to continue with a representation made by it in 2003 in view of the change of law by the enactment of the CGST Act. However, in order to partly honour the representation made by it, it has decided to refund 58% of the CGST paid by the entities. It is more than settled that this Court cannot interfere in policy matters of the Government unless such policy is found to be palpably arbitrary and irrational. In that view of the matter, the Court does not find that the claim made on the basis of Section 11 of the CGST Act is of any substance. [Para 71][630-D-G]
1.8 Though the appellants’ claim based on promissory estoppel is without substance, this is not a case wherein it can be said that the appellants’ claim is wholly without any substance. [Para 72][630-G-H]
1.9 The appellants have established their industrial units based on the industrial policy as reflected in the said O.M. of 2003. The policy of the year 2003, in question, was based on the statement made by the Hon’ble Prime Minister during his visit to Uttarakhand. As such, the policy was framed to bring into effect the statement made by the highest executive functionary of the country. Relying on the said policy, the appellants have established their units. Though the appellants may not have a claim in law, they do have a legitimate expectation that their claim deserves due consideration. [Para 73][630-H; 631-A-B]
1.10 The GST Council has noticed that the Central and State Governments had given various incentives of Central Excise and Value Added Tax (VAT) and Central Sales Tax (CST) so as to encourage investment in those States. It also took notice of the fact that such incentives could not be continued as supplies would need to be made on payment of tax to permit flow of tax to the destination state. The solution that was suggested was to provide for budgetary apportionment in the State and the Central budgets for reimbursing the tax paid to those units which enjoyed tax exemption up to a specified period. [Para 75][631-H; 632-A-B]
1.11 In the deliberations of the GST Council itself, it was observed that the States also need to correspondingly reimburse the industrial units which were entitled to exemption under any existing incentive scheme, out of the share of revenue received through devolution, which, as per the Finance Commission, stands at 42%. [Para 78][633-C-D]
1.12 The GST Council is a constitutional body. It has powers to make recommendations on wide-ranging issues concerning GST, including grant of exemptions from the GST. It also has power to make recommendations with regard to special provisions governing North Eastern and Himalayan States. Taking into consideration that the units like the appellants have been established in the Himalayan and North-Eastern States based on the said O.M. of 2003 and that lakhs of persons are employed in such industries, it would be appropriate that such States should also consider to correspondingly reimburse such units out of the share of revenue received by them through devolution from the Central Government. The Court further finds that it would also be appropriate that the GST Council considers making appropriate recommendations to the States in that regard. [Para 79][633-E-G]
1.13 The appellants are permitted to make representations to the respective State Governments as well as to the GST Council. The Court also requests the State Governments and the GST Council to consider such representations, if made, in accordance with what has been observed in an expeditious manner. [Para 80][633-H; 634-A]
M. Ramanatha Pillai vs. The State of Kerala and another (1973) 2 SCC 650 : [1974] 1 SCR 515; State of Kerala and another vs. The Gwalior Rayon Silk Manufacturing (WVG). Co. Ltd. Etc. (1973) 2 SCC 713 : [1974] 1 SCR
671 - followed.
Video Electronics Pvt. Ltd. and another vs. State of Punjab and another (1990) 3 SCC 87 : [1989] 2 Suppl. SCR 731 –held inapplicable.
Kasinka Trading and another vs. Union of India and another (1995) 1 SCC 274 : [1994] 4 Suppl. SCR 448; Shrijee Sales Corpn. vs. Union of India (1997) 3 SCC
398 : [1996] 10 Suppl. SCR 888; State of Rajasthan vs. Mahaveer Oil Industries (1999) 4 SCC 357 : [1999]
2 SCR 798; Shree Sidhbali Steels Ltd. vs. State of U.P. (2011) 3 SCC 193 : [2011] 3 SCR 134; Director General of Foreign Trade vs. Kanak Exports (2016) 2 SCC 226 : [2015] 15 SCR 287; Comptroller and Auditor General of India, Gian Prakash, New Delhi and another vs. K.S. Jagannathan and another (1986) 2 SCC 679 : [1986] 2 SCR 17; Union of India & others vs. Bharat Forge Ltd. & another Civil Appeal No. 5294 of 2022 (@ SLP(C) No.4960 of 2021 decided on 16th August, 2022 – relied on.
Century Spinning and Manufacturing Company Ltd. and another vs. The Ulhasnagar Municipal Council and another (1970) 1 SCC 582 : [1970] 3 SCR 854; The Bihar Eastern Gangetic Fishermen Co-operative Society Ltd. vs. Sipahi Singh and others (1977) 4 SCC 145 : [1978] 1 SCR 375; Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh and others (1979) 2 SCC
409 : [1979] 2 SCR 641; M/s Jit Ram Shiv Kumar and others vs. State of Haryana and others (1981) 1 SCC
11 : [1980] 3 SCR 689; Union of India and others vs. Godfrey Philips India Ltd. (1985) 4 SCC 369 : [1985]
3 Suppl. SCR 123; Express Newspapers Pvt. Ltd.and others vs. Union of India and others (1986) 1 SCC 133 : [1985] 3 Suppl. SCR 382; Union of India & Ors. vs. M/s Indo-Afghan Agencies Ltd. 1968 2 SCR 366; State of Bihar and others vs. Suprabhat Steel Ltd. and others (1999) 1 SCC 31 : [1998] 2 Suppl. SCR 699; State of Jharkhand and others vs. Tata Cummins Ltd. and another (2006) 4 SCC 57 : [2006] 3 SCR 443; Lloyd Electric and Engineering Limited vs. State of Himachal Pradesh and others (2016) 1 SCC 560 : [2015] 10 SCR 362; MRF Ltd., Kottayam vs. Asstt. Commissioner (Assessment) Sales Tax and others (2006) 8 SCC 702 : [2006] 6 Suppl. SCR 417; Manuelsons Hotels Private Limited vs. State of Kerala and others (2016) 6 SCC
766 : [2016] 3 SCR 718; State of Punjab vs. Nestle India Ltd. and another (2004) 6 SCC 465 : [2004] 2 Suppl. SCR 135; Excise Commissioner, U.P. Allahabad and others vs. Ram Kumar and others (1976) 3 SCC
540 : [1976] 0 Suppl. SCR 532; The State of Jharkhand and ors. vs. Brahmputra Metallics Ltd. and ors. MANU/SC/0906/2020 [Civil Appeal Nos. 3860-3862 of 2020, decided on 1.12.2020]; Union of India vs. Paliwal Electricals (P) Ltd. and another (1996) 3 SCC 407 : [1996] 3 SCR 845; Union of India & Anr. vs. V.V.F. Limited & Anr. 2020 SCC Online SC 378; Union of India and others vs. VKC Footsteps India Private Limited (2022) 2 SCC 603; Union of India and another vs. Mohit Minerals Pvt. Ltd. through Director 2022 SCC OnLine SC 657; Union of India and others vs. Unicorn Industries (2019) 10 SCC 575 : [2019] 12 SCR 270; Augustan Textile Colours Limited (Now Augustan Textile Colours Private Limited) vs. Director of Industries and another (2022) 6 SCC 626; Kuldeep Singh vs. Govt. of NCT of Delhi (2006) 5 SCC 702 : [2006] 3 Suppl. SCR 335; Union of India and another vs. International Trading Co. and another (2003) 5 SCC 437 : [2003] 1 Suppl. SCR 55 - referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.