Limiting erstwhile Area based exemption up to 58% under GST is valid

Case Details: Hero Motocorp Ltd. v. Union of India - [2022] 143 taxmann.com 221 (SC)

Judiciary and Counsel Details

• • B.R. Gavai & B. V. Nagarathna, JJ.

Facts of the Case

The Central Government had granted 100% Central Excise Duty exemption to units in Uttrakhand and Himachal Pradesh by issuing notification in 2003 in pre-GST era. However, after implementation of GST w.e.f. 1-7-2017 by invoking its powers under the proviso to section 174(2)(c), it rescinded exemption notification by issuing Notification No.21/2017-CE dated 18th July, 2017 in order to ensure seamless flow of ITC credit to buyers and substituted the 100% tax exemption/refunds with budgetary support for 58% of tax. The appellant filed appeal before the Supreme Court and contended that the Central Government was bound to give 100% tax exemption.

Supreme Court Held

The Honorable Supreme Court noted that when an exemption granted earlier is withdrawn by a subsequent notification based on a change in policy, even in such cases, the doctrine of promissory estoppel could not be invoked.

However, it can’t be said that the appellant’s claim based on promissory estoppel is without substance. In the deliberations of the GST Council, 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%.

Therefore, the Court permitted the appellant to make representations to the respective State Governments as well as to the GST Council and requested the State Governments and the GST Council to consider such representations.