SC: Centre not Bound to Provide 100% Excise Duty Exemption After GST Enactment

The Supreme Court said the Centre was not bound to continue with its earlier 100% excise duty exemption policy of 2003 after implementing the Central Goods and Services Tax (GST) Act in 2017. This excise duty exemption policy was issued earlier to promote industrial activities in a few less-industrialised states such as Sikkim and Uttarakhand.

In 2003, the central government provided for some states that new and existing industrial units, on their substantial expansion, would be entitled to the 100% excise duty exemption for ten years from the commencement of commercial production.

Considering this, Sun Pharma Laboratories Ltd and Hero Motocorp, which had plants in Sikkim and Uttarakhand, appealed to the Supreme Court, stating that the benefit of 100% excise duty exemption has been reduced to 58% under the GST regime.

A bench comprising two justices dismissed the appeals; however, it permitted the two companies to make representations to respective state governments and the GST Council. Also, it requested state governments and the Council to consider the industry representations expeditiously.

The Apex Court also stated that

  • GST Council is a constitutional body that can make recommendations on wide-ranging issues of GST, including exemptions from the GST. It also can make recommendations regarding special provisions governing North Eastern and the Himalayan states.
  • Several industries have been established in the Northeastern and Himalayan states in pursuance of the 2003 office memorandum, employing lakhs of people.
  • It would be appropriate for the states concerned to consider reimbursing such units. 
  • The plea of promissory estoppel would not be available against the exercise of the legislative functions of the State. Equally, it cannot be invoked to prevent the government from discharging its functions under the law.
  • Accordingly, the central government was not bound to continue with its representation in 2003, given the change of law by enacting the CGST Act.
  • No duty is cast on the Centre to refund 100% of CGST.
  • Further, this would contradict the statutory provisions enacted under Section 174(2)(c) of the CGST Act.

Earlier, the Sikkim and Delhi High Courts dismissed the pleas filed by Sun Pharma Laboratories Ltd and Hero Motocorp against the reduction in a duty exemption.

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