SYNOPSIS OF SC ORDER IN THE CASE OF HERO MOTOCORP LTD. and SUN PHARMA LABORATORIES LTD.

FACTS OF THE CASE:

The Government of India had issued an Office Memorandum (O.M) in 2003 based on the statement made by the Hon’ble Prime Minister, during his visit to Uttranchal (now Uttarakhand) in March 2002 which provided that for the States of Uttaranchal and Himachal Pradesh, new industrial units and existing industrial units on their substantial expansion would be entitled to exemption of 100% outright excise duty for 10 years from the date of commencement of commercial production.

In pursuance to the said Office Memorandum of 2003, a 2003 Notification was notified to provide an exemption for a period not exceeding ten years from the date of publication of the said notification in the Official Gazette or from the date of commencement of commercial production, whichever was later.

The appellants i.e., Hero Motocorp Ltd had established a new industry unit for manufacture of motorcycles at Haridwar, Uttarakhand, which commenced commercial production from 7th April, 2008 and Sun Pharma Laboratories Ltd. setup its first industrial unit which commenced its commercial production from 20th April, 2009. A second unit was also set up later which commenced commercial production from 14th April, 2014 and availed the benefit of the exemption provided for in the exemption notification dated 25th June, 2003, pursuant to the Office Memorandum dated 17th February, 2003, until 1^st July, 2017 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.

Notification No.21/2017-CE dated 18th July 2017 under the CGST Act was issued by the respondent-Union of India by which the exemption notifications through which tax exemptions were granted as an incentive against the investment came to be rescinded on or after the appointed day, i.e. 1st July 2017. As a result, the tax exemption which was granted by the said O.M. of 2003 ceased to continue with effect from 1^st July 2017.

Further the GST Council, in its meeting held on 30^th September 2016, had resolved that all entities exempted from payment of indirect tax would pay tax in the GST regime. It had also resolved that the decision to continue with any incentive given to specific industries in existing industrial policies of States or through any schemes of the Central Government would be with the concerned State or Central Government.

It was further resolved that in the event it was decided by the concerned State or Central Government to continue any existing exemption/incentive, etc., then it would be administered by way of a reimbursement mechanism through the budgetary route.

Aggrieved by the decision of the Central Government in restricting the refund only to 58% of CGST and 29% of IGST and not providing 100% refund of CGST, the appellants approached the Delhi High Court and Sikkim High Court respectively where the writ petitions were dismissed and hence the appellants approached the Supreme Court with a writ petition.

ARGUMENTS OF THE APPELLANTS:

• The argument made by the appellants was that on perusal of the O.M. of 2003, it can be observed that an unequivocal representation was made by the Central Government to commercial entities desirous of setting up industrial units in the said states and that they would be entitled to a 100% exemption from payment of excise duty for 10 years.
• Based on the above promise, the appellant had set up the units and that the Central Government is now estopped from resiling from the representation made by it to the appellants.
• Further that the refund was only to the extent of 58% and that it was arrived in an arbitrary and irrational manner.
• The appellant mentioned that even under the earlier regime, the Central and State Governments has shared revenue and it was not for the first time under the GST regime and there was no reason why the appellant should not be granted a 100% exemption from payment of duty and the Central and State Governments share the cost.

ARGUMENTS OF THE RESPONDENT

• Promissory estoppel cannot be applied to the representation made by the Union of India, and that if there is a circumstance and the larger public interest warrants withdrawal of any such schemes, it is would be dealt with accordingly.
• The new GST era emphasizes on the principle of pooled sovereignty where States and Centre share equal responsibilities.
• The respondent also mentioned that the earlier tax regime was origin based whereas the new tax regime is destination based and that under the old regime, the Centre was collecting 100% excise duty, service tax, central sales tax, etc. and the States were collecting 100% Value Added Tax.
• However, under the new regime, there is uniformity where the Centre and State collects equal taxes.
• That a notification bearing No. 21 of 2017 was issued on 18^th July, 2017, thereby withdrawing the exemptions granted previously under the erstwhile excise regime and the same was not challenged by the Appellants.
• That although the Central Government was not bound to continue granting any relief, however, as a matter of good gesture and on the recommendations of the GST Council, it has decided to reimburse 58% of CGST paid by such industrial units.
• That a writ of mandamus can only be issued against a statutory body when an established duty to be performed by it has been neglected.

FINDING OF THE CASE:

• The Central Government has provided that 100% exemption would be granted to the industrial units from payment of outright excise duty for 10 years from the date on which such industrial units commence their commercial production.
• An important development vide the 101^st Amendment Act where GST was in introduced and a GST Council was set up occurred and accordingly the CGST Act was enacted. The GST Council is empowered to make recommendations to the Union and the States with regard to GST.
• The Union and all the States have become common partners in levy of various taxes.
• The CGST Act, Vide Section 174 mentions that various enactments including the Central Excise Act, 1944 are repealed. However, provides that the repeal of the said Acts shall not affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders under such repealed or amended Acts.
• However, the proviso thereto is clear and specific that any tax exemptions granted through a notification shall not continue as a privilege if the said notification is rescinded.
• The question which would now arise is – whether doctrine of promissory estoppel could operate against a statute.

JUDGEMENT:

The Hon’ble Supreme Court of India held that it is presumed that the legislature knows the needs of its people and will balance the present advantages against possible future disadvantages. It has been held that if a new enactment is constitutionally enacted by the legislature, then the fact that, at an earlier stage, the Government was toying with the idea of paying compensation to owners of private forests would be of no consequence. Undisputedly, the GST enactment is an enactment validly enacted by the Parliament.

That in applying the doctrine of equitable estoppel, the Government was estopped from enacting a legislation contrary to the agreement. Negating the said contention, it was held that when the legislature exercises its powers for the public good, the earlier representation would not operate against the Government as equitable estoppel.

The Court held that 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. 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 and such power can be exercised by the Central Government only on the recommendations of the GST Council.

The Court cannot interfere in policy matters of the Government unless such policy is found to be palpably arbitrary and irrational.

However, the court also held that although it is held that the appellants’ claim based on promissory estoppel is without substance, they find that this is not a case wherein it can be said that the appellants’ claim is wholly without any substance as there was a promise made vide the O.M. of 2003 granting 100% exemption and allowed the appellants to make representations to the respective State Governments as well as to the GST Council and that requested the State Governments and the GST Council to consider such representations, if made.