On Monday, the Supreme Court denied Hero MotoCorp's plea for full budgetary support in place of the earlier outright excise duty exemption that had been announced by the government in 2003, before the introduction of the Goods and Services Tax (GST).
The Supreme Court further ruled that the doctrine of "promissory estoppel" could not be used when an exemption previously granted is revoked by a subsequent notification based on a policy change (GST), upholding the decisions of the Delhi High Court and the Sikkim High Court in the Hero MotoCorp and Sun Pharma cases, respectively.
In rejecting the argument, the Apex Court noted that to promote investment in those States, the Central and State Governments had provided various incentives, including reductions in Central Excise, Value Added Tax (VAT), and Central Sales Tax (CST).
The GST Council determined that it would provide budgetary support to eligible units for the remaining exemption period by way of part reimbursement of GST, paid by the unit, limited to the central government's share of CGST and/or IGST retained after devolution of these taxes to states. This decision was made because the withdrawal of the "exemption notifications" resulted in job losses.
The supreme court also noted that such incentives couldn't last forever because purchases would have to be made with payment of taxes to allow the transfer of taxes to the final state. The suggested solution called for budgetary apportionment in the State and Central budgets to reimburse the tax paid to those units that had received tax exemption up to a predetermined time.
The appellants were receiving a complete refund of the central excise taxes they had paid before the implementation of the new GST regime, as stipulated in the exemption notification dated June 25, 2003, by the office memo dated February 17, 2003. The benefit being received by the appellant, Sun Pharma Laboratories, was reduced to 58% through the implementation of the Budgetary Support Policy after the start of the new GST regime in this case as well.
Therefore, instead of the exemption specified in the notification, the central government announced the Budgetary Support Scheme, which reimburses the central government's share of the cash component of the CGST and IGST, or 58% of CGST and 29% of IGST.
However, the petitioners (Hero MotoCorp) challenged the agreement because the financial incentive offered under the pre-GST memorandum included a 100% Central Excise Duty Exemption to new industrial units for a period of ten years from the date of the beginning of commercial production.
The apex court here said “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 grants of exemptions from the GST. It also has the power to make recommendations about special provisions governing North Eastern and the 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.”
It is further to be noted that the GST Council is a constitutional body with the same holds power to make recommendations on wide-ranging issues concerning GST, including granting of exemptions from the GST.