The Supreme Court has reiterated that there can be no estoppel against the legislature in the exercise of its legislative functions.

The bench of Justice BR Gavai and Justice BV Nagarathna was dealing with the question that whether despite a subsequent statute specifically providing for rescinding the benefits granted under an earlier statute, the Union Government can be compelled to stand by the representation made by it through the earlier notification.

The Government of India had issued an Office Memorandum in 2003 which provided that the States of Uttaranchal and Himachal Pradesh, new industrial units and existing industrial units on their substantial expansion would be entitled to exemption of 100% outright excise duty for 10 years from the date of commencement of commercial production.

The Appellant – Hero Motocorp Ltd. had established a new industry unit for manufacture of motorcycles at Haridwar, Uttarakhand. The appellant – Hero Motocorp Ltd. availed the exemption until July 1, 2017, whereafter the Goods and Service Tax regime came into existence and the benefit being enjoyed by the appellant – Hero Motocorp Ltd. was reduced to 58% through the Budgetary Support Policy.

Appellant-Sun Pharma Laboratories Ltd. also setup its first industrial unit but after the commencement of the new GST regime, here too, the benefit being enjoyed by the appellant - Sun Pharma Laboratories was reduced to 58% through the implementation of the Budgetary Support Policy.

Appellant – Hero Motocorp Ltd., challenged the Order passed by the Delhi High Court whereby the Court rejected the appellants claim of 100% budgetary support in lieu of the pre-existing 100% outright excise duty exemption for ten years from the date of the commencement of commercial production, as provided for by the Office Memorandum dated January 7, 2003 issued by the Government of India.

Similarly, Appellant-Sun Pharma Laboratories Ltd. assailed the reduction of the benefit of 100% exemption from excise duty granted to it vide office memorandum dated February 17, 2003, which were to be made available for a period of ten years from the date of commencement of commercial production.

Senior Advocate S. Ganesh appeared for the appellant-Hero Motocorp Ltd. whereas Senior Advocate V. Sridharan, appeared on behalf of the appellant-Sun Pharma Laboratories Ltd. N. Venkatraman, Additional Solicitor General appeared on behalf of the Respondent-Union of India.

The Supreme Court noted that when an exemption granted earlier is withdrawn by a subsequent notification based on a change in policy, even in such cases, the doctrine of promissory estoppel could not be invoked.

"…this Court, in a catena of judgments, including two Constitution Bench judgments, a four-Judge Bench judgment and various judgments of learned three judges, have consistently held that promissory estoppel would not apply against the exercise of legislative powers of the State.", the Court observed.

The Court also noted that "Undisputedly, the Notification dated 18th July 2017 withdrawing the exemption notifications was issued in pursuance of the statutory mandate as provided under Section 174(2)(c) of the CGST Act. If the contention as raised by the appellants is to be accepted, it would make the provisions under the proviso to Section 174(2)(c) of the CGST Act redundant and otiose."

"The legislature in its wisdom has specifically incorporated the proviso to Section 174(2)(c) providing therein that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded. If the contention is accepted, it will amount to enforcing a representation made in the said O.M. of 2003 and 2003 Notification contrary to the legislative incorporation in the proviso to Section 174(2)(c) of the CGST Act.", the Court added further.

Having said that the Court also noted though the appellants may not have a claim in law, but they do have a legitimate expectation that their claim deserves due consideration.

The Court noted that in the deliberations of the GST Council itself, it was observed that the States also need to correspondingly reimburse the industrial units which were entitled to exemption under any existing incentive scheme, out of the share of revenue received through devolution, which, as per the Finance Commission, stands at 42%.

"Taking into consideration that the units like the appellants have been established in the Himalayan and North-Eastern States based on the said O.M. of 2003 and that lakhs of persons are employed in such industries, we are of the view that it will be appropriate that such States should also consider to correspondingly reimburse such units out of the share of revenue received by them through devolution from the Central Government.", the Court noted.

Therefore, the Court permitted the appellants to make representations to the respective State Governments as well as to the GST Council.

Cause Title- M/S Hero Motocorp Ltd. v. Union of India & Ors. with another

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