The Supreme Court has urged the GST Council and State governments to consider a plea for reimbursement of taxes paid by industrial houses having plants in hilly States such as Uttarakhand and Himachal Pradesh and the North-Eastern States. However, it rejected pleas of Hero Motocorp and Sun Pharma for 100 per cent budgetary support for excise exemption while dismissing pre-GST era ‘promissory estoppel’ argument.

The companies filed appeals against High Courts’ (Delhi and Sikkim) rulings rejecting their claim of 100 per cent budgetary support in lieu of the pre-existing 100 per cent outright excise duty exemption for ten years from the date of the commencement of commercial production. This exemption was provided by an office memorandum (OM) of 2003 issued by the Centre.

The said OM provided that, for the States of Uttaranchal and Himachal Pradesh, new industrial units and existing units on their substantial expansion would be entitled to exemption of 100 per cent outright excise duty for 10 years from the date of commencement of commercial production. They argued that Union was bound to give 100 per cent tax exemption till completion of the 10 years’ period

Hero Motocorp set up a unit at Haridwar (Uttarakhand). It commenced commercial production from April 7, 2008. It. availed 100 per cent exemption until GST regime came into existence and the benefit being enjoyed by Hero was reduced to 58 per cent through the Budgetary Support Policy. The same happened with two units of Sun Pharma (one begun commercial production on April 20, 2009 and another one on April 14, 2014).

After going through all the arguments and facts placed on record, a Division Bench of the Supreme Court noted that lakhs of persons are employed in such industries. It said, “It will be appropriate that such States should also consider correspondingly reimbursing such units out of the share of revenue received by them through devolution from the Centre. We further find that it will also be appropriate that the GST Council considers making appropriate recommendations to the States in that regard.”

The bench permitted the companies to make representations to GST Council and State Governments. It also requested constitutional bodies to “to consider such representations, if made, in an expeditious manner.”

States’ call

Vivek Jalan, Partner with Tax Connect Advisory, said now these taxpayers need to rebuild their plans, and set sail once more toward their coveted goal of receiving the benefits from the State governments through the GST Council in which has the States’ Finance Ministers also are members. “However, after the Supreme Court’s judgement in the case of Mohit Minerals, it is clear that GST Council’s recommendations are only recommendatory and not mandatory and binding on States. Whether the States will act according as per the GST Council’s recommendation is something to be looked forward to,” he said.

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