Supreme Court rejects plea by Hero MotoCorp for full budgetary support

The Supreme Court on Monday rejected Hero MotoCorp’s claim seeking full budgetary support in lieu of the pre-existing outright excise duty exemption, notified by the central government in 2003, in the pre-Goods and Service Tax (GST) era.

With the implementation of GST, various area-based exemption notifications were rescinded with effect from July 1, 2017.

Upholding the Delhi High Court’s and the Sikkim High Court’s rulings in the Hero MotoCorp and Sun Pharma cases, respectively, the apex court on Monday held that when an exemption granted earlier is withdrawn by a subsequent notification based on a change in policy (GST), the doctrine of “promissory estoppel” could not be invoked.

It, however, suggested states consider reimbursing such units, keeping in mind those 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 said.

It said 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, according to the Finance Commission, stands at 42 per cent.

“We further find that it will be appropriate that the GST Council considers making appropriate recommendations to states in that regard…We also request state governments and the GST Council to consider such representations, if made, in accordance with what has been observed herein above in an expeditious manner,” the Supreme Court said.

It noted that even though the court held that “the appellants’ claim based on promissory estoppel is without substance, we find that this is not a case wherein it can be said that the appellants’ claim is wholly without any substance”.

What was the matter?

Since the withdrawal of the “exemption notifications” caused job losses, the GST Council decided that it would 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 and/or IGST retained after devolution of part of these taxes to states.

Accordingly, the central government notified the Budgetary Support Scheme providing reimbursements of the central government’s share of the cash component of CGST and IGST i.e. 58 per cent of CGST and 29 per cent of IGST, in lieu of exemption provided under the notification.

The petitioners (Hero MotoCorp), however, challenged the arrangement as the financial incentive provided under the pre-GST memorandum included 100 per cent Central Excise Duty Exemption to new industrial units for a period of 10 years from the date of commencement of commercial production.