M/S HERO MOTOCORP LTD versus UNION OF INDIA & ORS.
[2022] 13 S.C.R. 592, Supreme Court of India, 2022
Outcome: Dismissed (Dismissed)
Segment: Ratio
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M/S HERO MOTOCORP LTD.
v.
UNION OF INDIA & ORS.
(Civil Appeal No. 7405 Of 2022)
OCTOBER 17, 2022
[B. R. GAVAI AND B. V. NAGARATHNA, JJ.]
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the amended Act or repealed Acts, the proviso thereto provides that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not continue as a privilege if the said notification is rescinded on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2003 Notification stands rescinded in view of the notification issued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
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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-G-
H; 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
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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][627-
C-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
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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
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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.
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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
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
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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.
Case Law
Reference
[1996] 3 SCR 845
referred to
Para 15
(2022) 2 SCC 603
referred to
Para 24
[2019] 12 SCR 270
referred to
Para 24
(2022) 6 SCC 626
referred to
Para 24
[2006] 3 Suppl. SCR 335
referred to
Para 24
[2003] 1 Suppl. SCR 55
referred to
Para 24

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1968 2 SCR 366
referred to
Para 33
[1970] 3 SCR 854
referred to
 Para 35
[1974] 1 SCR 671
followed
 Para 38
[1976] 0 Suppl. SCR 532
referred to
 Para 40
[1978] 1 SCR 375
referred to
Para 41
[1979] 2 SCR 641
referred to
Para 43
[1980] 3 SCR 689
referred to
Para 44
[1985] 3 Suppl. SCR 123
referred to
Para 47
[1985] 3 Suppl. SCR 382
referred to
Para 48
[1974] 1 SCR 515
followed
Para 54
[1994] 4 Suppl. SCR 448
relied on
Para 56
[1996] 10 Suppl. SCR 888
relied on
Para 56
[1999] 2 SCR 798
relied on
Para 56
[2011] 3 SCR 134
relied on
Para 56
[2015] 15 SCR 287
relied on
Para 56
[1986] 2 SCR 17
relied on
Para 61
[1998] 2 Suppl. SCR 699
referred to
Pra 66
[2006] 3 SCR 443
referred to
Pra 66
[2015] 10 SCR 362
referred to
Para 66
[2006] 6 Suppl. SCR 417
referred to
Para 67
[2016] 3 SCR 718
referred to
Para 67
[2004] 2 Suppl. SCR 135
referred to
Para 68
[1989] 2 Suppl. SCR 731
held inapplicable
Para 69
CIVIL APPELLATE JURISDICTION : Civil Appeal No.7405
of 2022.
From the Judgment and Order dated 02.03.2020 of the High Court
of Delhi at New Delhi in W.P. (C) No.505 of 2020.
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
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With
Civil Appeal No.7406 of 2022.
S. Ganesh, V. Sridharan, Sr. Advs., Srinivas Kotni, Akshay Kumar,
Ms. Urvashi Kalra, Ms. Subhangi, Pawanshree Agrawal, Ms. Charanya
Lakshmikumaran, Karan Sachdev, Kunal Kapoor, Somesh Jain, Sahil
Parghi, Aditya Bhattacharya, Ms. Apeksha Mehta, Ms. Mounica Kasturi,
Pranav Mundra, Advs. for the Appellant.
N. Venkatraman, ASG, Akshay Amritanshu, Ms. Neela Kedar
Gokhale, Sansriti Pathak, Mukesh Kumar Maroria, Advs. for the
Respondents.
The Judgment of the Court was delivered by
B. R. GAVAI, J.
1. Leave granted.
2. These appeals raise an important question of law as to whether
the Union of India can be directed to adhere to the representation as
made by it in the Office Memorandum dated 7th January 2003
(hereinafter referred to as “the said O.M. of 2003") even after the
enactment of the Central Goods and Services Tax Act, 2017 (hereinafter
referred to as “the CGST Act”).
3. Civil Appeal arising out of Special Leave Petition (Civil) No.
12397 of 2020 arises out of judgment and order dated 2nd March, 2020,
passed by the High Court of Delhi, dismissing the Writ Petition (Civil)
No. 505 of 2022 filed by the appellant – Hero Motocorp Ltd., thereby
rejecting the appellants claim of 100% budgetary support in lieu of the
pre-existing 100% outright excise duty exemption for ten years from the
date of the commencement of commercial production, as provided for
by the said O.M. of 2003 issued by the
Government of India.
4. Civil Appeal arising out of Special Leave Petition (Civil) No.
11978 of 2021, arises out of judgment and order dated 5th February, 2021
passed by the High Court of Sikkim, dismissing the Writ Petition (C) No.
47 of 2018, filed by the appellant – Sun Pharma Laboratories Ltd.
assailing the reduction of the benefit of 100% exemption from excise
duty granted to it vide office memorandum dated 17th February, 2003,
which were to be made available for a period of ten years from the date
of commencement of commercial production.
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5. Both the appellants herein approached the respective High
Courts claiming therein that in view of the said O.M. of 2003 and
Notification No.50/2003-C.E. dated 10th June 2003 (hereinafter referred
to as “2003 Notification”), the Union was bound to give 100% tax
exemption till completion of 10 years’ period from the date of
commencement of their commercial production.
FACTUAL BACKGROUND
6. The factual scenario leading to the filing of the present appeals
lies in a narrow compass, which is as under:
6.1 The Government of India had issued the said O.M. of 2003
based on the statement made by the Hon’ble Prime Minister, during his
visit to Uttranchal (now Uttarakhand) in March 2002. The said O.M. of
2003 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.
The said O.M. of 2003 also provided that there shall be 100% income
tax exemption for such units initially for five years and thereafter 30%
for companies and 25% for other companies for a further period of five
years, from the date of commencement of commercial production.
Various other incentives were also provided vide the said O.M. of 2003.
6.2 In pursuance to the said O.M. of 2003, a 2003 Notification
was notified in exercise of the powers conferred by sub-section (1) of
Section
5A of the Central Excise Act, 1944 read with sub-section (3) of
Section 3 of the Additional Duties of Excise (Goods of Special
Importance) Act, 1957 and sub-section (3) of Section 3 of the Additional
Duties of Excise (Textiles and Textile Articles) Act, 1978. The said
notification provided for 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.
6.3 The appellant – Hero Motocorp Ltd. had established a new
industry unit for manufacture of motorcycles at Haridwar, Uttarakhand,
which commenced commercial production from 7th April, 2008. The
appellant – Hero Motocorp Ltd. availed the exemption until 1st July,
2017, whereafter the Goods and Service Tax regime came into existence
and the benefit being enjoyed by the appellant – Hero Motocorp Ltd.
was reduced to 58% through the Budgetary Support Policy.
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
[B. R. GAVAI, J.]
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6.4 The appellant - 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 14thApril, 2014. Before the advent of the
new GST regime, both of the appellant’s units were enjoying a full refund
of the central excise duties paid by them as provided for in the exemption
notification dated 25th June, 2003, pursuant to the Office Memorandum
dated 17th February, 2003. After the commencement of the new GST
regime, here too, the benefit being enjoyed by the appellant - Sun Pharma
Laboratories was reduced to 58% through the implementation of the
Budgetary Support Policy.
6.5 Subsequently, by the Constitution (One Hundred and First
Amendment) Act, 2016 (hereinafter referred to as “the 101st Amendment
Act”), the Constitution of India came to be amended by the Parliament
to introduce the goods and services tax system pan India. By the 101st
Amendment Act, concurrent taxing power was conferred on the Union
as well as the States including the Union Territories. By the 101st
Amendment Act, Article 246A was inserted, making a special provision
for levy of Goods and Service Tax (“GST” for short), by both the Union
as well as the States. Article 269A was inserted to provide for levy and
collection of GST in the course of Inter-State trade or commerce (“IGST”
for short) by the Government of
India. It also provided that such tax
shall be apportioned between the Union and the States in the manner as
may be provided by Parliament by law on the recommendations of the
Goods and Services Tax Council (“GST Council” for short).
6.6 In pursuance of the said amendments to the Constitution of
India, the Central Goods and Services Tax Act, 2017 (hereinafter referred
to as “the CGST Act”) and Integrated Goods and Services Tax Act,
2017 (hereinafter referred to as “the IGST Act”) were enacted by the
Parliament and various States Goods and Service Tax Acts (“SGST”
for short) were enacted by the State Legislatures for their respective
States for the levy of GST.
6.7 Under clause (c) of sub-section (2) of Section 174 of the
CGST Act, a Notification No.21/2017-CE dated 18th July 2017 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
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July 2017. As a result, the tax exemption which was granted by the said
O.M. of 2003 ceased to continue with effect from 1st July 2017.
6.8 The GST Council, in its meeting held on 30th 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. The modalities of the same were to be
worked out by the concerned State/Centre.
6.9 In pursuance of the said recommendations of the GST Council,
the Central Government notified the Budgetary Support Scheme vide
Notification dated 5th October 2017, thereby providing to refund/reimburse
the Central share of CGST and IGST to the affected eligible industrial
units for the residual period in the North Eastern and the Himalayan
States. The Central share was determined at 58% of CGST and 29% of
IGST.
6.10 Being 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
appellant-Hero Motocorp Ltd.
approached the Delhi High Court by way of writ petition being Writ
Petition (Civil) No. 505 of 2020 and the appellant-Sun Pharma
Laboratories Limited approached the Sikkim High Court by way of writ
petition being Writ Petition (Civil) No.47 of 2018. The Delhi High Court,
vide its judgment and order dated 2nd March 2020, and the Sikkim High
Court, vide its judgment and order dated 5th February 2021, have dismissed
the said writ petitions.
6.11 Being aggrieved by the dismissal of the writ petitions, the
appellants (the original writ petitioners) have approached this Court.
6.12 Hence the present appeals.
SUBMISSIONS
7. We have heard Shri S. Ganesh, learned Senior Counsel
appearing on behalf of the appellant-Hero Motocorp Ltd. in Civil Appeal
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
[B. R. GAVAI, J.]
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arising out of Special Leave Petition (Civil) No.12397 of 2020, Shri V.
Sridharan, learned Senior Counsel appearing on behalf of the appellant-
Sun Pharma Laboratories Ltd. in Civil Appeal arising out of Special
Leave Petition (Civil) No.11978 of 2021 and Shri N. Venkatraman, learned
Additional Solicitor General appearing on behalf of the respondent-Union
of India.
8. Shri S. Ganesh, learned Senior Counsel, submits that the perusal
of the said O.M. of 2003 would reveal that an unequivocal representation
was made by the Central Government to the commercial entities which
were desirous of setting up industrial units in the States of Uttarakhand
and Himachal Pradesh, that, in the event a new industry is established or
there is a substantial expansion of the existing unit, then such industrial
units would be entitled to 100% exemption from payment of excise duty
for 10 years. He submits that the Central Government is bound by such
representation. It is submitted that the industrial units like that of the
appellants, relying on the promise made by the Central Government,
have altered their position to their detriment and as such, the Central
Government is now estopped from resiling from the representation made
by it to the appellants.
9. Shri Ganesh submits that the figure of refund only to the extent
of 58% has been achieved in an arbitrary and irrational manner. He
submits that the Union has purportedly done so under
the umbrella of
the report of the Finance Commission. He contends that, even under the
earlier regime of excise tax and all other levies collected by the Central
Government, the States were entitled to their share therein. It is stated
that the share of the Central Government and the State Government in
the said regime has always been there and it is not as if it has come for
the first time after the GST regime started. Learned Senior Counsel
submits that under the old regime, though the Central Government was
sharing with the States a certain percentage of entire taxes collected by
it, still, 100% exemption from the payment of duty was being granted to
the entities like the appellants herein. It is submitted that there is no
reason as to why the same should not have been continued under the
new regime.
10. Shri Ganesh further submits that the policy as is reflected in
the said O.M. of 2003 would stand on a higher pedestal than the statutory
provision or a notification under a statute and the Union would be bound
to adhere to the same. He submitted that even in January 2003 when the
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exemption notifications were issued, the same sharing pattern was in
existence between the States and the Central Government.
11. Shri Ganesh further submits that under Section 11 of the CGST
Act, the Government has the power to grant exemption from tax and
there is no reason as to why the Union Government should not have
exercised such a power in the peculiar facts and circumstances of the
case.
12. Learned Senior Counsel, therefore, submits that the view taken
by the Delhi High Court is not sustainable in law. He submits that the
appeals deserve to be allowed and a direction be issued to the Central
Government to provide 100% reimbursement of CGST for the remainder
of the period.
13. Shri Ganesh relied on the judgments of this Court in the cases
of State of Bihar and others vs. Suprabhat Steel Ltd. and others1,
State of Jharkhand and others vs. Tata Cummins Ltd. and another2,
Lloyd Electric and Engineering Limited vs. State of Himachal
Pradesh and others3, MRF Ltd., Kottayam vs. Asstt. Commissioner
(Assessment) Sales Tax and others4, The State of Jharkhand and
ors. vs. Brahmputra Metallics Ltd. and ors.5, Manuelsons Hotels
Private Limited vs. State of Kerala and others6 and State of Punjab
vs. Nestle India Ltd. and another7
14. He also relied on judgments of various High Courts. However,
we do not find it necessary to refer to them inasmuch as the law on the
issue is very well crystallized in various judgments of this Court.
15. Shri V. Sridharan,
learned Senior Counsel, also submitted that
the Central Government had come out with a policy of promoting
industrial growth and employment in the backward areas. He submits
that even after the GST regime, it should have continued the said policy.
He submits that, if the Central Government has brought down the benefit
from 100% to 58%, then it should extend/increase the period of benefit
to ensure that the promise made in 2003 industrial policy is given effect
1 (1999) 1 SCC 31
2 (2006) 4 SCC 57
3 (2016) 1 SCC 560
4 (2006) 8 SCC 702
5 MANU/SC/0906/2020 [Civil Appeal Nos. 3860-3862 of 2020, decided on 1.12.2020]
6 (2016) 6 SCC 766
7 (2004) 6 SCC 465
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
[B. R. GAVAI, J.]
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to in reality. He relies on the judgment of this Court in the case of Video
Electronics Pvt. Ltd. and another vs. State of Punjab and another8
and Union of India vs. Paliwal Electricals (P) Ltd. and another9.
16. Shri Sridharan further submitted that the Sikkim High Court
has only relied on the judgment of this Court in the case of Union of
India & Anr. vs. V.V.F. Limited & Anr.10 He submitted that the issue in
the case of V.V.F. Limited & Anr. (supra) was with regard to the
withdrawal of notification since it was found to be misused. He submits
that the factual situation in the present case is different and as such, the
High Court was in error in dismissing the writ petition.
17. Shri N. Venkatraman, learned Additional Solicitor General
(“ASG” for short), on the contrary, submits that promissory estoppel
cannot be applied to the representation made by the Union of India, if
there is a material change in the circumstances and the larger public
interest warrants such a withdrawal. He submits that, in view of the
constitutional amendment, a new era of GST has emerged. He submits
that the new era emphasizes on the principle of pooled sovereignty
where States and Centre share equal responsibilities. Learned ASG
submits that Article 279A of the Constitution provides for the
establishment of the GST Council. It is submitted that the GST Council
consists of (a) the Union Finance Minister; (b) the Union Minister of
State in
charge of Revenue or Finance; and (c) the Minister in charge of
Finance or Taxation or any other Minister nominated by each State
Government. He submits that the GST Council has been empowered to
make recommendations to the Union and the States on the taxes, cesses
and surcharges levied by the Union, the States and the local bodies which
are to be subsumed in the GST. It is submitted that clause (6) of Article
279A of the Constitution of India directs the GST Council to be guided
by the need for a harmonized structure of GST and the development of
a harmonized national market for goods and services, while discharging
its functions. He submits that under clause (1) of Article 246A of the
Constitution, both the Parliament as well as the State Legislatures have
been empowered to make laws with respect to GST to be imposed by
the Union or by such States, whereas clause (2) of the said Article
empowers Parliament to make laws with respect to GST where the
8 (1990) 3 SCC 87
9 (1996) 3 SCC 407
10 2020 SCC Online SC 378
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supply of goods, or of services, or both takes place in the course of inter-
State trade or commerce.
18. Learned ASG would, therefore, submit that a sea change has
occurred with the advent of GST from 1st July 2017. The first change, in
the submission of the learned ASG, is that the earlier tax regime was
origin based, whereas the new tax regime is destination based. 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 (“VAT” for short). Under the old tax regime, there was no uniformity
with regard to State levies, whereas under the new tax regime, there is
uniformity. Under the new regime, both Union and the States come on
the same platform under Articles 246A and 279A of the Constitution and
become common partners for taxing together. Under the new regime,
both States as well as Union charge at the same rate. Learned ASG
submits that the only common feature in the old regime as well as in the
new regime is that the Centre continues to fund the States.
19. Learned ASG further submitted that pursuant to the enactment
of GST, a notification, being Notification No. 21 of 2017, was issued on
18th July 2017, thereby withdrawing the exemptions granted previously
under the erstwhile excise regime. He submits that the appellants have
not challenged the validity of the said Notification. He further submits
that, in view of the proviso to clause (c) of sub-
section (2) of Section
174 of the CGST Act, the exemptions stood automatically rescinded.
The validity thereof has also not been challenged by the appellants. He,
therefore, submits that the writ petitions, without challenging the validity
thereof, are not tenable.
20. Learned ASG submits that, though after the enactment of the
GST 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 who were entitled to the benefit of exemption
notifications. He submits that the said has been done based on the
recommendations of the Finance Commission, which has earmarked
the share of the Union at 58% and of the States at 42%.
21. Learned ASG submits that the writ petitions have been
erroneously filed seeking a relief against the Union. He submits that if
the appellants have any claim, then that would be against the State
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
[B. R. GAVAI, J.]
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Governments wherein the industries are situated. It is submitted that, as
a matter of fact, the Government of Jammu & Kashmir, vide Notification
dated 21st December 2017 has already resolved to reimburse the
remaining 42% of the GST to the units located in the State till the period
the Union Scheme is valid. It is submitted that the appellants ought to
have sought similar relief against the State Governments. Thus, in his
submission, a writ against the Union of India is untenable.
22. Learned ASG further submits that the writ of mandamus could
only be issued against a statutory body when it is established that there
is a duty cast upon a statutory authority and that the said authority has
neglected to perform such duty. It is submitted that the appellants have
not been in a position to point out that any such duty is cast upon the
Union to reimburse 100% GST and as such, the present appeals would
not be tenable.
23. Learned ASG, relying on various judgments of this Court
submitted that in view of the overwhelming public interest, the Union
cannot be held to comply with the assurance given by it in the said O.M.
of 2003.
24. In support of his submissions, learned ASG relies on the
judgments of this Court in the cases of Union of India and others vs.
VKC Footsteps India Private Limited11, Union of India and another
vs. Mohit Minerals Pvt. Ltd. through Director12, Union of India and
others vs. Unicorn Industries13,
Augustan Textile Colours Limited
(Now Augustan Textile Colours Private Limited) vs. Director of
Industries and another14, Kuldeep Singh vs. Govt. of NCT of Delhi15,
Union of India and another vs. International Trading Co. and
another16, Comptroller and Auditor General of India, Gian Prakash,
New Delhi and another vs. K.S. Jagannathan and another17 and
Union of India & others vs. Bharat Forge Ltd. & another18.
11 (2022) 2 SCC 603
12 2022 SCC OnLine SC 657
13 (2019) 10 SCC 575
14 (2022) 6 SCC 626
15 (2006) 5 SCC 702
16 (2003) 5 SCC 437
17 (1986) 2 SCC 679
18 Civil Appeal No.5294 of 2022 (@ SLP(C) No.4960 of 2021) decided on 16th August,
2022
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25. Shri S. Ganesh, learned Senior Counsel, in rejoinder, submits
that the submission of the learned ASG that the remedy lies against the
States and not against the Centre is devoid of any substance. He submits
that the assurance was given by the Central Government and not by the
State Governments. He submits that the said O.M. of 2003 has to be
understood from a viewpoint of a businessman to whom the commercial
representation was made. The words “exemption from direct or indirect
tax” is required to be given full meaning. He submits that the proviso to
Section 174(2)(c) of the CGST Act would not be applicable in the present
case if looked at from the viewpoint of the ordinary businessman.
CONSIDERATION
26. It is not in dispute that the Union of India had framed a policy
vide the said O.M. of 2003. It is also not in dispute that, vide the said
policy, the Central Government had 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. The incentives applied to the new industrial
units as well as existing industrial units going for substantial expansion.
As such, it is clear that, vide the said O.M. of 2003, an unequivocal
promise was given to the entities that, in the event they establish a new
industrial unit or go for a substantial expansion of their existing industrial
units in the States of Uttarakhand and
Himachal Pradesh, they would be
entitled to 100% tax exemption.
27. It is to be noted that, subsequently, an important development
took place. By the 101st Amendment Act, a sea change in the earlier
taxation regime occurred. A uniform tax structure throughout the country
has been adopted. The GST Council has been constituted, which 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. To give effect to the 101st Amendment
Act, the CGST Act has been enacted.
28. The relevant part of Section 174 of the CGST Act reads thus:
“174. Repeal and saving.—(1) Save as otherwise provided in
this Act, on and from the date of commencement of this Act, the
Central Excise Act, 1944 (1 of 1944) (except as respects goods
included in entry 84 of the Union List of the Seventh Schedule to
the Constitution), the Medicinal and Toilet Preparations (Excise
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
[B. R. GAVAI, J.]
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Duties) Act, 1955 (16 of 1955), the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 (58 of 1957), the
Additional Duties of Excise (Textiles and Textile Articles) Act,
1978 (40 of 1978), and the Central Excise Tariff Act, 1985 (5 of
1986) (hereafter referred to as the repealed Acts) are hereby
repealed.
(2) The repeal of the said Acts and the amendment of the
Finance Act, 1994 (32 of 1994)(hereafter referred to as “such
amendment” or “amended Act”, as the case may be) to the extent
mentioned in the sub-section (1) or Section 173 shall not—
(a) ……..
(b) ……..
(c)
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:
Provided that any tax exemption granted as an incentive
against investment through a notification shall not
continue as privilege if the said notification is rescinded
on or after the appointed day; or”
29. It could thus be seen that, under clause (1) of Section 174,
various enactments, including the Central Excise Act, 1944, are repealed.
Clause (c) of sub-section (2) of Section 174, 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. It
specifically provides that any tax
exemption granted as an incentive against investment through a
notification shall not continue as a privilege if the said notification is
rescinded on or after the appointed day.
30. It can thus be seen that, though the first part of clause (c) of
sub-section (2) of Section 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. Admittedly, vide Notification No.21/2017 dated 18th
July 2017, various earlier area- based exemption notifications have been
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rescinded. It is thus clear that the benefit which was granted under the
2003 Notification standsrescinded in view of the notification issued
under proviso to clause (c) of sub-section (2) of Section 174 of the
CGST Act.
31. The question, therefore, that would fall for consideration is,
as to whether, despitea subsequent statute specifically providing for
rescinding the benefits granted under an earlier statute, the Union
Government can be compelled to stand by the representation made by it
through the earlier notification. In other words, the question that will
have to be considered is whether doctrine of promissory estoppel could
operate against a statute.
JUDICIAL PRECEDENTS
32. For considering the rival submissions, it would also be necessary
to refer to various earlier authoritative pronouncements of this Court on
the issue.
33. Heavy reliance is placed on the judgment of this Court in the
case of Union of India & Ors. vs. M/s Indo-Afghan Agencies Ltd.19,
which is one of the earlier judgments of this Court considering the issue
of promissory estoppel. In the said case, the Textile Commissioner
published a scheme on 10th October 1962, called the Export Promotion
Scheme providing incentives to exporters of woolen goods. The scheme
was extended by a Trade Notice dated 1st January 1963, to export of
woolen goods to Afghanistan. In pursuance of the said scheme, the
exporters were entitled to import raw materials of a total amount equal
to 100% of the
F.O.B. (freight on board) value of their exports. However,
the competent authority issued an Import Entitlement Certificate to Indo-
Afghan Agencies Ltd. only in part. The Indo-Afghan Agencies Ltd.,
therefore, made a representation to the authorities. On failure of the
authorities to respond, a petition came to be filed in the High Court of
Punjab. The High Court held that the Export Promotion Scheme
specifically provided for granting certificates to import materials of the
“value equal to 100% of the F.O.B. value of the goods exported”. It
was, therefore, held by the High Court that the petitioners therein were
entitled to obtain import licenses for an amount equal to 100% of the
F.O.B. value. The judgment of the High Court was challenged before
this Court. One of the issues before this Court was with regard to the
19 1968 2 SCR 366
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
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violation of principles of natural justice. This Court also considered the
issue of promissory estoppel. This Court held:
“15. In these cases it was clearly ruled that where a person has
acted upon representations made in an Export Promotion Scheme
that import licences upto the value of the goods exported will be
issued, and had exported goods, his claim for import licence for
the maximum value permissible by the Scheme could not be
arbitrarily rejected. Reduction in the amount of import certificate
may be justified on the ground of misconduct of the exporter in
relation to the goods exported, or on special considerations such
as difficult foreign exchange position, or other matters which have
a bearing on the general interests of the State. In the present
case, the Scheme provides for grant of import entitlement of the
value, and not upto the value, of the goods exported. The Textile
Commissioner was, therefore, in the ordinary course required to
grant import certificate for the full value of the goods exported:
he could only reduce that amount after enquiry contemplated by
clause 10 of the Scheme….”
34. It could thus be seen that the issue that fell for consideration
in the case of M/s Indo-Afghan Agencies Ltd. (supra) was with regard
to an arbitrary reduction of the claim of the writ petitioner contrary to
the Export Promotion Scheme. The issue as to whether the Legislature
by a subsequent enactment was entitled
to withdraw the benefit granted
under the earlier scheme did not fall for consideration in the said case.
35. This Court in the case of Century Spinning and
Manufacturing Company Ltd. and another vs. The Ulhasnagar
Municipal Council and another20 considered the issue wherein the
Municipality had agreed to exempt the appellant therein from payment
of octroi duty for 7 years from the date of levy of octroi. However,
thereafter, the Municipality sought to levy octroi duty from the appellant
therein. This Court observed thus:
“12. If our nascent democracy is to thrive different standards of
conduct for the people and the public bodies cannot ordinarily be
permitted. A public body is, in our judgment, not exempt from
liability to carry out its obligation arising out of representations
made by it relying upon which a citizen has altered his position to
his prejudice.”
20 (1970) 1 SCC 582
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36. A Constitution Bench of this Court in the case of M.
Ramanatha Pillai vs. The State of Kerala and another21 considered
the question as to whether estoppel could arise against a State in regard
to abolition of posts. The Constitution Bench observed thus:
“37. The High Court was correct in holding that no estoppel could
arise against the State in regard to abolition of post. The appellant
Ramanatha Pillai knew that the post was temporary. In American
Jurisprudence 2d at p. 783 para 123 it is stated “Generally, a
state is not subject to an estoppel to the same extent as in an
individual or a private corporation. Otherwise, it might be rendered
helpless to assert its powers in government. Therefore as a
general rule the doctrine of estoppel will not be applied
against the State in its governmental, public or sovereign
capacity. An exception however arises in the application of
estoppel to the State where it is necessary to prevent fraud or
manifest injustice”. The estoppel alleged by the appellant
Ramanatha Pillai was on the ground that he entered into an
agreement and thereby changed his position to his detriment. The
High Court rightly held that the Courts exclude the operation of
the doctrine of estoppel, when it is found that the authority against
whom estoppel is pleaded has owed a duty to the public against
whom the estoppel cannot fairly operate.”
[emphasis supplied]
37. It can thus clearly be seen that the Constitution Bench has
approved the
statement in American Jurisprudence that the doctrine
of estoppel will not be applied against the State in its governmental,
public or sovereign capacity. An exception to the application of the said
doctrine to the State would, however, arise where it is necessary to
prevent fraud or manifest injustice.
38. Another Constitution Bench of this Court in the case of State
of Kerala and another vs. The Gwalior Rayon Silk Manufacturing
(WVG). Co. Ltd. Etc.22 was considering an issue as to the application
of promissory estoppel when a right to compensation for acquisition of
forest land as provided in the earlier statute was taken away by a
subsequent statute. The Constitution Bench held thus:
21 (1973) 2 SCC 650
22 (1973) 2 SCC 713
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“38. In an attempt to show that the impugned Act was a piece of
colourable legislation, reference was made to the Karala Private
Forests Acquisition Bill, 1968 LA Bill No. 33 of 1968 which provided
for the acquisition of private forests on payment of compensation
for the acquisition. That Bill, it is contended, was allowed to
lapse and the present Act was enacted with the obvious
intention of expropriating vast forest lands without paying
compensation. We can hardly countenance such an argument.
The question really is, in the first place, of the competence of the
legislature to pass the impugned Act and, in the second, whether
the Act is constitutional in the sense that it is protected by Section
31- A(1). So far as the competence of the legislature is concerned,
no objection is made before us. As to its constitutionality we have
shown that the Act purports to vast the janman rights to the forests
in the Government as a step in the implementation of agrarian
reform. If this could be constitutionally done by the legislature,
the fact that at an earlier stage the Government was toying
with the idea of paying compensation to owners of private
forests is of little consequence. The dominant purpose of the
impugned Act, as already pointed out, is to distribute forest lands
for agricultural purposes after making reservations of portions of
the forests for the benefit of the agricultural community. The fear
is expressed that
such a course if, genuinely implemented, may
lead to deforestation on a large scale leading to soil erosion and
silting of rivers and streams and will actually turn out to be
detrimental to the interests of the agricultural community in the
long run. It is undoubtedly true that rackless deforestation might
lead to very unhappy results. But we have no material before us
for expressing opinion on such a matter. It is for the legislature to
balance the comparative advantages of a scheme like the one
envisaged in the Act against the possible disadvantages of resulting
deforestation. There are many imponderables to which we have
no safe guides. It is presumed that the legislature knows the
needs of its people and will balance the present advantages
against possible future disadvantages. If there is pressure on
land and the legislature feels that forest lands in some areas can
be conveniently and, without much damage to the community as
a whole, utilized for settling a large proportion of the agricultural
population, it is perfectly open, under the constitutional powers
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vested in the legislature, to make a suitable law, and if the law is
constitutionally valid this Court can hardly strike it down on the
ground that in the long run the legislation instead of turning out to
be a boon will turn out to be a curse.
39. Mr Menon who appeared for the respondent in Civil Appeal
No. 1398 of 1972 put forward a plea of equitable estoppel peculiar
to his client company. It appears that the Company established
itself in Kerala for the production of rayon cloth pulp on an
understanding that the Government would bind itself to supply the
raw-material. Later Government was unable to supply the material
and by an agreement undertook not to legislate for the acquisition
of private forests for a period of 60 years if the Company purchased
forest lands for the purpose of its supply of raw- materials.
Accordingly, the Company purchased 30,000 acres of private
forests from the Nilambhuri Kovila Kannan estate for Rs 75 lakhs
and, therefore, it was argued that, so far as the Company is
concerned, the agreement not to legislate should operate as
equitable estoppel against the State. We do not see how an
agreement of the Government can preclude legislation on the
subject. The High Court has rightly pointed out that the
surrender by the Government of its legislative powers to be
used for public good cannot avail the company or operate
against the Government as equitable estoppel.”
[emphasis supplied]
39. It could thus be seen that this Court 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. It was also sought to be urged that
the petitioner Company, on the basis of the agreement by the State
Government that it would not legislate to acquire the forest land for 60
years, had purchased 30,000 acres of private land. It was submitted
therein that, 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
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exercises its powers for the public good, the earlier representation would
not operate against the Government as equitable estoppel.
40. A four judge Bench of this Court in the case of Excise
Commissioner, U.1P. Allahabad and others vs. Ram Kumar and
others23 had considered the issue wherein, at the time of the auction,
licenses sold by the Government to vend country liquor exempted the
levy of sales tax. However, by a subsequent notification, the sale of
country liquor was subjected to the levy of sales tax. This Court specifically
rejected the contention that the State was estopped from doing so. This
Court relied on the earlier Constitution Bench judgment in the cases of
M. Ramanatha Pillai (supra) and The Gwalior Rayon Silk
Manufacturing (WVG). Co. Ltd. Etc. (supra). It held that an assurance
given by or on behalf of the Crown by an officer of a government,
however high or low in the hierarchy, could not bar the Crown from
enforcing a statutory prohibition. It reiterated the legal position that
estoppel does not operate against the Government or its assignee.
41. In the case of The Bihar Eastern Gangetic Fishermen Co-
operative Society Ltd. vs. Sipahi Singh and others24, the State
Government had directed that the settlement of the Jalkar would continue
with Sipahi Singh for the years 1976-77 and 1977-78. However, on the
representation made by the Bihar Eastern Gangetic Fishermen Co-
operative Society Ltd., the
State Government directed that the settlement
of the Jalkar would be with the said Society for the relevant years on
certain conditions. Sipahi Singh filed a writ petition which was allowed
by the High Court relying on the doctrine of promissory estoppel. A
three-judge Bench of this Court, while reversing the judgment of the
High Court, observed thus:
“13. The doctrine of promissory estoppel could also not be pressed
into service in the present case, as it is well settled that there
cannot be any estoppel against the Government in exercise
of its sovereign legislative and executive functions. (See Excise
Commissioner, U.P. Allahabad v. Ram Kumar [(1976) 3 SCC
540 : 1976 SCC (Tax) 360 : AIR 1976 SC 2237] ).”
[emphasis supplied]
23 (1976) 3 SCC 540
24 (1977) 4 SCC 145
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42. It is thus clear that The Bihar Eastern Gangetic Fishermen
Co-operative Society Ltd. (supra) is also an authority to hold that there
cannot be any estoppel against the Government in the exercise of its
sovereign, legislative and executive functions. In the said case, the
judgment of this Court in the case of M/s Indo-Afghan Agencies Ltd.
(supra) was pressed into service. Distinguishing the same, this Court
observed thus:
“14. The decision of this Court in Union of India v. Indo-Afghan
Agencies Ltd. [AIR 1968 SC 718 : (1968) 2 SCR 366 : (1968) 2
SCJ 889] on which strong reliance is placed by Counsel for
Respondent 1 is clearly distinguishable. In that case, unlike the
present one, the respondents were not seeking to enforce any
contractual right. They were merely seeking to enforce compliance
with the obligation which was laid upon the Textile Commissioner
by the terms of the Export Promotion Scheme providing for grant
(by way of incentives to exporters of woollen textiles and goods)
of Entitlement Certificate to import raw materials of a total amount
equal to 100% of the f.o.b. value of their exports. Their claim
was founded upon the equity which arose in their favour as a
result of the representation made on behalf of the Government
in the aforesaid Scheme, the exports of woollen goods made
by them to Afghanistan acting upon the representation and
curtailment of the import entitlement by the Textile
Commissioner without notice to them.”
[emphasis
supplied]
43. Subsequently, a two Judge Bench of this Court in the case of
Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh
and others25 again considered the issue of estoppel. In the said case,
the State Government had represented that an exemption from sales tax
would be granted to new industrial units. Based on the assurance of the
State Government, the appellant before this Court in the said case had
established its industrial unit. However, subsequently, the Government
decided to rescind the said concession. Though this Court, in the facts of
the said case, held that the appellant therein, based on the promise made
by the respondent therein, had altered its position to its detriment and as
such, the State could not resile from the said promise, allowing the appeal
observed thus:
25 (1979) 2 SCC 409
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
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“28. …… There can also be no promissory estoppel against
the exercise of legislative power. The Legislature can never
be precluded from exercising its legislative function by resort
to the doctrine of promissory estoppel. Vide State of Kerala v.
Gwalior Rayon Silk Manufacturing Co. Ltd. [(1973) 2 SCC
713, 730 (para 39) : (1974) 1 SCR 671, 688]”
[emphasis supplied]
44. Thereafter comes the judgment of this Court in the case of
M/s Jit Ram Shiv Kumar and others vs. State of Haryana and
others26. In the said case, the municipal committee established a small
mandi and decided that the purchasers of the plots for sale in the mandi
would not be required to pay octroi duty on goods imported within the
said mandi. Subsequently, the municipal committee started imposing octroi
duty. Challenging the said act of the municipal committee, a writ petition
was filed before the High Court. The High Court dismissed the said writ
petition. The two-Judge Bench of this Court in the said case, referring to
judgments of courts of various other jurisdictions as well as the judgments
of this Court at an earlier point of time, observed thus:
“40. The scope of the plea of doctrine of promissory estoppel
against the Government may be summed up as follows:
(1) The plea of promissory estoppel is not available against
the exercise of the legislative functions of the State.
(2) The doctrine cannot be invoked for preventing the Government
from
discharging its functions under the law.
(3) When the officer of the Government acts outside the scope of
his authority, the plea of promissory estoppel is not available. The
doctrine of ultra vires will come into operation and the Government
cannot be held bound by the unauthorised acts of its officers.
(4) When the officer acts within the scope of his authority under
a scheme and enters into an agreement and makes a
representation and a person acting on that representation puts
himself in a disadvantageous position, the Court is entitled to require
the officer to act according to the scheme and the agreement or
representation. The officer cannot arbitrarily act on his mere whim
and ignore his promise on some undefined and undisclosed grounds
26 (1981) 1 SCC 11
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of necessity or change the conditions to the prejudice of the person
who had acted upon such representation and put himself in a
disadvantageous position.
(5) The officer would be justified in changing the terms of the
agreement to the prejudice of the other party on special
considerations such as difficult foreign exchange position or other
matters which have a bearing on general interest of the State.”
[emphasis supplied]
45. It can thus clearly be seen that this Court held that the plea of
promissory estoppel would not be available against the exercise of the
legislative functions of the State. Equally, it cannot be invoked for
preventing the government from discharging its functions under the law.
The learned judges of this Court in the case of M/s Jit Ram Shiv Kumar
and others (supra), holding that some of the observations of this Court
in the case of Motilal Padampat Sugar Mills Co. Ltd. (supra) were
not in tune with the earlier judgments of larger Benches of this Court,
observed thus:
“45. We find ourselves unable to ignore the three decisions of this
Court, two by Constitution Benches in M. Ramanatha Pillai v.
State of Kerala [(1973) 2 SCC 650 : 1973 SCC (L&S) 560 : AIR
1973 SC 2641 : (1974) 1 SCR 515] and State of Kerala v. Gwalior
Rayon Silk Mfg. (Wvg.) Co. Ltd. [(1973) 2 SCC 713 : AIR 1973
SC 2734 : (1974) 1 SCR 671] and the third by a Bench of four
Judges of this Court in Excise Commr., U.P., Allahabad v. Ram
Kumar [(1976) 3 SCC 540 : 1976 SCC
(Tax) 360 : 1976 Supp
SCR 532] on the ground that the observations are in the nature of
obiter dicta and that it cannot be insisted as intending to have laid
down any proposition of law different from that enunciated in the
Indo-Afghan Agencies case [AIR 1968 SC 718 : (1968) 2 SCR
366 : (1968) 2 SCJ 889] . It was not necessary for this Court in
the cases referred to above to refer to Union of India v. Indo-
Afghan Agencies Ltd. [AIR 1968 SC 718 : (1968) 2 SCR 366 :
(1968) 2 SCJ 889] for, if properly understood, it only held that the
authority cannot go back on the agreement arbitrarily or on its
mere whim. We feel we are bound to follow the decisions of the
three Benches of this Court which in our respectful opinion have
correctly stated the law. We are also unable to read the case of
the House of Lords in Howell v. Falmouth Boat Construction
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
[B. R. GAVAI, J.]
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Co. Ltd. [1951 AC 837 : (1951) 2 All ER 278 : (1951) 2 TLR 151]
as not having overruled the view of Denning, J., and as not having
expressed its disapproval of the doctrine of promissory estoppel
against the Crown nor overruled the view taken by Denning, J. in
Robertson v. Minister of Pensions [(1949) 1 KB 227 : (1948) 2
All ER 767 : 1949 LJR 323] that “the Crown cannot escape the
obligation under the doctrine of promissory estoppel”.
46. We find ourselves unable to share the view of the learned
Judge that the Constitution Bench of this Court in Ramanatha
Pillai case [(1973) 2 SCC 650 : 1973 SCC (L&S) 560 : AIR 1973
SC 2641 : (1974) 1 SCR 515] heavily relied upon the quotation
from the American jurisprudence, para 123, p. 873 of Vol. 28.
Again we feel to remark that “unfortunately this quotation was
incomplete and had overlooked perhaps inadvertently” is
unjustified.
(emphasis supplied)”
46. This Court in the said case reiterated the legal position thus:
“51. On a consideration of the decisions of this Court it is
clear that there can be no promissory estoppel against the
exercise of legislative power of the State. So also the doctrine
cannot be invoked for preventing the Government from acting in
discharge of its duty under the law. The Government would not
be bound by the act of its officers and agents who act beyond the
scope of their authority and a person dealing with the agent of the
Government must be held to
have notice of the limitations of his
authority. the Court can enforce compliance by a public authority
of the obligation laid on him if he arbitrarily or on his mere whim
ignores the promises made by him on behalf of the Government.
It would be open to the authority to plead and prove that there
were special considerations which necessitated his not being able
to comply with his obligations in public interest.”
[emphasis supplied]
47. A three Judge Bench of this Court in the case of Union of
India and others vs. Godfrey Philips India Ltd.27 commented on the
correctness of the decision in the case of M/s Jit Ram Shiv Kumar
and others (supra) and observed thus:
27(1985) 4 SCC 369
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“13. Of course we must make it clear, and that is also laid down
in Motilal Sugar Mills case [(1979) 2 SCC 409 : 1979 SCC
(Tax) 144 : (1979) 2 SCR 641] that there can be no promissory
estoppel against the Legislature in the exercise of its legislative
functions nor can the Government or public authority be
debarred by promissory estoppel from enforcing a statutory
prohibition. It is equally true that promissory estoppel cannot be
used to compel the Government or a public authority to carry out
a representation or promise which is contrary to law or which
was outside the authority or, power of the officer of the Government
or of the public authority to make. We may also point out that the
doctrine of promissory estoppel being an equitable doctrine, it must
yield when the equity so requires; if it can be shown by the
Government or public authority that having regard to the facts as
they have transpired, it would be inequitable to hold the Government
or public authority to the promise or representation made by it, the
Court would not raise an equity in favour of the person to whom
the promise or representation is made and enforce the promise or
representation against the Government or public authority. The
doctrine of promissory estoppel would be displaced in such a case,
because on the facts, equity would not require that the Government
or public authority should be held bound by the promise or
representation made by it. This aspect has been dealt with
fully in
Motilal Sugar Mills case [(1979) 2 SCC 409 : 1979 SCC (Tax)
144 : (1979) 2 SCR 641] and we find ourselves wholly in agreement
with what has been said in that decision on this point.”
[emphasis supplied]
48. Within a short period, another three-judge Bench of this Court
in the case of Express Newspapers Pvt. Ltd. and others vs. Union of
India and others28 referring to the conflict between the case of Motilal
Padampat Sugar Mills Co. Ltd. and the case of M/s Jit Ram Shiv
Kumar and others (supra), observed thus:
“182. I am not oblivious that there was a discordant note struck
by Kailasam, J. speaking for himself and Fazal Ali, J. in Jit Ram
Shiv Kumar v. State of Haryana [(1981) 1 SCC 11 : AIR 1980
SC 1285 : (1980) 3 SCR 689] holding that the doctrine of
28 (1986) 1 SCC 133
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promissory estoppel cannot be invoked for preventing the
Government from discharging its functions under law. It is also
not applicable when the officer and the Government act outside
the scope of their authority. The doctrine of ultra vires will in that
event come into operation and the Government cannot be held
bound by the unauthorised acts of its officers.
183. It is not necessary for purposes of this judgment to resolve
the apparent conflict between the decision of Bhagwati, J. in
Motilal Padampat Sugar Mills case [(1979) 2 SCR 641 : (1979)
2 SCC 409 : 1979 SCC (Tax) 144] as to the applicability of the
doctrine of estoppel for preventing the Government from
discharging its functions under the law. In public law, the most
obvious limitation and doctrine of estoppel is that it cannot be evoked
so as to give an overriding power which it does not in law possess.
In other words, no estoppel can legitimate action which is ultra
vires. Another limitation is that the principle of estoppel does
not operate at the level of Government policy. Estoppels have
however been allowed to operate against public authority in minor
matters of formality where no question of ultra vires arises: Wade:
Administrative Law, fifth edition, pp. 233-34.
184. The principles laid down in Maritime Elec. Co. v. General
Dairies Ltd. [1937 AC 610 (PC)] and by Lord Parker, C.J. in
Southend-on-Sea Corporation v. Hodgson (Wickford) Ltd. [(1
962) 1 QB
416] relied upon by learned counsel appearing for
Respondent 1 the Union of India are clearly not attracted in the
facts and circumstances of the present case. In the present case,
admittedly, the then Minister for Works & Housing acted within
the scope of his authority in granting permission of the lessor i.e.
the Union of India, Ministry of Works & Housing to the Express
Newspapers Pvt. Ltd. to construct new Express Building with an
increased FAR of 360 with a double basement for installation of a
printing press for publication of a Hindi newspaper under the Rules
of Business framed by the President under Article 77(3).
Therefore, the doctrine of ultra vires does not come into operation.
In view of this
Respondent 1 the Union of India is precluded by the doctrine of
promissory estoppel from questioning the authority of the Minister
in granting such permission. In that view, the successor
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Government was clearly bound by the decision taken by the
Minister particularly when it had been acted upon.”
[emphasis supplied]
49. The three-judge Bench of this Court in the case of Express
Newspapers Pvt. Ltd. and others (supra) held that no estoppel can
legitimize action which is ultra vires. It was further held that another
limitation is that the principle of estoppel does not operate at the level of
Government policy. In the facts of the said case, this Court held that the
doctrine of ultra vires did not come into operation in the said case. It held
that, in view of the permission granted by the then Minister for Works &
Housing, the respondent- Union of India was precluded from questioning
the validity thereof. The successor Government was bound by the decision
taken by the Minister, particularly when it had been acted upon.
50. It could thus be seen that there is some discord in the judgments
of this Court in the cases of Motilal Padampat Sugar Mills Co. Ltd.
(supra) and Godfrey Philips India Ltd. (supra) on one hand and in
the case of M/s Jit Ram Shiv Kumar and others (supra) on the other
hand.
51. This Court in the case of Motilal Padampat Sugar Mills Co.
Ltd. (supra) holds that, if on the basis of a promise made by a
government, an entity changes its legal position to its detriment, the State
could not be permitted to resile from the said promise. It is to be noted
that the said judgment is authored by Bhagwati, J. and the Bench strength
is of
two learned judges.
52. Within a period of two years, Kailasam, J. in the case of M/s
Jit Ram Shiv Kumar and others (supra) found fault with some of the
observations made in the case of Motilal Padampat Sugar Mills Co.
Ltd. (supra) and held that the observations made in Motilal Padampat
Sugar Mills Co. Ltd. (supra) were not in tune with the judgments of
Constitution Benches in the cases M. Ramanatha Pillai (supra) and
The Gwalior Rayon Silk Manufacturing (WVG). Co. Ltd. Etc.
(supra); and the judgment of a four- Judge Bench of this Court in the
case of Ram Kumar and others (supra).
53. The judgment of this Court in the case of M/s Jit Ram Shiv
Kumar and others (supra) again fell for consideration before a three-
judge Bench of this Court in the case of Godfrey Philips India Ltd.
(supra), which is again authored by Bhagwati, J. In the case of Godfrey
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
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Philips India Ltd. (supra), the judgment of the learned three-Judge
Bench delivered through Bhagwati, J. holds that what has been held by
learned two judges in the case of Motilal Padampat Sugar Mills Co.
Ltd. has been correctly held so and endorses the said judgment. The
said judgment also criticizes the view taken in M/s Jit Ram Shiv Kumar
and others (supra). Within a short period, the issue again comes up for
consideration before another three-judge Bench in the case of Express
Newspapers Pvt. Ltd. and others (supra). A.P. Sen, J. speaking for
the three-judge Bench notes the conflict between the view taken by
Bhagwati, J. in Motilal Padampat Sugar Mills Co. Ltd. (supra) and
Kailasam, J in the case of M/s Jit Ram Shiv Kumar and others (supra).
It appears that since the judgment was delivered within a fortnight from
the date on which Godfrey Philips India Ltd. (supra) was decided,
this Court in the case of Express Newspapers Pvt. Ltd. and others
(supra) did not notice the judgment in the case of Godfrey Philips
India Ltd. (supra). However, A.P. Sen, J in Express Newspapers
Pvt. Ltd. and others (supra) held that it was not necessary for the
purposes of the said judgment to resolve the conflict between the decision
of Bhagwati, J. in the case of Motilal Padampat Sugar Mills Co. Ltd.
(supra) and Kailasam, J. in the case of M/s Jit Ram Shiv Kumar
and others (supra). It held that one of the limitations on the principle
of
estoppel is that it does not operate at the level of Government policy.
54. However, a common thread in all these judgments that could
be noticed is that all these judgments consistently hold that 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
(supra) 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. The analysis of all
the judgments of this Court on the issue would reveal that it is a consistent
view of this Court, reiterated again in Godfrey Philips India Ltd.
(supra), that there can be no promissory estoppel against the legislature
in the exercise of its legislative functions.
55. 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
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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. We are, therefore, of
the considered view that the claim of the appellants on estoppel is without
merit and deserves to be rejected.
56. It is further to be noted that this Court has also consistently
held that 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. It has been consistently
held that 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. Reliance in this respect could be
placed on the judgments of this Court in the cases of Kasinka Trading
and another vs. Union of India and another29, Shrijee Sales Corpn.
vs. Union of India30, State of Rajasthan vs. Mahaveer Oil
Industries31, Shree Sidhbali Steels Ltd. vs. State of U.P.32, and Director
General of Foreign Trade vs. Kanak Exports33
57. Recently, this Court, in the case of Unicorn Industries (supra),
after surveying the earlier judgments of this Court on the issue has
observed thus:
“26. It could thus be seen that, it is more than well settled that the
exemption granted, even when the notification granting exemption
prescribes a particular period till which it is available, can be
withdrawn by the State, if it is found that such a withdrawal is in
the public interest. In such a case, the larger public interest would
29 (1995) 1 SCC 274
30 (1997) 3 SCC 398
31 (1999) 4 SCC 357
32 (2011) 3 SCC 193
33 (2016) 2 SCC 226
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
[B. R. GAVAI, J.]
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outweigh the individual interest, if any. In such a case, even the
doctrine of promissory estoppel would not come to the rescue of
the persons claiming exemptions and compel the State not to resile
from its promise, if the act of the State is found to be in public
interest to do so.”
58. We are, therefore, of the considered view that 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, it will 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.
59. There is another reason which, in our view, could disentitle
the relief as was claimed by the appellants before the High Courts. The
appellants, in effect, are seeking a writ of mandamus against the Union
of India to reimburse 100% of CGST for the remainder of the period
instead of only 58%.
60. This Court in the case of The Bihar Eastern Gangetic
Fishermen Co-operative Society Ltd. (supra) had an occasion to
consider when a writ of mandamus could be issued. This Court held
that:
“15. …..There is abundant authority in favour of the proposition
that a writ of mandamus can be granted only in a case where
there is a statutory duty imposed upon the officer concerned and
there is a
failure on the part of that officer to discharge the statutory
obligation. The chief function of a writ is to compel performance
of public duties prescribed by statute and to keep subordinate
tribunals and officers exercising public functions within the limit
of their jurisdiction. It follows, therefore, that in order that
mandamus may issue to compel the authorities to do
something, it must be shown that there is a statute which
imposes a legal duty and the aggrieved party has a legal
right under the statute to enforce its performance. (See Lekhraj
Satramdas Lalvani v. Deputy Custodian- cum-Managing
Officer [AIR 1966 SC 334 : (1966) 1 SCR 120 : (1966) 1 SCJ 24]
, Rai Shivendra Bahadur Dr v. Governing Body of the
Nalanda College [AIR 1962 SC 1210 : 1962 Supp 2 SCR 144 :
(1962) 1 LLJ 247] and Umakant Saran Dr v. State of Bihar
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[(1973) 1 SCC 485 : AIR 1973 SC 964] ). In the instant case, it
has not been shown by Respondent 1 that there is any statute or
rule having the force of law which casts a duty on Respondents 2
to 4 which they failed to perform. All that is sought to be enforced
is an obligation flowing from a contract which, as already indicated,
is also not binding and enforceable. Accordingly, we are clearly
of the opinion that Respondent 1 was not entitled to apply for
grant of a writ of mandamus under Article 226 of the Constitution
and the High Court was not competent to issue the same.”
[emphasis supplied]
61. It can thus be seen that 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. The position is reiterated
by this Court in the case of K.S. Jagannathan and another (supra) as
under:
“20. There is thus no doubt that the High Courts in India exercising
their jurisdiction under Article 226 have the power to issue a writ
of mandamus or a writ in the nature of mandamus or to pass
orders and give necessary directions where the government or a
public authority has failed to exercise or has wrongly exercised
the discretion conferred upon it by a statute or a rule or a policy
decision of the government or has exercised such discretion mala
fide or on irrelevant considerations or by ignoring the relevant
considerations and materials or in such a manner as to
frustrate
the object of conferring such discretion or the policy for
implementing which such discretion has been conferred. In all
such cases and in any other fit and proper case a High Court can,
in the exercise of its jurisdiction under Article 226, issue a writ of
mandamus or a writ in the nature of mandamus or pass orders
and give directions to compel the performance in a proper and
lawful manner of the discretion conferred upon the government
or a public authority, and in a proper case, in order to prevent
injustice resulting to the concerned parties, the court may itself
pass an order or give directions which the government or the
public authority should have passed or given had it properly and
lawfully exercised its discretion.”
62. It could thus be seen that this Court holds that a writ of
mandamus can be issued where the Authority has failed to exercise the
M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.
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discretion vested in it or has exercised such a discretion malafidely or
on an irrelevant consideration.
63. This position was again reiterated by this Court recently in the
case of Bharat Forge Ltd. (supra) as follows:
“18. Therefore, it is clear that a Writ of Mandamus or a direction,
in the nature of a Writ of Mandamus, is not to be withheld, in the
exercise of powers of Article 226 on any technicalities. This is
subject only to the indispensable requirements being fulfilled.
There must be a public duty. While the duty may, indeed, arise
form a Statute ordinarily, the duty can be imposed by common
charter, common law, custom or even contract. The fact that
a duty may have to be unravelled and the mist around it
cleared before its shape is unfolded may not relieve the Court
of its duty to cull out a public 25 duty in a Statute or otherwise,
if in substance, it exists. Equally, Mandamus would lie if the
Authority, which had a discretion, fails to exercise it and prefers
to act under dictation of another Authority. A Writ of Mandamus
or a direction in the nature thereof had been given a very wide
scope in the conditions prevailing in this country and it is to be
issued wherever there is a public duty and there is a failure to
perform and the courts will not be bound by technicalities and its
chief concern should be to reach justice to the wronged. We are
not dilating on or diluting other requirements, which would
ordinarily
include the need for making a demand unless a demand is found
to be futile in circumstances, which have already been catalogued
in the earlier decisions of this Court.”
[emphasis supplied]
64. Undoubtedly, in the present case, there is no duty cast on the
Union to refund 100% of CGST. As such, we find that the relief as
sought cannot be granted.
65. That leaves us with the judgments cited by Shri S. Ganesh
and Shri V. Sridharan, learned Senior Counsel.
66. Insofar as the judgment of this Court in the case of Suprabhat
Steel Ltd. (supra) is concerned, the question that arose for consideration
was whether the Notification issued under Section 7 of the Bihar Finance
Act by the State Government to carry out the objectives and the policy
decisions taken in the industrial policy could be held to be bad in law if it
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is in contravention of the industrial policy. In the case of Tata Cummins
Ltd. (supra), the question that fell for consideration was whether a
Notification that was issued for implementation of the industrial policy
of the State could be construed strictly or liberally. In the case of Lloyd
Electric and Engineering Limited (supra), the question was, as to
whether the delay on the part of the Excise and Taxation Department in
issuing Notification pursuant to the decision taken by the Council of
Ministers could deny the benefit of Notification to the entities which
were entitled thereto.
67. Insofar as the judgment of this Court in the case of MRF
Ltd., Kottayam (supra) is concerned, this Court, in the facts of the said
case, specifically came to a finding that the decision to deprive MRF of
the benefit of exemption for more than 5 years out of a total period of 7
years was highly arbitrary, unjust and unreasonable. In the case of
Manuelsons Hotels Private Limited (supra), perusal of the impugned
judgment therein would reveal that the provision on which Manuelsons
Hotels Private Limited was claiming benefit under was deleted with
effect from the 1st of March 1993. This Court, therefore, made it clear
that the benefit would only be available during the period when the said
statutory provision existed in the statute book, i.e., from 6th November
1990 to 1st March 1993. This Court, therefore, clearly rejected the claim
of benefit from the date on which the
statutory provision was deleted
from the statute book.
68. In the case of Nestle India Ltd. (supra), the respondent milk
producers did not pay the purchase tax for the period between 1st April
1996 and 4th June 1997 since the Government had decided to abolish
purchase tax for the said period. For the rest of the period, the tax was
paid. The State had attempted to recover the purchase tax retrospectively
for the aforesaid period. In this background, the claim of the respondents
therein before this Court was found to be meritorious.
69. Insofar as the reliance placed by Shri V. Sridharan, learned
Senior Counsel, on the judgment of this Court in the case of Video
Electronics Pvt. Ltd. (supra) is concerned, the question was as to
whether the State was empowered to grant sales tax exemption to a
class of goods. It was held that the classification was permissible, provided
that it was not vitiated by colourable exercise of power or abuse. As
such, the said judgment would not be applicable to the facts of the present
case.
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70. It could thus be seen that in none of the aforesaid cases, the
issue as to whether, on account of change in the law, the State was
bound to stand by its representation made under the earlier law even
when the change in law does not permit it to do so, fell for consideration.
As against this, this Court, in a catena of judgments, including two
Constitution Bench judgments, a four-Judge Bench judgment and various
judgments of learned three judges, have consistently held that promissory
estoppel would not apply against the exercise of legislative powers of
the State. As such, none of the judgments cited, in our view, would be of
any assistance to the cases of the appellants.
71. Insofar as the contention of Shri S. Ganesh, learned Senior
Counsel, that the Union should have issued exemption notification as
provided under Section 11 of the CGST Act is concerned, we find that
under the said provision, a discretion is vested in the Central Government,
which is to be exercised on the recommendations of the GST Council. 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. As already
discussed herein above, 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,
we do not find that the claim made on the basis of Section 11 of the
CGST Act is of any substance.
72. Though we have held that the appellants’ claim based on
promissory estoppel is without substance, we find that this is not a case
wherein it can be said that the appellants’ claim is wholly without any
substance.
73. 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
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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, we find that they do have a legitimate expectation
that their claim deserves due consideration.
74. It will be relevant to refer to the minutes of the meeting of the
GST Council dated 30th September 2016, which read thus:
“25. The Secretary to the Council explained that the Central and
State governments had given various incentives of Central Excise
and Value Added Tax (VAT) and Central Sales Tax (CST). He
pointed out that in the GST regime, such incentives could not be
continued as supplies would need to be made on payment of tax
in order to permit flow of tax to the destination state. Therefore, a
decision would need to be arrived at regarding the treatment of
such tax incentive schemes under the GST regime. He observed
that one option could be to ‘grandfather’ such schemes and provide
for a 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. However, while
‘grandfathering’ any such scheme, it would need to be kept in
mind that unlike VAT and the CST which were origin-based taxes,
GST was a destination-based tax and an unconditional
reimbursement
scheme could lead to double outflow for the origin-
state – one by way of transfer of tax to the destination State and
the other by way of reimbursement to the supplier. Therefore, the
States would need to be careful while devising any reimbursement
scheme and care could be taken that such reimbursement was
limited for supplies made within the State.
26. The Hon’ble Deputy Chief Minister of Gujarat alluded to
examine possible legal complications.
The Secretary to the Council pointed out that the agenda note
contained certain judgments of the Hon’ble Supreme Court as
per which the principle of promissory estoppel would not apply in
a case where there was a supervening public equity.”
75. It could thus be seen that the GST Council has noticed that
the Central and State Governments had given various incentives of Central
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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.
76. It will be further relevant to note the concerns expressed by
the State of Uttarakhand and the State of Jammu & Kashmir in the said
meeting, which are as under:
“28. The Hon’ble Minister from Uttarakhand stated that the
Government of India had given an area-based exemption for 10
years and that such exemptions were to continue upto 2020. She
observed that the Centre must reimburse such units for the Central
taxes as jobs of more than one lakh workers were at stake. The
Hon’ble Minister from Jammu and Kashmir stated that his State
was in a similar situation as Uttarakhand. The Chairperson
observed that once incentive schemes were withdrawn, the taxes
paid would be accounted for in the Consolidated Fund of India
and 42% of the amount would be devolved to the States. The
Centre, therefore, could be expected to only reimburse the units
out of the remaining 58% of the fund which was not part of the
devolution and the States would
also need to correspondingly
reimburse such units out of the share of revenue received through
devolution.”
77. It can thus be seen that the Hon’ble Minister from Uttarakhand
had stated that the Government of India had given an area-based
exemption for 10 years and that such exemptions were to continue up to
2020. She was of the view that the Centre must reimburse such units for
the Central taxes as jobs of more than one lakh workers were at stake.
The Hon’ble Minister from Jammu & Kashmir had also supported the
view of the Hon’ble Minister from Uttarakhand. However, the
Chairperson of the GST Council, i.e. the Hon’ble Finance Minister of
the Union of India, stated that the Centre would only reimburse the units
to the extent of 58%. He also expressed that the State would also need
to correspondingly reimburse such units out of the share of revenue
received through devolution. Accordingly, the following resolution was
passed in the said meeting by the GST Council:
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“29. The Council approved the following-
(i) All entities exempted from payment of indirect tax under
any existing tax incentive scheme shall pay tax in the GST regime.
(ii) 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, shall be with the
concerned State or Central Government.
(iii) In case the State or Central Government decides to
continue any existing exemption/incentive/deferral scheme, then
it shall be administered by way of a reimbursement mechanism
through the budgetary route, the modalities for which shall be
worked out by the concerned State/Centre.”
78. We, therefore, find that 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%. As a matter of fact, the State of Jammu & Kashmir has issued a
notification dated 21st December 2017 thereby resolving to reimburse
the remaining 42% of the CGST of the Union. This is limited until the
period the Union Scheme is valid.
79. It is further to be noted that 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, we are of the view that it
will 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. We further find that it will also
be appropriate that the GST Council considers making appropriate
recommendations to the States in that regard.
80. We, therefore, permit the appellants to make representations
to the respective State Governments as well as to the GST Council. We
also request the State Governments and the GST Council to consider
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such representations, if made, in accordance with what has been observed
herein above in an expeditious manner.
81. In the result, the appeals are dismissed, save and except the
observations made in paragraphs 72 to 80 hereinabove.
82. Pending applications, if any, shall stand disposed of.
83. In the facts and circumstances of the case, there shall be no
order as to costs.
Nidhi Jain
Appeals dismissed.
(Assisted by : Rakhi, LCRA)