Budgetary Support Scheme is not hit by Doctrine of Promissory Estopple and Legitimate Expectations

The Hon'ble Jammu and Kashmir High Court in the case of Sudhir Power Ltd. v. Union Territory of Jammu and Kashmir & Ors. [Writ Petition (Civil) No. 2784/2021 dated October 09, 2024] dismissed the writ petition challenging the government order replacing the Budgetary Support Scheme ("BSS") providing for reimbursement of Integrated Goods and Services Tax ("IGST") with Turnover Incentive Scheme, 2021 ("Turnover Incentive Scheme"). Both the schemes were for the benefit of the taxpayers, hence, cannot be said to be "irrational, unreasonable or arbitrary. Therefore, they are not hit by any of the Doctrines i.e. promissory estoppel and legitimate expectation. However, BSS will shall be reviewed by the Finance Department at the end of every financial year to find out its viability with reference to its continuance in the next financial year.

Facts:

In the year 2004, the Government of Jammu and Kashmir came up with Industrial Policy-2004 offering certain incentives to the entrepreneurs who would set up their Industries in the State of Jammu and Kashmir. The Policy was stated to remain in operation from January 01, 2004 until March 31, 2015 and the Small-Scale Industries, Medium and Large Industrial Units were exempted from charging and payment of Central Sale Tax on sale of their finished goods outside the State up to March 31, 2015 except on the items in the negative list.

In order to giving effect to these incentives, the Government issued SRO 24 of 2004 dated January 31, 2004. This notification was in supersession of all the previous notifications on the subject and provided that, no tax under the Central Sales Tax Act, 1956 ("the CST Act") shall be payable till March 31, 2015. However, vide SRO 113 of 2015 dated April 01, 2015, the benefit of CST exemption was extended up to March 31, 2016.

In the meanwhile, the Industrial Policy-2016 came to be announced. It provided for exemption from payment of additional toll tax, CST and VAT, as available to the industrial units under Industrial Policy 2004 and any subsequent orders of the State/Central Government till further orders subject to GST regime. With a view to extend the aforesaid benefit, the Government issued SRO 107 of 2016 dated March 31, 2016 extending the benefit envisaged under SRO 113 dated April 01, 2015 up to June 30, 2016. This was further extended vide SRO 166 dated May 30, 2016 up to March 31, 2017. Vide SRO 36 dated February 01, 2017 the benefit was further extended up to March 31, 2018 or till the same is superseded by any other notification whichever is earlier.

In the meanwhile, the Integrated Goods and Service Tax Act, 2017 ("the IGST Act") came to be implemented in the State of Jammu and Kashmir and the Government notified a new scheme for providing budgetary support to the manufacturing units in the shape of reimbursement of Integrated Goods and Service Tax ("IGST") paid under the IGST Act. This scheme was promulgated vide SRO 431 September 25, 2018. The scheme was stated to remain in force till last date of Industrial Policy 2016 i.e. March 31, 2026.

Later, the Government gave sanction for Industrial Policy 2021-30 vide Government Order No. 117-IND of 2021 dated April 19, 2021. It stated that the existing units eligible for incentives under the Industrial Policy 2016 were allowed to avail the incentives under the Industrial Policy 2016 till March 31, 2026. Alongside the Industrial Policy 2021-30, the Government also granted sanction for circulating the 'Turnover Incentive Scheme 2021' to provide support to the existing industrial units located in the Union Territory of Jammu and Kashmir. This scheme was to remain in operation for five years with effect from April 01, 2021. Thereafter, the Turnover Incentive Scheme 2021, issued vide SRO 431 dated September 25, 2018 was withdrawn with effect from April 01, 2021 by issuing SO 239 dated July 16, 2021 ("the Impugned SO").

M/s Sudhir Power Ltd. & Ors. ("the Petitioners") were Small/ Medium/ Large scale Industries set up in the State of Jammu and Kashmir on different dates in the year 2011 and before. SRO 431 clearly provided that the benefit of BSS shall be available to the eligible units till the last date of Industrial Policy 2016 i.e. March 31, 2026 and, therefore, the Government could not have withdrawn the scheme prematurely without allowing the petitioners to avail the benefit for complete period ending. By the issuance of impugned SO and withdrawing the Budgetary Scheme, the Government violated the doctrine of promissory estoppel.

Hence, aggrieved by the Impugned SO, the Petitioners filed the present writ petition, primarily on the ground that it is hit by the Doctrines of Promissory Estoppel and Legitimate Expectation.

Issue:

Whether introduction of BSS hit by Doctrine of Promissory Estopple and Legitimate Expectations?

Held:

The Hon'ble Jammu and Kashmir High Court in the case of Writ Petition (Civil) No. 2784/2021 held under:

· Relied on, the Supreme Court judgment of the State of Jharkhand and Ors. v.BrahmputaMettalics Ltd. ((2023) 10 SCC 634) which had drawn distinction between the doctrine of promissory estoppel and doctrine of legitimate expectation as follows:

i. The doctrine of legitimate expectations is founded on the principles of fairness in government dealings and would come into play if a public body leads an individual to believe that they will be a recipient of a substantive benefit.

ii. So far as difference between the doctrine of promissory estoppel and doctrine of legitimate expectation under English law is concerned; the doctrine of legitimate expectation initially developed in the context of public law as an analogy to the doctrine of promissory estoppel found in private law. The legitimate expectation can constitute a cause of action whereas the doctrine of promissory estoppel can only be used as a shield. The scope of legitimate expectation is wider than the promissory estoppel because it not only takes into consideration a promise made by a public body but also official promise, as well. Under the doctrine of promissory estoppel, there may be a requirement to show a detriment suffered by a party due to the reliance placed on the promise.

iii. Under Indian Law there is often a conflation and overlapping between the two doctrines. At times, the expressions 'legitimate expectation' and 'promissory estoppel' are used interchangeably, but that is not a correct usage because 'legitimate expectation' is a concept much broader in scope than 'promissory estoppel'. The Court also drew distinction between the two doctrines. it is abundantly clear that for invoking the principle of promissory estoppel there has to be a clear and unequivocal promise and on that basis the party concerned must have acted to its prejudice, whereas the basis of doctrine of legitimate expectation is in reasonableness and fairness. True it is that the doctrine of legitimate expectation cannot be claimed as a matter of right and can be used when the denial of legitimate expectation leads to violation of Article 14 of the Constitution.

• Relied on, the Supreme Court case of Manuelsons Hotels Private Limited v. State of Kerala and ors, 2016 (6) SCC 766 which also examined the doctrine of promissory estoppel as laid down in Motilal Padampat Sugar Mills Co. Ltd v. State of U.P [(1979) 2 SCC 409] and as followed in State of Punjab v. Nestle India Limited, [(2004) 6 SCC 465] and held that:

i. The doctrine of promissory estoppel is a doctrine whose foundation is that an unconscionable departure by one party from the subject matter of an assumption which may be of fact or law, present or future, and which has been adopted by the other party as the basis of some course of conduct, act or omission, should not be allowed to pass muster. The central principle of the doctrine is that the law will not permit an unconscionable or, more accurately, unconscientious departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment, if the assumption be not adhered to for the purposes of the litigation.

ii. The doctrine of promissory estoppel would be attracted where one party, by clear and unequivocal representation invites the other party to act upon such promise and that other party, acting bona fide on such representation acts to his detriment or changes his course of conduct by some act or omission, in such eventuality the party making representation shall be held by the representation or the promise made.

Further, held that it is not the law that there can be no promissory estoppel against the Government in the exercise of its sovereign or executive functions. It is true that taxation is a sovereign or governmental function, but no distinction can be made between the exercise of a sovereign or governmental function and a trading or business activity of the Government, so far as the doctrine of promissory estoppel is concerned. Where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. It is elementary that in a republic governed by the rule of law, no one, howsoever high or low, is above the law.

• Noted that, BSS envisaged under SRO 431 of 2018, the budgetary support was in the shape of reimbursement of IGST paid under IGST Act in respect of interstate supplies, whereas under the Turnover Incentive Scheme, the incentive was to be calculated on the gross turnover of the Industrial Unit subject, of course, to the maximum provided under clause 7. The incentive in terms of percentage of gross turnover of Industrial Unit would include the incentive on the taxable turnover with respect to interstate supplies made by the industrial unit under IGST Act as well.
• Further, SRO 431 of 2018 was issued immediately upon adoption of GST regime by the State of Jammu and Kashmir. With the coming into operation of the IGST Act, 2017, the CST Act stood abolished and, therefore, continuance of the benefit of exemption from payment of CST was out of question.
• Observed that, the BSS and the Turnover Incentive Scheme, both aimed at providing incentives to the industrial units like the petitioners, cannot be said to be irrational, unreasonable or arbitrary. Firstly, there is nothing in the conduct exhibited by the Government of Jammu and Kashmir to raise any legitimate expectation in the petitioners and, secondly, even if it were there, the Government has not acted arbitrarily, unjustly or in an unfair manner. The benefit of incentives in the shape of reimbursement paid under IGST Act is continued to be paid now under the Turnover Incentive Scheme. It was necessary to do away with the BSS promulgated vide SRO No. 431 of 2018. It is because of this reason the Impugned SO was issued and given effect from April 01, 2021.
• Held that, the BSS and the Turnover Incentive Scheme could not have operated simultaneously. The doctrines i.e. doctrine of promissory estoppel and the doctrine of legitimate expectations are not attracted and Impugned SO is not in violation of Article 14 of the Constitution of India.

Our Comments:

The Department of Industrial Promotion and Policy ("DIPP") declared a scheme of BSS to extend the budgetary support to the manufacturing units in the backward areas, which avail central excise benefits as per the area-based exemption notification under different Industrial Promotion Scheme of the Government of India. The duration of the scheme would be from July 01, 2017 to March 31, 2027.

The GST Council that was held on September 30, 2016 brings into notice that the exemption from payment of indirect tax under any existing tax incentive scheme of Central or State Government will not be continued under the GST regime and the respective units are required to pay tax in the GST regime. The Council left it to the discretion of the Central and State Governments to notify BSS to the units. Based on the hardships encountered by the units, the central government decided that it would provide budgetary support by way of reimbursing of GST paid by the unit to the central government through CGST and/or IGST retained after devolution of a part of these taxes to the States. It applies to the following states.

• Jammu and Kashmir
• Himachal Pradesh
• Uttarakhand
• Arunachal Pradesh
• Nagaland
• Manipur
• Mizoram
• Tripura
• Meghalaya
• Assam
• Sikkim

The amount of budgetary support that is allocated under the scheme for specific goods manufactured by eligible units shall be a total of

• 58% of the Central tax that is paid using debit in the cash ledger account that is maintained by the unit, as per Section 49(1) of the CGST Act after utilising the Input Credit of the Central Tax and Integrated Tax.
• 29% of the integrated tax that is paid using debit in the cash ledger maintained by the unit according to Section 20 of the IGST Act after utilising the Input Credit of the Central Tax and Integrated Tax.

Provided the inputs are obtained from a registered individual operating under the Composition Scheme under Section 10 of the CGST Act. Such amount shall be reduced by the same percentage, as is the percentage value of inputs obtained under Composition scheme out of the total value of inputs that are obtained.

The Budgetary Support under the scheme shall be allowed to a unit to an inspection team constituted by DIPP for every State. The report shall be uploaded by the inspection team to the portal of the Central Board of Excise and Customs ("CBEC"). After inspection by the jurisdictional commissioner of Central Taxes and will reimburse to the unit. Such reimbursement shall not exceed beyond a period of six months.

The manufacturer files an application for payment of budgetary support for the Tax paid in cash, other than the amount of tax that is paid by utilization of Input Tax Credit as per the Input Tax Credit Rules, 2017 to the Assistant Commissioner or Deputy Commissioner of Central Taxes, by the 15th of the following month after end of quarter after payment of tax relating to the quarter to the related claim.

The Assistant Commissioner or Deputy Commissioner of Central Taxes, after examination of the application, sanctions reimbursement of the budgetary support. The sanctioned amount will be conveyed to the applicant electronically. The CBEC sanctions and disburses the recommended reimbursement of budgetary support.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED