Units Located In J&K Entitled For Central Excise Duty Exemption Prior To 1st July 2017 Liable To Pay GST: J&K & Ladakh High Court

The Jammu and Kashmir and Ladakh High Court has held that units located in Jammu and Kashmir are entitled to central excise duty exemption prior to July 1, 2017, and are therefore liable to pay GST.

The division bench of Justice Tashi Rabsdan and Justice Mohan Lal has observed that in terms of the Central Excise regime as it existed prior to July 1, 2017, the units located in Jammu & Kashmir and other states were eligible to avail exemption from payment of Central Excise duty in terms of area-based exemption notifications. While exemption was available to the units located in Jammu and Kashmir, who were required to pay Central Excise Duty and avail exemption by way of refund of the cash component of duty paid, under the GST regime there was no exemption, and the existing units availing exemption from payment of Central Excise Duty prior to July 1, 201,7 are required to pay CGST and SGST/IGST like a normal unit. Thus, no exemption is available to the units by way of either an ab initio exemption or a refund.

The petitioner/assessee is a Fast-Moving Consumer Goods (FMCG) company engaged in the manufacture of household insecticides, personal care products, and home products.

The petitioner contended that Notification No. 1 for 2010—Central Excise, dated February 6, 2010 (Excise Exemption Notification), was notified to enable manufacturers to set up new units or undertake substantial expansion at a later date by availing of the central excise benefit. There was no sunset clause prescribed under the Excise Exemption Notification, giving existing units the option to undertake substantial expansion at any date without any limitation.

The petitioner contended that in order to avail itself of the continued benefit, it undertook steps for the substantial expansion of its unit. As stated by the petitioner company, the steps taken and permissions granted thereafter led it to presume that benefits given under the erstwhile Excise Exemption Notification would be grandfathered into the Goods and Services Tax (GST) regime.

The petitioner-unit made an additional investment with the belief that the same would yield an exemption benefit over a period of time as envisaged in the erstwhile Excise Exemption Notification, which has now been rescinded and replaced with the Budgetary Support Scheme. Following the rollout of the GST regime on July 1, 2017, the respondent rescinded the Excise Exemption Notification via Notification No. 21/2017 dated July 18, 2017.

The department contended that Article 279A of the Constitution provides that the GST Council shall make recommendations to the Union and States, inter alia, on issues relating to special provisions with respect to the states of Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand. In its meeting held on September 30, 2016, the GST Council left it to the discretion of the Central and State Governments to notify schemes of budgetary supports to units where the erstwhile schemes were in operation on July 18, 2017. As a result, the Central Government provided Budgetary Support to eligible units for the remainder of the fiscal year in the form of partial reimbursement of goods and services tax paid by the unit, limited to the Central Government's share of CGST and IGST retained after devolution of a portion of these taxes to the States.

The court noted that the withdrawal of an exemption in the public interest is a matter of policy, and the courts would not bind the government to its policy decision for all times to come, irrespective of the satisfaction of the government that a change in the policy was necessary in the public interest. When the government acts in the public interest and no fraud or lack of bona fides is alleged or established, the courts do not interfere with fiscal policy. While issuing, modifying, or withdrawing an exemption notification, the government must be allowed to determine the priorities in terms of financial utilisation and to act in the public interest.

The court dismissed the petition as devoid of merit.

Case Title: Godrej Consumer Products Limited Versus Union of India

Citation: 2023 LiveLaw (JKL) 4

Counsel For Petitioner: Mr Pranav Kohli Sr Adv, Vineet Nagla, Arun Dev Singh Advocates. 

Counsel For Respondent: Advocate Jagpaul Singh

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