GST Budgetary Support Scheme Can’t Be Interpreted Liberally: J&K And Ladakh High Court

The Jammu & Kashmir and Ladakh High Courts have held that the GST Budgetary Support Scheme cannot be interpreted liberally.

The bench of Chief Justice N. Kotiswar Singh and Justice Vinod Chatterji Koul has observed that the new scheme provides certain benefits by way of budgetary support to such units that were granted excise duty exemption under an earlier tax regime prior to the introduction of the GST regime. However, budgetary support is conditional and not blanket.

Upon the introduction of the new GST regime, all the notifications issued earlier under the Central Excise Act,including the Exemption Notification, were rescinded. However, the Government of India took a policy decision to provide budgetary support to the existing eligible manufacturing units operating in the States of Jammu & Kashmir, Uttarakhand, Himachal Pradesh, and the North Eastern States, including Sikkim, under different Industrial Promotion Schemes of the Government of India, for the residual period for which each of the units is eligible, and introduced and notified a new scheme.

This new scheme was offered, as a measure of goodwill, only to the units that were eligible for drawing benefits under the earlier excise duty exemption and refund schemes but has otherwise no relation to the erstwhile schemes. Under this scheme, ‘eligible unit’ has been defined as a unit that was eligible before the 1st day of July, 2017 to avail the benefit of ab-initio exemption or exemption by way of refund from payment of central excise duty and was availing of the said exemption immediately before the 1st day of July, 2017.

The petitioner/assessee is a partnership firm registered under the Micro, Small, and Medium Enterprises Development Act 2006 (MSME Act). It is engaged in the manufacturing of chemical products, namely emulsifiers, micronutrients and bio-zymes, water-soluble or NPK fertilizers, pesticides, plant growth regulators, bio-pesticides and bio-pesticide fertilizers, etc.

The petitioner has challenged the orders and the letter issued by the respondent, the office of the Assistant Commissioner, Central Goods and Services Tax Division, rejecting the petitioner’s claim for benefit of budgetary support under a scheme. It was noted that the benefit thereunder can only be allowed on goods manufactured under an 8-digit HSN code and cleared prior to July 1, 2017, and thus the petitioner is not eligible for the refund.

The petitioner commenced the manufacturing of the products on August 22, 2016, was availing of exemptions in central excise duty under the notification, and was eligible to receive this exemption benefit until October 19, 2026.

Things changed with the introduction of the CGST Act of 2017 and the Integrated IGST Act, because of which several indirect tax statutes, including the Central Excise Act of 1944, were repealed. Consequently, the benefits given under the Excise Act were also withdrawn, including the exemption granted under the aforesaid Act to the units under the Exemption Notification.

The petitioner contended that the Exemption Notification specifies "all goods" covered under Chapter 38 as being eligible for exemption from central excise duty. There is no distinction made by the Central Government between groups identifiable under different sub-headings or sub-items within Chapter 38 for the purpose of granting an excise exemption. Therefore, for the purpose of the Exemption Notification, "specified goods" can be read to mean any goods covered under Chapter 38 and not only the goods under any particular sub-heading or entry.

The respondents rejected the claim of the petitioner on the ground that the goods manufactured by the petitioner under the exemption notification were different from those manufactured during the operation of the new scheme.

The petitioner contended that the scheme is of a beneficial nature because it gives support, encouragement, and incentives to the industrialists to set up their units in the state of Jammu and Kashmir, boosting industrial infrastructure and the economy. As the scheme should be liberally construed.

The court held that if the provisions of the scheme notification are given the meaning sought by the petitioner, every unit that was eligible to avail exemption under any specified notification and started manufacturing new items after July 1, 2017 would claim to be eligible for budgetary support under the new scheme. It would result in the creation of an uneven playing field with respect to new units that start production or clearance of similar products but are not entitled to the benefit of budgetary support.

"We have also noted that the respondents have clearly mentioned that goods under Tariff Headings 38089113, 38089199, 38089290, 38089340, 38089350, 38089390, 38089910, and 38089990 manufactured after 01.07.2017 were not manufactured or cleared by the petitioner prior to 01.07.2017, and as such, there is no question of availing of an excise duty exemption prior to 01.07.2017 in respect of these goods. As these goods were not manufactured earlier and consequently, no exemption of excise duty was availed in respect of them, they are not eligible for budgetary support," the court noted.

Case Title: M/s Best Crop Science Industrial Area Versus Union of India

Citation: 2023 LiveLaw (152)

Case No.: WRIT PETITION (CIVIL) NO. 1171 OF 2022

Date: 23.05.2023

Counsel For Petitioner: Jagpaul Singh

Counsel For Respondent: Pallavi Sharma

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