M/S HERO MOTOCORP LTD versus UNION OF INDIA & ORS. on 17 October 2022

592

SUPREME COURT REPORTS

[2022] 13 S.C.R.

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M/S HERO MOTOCORP LTD.

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UNION OF INDIA & ORS.

(Civil Appeal No. 7405 Of 2022)

BOCTOBER 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 of2003 provided 100 % exemption of excise duty for 10 years fromCthe date of commencement of commercial production in the State ofUttrakhand and Himachal Pradesh to new industrial units andexisting industrial units – Appellants availed the exemption for thesaid period whereafter the Goods and Service Tax regime cameinto existence and the benefit being enjoyed by the appellants wasDreduced to 58% through the Budgetary Support Policy – Writpetitions challenging the same, dismissed by the High Court – Onappeal, held: Though the first part of clause (c) of sub-section (2)of s. 174 would protect any right, privilege, obligation, etc. underthe amended Act or repealed Acts, the proviso thereto provides thatany tax exemption granted as an incentive against investment shallEnot continue as a privilege if the said notification is rescinded onor after the appointed day – Benefit which was granted under the2003 Notification stands rescinded in view of the notification issuedunder proviso to clause (c) of sub-section (2) of s. 174 – When thelegislature exercises its powers for the public good, the earlierFrepresentation would not operate against the Government asequitable estoppels – There can be no promissory estoppel againstthe exercise of the legislative functions of the State – If the plea ofappellants is accepted, it would amount to enforcing a representationmade in the said O.M. and Notification of 2003 contrary to thelegislative incorporation in the proviso to s. 174(2)(c) – Thus, theGclaim of the appellant on estoppel is rejected – However, theappellants permitted to make representations to the respective StateGovernment and the GST Council.

Doctrine of promissory estoppel – Applicability of, againstthe the legislature in the exercise of its legislative functions – WhenH

a subsequent statute specifically providing for rescinding the benefitsgranted under an earlier statute, can the Union Government becompelled to stand by the representation made by it through theearlier notification – Explained and discussed.

Writ of Mandamus – Issuance of – When – Held: Writ ofmandamus can be issued where the Authority has failed to exercisethe discretion vested in it or has exercised such a discretionmalafidely or on an irrelevant consideration – A writ of mandamuscannot be issued to the Central Government to exercise power underSection 11 of the CGST Act in a particular manner –This Courtcannot interfere in policy matters of the Government unless suchpolicy 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. underthe amended Act or repealed Acts, the proviso thereto providesthat any tax exemption granted as an incentive against investmentshall not continue as a privilege if the said notification is rescindedon or after the appointed day. Admittedly, vide Notification No.21/2017 dated 18th July 2017, various earlier area-based exemptionnotifications have been rescinded. It is thus clear that the benefitwhich was granted under the 2003 Notification stands rescindedin view of the notification issued under proviso to clause (c) ofsub-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 theexercise of its legislative functions. The Constitution Bench inthe case of M. Ramanatha Pillai’s case has approved the view inAmerican Jurisprudence that the doctrine of estoppel will not beapplied against the State in its governmental, public or sovereigncapacity. It further held that the only exception with regard toapplicability of the doctrine of estoppel is where it is necessaryto prevent fraud or manifest injustice. [Para 54][624-E-G]

1.3. Undisputedly, the Notification dated 18th July 2017withdrawing the exemption notifications was issued in pursuanceof the statutory mandate as provided under Section 174(2)(c) ofthe CGST Act. If the contention as raised by the appellants is to A

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Abe accepted, it would make the provisions under the proviso toSection 174(2)(c) of the CGST Act redundant and otiose. Thelegislature in its wisdom has specifically incorporated the provisoto Section 174(2)(c) providing therein that any tax exemptiongranted as an incentive against investment through a notificationshall not continue as privilege if the said notification is rescinded.BIf the contention is accepted, it will amount to enforcing arepresentation made in the said O.M. of 2003 and 2003Notification contrary to the legislative incorporation in the provisoto Section 174(2)(c) of the CGST Act. In other words, it will permitan estoppel to be operated against the legislative functions ofCthe Parliament. The claim of the appellants on estoppel is withoutmerit and is to be rejected. [Para 55][624-G-H; 625-A-C]1.4 When an exemption granted earlier is withdrawn by asubsequent notification based on a change in policy, even in suchcases, the doctrine of promissory estoppel could not be invoked.DWhere the change of policy is in the larger public interest, theState cannot be prevented from withdrawing an incentive whichit had granted through an earlier notification. [Para 56][625-C-E]

1.5 Even on the ground of change of policy, which is in publicinterest or in view of the change in the statutory regime itself onEaccount of the GST Act being introduced as in the instant case,itwould not be correct to hold the Union bound by therepresentation made by it, i.e. by the said O.M. of 2003. Further,this would be contrary to the statutory provisions as enacted underSection 174(2)(c) of the CGST Act. [Para 58][626-B-C]

F1.6 Unless the appellants show any statutory duty cast uponthe respondent-Union of India to grant them 100% refund, a writof mandamus as sought could not be issued. A writ of mandamuscan be issued where the Authority has failed to exercise thediscretion vested in it or has exercised such a discretionmalafidely or on an irrelevant consideration. In the instant case,Gthere is no duty cast on the Union to refund 100% of CGST. assuch, 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 CentralGovernment to exercise power under Section 11 of the CGSTH

Act in a particular manner. In any case, it is a matter of policywhich has to be determined by the Union/State while taking adecision as to whether it should grant exemption from paymentof CGST or make a budgetary allocation for refund of the taxpaid. In any case, such power can be exercised by the CentralGovernment only on the recommendations of the GST Council.The Central Government was not bound to continue with arepresentation made by it in 2003 in view of the change of law bythe enactment of the CGST Act. However, in order to partly honourthe representation made by it, it has decided to refund 58% ofthe CGST paid by the entities. It is more than settled that thisCourt cannot interfere in policy matters of the Government unlesssuch policy is found to be palpably arbitrary and irrational. In thatview of the matter, the Court does not find that the claim madeon 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 promissoryestoppel is without substance, this is not a case wherein it can besaid that the appellants’ claim is wholly without any substance.[Para 72][630-G-H]

1.9 The appellants have established their industrial unitsbased on the industrial policy as reflected in the said O.M. of2003. The policy of the year 2003, in question, was based on thestatement made by the Hon’ble Prime Minister during his visitto Uttarakhand. As such, the policy was framed to bring into effectthe statement made by the highest executive functionary of thecountry. Relying on the said policy, the appellants have establishedtheir units. Though the appellants may not have a claim in law,they do have a legitimate expectation that their claim deservesdue consideration. [Para 73][630-H; 631-A-B]

1.10 The GST Council has noticed that the Central and StateGovernments had given various incentives of Central Excise andValue Added Tax (VAT) and Central Sales Tax (CST) so as toencourage investment in those States. It also took notice of thefact that such incentives could not be continued as supplies wouldneed to be made on payment of tax to permit flow of tax to the ABC

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Adestination state. The solution that was suggested was to providefor budgetary apportionment in the State and the Central budgetsfor reimbursing the tax paid to those units which enjoyed taxexemption up to a specified period. [Para 75][631-H; 632-A-B]

1.11 In the deliberations of the GST Council itself, it wasBobserved that the States also need to correspondingly reimbursethe industrial units which were entitled to exemption under anyexisting incentive scheme, out of the share of revenue receivedthrough devolution, which, as per the Finance Commission,stands at 42%. [Para 78][633-C-D]

C1.12 The GST Council is a constitutional body. It has powersto make recommendations on wide-ranging issues concerningGST, including grant of exemptions from the GST. It also haspower to make recommendations with regard to special provisionsgoverning North Eastern and Himalayan States. Taking intoconsideration that the units like the appellants have beenDestablished in the Himalayan and North-Eastern States based onthe said O.M. of 2003 and that lakhs of persons are employed insuch industries, it would be appropriate that such States shouldalso consider to correspondingly reimburse such units out of theshare of revenue received by them through devolution from theECentral Government. The Court further finds that it would alsobe appropriate that the GST Council considers makingappropriate recommendations to the States in that regard. [Para79][633-E-G]

1.13 The appellants are permitted to make representationsFto the respective State Governments as well as to the GSTCouncil. The Court also requests the State Governments andthe GST Council to consider such representations, if made, inaccordance with what has been observed in an expeditiousmanner. [Para 80][633-H; 634-A]

GM. Ramanatha Pillai vs. The State of Kerala and another(1973) 2 SCC 650 : [1974] 1 SCR 515; State of Keralaand another vs. The Gwalior Rayon Silk Manufacturing(WVG). Co. Ltd. Etc. (1973) 2 SCC 713 : [1974] 1 SCR671 - followed.

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Video Electronics Pvt. Ltd. and another vs. State ofPunjab and another (1990) 3 SCC 87 : [1989] 2 Suppl.SCR 731 –held inapplicable.

Kasinka Trading and another vs. Union of India andanother (1995) 1 SCC 274 : [1994] 4 Suppl. SCR 448;Shrijee Sales Corpn. vs. Union of India (1997) 3 SCC398 : [1996] 10 Suppl. SCR 888; State of Rajasthanvs. 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; DirectorGeneral of Foreign Trade vs. Kanak Exports (2016) 2SCC 226 : [2015] 15 SCR 287; Comptroller and AuditorGeneral of India, Gian Prakash, New Delhi andanother vs. K.S. Jagannathan and another (1986) 2SCC 679 : [1986] 2 SCR 17; Union of India & othersvs. Bharat Forge Ltd. & another Civil Appeal No. 5294of 2022 (@ SLP(C) No.4960 of 2021 decided on 16thAugust, 2022 – relied on.

Century Spinning and Manufacturing Company Ltd.and another vs. The Ulhasnagar Municipal Council andanother (1970) 1 SCC 582 : [1970] 3 SCR 854; TheBihar Eastern Gangetic Fishermen Co-operative SocietyLtd. 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 SCC409 : [1979] 2 SCR 641; M/s Jit Ram Shiv Kumar andothers vs. State of Haryana and others (1981) 1 SCC11 : [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.andothers 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; Stateof Bihar and others vs. Suprabhat Steel Ltd. and others(1999) 1 SCC 31 : [1998] 2 Suppl. SCR 699; State ofJharkhand and others vs. Tata Cummins Ltd. andanother (2006) 4 SCC 57 : [2006] 3 SCR 443; LloydElectric and Engineering Limited vs. State of Himachal A

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APradesh and others (2016) 1 SCC 560 : [2015] 10 SCR362; MRF Ltd., Kottayam vs. Asstt. Commissioner(Assessment) Sales Tax and others (2006) 8 SCC 702 :[2006] 6 Suppl. SCR 417; Manuelsons Hotels PrivateLimited vs. State of Kerala and others (2016) 6 SCC766 : [2016] 3 SCR 718; State of Punjab vs. NestleBIndia Ltd. and another (2004) 6 SCC 465 : [2004] 2Suppl. SCR 135; Excise Commissioner, U.P. Allahabadand others vs. Ram Kumar and others (1976) 3 SCC540 : [1976] 0 Suppl. SCR 532; The State of Jharkhandand ors. vs. Brahmputra Metallics Ltd. and ors. MANU/CSC/0906/2020 [Civil Appeal Nos. 3860-3862 of 2020,decided on 1.12.2020]; Union of India vs. PaliwalElectricals (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 ofIndia and others vs. VKC Footsteps India Private LimitedD(2022) 2 SCC 603; Union of India and another vs.Mohit Minerals Pvt. Ltd. through Director 2022 SCCOnLine SC 657; Union of India and others vs. UnicornIndustries (2019) 10 SCC 575 : [2019] 12 SCR 270;Augustan Textile Colours Limited (Now Augustan TextileEColours Private Limited) vs. Director of Industries andanother (2022) 6 SCC 626; Kuldeep Singh vs. Govt. ofNCT of Delhi (2006) 5 SCC 702 : [2006] 3 Suppl. SCR335; Union of India and another vs. InternationalTrading Co. and another (2003) 5 SCC 437 : [2003] 1Suppl. SCR 55 - referred to.

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M/S HERO MOTOCORP LTD. v. UNION OF INDIA & ORS.

CIVIL APPELLATE JURISDICTION : Civil Appeal No.7405of 2022.

From the Judgment and Order dated 02.03.2020 of the High Courtof Delhi at New Delhi in W.P. (C) No.505 of 2020.

AWith

Civil Appeal No.7406 of 2022.

S. Ganesh, V. Sridharan, Sr. Advs., Srinivas Kotni, Akshay Kumar,Ms. Urvashi Kalra, Ms. Subhangi, Pawanshree Agrawal, Ms. CharanyaLakshmikumaran, Karan Sachdev, Kunal Kapoor, Somesh Jain, SahilBParghi, Aditya Bhattacharya, Ms. Apeksha Mehta, Ms. Mounica Kasturi,Pranav Mundra, Advs. for the Appellant.

N. Venkatraman, ASG, Akshay Amritanshu, Ms. Neela KedarGokhale, Sansriti Pathak, Mukesh Kumar Maroria, Advs. for theRespondents.C

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 whetherDthe Union of India can be directed to adhere to the representation asmade by it in the Office Memorandum dated 7[th]January 2003(hereinafter referred to as “the said O.M. of 2003") even after theenactment of the Central Goods and Services Tax Act, 2017 (hereinafterreferred to as “the CGST Act”).

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3. Civil Appeal arising out of Special Leave Petition (Civil) No.12397 of 2020 arises out of judgment and order dated 2[nd ]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., therebyrejecting the appellants claim of 100% budgetary support in lieu of theFpre-existing 100% outright excise duty exemption for ten years from thedate of the commencement of commercial production, as provided forby 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 5[th]February, 2021Gpassed 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 exciseduty granted to it vide office memorandum dated 17[th]February, 2003,which were to be made available for a period of ten years from the dateof commencement of commercial production.H

5. Both the appellants herein approached the respective HighCourts claiming therein that in view of the said O.M. of 2003 andNotification No.50/2003-C.E. dated 10[th]June 2003 (hereinafter referredto as “2003 Notification”), the Union was bound to give 100% taxexemption till completion of 10 years’ period from the date ofcommencement of their commercial production.

FACTUAL BACKGROUND

6. The factual scenario leading to the filing of the present appealslies in a narrow compass, which is as under:

6.1 The Government of India had issued the said O.M. of 2003based on the statement made by the Hon’ble Prime Minister, during hisvisit to Uttranchal (now Uttarakhand) in March 2002. The said O.M. of2003 provided that, for the States of Uttaranchal and Himachal Pradesh,new industrial units and existing industrial units on their substantialexpansion would be entitled to exemption of 100% outright excise dutyfor 10 years from the date of commencement of commercial production.The said O.M. of 2003 also provided that there shall be 100% incometax exemption for such units initially for five years and thereafter 30%for companies and 25% for other companies for a further period of fiveyears, 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 Notificationwas notified in exercise of the powers conferred by sub-section (1) ofSection 5A of the Central Excise Act, 1944 read with sub-section (3) ofSection 3 of the Additional Duties of Excise (Goods of SpecialImportance) Act, 1957 and sub-section (3) of Section 3 of the AdditionalDuties of Excise (Textiles and Textile Articles) Act, 1978. The saidnotification provided for exemption for a period not exceeding ten yearsfrom the date of publication of the said notification in the Official Gazetteor from the date of commencement of commercial production, whicheverwas later.

6.3 The appellant – Hero Motocorp Ltd. had established a newindustry unit for manufacture of motorcycles at Haridwar, Uttarakhand,which commenced commercial production from 7[th]April, 2008. Theappellant – Hero Motocorp Ltd. availed the exemption until 1[st]July,2017, whereafter the Goods and Service Tax regime came into existenceand the benefit being enjoyed by the appellant – Hero Motocorp Ltd.was reduced to 58% through the Budgetary Support Policy.

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A6.4 The appellant - Sun Pharma Laboratories Ltd. setup its firstindustrial unit which commenced its commercial production from 20[th]April, 2009. A second unit was also set up later which commencedcommercial production from 14[th]April, 2014. Before the advent of thenew GST regime, both of the appellant’s units were enjoying a full refundof the central excise duties paid by them as provided for in the exemptionBnotification dated 25[th]June, 2003, pursuant to the Office Memorandumdated 17[th]February, 2003. After the commencement of the new GSTregime, here too, the benefit being enjoyed by the appellant - Sun PharmaLaboratories was reduced to 58% through the implementation of theBudgetary Support Policy.C

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6.5 Subsequently, by the Constitution (One Hundred and FirstAmendment) Act, 2016 (hereinafter referred to as “the 101[st]AmendmentAct”), the Constitution of India came to be amended by the Parliamentto introduce the goods and services tax system pan India. By the 101[st]Amendment Act, concurrent taxing power was conferred on the UnionDas well as the States including the Union Territories. By the 101[st]Amendment Act, Article 246A was inserted, making a special provisionfor levy of Goods and Service Tax (“GST” for short), by both the Unionas well as the States. Article 269A was inserted to provide for levy andcollection of GST in the course of Inter-State trade or commerce (“IGST”for short) by the Government of India. It also provided that such taxEshall be apportioned between the Union and the States in the manner asmay be provided by Parliament by law on the recommendations of theGoods and Services Tax Council (“GST Council” for short).

6.6 In pursuance of the said amendments to the Constitution ofIndia, the Central Goods and Services Tax Act, 2017 (hereinafter referredFto as “the CGST Act”) and Integrated Goods and Services Tax Act,2017 (hereinafter referred to as “the IGST Act”) were enacted by theParliament and various States Goods and Service Tax Acts (“SGST”for short) were enacted by the State Legislatures for their respectiveStates for the levy of GST.G

6.7 Under clause (c) of sub-section (2) of Section 174 of theCGST Act, a Notification No.21/2017-CE dated 18[th]July 2017 was issuedby the respondent-Union of India by which the exemption notificationsthrough which tax exemptions were granted as an incentive against theinvestment came to be rescinded on or after the appointed day, i.e. 1[st]

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July 2017. As a result, the tax exemption which was granted by the saidO.M. of 2003 ceased to continue with effect from 1[st]July 2017.

6.8 The GST Council, in its meeting held on 30[th]September 2016,had resolved that all entities exempted from payment of indirect taxwould pay tax in the GST regime. It had also resolved that the decisionto continue with any incentive given to specific industries in existingindustrial policies of States or through any schemes of the CentralGovernment would be with the concerned State or Central Government.It was further resolved that in the event it was decided by the concernedState or Central Government to continue any existing exemption/incentive,etc., then it would be administered by way of a reimbursement mechanismthrough the budgetary route. The modalities of the same were to beworked 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 videNotification dated 5[th]October 2017, thereby providing to refund/reimbursethe Central share of CGST and IGST to the affected eligible industrialunits for the residual period in the North Eastern and the HimalayanStates. The Central share was determined at 58% of CGST and 29% ofIGST.

6.10 Being aggrieved by the decision of the Central Governmentin restricting the refund only to 58% of CGST and 29% of IGST and notproviding 100% refund of CGST, the appellant-Hero Motocorp Ltd.approached the Delhi High Court by way of writ petition being WritPetition (Civil) No. 505 of 2020 and the appellant-Sun PharmaLaboratories Limited approached the Sikkim High Court by way of writpetition being Writ Petition (Civil) No.47 of 2018. The Delhi High Court,vide its judgment and order dated 2[nd]March 2020, and the Sikkim HighCourt, vide its judgment and order dated 5[th]February 2021, have dismissedthe said writ petitions.

6.11 Being aggrieved by the dismissal of the writ petitions, theappellants (the original writ petitioners) have approached this Court.

6.12 Hence the present appeals.

SUBMISSIONS

7. We have heard Shri S. Ganesh, learned Senior Counselappearing on behalf of the appellant-Hero Motocorp Ltd. in Civil Appeal AB

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Aarising 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 SpecialLeave Petition (Civil) No.11978 of 2021 and Shri N. Venkatraman, learnedAdditional Solicitor General appearing on behalf of the respondent-Unionof India.B

8. Shri S. Ganesh, learned Senior Counsel, submits that the perusalof the said O.M. of 2003 would reveal that an unequivocal representationwas made by the Central Government to the commercial entities whichwere desirous of setting up industrial units in the States of Uttarakhandand Himachal Pradesh, that, in the event a new industry is established orCthere is a substantial expansion of the existing unit, then such industrialunits would be entitled to 100% exemption from payment of excise dutyfor 10 years. He submits that the Central Government is bound by suchrepresentation. It is submitted that the industrial units like that of theappellants, relying on the promise made by the Central Government,Dhave altered their position to their detriment and as such, the CentralGovernment is now estopped from resiling from the representation madeby it to the appellants.

9. Shri Ganesh submits that the figure of refund only to the extentof 58% has been achieved in an arbitrary and irrational manner. HeEsubmits that the Union has purportedly done so under the umbrella ofthe report of the Finance Commission. He contends that, even under theearlier regime of excise tax and all other levies collected by the CentralGovernment, the States were entitled to their share therein. It is statedthat the share of the Central Government and the State Government inthe said regime has always been there and it is not as if it has come forFthe first time after the GST regime started. Learned Senior Counselsubmits that under the old regime, though the Central Government wassharing with the States a certain percentage of entire taxes collected byit, still, 100% exemption from the payment of duty was being granted tothe entities like the appellants herein. It is submitted that there is noGreason as to why the same should not have been continued under thenew regime.

10. Shri Ganesh further submits that the policy as is reflected inthe said O.M. of 2003 would stand on a higher pedestal than the statutoryprovision or a notification under a statute and the Union would be boundHto adhere to the same. He submitted that even in January 2003 when the exemption notifications were issued, the same sharing pattern was inexistence between the States and the Central Government.

11. Shri Ganesh further submits that under Section 11 of the CGSTAct, the Government has the power to grant exemption from tax andthere is no reason as to why the Union Government should not haveexercised such a power in the peculiar facts and circumstances of thecase.

12. Learned Senior Counsel, therefore, submits that the view takenby the Delhi High Court is not sustainable in law. He submits that theappeals deserve to be allowed and a direction be issued to the CentralGovernment to provide 100% reimbursement of CGST for the remainderof the period.

13. Shri Ganesh relied on the judgments of this Court in the casesof State of Bihar and others vs. Suprabhat Steel Ltd. and others[1],State of Jharkhand and others vs. Tata Cummins Ltd. and another[2],Lloyd Electric and Engineering Limited vs. State of HimachalPradesh and others[3], MRF Ltd., Kottayam vs. Asstt. Commissioner(Assessment) Sales Tax and others[4], The State of Jharkhand andors. vs. Brahmputra Metallics Ltd. and ors.[5], Manuelsons HotelsPrivate Limited vs. State of Kerala and others[6]and State of Punjabvs. Nestle India Ltd. and another[7]

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 theissue is very well crystallized in various judgments of this Court.

15. Shri V. Sridharan, learned Senior Counsel, also submitted thatthe Central Government had come out with a policy of promotingindustrial growth and employment in the backward areas. He submitsthat even after the GST regime, it should have continued the said policy.He submits that, if the Central Government has brought down the benefitfrom 100% to 58%, then it should extend/increase the period of benefitto ensure that the promise made in 2003 industrial policy is given effect 1 (1999) 1 SCC 312 (2006) 4 SCC 573 (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

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Ato in reality. He relies on the judgment of this Court in the case of VideoElectronics Pvt. Ltd. and another vs. State of Punjab and another[8]and Union of India vs. Paliwal Electricals (P) Ltd. and another[9].

16. Shri Sridharan further submitted that the Sikkim High Courthas only relied on the judgment of this Court in the case of Union ofBIndia & Anr. vs. V.V.F. Limited & Anr.[10]He submitted that the issue inthe case of V.V.F. Limited & Anr. (supra) was with regard to thewithdrawal of notification since it was found to be misused. He submitsthat the factual situation in the present case is different and as such, theHigh Court was in error in dismissing the writ petition.

C17. Shri N. Venkatraman, learned Additional Solicitor General(“ASG” for short), on the contrary, submits that promissory estoppelcannot be applied to the representation made by the Union of India, ifthere is a material change in the circumstances and the larger publicinterest warrants such a withdrawal. He submits that, in view of theconstitutional amendment, a new era of GST has emerged. He submitsDthat the new era emphasizes on the principle of pooled sovereigntywhere States and Centre share equal responsibilities. Learned ASGsubmits that Article 279A of the Constitution provides for theestablishment of the GST Council. It is submitted that the GST Councilconsists of (a) the Union Finance Minister; (b) the Union Minister ofEState in charge of Revenue or Finance; and (c) the Minister in charge ofFinance or Taxation or any other Minister nominated by each StateGovernment. He submits that the GST Council has been empowered tomake recommendations to the Union and the States on the taxes, cessesand surcharges levied by the Union, the States and the local bodies whichare to be subsumed in the GST. It is submitted that clause (6) of ArticleF279A of the Constitution of India directs the GST Council to be guidedby the need for a harmonized structure of GST and the development ofa harmonized national market for goods and services, while dischargingits functions. He submits that under clause (1) of Article 246A of theConstitution, both the Parliament as well as the State Legislatures haveGbeen empowered to make laws with respect to GST to be imposed bythe Union or by such States, whereas clause (2) of the said Articleempowers Parliament to make laws with respect to GST where the 8 (1990) 3 SCC 87

9 (1996) 3 SCC 407H10 2020 SCC Online SC 378

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 hasoccurred with the advent of GST from 1[st]July 2017. The first change, inthe submission of the learned ASG, is that the earlier tax regime wasorigin based, whereas the new tax regime is destination based. Underthe old regime, the Centre was collecting 100% excise duty, service tax,central sales tax, etc. and the States were collecting 100% Value AddedTax (“VAT” for short). Under the old tax regime, there was no uniformitywith regard to State levies, whereas under the new tax regime, there isuniformity. Under the new regime, both Union and the States come onthe same platform under Articles 246A and 279A of the Constitution andbecome common partners for taxing together. Under the new regime,both States as well as Union charge at the same rate. Learned ASGsubmits that the only common feature in the old regime as well as in thenew regime is that the Centre continues to fund the States.

19. Learned ASG further submitted that pursuant to the enactmentof GST, a notification, being Notification No. 21 of 2017, was issued on18[th]July 2017, thereby withdrawing the exemptions granted previouslyunder the erstwhile excise regime. He submits that the appellants havenot challenged the validity of the said Notification. He further submitsthat, in view of the proviso to clause (c) of sub- section (2) of Section174 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 validitythereof, are not tenable.

20. Learned ASG submits that, though after the enactment of theGST the Central Government was not bound to continue granting anyrelief, however, as a matter of good gesture and on the recommendationsof the GST Council, it has decided to reimburse 58% of CGST paid bysuch industrial units who were entitled to the benefit of exemptionnotifications. He submits that the said has been done based on therecommendations of the Finance Commission, which has earmarkedthe share of the Union at 58% and of the States at 42%.

21. Learned ASG submits that the writ petitions have beenerroneously filed seeking a relief against the Union. He submits that ifthe appellants have any claim, then that would be against the State AB

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AGovernments wherein the industries are situated. It is submitted that, asa matter of fact, the Government of Jammu & Kashmir, vide Notificationdated 21[st]December 2017 has already resolved to reimburse theremaining 42% of the GST to the units located in the State till the periodthe Union Scheme is valid. It is submitted that the appellants ought tohave sought similar relief against the State Governments. Thus, in hisBsubmission, a writ against the Union of India is untenable.

22. Learned ASG further submits that the writ of mandamus couldonly be issued against a statutory body when it is established that thereis a duty cast upon a statutory authority and that the said authority hasneglected to perform such duty. It is submitted that the appellants haveCnot been in a position to point out that any such duty is cast upon theUnion to reimburse 100% GST and as such, the present appeals wouldnot be tenable.

23. Learned ASG, relying on various judgments of this Courtsubmitted that in view of the overwhelming public interest, the UnionDcannot 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 thejudgments of this Court in the cases of Union of India and others vs.VKC Footsteps India Private Limited[11], Union of India and anotherEvs. Mohit Minerals Pvt. Ltd. through Director[12], Union of India andothers vs. Unicorn Industries[13], Augustan Textile Colours Limited(Now Augustan Textile Colours Private Limited) vs. Director ofIndustries and another[14], Kuldeep Singh vs. Govt. of NCT of Delhi[15],Union of India and another vs. International Trading Co. andFanother[16], Comptroller and Auditor General of India, Gian Prakash,New Delhi and another vs. K.S. Jagannathan and another[17]andUnion of India & others vs. Bharat Forge Ltd. & another[18].

11 (2022) 2 SCC 60312 2022 SCC OnLine SC 65713 (2019) 10 SCC 575G14 (2022) 6 SCC 62615 (2006) 5 SCC 70216 (2003) 5 SCC 43717 (1986) 2 SCC 67918 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, submitsthat the submission of the learned ASG that the remedy lies against theStates and not against the Centre is devoid of any substance. He submitsthat the assurance was given by the Central Government and not by theState Governments. He submits that the said O.M. of 2003 has to beunderstood from a viewpoint of a businessman to whom the commercialrepresentation was made. The words “exemption from direct or indirecttax” is required to be given full meaning. He submits that the proviso toSection 174(2)(c) of the CGST Act would not be applicable in the presentcase if looked at from the viewpoint of the ordinary businessman.

CONSIDERATION

CONSIDERATION

26. It is not in dispute that the Union of India had framed a policyvide the said O.M. of 2003. It is also not in dispute that, vide the saidpolicy, the Central Government had provided that 100% exemption wouldbe granted to the industrial units from payment of outright excise dutyfor 10 years from the date on which such industrial units commencetheir commercial production. The incentives applied to the new industrialunits as well as existing industrial units going for substantial expansion.As such, it is clear that, vide the said O.M. of 2003, an unequivocalpromise was given to the entities that, in the event they establish a newindustrial unit or go for a substantial expansion of their existing industrialunits in the States of Uttarakhand and Himachal Pradesh, they would beentitled to 100% tax exemption.

27. It is to be noted that, subsequently, an important developmenttook place. By the 101[st]Amendment Act, a sea change in the earliertaxation regime occurred. A uniform tax structure throughout the countryhas been adopted. The GST Council has been constituted, which isempowered to make recommendations to the Union and the States withregard to GST. The Union and all the States have become commonpartners in levy of various taxes. To give effect to the 101[st]AmendmentAct, 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 inthis Act, on and from the date of commencement of this Act, theCentral Excise Act, 1944 (1 of 1944) (except as respects goodsincluded in entry 84 of the Union List of the Seventh Schedule tothe Constitution), the Medicinal and Toilet Preparations (Excise AB

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ADuties) Act, 1955 (16 of 1955), the Additional Duties of Excise(Goods of Special Importance) Act, 1957 (58 of 1957), theAdditional Duties of Excise (Textiles and Textile Articles) Act,1978 (40 of 1978), and the Central Excise Tariff Act, 1985 (5 of1986) (hereafter referred to as the repealed Acts) are herebyrepealed.

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(2) The repeal of the said Acts and the amendment of theFinance Act, 1994 (32 of 1994)(hereafter referred to as “suchamendment” or “amended Act”, as the case may be) to the extentmentioned in the sub-section (1) or Section 173 shall not—

C(a) ……..

(b) ……..

(c) affect any right, privilege, obligation, or liability acquired,accrued or incurred under the amended Act or repealedActs or orders under such repealed or amended Acts:

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Provided that any tax exemption granted as an incentiveagainst investment through a notification shall notcontinue as privilege if the said notification is rescindedon or after the appointed day; or”

29. It could thus be seen that, under clause (1) of Section 174,Evarious enactments, including the Central Excise Act, 1944, are repealed.Clause (c) of sub-section (2) of Section 174, however, provides that therepeal of the said Acts shall not affect any right, privilege, obligation, orliability acquired, accrued or incurred under the amended Act or repealedActs or orders under such repealed or amended Acts. However, theFproviso thereto is clear and specific. It specifically provides that any taxexemption granted as an incentive against investment through anotification shall not continue as a privilege if the said notification isrescinded on or after the appointed day.

30. It can thus be seen that, though the first part of clause (c) ofGsub-section (2) of Section 174 would protect any right, privilege, obligation,etc. under the amended Act or repealed Acts, the proviso thereto providesthat any tax exemption granted as an incentive against investment shallnot continue as a privilege if the said notification is rescinded on or afterthe appointed day. Admittedly, vide Notification No.21/2017 dated 18[th]July 2017, various earlier area- based exemption notifications have beenH

rescinded. It is thus clear that the benefit which was granted under the2003 Notification standsrescinded in view of the notification issuedunder proviso to clause (c) of sub-section (2) of Section 174 of theCGST Act.

31. The question, therefore, that would fall for consideration is,as to whether, despitea subsequent statute specifically providing forrescinding the benefits granted under an earlier statute, the UnionGovernment can be compelled to stand by the representation made by itthrough the earlier notification. In other words, the question that willhave to be considered is whether doctrine of promissory estoppel couldoperate against a statute.

JUDICIAL PRECEDENTS

32. For considering the rival submissions, it would also be necessaryto refer to various earlier authoritative pronouncements of this Court onthe issue.

33. Heavy reliance is placed on the judgment of this Court in thecase 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 issueof promissory estoppel. In the said case, the Textile Commissionerpublished a scheme on 10[th]October 1962, called the Export PromotionScheme providing incentives to exporters of woolen goods. The schemewas extended by a Trade Notice dated 1[st]January 1963, to export ofwoolen goods to Afghanistan. In pursuance of the said scheme, theexporters were entitled to import raw materials of a total amount equalto 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 theauthorities to respond, a petition came to be filed in the High Court ofPunjab. The High Court held that the Export Promotion Schemespecifically provided for granting certificates to import materials of the“value equal to 100% of the F.O.B. value of the goods exported”. Itwas, therefore, held by the High Court that the petitioners therein wereentitled to obtain import licenses for an amount equal to 100% of theF.O.B. value. The judgment of the High Court was challenged beforethis Court. One of the issues before this Court was with regard to the A

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Aviolation of principles of natural justice. This Court also considered theissue of promissory estoppel. This Court held:

“15. In these cases it was clearly ruled that where a person hasacted upon representations made in an Export Promotion Schemethat import licences upto the value of the goods exported will beBissued, and had exported goods, his claim for import licence forthe maximum value permissible by the Scheme could not bearbitrarily rejected. Reduction in the amount of import certificatemay be justified on the ground of misconduct of the exporter inrelation to the goods exported, or on special considerations suchas difficult foreign exchange position, or other matters which haveCa bearing on the general interests of the State. In the presentcase, the Scheme provides for grant of import entitlement of thevalue, and not upto the value, of the goods exported. The TextileCommissioner was, therefore, in the ordinary course required togrant import certificate for the full value of the goods exported:Dhe could only reduce that amount after enquiry contemplated byclause 10 of the Scheme….”

34. It could thus be seen that the issue that fell for considerationin the case of M/s Indo-Afghan Agencies Ltd. (supra) was with regardto an arbitrary reduction of the claim of the writ petitioner contrary toEthe Export Promotion Scheme. The issue as to whether the Legislatureby a subsequent enactment was entitled to withdraw the benefit grantedunder the earlier scheme did not fall for consideration in the said case.

35. This Court in the case of Century Spinning andManufacturing Company Ltd. and another vs. The UlhasnagarMunicipal Council and another[20]considered the issue wherein theFMunicipality had agreed to exempt the appellant therein from paymentof octroi duty for 7 years from the date of levy of octroi. However,thereafter, the Municipality sought to levy octroi duty from the appellanttherein. This Court observed thus:

“12. If our nascent democracy is to thrive different standards ofGconduct for the people and the public bodies cannot ordinarily bepermitted. A public body is, in our judgment, not exempt fromliability to carry out its obligation arising out of representationsmade by it relying upon which a citizen has altered his position tohis prejudice.”

H20 (1970) 1 SCC 582

36. A Constitution Bench of this Court in the case of M.Ramanatha Pillai vs. The State of Kerala and another[21]consideredthe question as to whether estoppel could arise against a State in regardto abolition of posts. The Constitution Bench observed thus:

“37. The High Court was correct in holding that no estoppel couldarise against the State in regard to abolition of post. The appellantRamanatha Pillai knew that the post was temporary. In AmericanJurisprudence 2d at p. 783 para 123 it is stated “Generally, astate is not subject to an estoppel to the same extent as in anindividual or a private corporation. Otherwise, it might be renderedhelpless to assert its powers in government. Therefore as ageneral rule the doctrine of estoppel will not be appliedagainst the State in its governmental, public or sovereigncapacity. An exception however arises in the application ofestoppel to the State where it is necessary to prevent fraud ormanifest injustice”. The estoppel alleged by the appellantRamanatha Pillai was on the ground that he entered into anagreement and thereby changed his position to his detriment. TheHigh Court rightly held that the Courts exclude the operation ofthe doctrine of estoppel, when it is found that the authority againstwhom estoppel is pleaded has owed a duty to the public againstwhom the estoppel cannot fairly operate.”

37. It can thus clearly be seen that the Constitution Bench hasapproved the statement in American Jurisprudence that the doctrineof estoppel will not be applied against the State in its governmental,public or sovereign capacity. An exception to the application of the saiddoctrine to the State would, however, arise where it is necessary toprevent fraud or manifest injustice.

38. Another Constitution Bench of this Court in the case of Stateof Kerala and another vs. The Gwalior Rayon Silk Manufacturing(WVG). Co. Ltd. Etc.[22]was considering an issue as to the applicationof promissory estoppel when a right to compensation for acquisition offorest land as provided in the earlier statute was taken away by asubsequent statute. The Constitution Bench held thus:

21 (1973) 2 SCC 65022 (1973) 2 SCC 713

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A“38. In an attempt to show that the impugned Act was a piece ofcolourable legislation, reference was made to the Karala PrivateForests Acquisition Bill, 1968 LA Bill No. 33 of 1968 which providedfor the acquisition of private forests on payment of compensationfor the acquisition. That Bill, it is contended, was allowed tolapse and the present Act was enacted with the obviousBintention of expropriating vast forest lands without payingcompensation. We can hardly countenance such an argument.The question really is, in the first place, of the competence of thelegislature to pass the impugned Act and, in the second, whetherthe Act is constitutional in the sense that it is protected by SectionC31- A(1). So far as the competence of the legislature is concerned,no objection is made before us. As to its constitutionality we haveshown that the Act purports to vast the janman rights to the forestsin the Government as a step in the implementation of agrarianreform. If this could be constitutionally done by the legislature,the fact that at an earlier stage the Government was toyingDwith the idea of paying compensation to owners of privateforests is of little consequence. The dominant purpose of theimpugned Act, as already pointed out, is to distribute forest landsfor agricultural purposes after making reservations of portions ofthe forests for the benefit of the agricultural community. The fearEis expressed that such a course if, genuinely implemented, maylead to deforestation on a large scale leading to soil erosion andsilting of rivers and streams and will actually turn out to bedetrimental to the interests of the agricultural community in thelong run. It is undoubtedly true that rackless deforestation mightlead to very unhappy results. But we have no material before usFfor expressing opinion on such a matter. It is for the legislature tobalance the comparative advantages of a scheme like the oneenvisaged in the Act against the possible disadvantages of resultingdeforestation. There are many imponderables to which we haveno safe guides. It is presumed that the legislature knows theGneeds of its people and will balance the present advantagesagainst possible future disadvantages. If there is pressure onland and the legislature feels that forest lands in some areas canbe conveniently and, without much damage to the community asa whole, utilized for settling a large proportion of the agriculturalpopulation, it is perfectly open, under the constitutional powers A

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vested in the legislature, to make a suitable law, and if the law isconstitutionally valid this Court can hardly strike it down on theground that in the long run the legislation instead of turning out tobe a boon will turn out to be a curse.

39. Mr Menon who appeared for the respondent in Civil AppealNo. 1398 of 1972 put forward a plea of equitable estoppel peculiarto his client company. It appears that the Company establisheditself in Kerala for the production of rayon cloth pulp on anunderstanding that the Government would bind itself to supply theraw-material. Later Government was unable to supply the materialand by an agreement undertook not to legislate for the acquisitionof private forests for a period of 60 years if the Company purchasedforest lands for the purpose of its supply of raw- materials.Accordingly, the Company purchased 30,000 acres of privateforests from the Nilambhuri Kovila Kannan estate for Rs 75 lakhsand, therefore, it was argued that, so far as the Company isconcerned, the agreement not to legislate should operate asequitable estoppel against the State. We do not see how anagreement of the Government can preclude legislation on thesubject. The High Court has rightly pointed out that thesurrender by the Government of its legislative powers to beused for public good cannot avail the company or operateagainst the Government as equitable estoppel.”

39. It could thus be seen that this Court held that it is presumedthat the legislature knows the needs of its people and will balance thepresent advantages against possible future disadvantages. It has beenheld that if a new enactment is constitutionally enacted by the legislature,then the fact that, at an earlier stage, the Government was toying withthe idea of paying compensation to owners of private forests would beof no consequence. Undisputedly, the GST enactment is an enactmentvalidly enacted by the Parliament. It was also sought to be urged thatthe petitioner Company, on the basis of the agreement by the StateGovernment that it would not legislate to acquire the forest land for 60years, had purchased 30,000 acres of private land. It was submittedtherein that, applying the doctrine of equitable estoppel, the Governmentwas estopped from enacting a legislation contrary to the agreement.Negating the said contention, it was held that when the legislature A

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Aexercises its powers for the public good, the earlier representation wouldnot operate against the Government as equitable estoppel.

40. A four judge Bench of this Court in the case of ExciseCommissioner, U.1P. Allahabad and others vs. Ram Kumar andothers[23]had considered the issue wherein, at the time of the auction,Blicenses sold by the Government to vend country liquor exempted thelevy of sales tax. However, by a subsequent notification, the sale ofcountry liquor was subjected to the levy of sales tax. This Court specificallyrejected the contention that the State was estopped from doing so. ThisCourt relied on the earlier Constitution Bench judgment in the cases ofM. Ramanatha Pillai (supra) and The Gwalior Rayon SilkCManufacturing (WVG). Co. Ltd. Etc. (supra). It held that an assurancegiven 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 fromenforcing a statutory prohibition. It reiterated the legal position thatestoppel does not operate against the Government or its assignee.D

41. In the case of The Bihar Eastern Gangetic Fishermen Co-operative Society Ltd. vs. Sipahi Singh and others[24], the StateGovernment had directed that the settlement of the Jalkar would continuewith Sipahi Singh for the years 1976-77 and 1977-78. However, on therepresentation made by the Bihar Eastern Gangetic Fishermen Co-Eoperative Society Ltd., the State Government directed that the settlementof the Jalkar would be with the said Society for the relevant years oncertain conditions. Sipahi Singh filed a writ petition which was allowedby the High Court relying on the doctrine of promissory estoppel. Athree-judge Bench of this Court, while reversing the judgment of theHigh Court, observed thus:F

“13. The doctrine of promissory estoppel could also not be pressedinto service in the present case, as it is well settled that therecannot be any estoppel against the Government in exerciseof its sovereign legislative and executive functions. (See ExciseCommissioner, U.P. Allahabad v. Ram Kumar [(1976) 3 SCCG540 : 1976 SCC (Tax) 360 : AIR 1976 SC 2237] ).”

23 (1976) 3 SCC 540H24 (1977) 4 SCC 145

42. It is thus clear that The Bihar Eastern Gangetic FishermenCo-operative Society Ltd. (supra) is also an authority to hold that therecannot be any estoppel against the Government in the exercise of itssovereign, legislative and executive functions. In the said case, thejudgment of this Court in the case of M/s Indo-Afghan Agencies Ltd.(supra) was pressed into service. Distinguishing the same, this Courtobserved thus:

“14. The decision of this Court in Union of India v. Indo-AfghanAgencies Ltd. [AIR 1968 SC 718 : (1968) 2 SCR 366 : (1968) 2SCJ 889] on which strong reliance is placed by Counsel forRespondent 1 is clearly distinguishable. In that case, unlike thepresent one, the respondents were not seeking to enforce anycontractual right. They were merely seeking to enforce compliancewith the obligation which was laid upon the Textile Commissionerby 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 amountequal to 100% of the f.o.b. value of their exports. Their claimwas founded upon the equity which arose in their favour as aresult of the representation made on behalf of the Governmentin the aforesaid Scheme, the exports of woollen goods madeby them to Afghanistan acting upon the representation andcurtailment of the import entitlement by the TextileCommissioner without notice to them.”

43. Subsequently, a two Judge Bench of this Court in the case ofMotilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradeshand others[25]again considered the issue of estoppel. In the said case,the State Government had represented that an exemption from sales taxwould be granted to new industrial units. Based on the assurance of theState Government, the appellant before this Court in the said case hadestablished its industrial unit. However, subsequently, the Governmentdecided to rescind the said concession. Though this Court, in the facts ofthe said case, held that the appellant therein, based on the promise madeby the respondent therein, had altered its position to its detriment and assuch, the State could not resile from the said promise, allowing the appealobserved thus:

25 (1979) 2 SCC 409

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A“28. …… There can also be no promissory estoppel againstthe exercise of legislative power. The Legislature can neverbe precluded from exercising its legislative function by resortto the doctrine of promissory estoppel. Vide State of Kerala v.Gwalior Rayon Silk Manufacturing Co. Ltd. [(1973) 2 SCC713, 730 (para 39) : (1974) 1 SCR 671, 688]”B

44. Thereafter comes the judgment of this Court in the case ofM/s Jit Ram Shiv Kumar and others vs. State of Haryana andothers[26]. In the said case, the municipal committee established a smallCmandi and decided that the purchasers of the plots for sale in the mandiwould not be required to pay octroi duty on goods imported within thesaid mandi. Subsequently, the municipal committee started imposing octroiduty. Challenging the said act of the municipal committee, a writ petitionwas filed before the High Court. The High Court dismissed the said writpetition. The two-Judge Bench of this Court in the said case, referring toDjudgments of courts of various other jurisdictions as well as the judgmentsof this Court at an earlier point of time, observed thus:

“40. The scope of the plea of doctrine of promissory estoppelagainst the Government may be summed up as follows:

E(1) The plea of promissory estoppel is not available againstthe exercise of the legislative functions of the State.

(2) The doctrine cannot be invoked for preventing the Governmentfrom discharging its functions under the law.

(3) When the officer of the Government acts outside the scope ofFhis authority, the plea of promissory estoppel is not available. Thedoctrine of ultra vires will come into operation and the Governmentcannot be held bound by the unauthorised acts of its officers.

(4) When the officer acts within the scope of his authority undera scheme and enters into an agreement and makes aGrepresentation and a person acting on that representation putshimself in a disadvantageous position, the Court is entitled to requirethe officer to act according to the scheme and the agreement orrepresentation. The officer cannot arbitrarily act on his mere whimand ignore his promise on some undefined and undisclosed grounds H26 (1981) 1 SCC 11

of necessity or change the conditions to the prejudice of the personwho had acted upon such representation and put himself in adisadvantageous position.

(5) The officer would be justified in changing the terms of theagreement to the prejudice of the other party on specialconsiderations such as difficult foreign exchange position or othermatters which have a bearing on general interest of the State.”

45. It can thus clearly be seen that this Court held that the plea ofpromissory estoppel would not be available against the exercise of thelegislative functions of the State. Equally, it cannot be invoked forpreventing the government from discharging its functions under the law.The learned judges of this Court in the case of M/s Jit Ram Shiv Kumarand others (supra), holding that some of the observations of this Courtin the case of Motilal Padampat Sugar Mills Co. Ltd. (supra) werenot in tune with the earlier judgments of larger Benches of this Court,observed thus:

Obiter dicta

“45. We find ourselves unable to ignore the three decisions of thisCourt, two by Constitution Benches in M. Ramanatha Pillai v.State of Kerala [(1973) 2 SCC 650 : 1973 SCC (L&S) 560 : AIR1973 SC 2641 : (1974) 1 SCR 515] and State of Kerala v. GwaliorRayon Silk Mfg. (Wvg.) Co. Ltd. [(1973) 2 SCC 713 : AIR 1973SC 2734 : (1974) 1 SCR 671] and the third by a Bench of fourJudges of this Court in Excise Commr., U.P., Allahabad v. RamKumar [(1976) 3 SCC 540 : 1976 SCC (Tax) 360 : 1976 SuppSCR 532] on the ground that the observations are in the nature ofobiter dicta and that it cannot be insisted as intending to have laiddown any proposition of law different from that enunciated in theIndo-Afghan Agencies case [AIR 1968 SC 718 : (1968) 2 SCR366 : (1968) 2 SCJ 889] . It was not necessary for this Court inthe 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 theauthority cannot go back on the agreement arbitrarily or on itsmere whim. We feel we are bound to follow the decisions of thethree Benches of this Court which in our respectful opinion havecorrectly stated the law. We are also unable to read the case ofthe House of Lords in Howell v. Falmouth Boat Construction AB

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ACo. 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 havingexpressed its disapproval of the doctrine of promissory estoppelagainst the Crown nor overruled the view taken by Denning, J. inRobertson v. Minister of Pensions [(1949) 1 KB 227 : (1948) 2All ER 767 : 1949 LJR 323] that “the Crown cannot escape theBobligation under the doctrine of promissory estoppel”.

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46. We find ourselves unable to share the view of the learnedJudge that the Constitution Bench of this Court in RamanathaPillai case [(1973) 2 SCC 650 : 1973 SCC (L&S) 560 : AIR 1973SC 2641 : (1974) 1 SCR 515] heavily relied upon the quotationCfrom the American jurisprudence, para 123, p. 873 of Vol. 28.Again we feel to remark that “unfortunately this quotation wasincomplete and had overlooked perhaps inadvertently” isunjustified.

(emphasis supplied)”

D46. This Court in the said case reiterated the legal position thus:

“51. On a consideration of the decisions of this Court it isclear that there can be no promissory estoppel against theexercise of legislative power of the State. So also the doctrinecannot be invoked for preventing the Government from acting inEdischarge of its duty under the law. The Government would notbe bound by the act of its officers and agents who act beyond thescope of their authority and a person dealing with the agent of theGovernment must be held to have notice of the limitations of hisauthority. the Court can enforce compliance by a public authorityFof the obligation laid on him if he arbitrarily or on his mere whimignores the promises made by him on behalf of the Government.It would be open to the authority to plead and prove that therewere special considerations which necessitated his not being ableto comply with his obligations in public interest.”

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47. A three Judge Bench of this Court in the case of Union ofIndia and others vs. Godfrey Philips India Ltd.[27]commented on thecorrectness of the decision in the case of M/s Jit Ram Shiv Kumarand others (supra) and observed thus:

H27(1985) 4 SCC 369

“13. Of course we must make it clear, and that is also laid downin Motilal Sugar Mills case [(1979) 2 SCC 409 : 1979 SCC(Tax) 144 : (1979) 2 SCR 641] that there can be no promissoryestoppel against the Legislature in the exercise of its legislativefunctions nor can the Government or public authority bedebarred by promissory estoppel from enforcing a statutoryprohibition. It is equally true that promissory estoppel cannot beused to compel the Government or a public authority to carry outa representation or promise which is contrary to law or whichwas outside the authority or, power of the officer of the Governmentor of the public authority to make. We may also point out that thedoctrine of promissory estoppel being an equitable doctrine, it mustyield when the equity so requires; if it can be shown by theGovernment or public authority that having regard to the facts asthey have transpired, it would be inequitable to hold the Governmentor public authority to the promise or representation made by it, theCourt would not raise an equity in favour of the person to whomthe promise or representation is made and enforce the promise orrepresentation against the Government or public authority. Thedoctrine of promissory estoppel would be displaced in such a case,because on the facts, equity would not require that the Governmentor public authority should be held bound by the promise orrepresentation made by it. This aspect has been dealt with fully inMotilal Sugar Mills case [(1979) 2 SCC 409 : 1979 SCC (Tax)144 : (1979) 2 SCR 641] and we find ourselves wholly in agreementwith what has been said in that decision on this point.”

48. Within a short period, another three-judge Bench of this Courtin the case of Express Newspapers Pvt. Ltd. and others vs. Union ofIndia and others[28]referring to the conflict between the case of MotilalPadampat Sugar Mills Co. Ltd. and the case of M/s Jit Ram ShivKumar and others (supra), observed thus:

“182. I am not oblivious that there was a discordant note struckby Kailasam, J. speaking for himself and Fazal Ali, J. in Jit RamShiv Kumar v. State of Haryana [(1981) 1 SCC 11 : AIR 1980SC 1285 : (1980) 3 SCR 689] holding that the doctrine of A

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promissory estoppel cannot be invoked for preventing theGovernment from discharging its functions under law. It is alsonot applicable when the officer and the Government act outsidethe scope of their authority. The doctrine of ultra vires will in thatevent come into operation and the Government cannot be heldbound by the unauthorised acts of its officers.

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183. It is not necessary for purposes of this judgment to resolvethe apparent conflict between the decision of Bhagwati, J. inMotilal Padampat Sugar Mills case [(1979) 2 SCR 641 : (1979)2 SCC 409 : 1979 SCC (Tax) 144] as to the applicability of thedoctrine of estoppel for preventing the Government fromdischarging its functions under the law. In public law, the mostobvious limitation and doctrine of estoppel is that it cannot be evokedso as to give an overriding power which it does not in law possess.In other words, no estoppel can legitimate action which is ultravires. Another limitation is that the principle of estoppel doesnot operate at the level of Government policy. Estoppels havehowever been allowed to operate against public authority in minormatters of formality where no question of ultra vires arises: Wade:Administrative Law, fifth edition, pp. 233-34.

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184. The principles laid down in Maritime Elec. Co. v. GeneralEDairies Ltd. [1937 AC 610 (PC)] and by Lord Parker, C.J. inSouthend-on-Sea Corporation v. Hodgson (Wickford) Ltd. [(1962) 1 QB 416] relied upon by learned counsel appearing forRespondent 1 the Union of India are clearly not attracted in thefacts and circumstances of the present case. In the present case,admittedly, the then Minister for Works & Housing acted withinFthe scope of his authority in granting permission of the lessor i.e.the Union of India, Ministry of Works & Housing to the ExpressNewspapers Pvt. Ltd. to construct new Express Building with anincreased FAR of 360 with a double basement for installation of aprinting press for publication of a Hindi newspaper under the RulesGof Business framed by the President under Article 77(3).Therefore, the doctrine of ultra vires does not come into operation.In view of this E

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Respondent 1 the Union of India is precluded by the doctrine ofpromissory estoppel from questioning the authority of the Ministerin granting such permission. In that view, the successor H

Government was clearly bound by the decision taken by theMinister particularly when it had been acted upon.”

49. The three-judge Bench of this Court in the case of ExpressNewspapers Pvt. Ltd. and others (supra) held that no estoppel canlegitimize action which is ultra vires. It was further held that anotherlimitation is that the principle of estoppel does not operate at the level ofGovernment policy. In the facts of the said case, this Court held that thedoctrine of ultra vires did not come into operation in the said case. It heldthat, in view of the permission granted by the then Minister for Works &Housing, the respondent- Union of India was precluded from questioningthe validity thereof. The successor Government was bound by the decisiontaken by the Minister, particularly when it had been acted upon.

50. It could thus be seen that there is some discord in the judgmentsof this Court in the cases of Motilal Padampat Sugar Mills Co. Ltd.(supra) and Godfrey Philips India Ltd. (supra) on one hand and inthe case of M/s Jit Ram Shiv Kumar and others (supra) on the otherhand.

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 agovernment, an entity changes its legal position to its detriment, the Statecould not be permitted to resile from the said promise. It is to be notedthat the said judgment is authored by Bhagwati, J. and the Bench strengthis of two learned judges.

52. Within a period of two years, Kailasam, J. in the case of M/sJit Ram Shiv Kumar and others (supra) found fault with some of theobservations made in the case of Motilal Padampat Sugar Mills Co.Ltd. (supra) and held that the observations made in Motilal PadampatSugar Mills Co. Ltd. (supra) were not in tune with the judgments ofConstitution Benches in the cases M. Ramanatha Pillai (supra) andThe Gwalior Rayon Silk Manufacturing (WVG). Co. Ltd. Etc.(supra); and the judgment of a four- Judge Bench of this Court in thecase of Ram Kumar and others (supra).

53. The judgment of this Court in the case of M/s Jit Ram ShivKumar 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 A

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APhilips India Ltd. (supra), the judgment of the learned three-JudgeBench delivered through Bhagwati, J. holds that what has been held bylearned two judges in the case of Motilal Padampat Sugar Mills Co.Ltd. has been correctly held so and endorses the said judgment. Thesaid judgment also criticizes the view taken in M/s Jit Ram Shiv Kumarand others (supra). Within a short period, the issue again comes up forBconsideration before another three-judge Bench in the case of ExpressNewspapers Pvt. Ltd. and others (supra). A.P. Sen, J. speaking forthe three-judge Bench notes the conflict between the view taken byBhagwati, J. in Motilal Padampat Sugar Mills Co. Ltd. (supra) andKailasam, J in the case of M/s Jit Ram Shiv Kumar and others (supra).CIt appears that since the judgment was delivered within a fortnight fromthe 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 PhilipsIndia Ltd. (supra). However, A.P. Sen, J in Express NewspapersPvt. Ltd. and others (supra) held that it was not necessary for theDpurposes of the said judgment to resolve the conflict between the decisionof 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 Kumarand others (supra). It held that one of the limitations on the principle ofestoppel is that it does not operate at the level of Government policy.E54. However, a common thread in all these judgments that couldbe noticed is that all these judgments consistently hold that there can beno estoppel against the legislature in the exercise of its legislativefunctions. The Constitution Bench in the case of M. Ramanatha Pillai(supra) has approved the view in American Jurisprudence that theFdoctrine of estoppel will not be applied against the State in itsgovernmental, public or sovereign capacity. It further held that the onlyexception with regard to applicability of the doctrine of estoppel is whereit is necessary to prevent fraud or manifest injustice. The analysis of allthe judgments of this Court on the issue would reveal that it is a consistentview of this Court, reiterated again in Godfrey Philips India Ltd.G(supra), that there can be no promissory estoppel against the legislaturein the exercise of its legislative functions.

55. Undisputedly, the Notification dated 18[th]July 2017 withdrawingthe exemption notifications was issued in pursuance of the statutorymandate as provided under Section 174(2)(c) of the CGST Act. If theH

contention as raised by the appellants is to be accepted, it would makethe provisions under the proviso to Section 174(2)(c) of the CGST Actredundant and otiose. The legislature in its wisdom has specificallyincorporated the proviso to Section 174(2)(c) providing therein that anytax exemption granted as an incentive against investment through anotification shall not continue as privilege if the said notification isrescinded. If the contention is accepted, it will amount to enforcing arepresentation made in the said O.M. of 2003 and 2003 Notificationcontrary 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 operatedagainst the legislative functions of the Parliament. We are, therefore, ofthe considered view that the claim of the appellants on estoppel is withoutmerit and deserves to be rejected.

56. It is further to be noted that this Court has also consistentlyheld that when an exemption granted earlier is withdrawn by a subsequentnotification based on a change in policy, even in such cases, the doctrineof promissory estoppel could not be invoked. It has been consistentlyheld that where the change of policy is in the larger public interest, theState cannot be prevented from withdrawing an incentive which it hadgranted through an earlier notification. Reliance in this respect could beplaced on the judgments of this Court in the cases of Kasinka Tradingand another vs. Union of India and another[29], Shrijee Sales Corpn.vs. Union of India[30], State of Rajasthan vs. Mahaveer OilIndustries[31], Shree Sidhbali Steels Ltd. vs. State of U.P.[32], and DirectorGeneral of Foreign Trade vs. Kanak Exports[33]

57. Recently, this Court, in the case of Unicorn Industries (supra),after surveying the earlier judgments of this Court on the issue hasobserved thus:

“26. It could thus be seen that, it is more than well settled that theexemption granted, even when the notification granting exemptionprescribes a particular period till which it is available, can bewithdrawn by the State, if it is found that such a withdrawal is inthe public interest. In such a case, the larger public interest would 29 (1995) 1 SCC 27430 (1997) 3 SCC 39831 (1999) 4 SCC 35732 (2011) 3 SCC 19333 (2016) 2 SCC 226

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Aoutweigh the individual interest, if any. In such a case, even thedoctrine of promissory estoppel would not come to the rescue ofthe persons claiming exemptions and compel the State not to resilefrom its promise, if the act of the State is found to be in publicinterest to do so.”

B58. We are, therefore, of the considered view that even on theground of change of policy, which is in public interest or in view of thechange in the statutory regime itself on account of the GST Act beingintroduced as in the instant case, it will not be correct to hold the Unionbound 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 enactedCunder Section 174(2)(c) of the CGST Act.

59. There is another reason which, in our view, could disentitlethe relief as was claimed by the appellants before the High Courts. Theappellants, in effect, are seeking a writ of mandamus against the Unionof India to reimburse 100% of CGST for the remainder of the periodDinstead of only 58%.

60. This Court in the case of The Bihar Eastern GangeticFishermen Co-operative Society Ltd. (supra) had an occasion toconsider when a writ of mandamus could be issued. This Court heldthat:

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“15. …..There is abundant authority in favour of the propositionthat a writ of mandamus can be granted only in a case wherethere is a statutory duty imposed upon the officer concerned andthere is a failure on the part of that officer to discharge the statutoryobligation. The chief function of a writ is to compel performanceFof public duties prescribed by statute and to keep subordinatetribunals and officers exercising public functions within the limitof their jurisdiction. It follows, therefore, that in order thatmandamus may issue to compel the authorities to dosomething, it must be shown that there is a statute whichGimposes a legal duty and the aggrieved party has a legalright under the statute to enforce its performance. (See LekhrajSatramdas Lalvani v. Deputy Custodian- cum-ManagingOfficer [AIR 1966 SC 334 : (1966) 1 SCR 120 : (1966) 1 SCJ 24], Rai Shivendra Bahadur Dr v. Governing Body of theNalanda College [AIR 1962 SC 1210 : 1962 Supp 2 SCR 144 :H(1962) 1 LLJ 247] and Umakant Saran Dr v. State of Bihar

[(1973) 1 SCC 485 : AIR 1973 SC 964] ). In the instant case, ithas not been shown by Respondent 1 that there is any statute orrule having the force of law which casts a duty on Respondents 2to 4 which they failed to perform. All that is sought to be enforcedis an obligation flowing from a contract which, as already indicated,is also not binding and enforceable. Accordingly, we are clearlyof the opinion that Respondent 1 was not entitled to apply forgrant of a writ of mandamus under Article 226 of the Constitutionand the High Court was not competent to issue the same.”

61. It can thus be seen that unless the appellants show any statutoryduty 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 reiteratedby this Court in the case of K.S. Jagannathan and another (supra) asunder:

“20. There is thus no doubt that the High Courts in India exercisingtheir jurisdiction under Article 226 have the power to issue a writof mandamus or a writ in the nature of mandamus or to passorders and give necessary directions where the government or apublic authority has failed to exercise or has wrongly exercisedthe discretion conferred upon it by a statute or a rule or a policydecision of the government or has exercised such discretion malafide or on irrelevant considerations or by ignoring the relevantconsiderations and materials or in such a manner as to frustratethe object of conferring such discretion or the policy forimplementing which such discretion has been conferred. In allsuch 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 ofmandamus or a writ in the nature of mandamus or pass ordersand give directions to compel the performance in a proper andlawful manner of the discretion conferred upon the governmentor a public authority, and in a proper case, in order to preventinjustice resulting to the concerned parties, the court may itselfpass an order or give directions which the government or thepublic authority should have passed or given had it properly andlawfully exercised its discretion.”

62. It could thus be seen that this Court holds that a writ ofmandamus can be issued where the Authority has failed to exercise the AB

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Adiscretion vested in it or has exercised such a discretion malafidely oron an irrelevant consideration.

63. This position was again reiterated by this Court recently in thecase of Bharat Forge Ltd. (supra) as follows:

“18. Therefore, it is clear that a Writ of Mandamus or a direction,Bin the nature of a Writ of Mandamus, is not to be withheld, in theexercise of powers of Article 226 on any technicalities. This issubject only to the indispensable requirements being fulfilled.There must be a public duty. While the duty may, indeed, ariseform a Statute ordinarily, the duty can be imposed by commonCcharter, common law, custom or even contract. The fact thata duty may have to be unravelled and the mist around itcleared before its shape is unfolded may not relieve the Courtof its duty to cull out a public 25 duty in a Statute or otherwise,if in substance, it exists. Equally, Mandamus would lie if theAuthority, which had a discretion, fails to exercise it and prefersDto act under dictation of another Authority. A Writ of Mandamusor a direction in the nature thereof had been given a very widescope in the conditions prevailing in this country and it is to beissued wherever there is a public duty and there is a failure toperform and the courts will not be bound by technicalities and itsEchief concern should be to reach justice to the wronged. We arenot dilating on or diluting other requirements, which would ordinarilyinclude the need for making a demand unless a demand is foundto be futile in circumstances, which have already been cataloguedin the earlier decisions of this Court.”

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64. Undoubtedly, in the present case, there is no duty cast on theUnion to refund 100% of CGST. As such, we find that the relief assought cannot be granted.

65. That leaves us with the judgments cited by Shri S. GaneshGand Shri V. Sridharan, learned Senior Counsel.

66. Insofar as the judgment of this Court in the case of SuprabhatSteel Ltd. (supra) is concerned, the question that arose for considerationwas whether the Notification issued under Section 7 of the Bihar FinanceAct by the State Government to carry out the objectives and the policyHdecisions taken in the industrial policy could be held to be bad in law if it is in contravention of the industrial policy. In the case of Tata CumminsLtd. (supra), the question that fell for consideration was whether aNotification that was issued for implementation of the industrial policyof the State could be construed strictly or liberally. In the case of LloydElectric and Engineering Limited (supra), the question was, as towhether the delay on the part of the Excise and Taxation Department inissuing Notification pursuant to the decision taken by the Council ofMinisters could deny the benefit of Notification to the entities whichwere entitled thereto.

67. Insofar as the judgment of this Court in the case of MRFLtd., Kottayam (supra) is concerned, this Court, in the facts of the saidcase, specifically came to a finding that the decision to deprive MRF ofthe benefit of exemption for more than 5 years out of a total period of 7years was highly arbitrary, unjust and unreasonable. In the case ofManuelsons Hotels Private Limited (supra), perusal of the impugnedjudgment therein would reveal that the provision on which ManuelsonsHotels Private Limited was claiming benefit under was deleted witheffect from the 1[st]of March 1993. This Court, therefore, made it clearthat the benefit would only be available during the period when the saidstatutory provision existed in the statute book, i.e., from 6[th] November1990 to 1[st]March 1993. This Court, therefore, clearly rejected the claimof benefit from the date on which the statutory provision was deletedfrom the statute book.

68. In the case of Nestle India Ltd. (supra), the respondent milkproducers did not pay the purchase tax for the period between 1[st]April1996 and 4[th]June 1997 since the Government had decided to abolishpurchase tax for the said period. For the rest of the period, the tax waspaid. The State had attempted to recover the purchase tax retrospectivelyfor the aforesaid period. In this background, the claim of the respondentstherein before this Court was found to be meritorious.

69. Insofar as the reliance placed by Shri V. Sridharan, learnedSenior Counsel, on the judgment of this Court in the case of VideoElectronics Pvt. Ltd. (supra) is concerned, the question was as towhether the State was empowered to grant sales tax exemption to aclass of goods. It was held that the classification was permissible, providedthat it was not vitiated by colourable exercise of power or abuse. Assuch, the said judgment would not be applicable to the facts of the presentcase.

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A70. It could thus be seen that in none of the aforesaid cases, theissue as to whether, on account of change in the law, the State wasbound to stand by its representation made under the earlier law evenwhen 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 twoConstitution Bench judgments, a four-Judge Bench judgment and variousBjudgments of learned three judges, have consistently held that promissoryestoppel would not apply against the exercise of legislative powers ofthe State. As such, none of the judgments cited, in our view, would be ofany assistance to the cases of the appellants.

71. Insofar as the contention of Shri S. Ganesh, learned SeniorCCounsel, that the Union should have issued exemption notification asprovided under Section 11 of the CGST Act is concerned, we find thatunder the said provision, a discretion is vested in the Central Government,which is to be exercised on the recommendations of the GST Council. Awrit of mandamus cannot be issued to the Central Government to exerciseDpower under Section 11 of the CGST Act in a particular manner. In anycase, 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 exemptionfrom payment of CGST or make a budgetary allocation for refund of thetax paid. In any case, such power can be exercised by the CentralGovernment only on the recommendations of the GST Council. As alreadyEdiscussed herein above, the Central Government was not bound tocontinue with a representation made by it in 2003 in view of the changeof law by the enactment of the CGST Act. However, in order to partlyhonour the representation made by it, it has decided to refund 58% ofthe CGST paid by the entities. It is more than settled that this CourtFcannot interfere in policy matters of the Government unless such policyis 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 theCGST Act is of any substance.

72. Though we have held that the appellants’ claim based onGpromissory estoppel is without substance, we find that this is not a casewherein it can be said that the appellants’ claim is wholly without anysubstance.

73. The appellants have established their industrial units based onthe industrial policy as reflected in the said O.M. of 2003. The policy ofHthe year 2003, in question, was based on the statement made by the Hon’ble Prime Minister during his visit to Uttarakhand. As such, thepolicy was framed to bring into effect the statement made by the highestexecutive functionary of the country. Relying on the said policy, theappellants have established their units. Though the appellants may nothave a claim in law, we find that they do have a legitimate expectationthat their claim deserves due consideration.

74. It will be relevant to refer to the minutes of the meeting of the GST Council dated 30[th]September 2016, which read thus:

“25. The Secretary to the Council explained that the Central andState governments had given various incentives of Central Exciseand Value Added Tax (VAT) and Central Sales Tax (CST). Hepointed out that in the GST regime, such incentives could not becontinued as supplies would need to be made on payment of taxin order to permit flow of tax to the destination state. Therefore, adecision would need to be arrived at regarding the treatment ofsuch tax incentive schemes under the GST regime. He observedthat one option could be to ‘grandfather’ such schemes and providefor a budgetary apportionment in the State and the Central budgetsfor reimbursing the tax paid to those units which enjoyed taxexemption up to a specified period. However, while‘grandfathering’ any such scheme, it would need to be kept inmind that unlike VAT and the CST which were origin-based taxes,GST was a destination-based tax and an unconditionalreimbursement scheme could lead to double outflow for the origin-state – one by way of transfer of tax to the destination State andthe other by way of reimbursement to the supplier. Therefore, theStates would need to be careful while devising any reimbursementscheme and care could be taken that such reimbursement waslimited for supplies made within the State.

26. The Hon’ble Deputy Chief Minister of Gujarat alluded toexamine possible legal complications.

The Secretary to the Council pointed out that the agenda notecontained certain judgments of the Hon’ble Supreme Court asper which the principle of promissory estoppel would not apply ina case where there was a supervening public equity.”

75. It could thus be seen that the GST Council has noticed thatthe Central and State Governments had given various incentives of Central AB

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AExcise and Value Added Tax (VAT) and Central Sales Tax (CST) so asto encourage investment in those States. It also took notice of the factthat such incentives could not be continued as supplies would need to bemade on payment of tax to permit flow of tax to the destination state.The solution that was suggested was to provide for budgetaryapportionment in the State and the Central budgets for reimbursing theBtax paid to those units which enjoyed tax exemption up to a specifiedperiod.

76. It will be further relevant to note the concerns expressed bythe State of Uttarakhand and the State of Jammu & Kashmir in the saidmeeting, which are as under:C“28. The Hon’ble Minister from Uttarakhand stated that theGovernment of India had given an area-based exemption for 10years and that such exemptions were to continue upto 2020. Sheobserved that the Centre must reimburse such units for the Centraltaxes as jobs of more than one lakh workers were at stake. TheDHon’ble Minister from Jammu and Kashmir stated that his Statewas in a similar situation as Uttarakhand. The Chairpersonobserved that once incentive schemes were withdrawn, the taxespaid would be accounted for in the Consolidated Fund of Indiaand 42% of the amount would be devolved to the States. TheCentre, therefore, could be expected to only reimburse the unitsEout of the remaining 58% of the fund which was not part of thedevolution and the States would also need to correspondinglyreimburse such units out of the share of revenue received throughdevolution.”

77. It can thus be seen that the Hon’ble Minister from UttarakhandFhad stated that the Government of India had given an area-basedexemption for 10 years and that such exemptions were to continue up to2020. She was of the view that the Centre must reimburse such units forthe Central taxes as jobs of more than one lakh workers were at stake.The Hon’ble Minister from Jammu & Kashmir had also supported theview of the Hon’ble Minister from Uttarakhand. However, theGChairperson of the GST Council, i.e. the Hon’ble Finance Minister ofthe Union of India, stated that the Centre would only reimburse the unitsto the extent of 58%. He also expressed that the State would also needto correspondingly reimburse such units out of the share of revenuereceived through devolution. Accordingly, the following resolution wasHpassed in the said meeting by the GST Council:

“29. The Council approved the following-

(i) All entities exempted from payment of indirect tax underany existing tax incentive scheme shall pay tax in the GST regime.

(ii) The decision to continue with any incentive given tospecific industries in existing industrial policies of States or throughany schemes of the Central Government, shall be with theconcerned State or Central Government.

(iii) In case the State or Central Government decides tocontinue any existing exemption/incentive/deferral scheme, thenit shall be administered by way of a reimbursement mechanismthrough the budgetary route, the modalities for which shall beworked out by the concerned State/Centre.”

78. We, therefore, find that in the deliberations of the GST Councilitself, it was observed that the States also need to correspondinglyreimburse the industrial units which were entitled to exemption underany existing incentive scheme, out of the share of revenue receivedthrough devolution, which, as per the Finance Commission, stands at42%. As a matter of fact, the State of Jammu & Kashmir has issued anotification dated 21[st]December 2017 thereby resolving to reimbursethe remaining 42% of the CGST of the Union. This is limited until theperiod the Union Scheme is valid.

79. It is further to be noted that the GST Council is a constitutionalbody. It has powers to make recommendations on wide-ranging issuesconcerning GST, including grant of exemptions from the GST. It alsohas power to make recommendations with regard to special provisionsgoverning North Eastern and Himalayan States. Taking into considerationthat the units like the appellants have been established in the Himalayanand North-Eastern States based on the said O.M. of 2003 and that lakhsof persons are employed in such industries, we are of the view that itwill be appropriate that such States should also consider to correspondinglyreimburse such units out of the share of revenue received by them throughdevolution from the Central Government. We further find that it will alsobe appropriate that the GST Council considers making appropriaterecommendations to the States in that regard.

80. We, therefore, permit the appellants to make representationsto the respective State Governments as well as to the GST Council. Wealso request the State Governments and the GST Council to consider A

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Asuch representations, if made, in accordance with what has been observedherein above in an expeditious manner.

81. In the result, the appeals are dismissed, save and except theobservations made in paragraphs 72 to 80 hereinabove.

82. Pending applications, if any, shall stand disposed of.B

83. In the facts and circumstances of the case, there shall be noorder as to costs.

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(Assisted by : Rakhi, LCRA)

Appeals dismissed.

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