Judgment update | Reduction in tax incentives under GST regime, issue of promissory estoppel
Recent decision of Delhi High Court in the case of Hero Motocorp Limited v. Union of India, 2019-VIL-109-DEL. In this case, the petitioner challenged the Budgetary Support Scheme under GST law that granted reduced fiscal incentive as compared to 100 percent excise duty exemption granted to units located in tax free zones. The facts, decision and our comments on this judgment, have been detailed below:
- In pre-GST regime, Notification No.50/2003-CE dated June 10, 2003 (‘NN 50/2003’) granted full excise duty exemption to manufacturing units located in the State of Uttarakhand. This exemption was applicable for a period of 10 years.
- The petitioner established a manufacturing unit in Uttarakhand for manufacture of motor vehicles and commenced the commercial production on April 7, 2008.
- With advent of GST, various area-based excise duty exemption notifications were rescinded including NN 50/2003. The Government introduced Budgetary Support Scheme for units availing benefit under area-based excise duty exemption notifications, for the residual period. The Scheme granted reimbursement of 58 percent of CGST / 28 percent of IGST paid by these units in cash.
- The petitioner filed the present writ petition to seek refund of 100 percent GST for residual period on the ground of promissory estoppel.
- The High Court rejected the petitioner’s plea of promissory estoppel on the ground that the Government’s act was in accordance with the statutory provisions. Section 174 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) expressly provides that any tax exemption granted as an incentive against investment through a Notification, shall not continue as privilege if the said Notification is rescinded. NN 50/2003 was rescinded vide Notification No.21/2017-Central Excise dated July 18, 2017, with effect from July 1, 2017.
- The Court held that in the absence of challenge on the recession of NN 50/2003, the petitioner’s challenge to Budgetary Support Scheme is not acceptable.
- In our view, doctrine of promissory estoppel squarely applies in the instant case. While introducing NN 50/2003, there was a clear promise of the Government to the taxpayers (for full excise duty exemption) and basis such promise, taxpayers set up industrial units.
- Taking away or reducing the benefit during the exemption period is against the doctrine of promissory estoppel. Similar view was also taken by the Bombay High Court in the case of M. Refineries and Infraspace Private Limited v. The State of Maharashtra, 2019-VIL-377-BOM where taxpayer was enjoying exemption from sales tax under the Maharashtra Sales Tax Incentive Scheme. On advent of GST, such benefits were substantially curtailed. The High Court applied doctrine of promissory estoppel and held that the Government cannot reduce the promised benefit. It directed the State Government to restore the benefits granted under the erstwhile regime.
- After introduction of GST, the taxpayers have also invoked doctrine of promissory estoppel qua the levy of Entertainment Tax and Luxury Tax which have now been subsumed under GST. (Refer Adlabs Entertainment Limited v. UOI, 2018-VIL-578-BOM; Bramha Corp. Ltd. v. The State of Maharashtra, 2019-VIL-352-BOM and Bramha Corp. Ltd v. The State of Maharashtra, 2019-VIL-370-BOM). The final decisions in these cases, are yet to come.
- Notably, in the instant case, the Court erred in holding that the petitioner should challenge the recession of NN 50/2003 and cannot directly seek amendment in Budgetary Support Scheme. The Court should have entertained the petition since challenging withdrawal of NN 50/2003 after introduction of GST, would not have yielded any result.
- With both positive and negative judgments on promissory estoppel in GST regime, it would be interesting to see how the Supreme Court will eventually deal with these cases.