The Government of India implemented the Northeast Industrial and Investment Promotion Policy (NEIIPP), 2007 for Northeastern states including Sikkim, and a package for special category states for Jammu & Kashmir, Uttarakhand, and Himachal Pradesh to promote industrialization. A major benefit of the policy was the exemption from excise duty for the first 10 years from the date of commercial production, the said exemption was granted through an exemption notification issued under the Central Excise Act.
In light of the repeal of the Central Excise Act, the GST Council decided to provide budgetary support to eligible units for the residual exemption period by way of part reimbursement of GST, paid by the unit, limited to the central government's share of CGST or IGST retained after devolution of part of these taxes to states. Accordingly, the Department for promotion of Industry and internal trade (DPIIT) notified the scheme vide notification no. F.No.10(1)/2017-DBAII/NER, dated 05.10.2017 notified the BUDGETARY SUPPORT SCHEME [in short BSS] providing reimbursements of the central government's share of the cash component of CGST and IGST i.e., 58% of CGST and 29% of IGST, in lieu of exemption provided under the previous notifications.
The objective behind the Scheme is to continue the benefit which was being enjoyed by the eligible units under the excise regime for the residual time period for which such units were entitled to avail the benefits of the Scheme. However, the Scheme for Budgetary Support Refund has become a battleground for litigation because many issues remain uncertain.
The following types of litigation are currently ongoing under BSS:
- Reduction in the quantum of benefits availed earlier. Earlier excise benefit vs BSS benefit
- Narrow eligibility criteria excluded units that had made significant investments under the previous notification.
- Excise regime-eligible units have become ineligible under BSS refund for the residual period.
- Full or partial rejection of eligible BSS refunds.
REDUCTION IN THE QUANTUM OF BENEFITS AVAILED EARLIER. "EARLIER EXCISE BENEFIT VS BSS BENEFIT"
The Excise Duty Exemption availed by eligible units by way of refund in the pre-GST regime was curtailed by introducing the scheme of Budgetary Support vide Notification F.No.10(1)/2017-DBAII/NER, dated 05.10.2017. The amount of Budgetary Support under the Scheme is specified as the sum total of 58% of the CGST paid through debit in cash ledger account and 29% of the IGST paid through debit in cash ledger account.
Being aggrieved by the reduction in the quantum of refund, M/s. Hero Motocorp ltd filed a writ petition in the Delhi High Court with a prayer that they must be granted 100% of tax exemption as they were given in the pre-GST regime which was applicable up to 10 years from the date of commencement of production. The Delhi High Court dismissed the petition stating that the plea of promissory estoppel cannot be enforced against an act done in accordance with the statutory provisions of law. Under Section 174(2) (c) of the CGST Act, express provision has been made by the Parliament to provide that any tax exemption granted as an incentive against investment through a notification under, inter alia, the erstwhile Central Excise Act, shall not continue as a privilege if the said notification is rescinded. Thus, no plea of promissory estoppel is maintainable,
M/s. Hero Motocorp ltd challenged above High court judgment before the Hon'ble Supreme Court. Hon'ble Supreme Court heard all similar petitions and held that when an exemption granted earlier is withdrawn by a subsequent notification based on a change in policy, the doctrine of "promissory estoppel" could not be invoked. However, the Supreme Court has also suggested/advised that states consider reimbursing such units, keeping in mind those employed in such industries. [The Hon'ble Supreme Court has put this matter to rest with the above judgment].
NARROW ELIGIBILITY CRITERIA WHICH EXCLUDED UNITS THAT HAD MADE SIGNIFICANT INVESTMENTS UNDER THE PREVIOUS NOTIFICATION
The eligible criteria defined in the BSS notification are that a unit which was eligible before 01.07.2017 to avail the benefit of ab-initio exemption or exemption by way of refund from payment of central excise duty under notifications and was availing the said exemption immediately before 01.07.2017. The Notification was issued on 5.10.2017 with retroactive effect 01.07.2017.
The units which took substantial steps prior to introduction of BSS and invested significantly to establish new units or expand their existing units by increasing the value of fixed capital investment in plant and machinery by not less than 25% for the purposes of capacity expansion under previous notification No. 1/2010 [as permitted by the said notification] and have commenced commercial production on or after 01.07.2017 were denied eligibility for BSS refund stating that units were not eligible as their commencement of commercial production done after 01.07.2017. However, it should be noted here that, these units took significant steps in terms of State and Centre Government permissions, installed major machines prior to implementing the BSS, and the said BSS notification was issued on 5.10.2017 with effect from 01.07.2017.
Being dissatisfied with the denial of the BSS refund, the applicants challenged the narrow eligibility criteria by invoking the principle of promissory estoppel. According to it, the units were established after making a significant capital investment for the purposes of industrialization purely on the promise of tax exemptions. Having taken the necessary steps, such units could not be deprived of the tax benefits by setting a cut-off date of 01.07.2017, moreover, the BSS notification issued retrospectively giving effect from 01.07.2017 is unlawful. The units that have taken significant steps to expand their capacity should have been included in the definition of an eligible unit under BSS and should be eligible for the BSS refund. These cases are currently pending before High Courts.
ELIGIBLE UNITS WERE NOT BEING CASH PAID IN THE EXCISE REGIME HAVE BECOME INELIGIBLE UNDER BSS
The department is investigating the availment of benefit under the Scheme for Budgetary Support by units which were established under the erstwhile Central Excise Regime and had not claimed the refund under the erstwhile Notifications because the units had enough Cenvat credit balance and were not required to pay cash. According to the investigation authority, such units do not qualify as "eligible units" under the Scheme because they did not claim any benefits under the previous Central Excise regime.
Accordingly, many assessees have challenged the demand-cum-recovery notices, in which there was a direction to repay the refund with an interest of 15% per Anum which was earlier refunded to the assessee under the budgetary scheme. As per the demand-cum-recovery notices, the assessee unit does not qualify to be an eligible unit as per the definition of eligibility unit contained in the BSS notification. All of the assessees filed a writ petition before the Hon'ble High Court of Guwahati, which heard the matter and stayed the execution of the demand; all of these matters are currently pending before the Guwahati High Court.
FULL OR PARTIAL REJECTION OF ELIGIBLE BSS REFUNDS
The BSS Notification says that the scheme is offered, as a measure of goodwill, only to the units which were eligible for drawing benefits under the earlier excise duty exemption/refund schemes but has otherwise no relation to the erstwhile schemes. The scheme does not provide an appeal mechanism for resolving any issues that arise from the refund of BSS.
The Central Board of Indirect Taxes & Customs ("CBIC") vide its Circular No. 1068/1/2019-CX dated 01.10.2019 clarifies certain technical and operational issues to review the progress of implementation of the Budgetary Support Scheme for eligible industrial units including the provision of appeals. It has clarified regarding provision for appeal.
"The support under the scheme is in the nature of grant and not refund of duty under taxation law. As such there is no requirement for any appellate forum as the decision of the sanctioning authority is final."
The eligible units whose refund has been reduced arbitrarily have challenged their refund orders before Commissioner Appeals which have been rejected stating that the BSS is in the nature of grant and not refund of duty under taxation. As such there is no requirement for any appellate forum as the decision of the sanctioning authority is final.
* M/s. Newtech Filter India Pvt Ltd vs. Assistant Commissioner, GST Division Baddi
* M/s Ultratech Cement Ltd vs. Deputy Commissioner, GST Division, Shimla
However, in the case of M/s Mags Garments Pvt Ltd vs Union of India and others, [CWP.No. 3061 of 2018] the Hon'ble High Court of Himachal Pradesh held that
"Having gone through the contents of the Scheme of Budgetary Support under Goods and Service Tax regime especially in the light of Tax which accrues to the Central Government under Central Goods and Service Act, 2017 and Integrated Goods and Services Act, 2017, it appears to us that the impugned order, dated 13th November, 2018, passed by the Assistant Commissioner, Goods and Service Tax, Division, Baddi is appealable before the Appellate Authority under Section 107 of the Central Goods and Service Tax Act, 2017.
Consequently, the writ petition is disposed of at this stage, relegating the petitioner to avail the alternative efficacious remedy. In case the appeal is not entertained on merits, the petitioner shall be at liberty to have recourse to the appropriate remedy, in accordance with law. Pending applications, if any, also stand disposed of
The department has sought to recall the above order, stating that no appeal under Section 107 of the Act is maintainable against the department's order for the budgetary support scheme refund.
Hon'ble High court held that, [CMP No.3280 of 2019] "there is no necessity of any review or recall of the order dated 31st December, 2018, as suffice it would be to observe that if no appeal is maintainable, the Appellate Authority shall be at liberty to hold so, in accordance with law, after hearing the parties and in that event the non-applicant (writ petitioner) will be at liberty to avail the remedy, as may be available in law. Accordingly, the application stands disposed of.
In light of the above, it appears that the lack of a statutory appeal provision allows the department ample authority to grant refunds arbitrarily. In many cases, refund sanctioning authorities have passed refund orders reducing the eligible refunds without assigning any reason. The BSS eligible unit has no choice but to seek relief from the Hon'ble Writ Courts.
DISCLAIMER: The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation
CAclubindia
