Judgement Update | Reduction in sales tax incentive post introduction of GST, invalid and against Doctrine of Promissory Estoppel

This is to update you regarding a recent decision of the Bombay High Court in the case K. M. Refineries and Infraspace Private Limited v. The State of Maharashtra, 2019-VIL-377-BOM. In this case, the taxpayer was granted entitlement certificate to avail benefits of Maharashtra Sales Tax Incentive Scheme (‘Incentive Scheme’) and was eligible for exemption from sales tax.

The petitioner pointed out that with introduction of GST, it is required to pay GST and thereafter claim refund of tax paid. The existing benefits were substantially curtailed under the Scheme introduced post introduction of GST (‘GST Scheme’). The petitioner invoked Doctrine of Promissory Estoppel and contended that with the introduction of GST, the Government cannot reduce the benefits promised under the Incentive Scheme.

The High Court observed that under the Incentive Scheme, the State Government promised certain benefits to industrial units set up in rural and remote areas. These incentives were meant to compensate the units for making an additional investment and increased cost of production due to their location.

The Court held that the petitioner acted upon the promise of the State Government and made additional investment. Hence, the Doctrine of Promissory Estoppel applies and the State Government cannot reduce the promised benefits. Basis above, the Court directed the State Government to amend the GST Scheme to restore the benefits granted under the Incentive Scheme.

NITYA Comments: 

Under various Central and State Incentive Schemes introduced post GST, the incentives have been curtailed. For example: Budgetary Support Scheme grants refund of IGST and CGST paid in cash to area-based units enjoying excise duty exemption.

Basis this decision, the taxpayers can consider filing a writ petition in the jurisdictional High Court and challenge the curtailment of benefits post introduction of GST.