HC Upholds J&K Govt's Decision To Withdraw Budgetary Support Scheme 2018 For Reimbursement Of IGST To Manufacturing Units

The Jammu and Kashmir and Ladakh High Court has upheld the UT government's decision to withdraw the 'Budgetary Support Scheme', notified in the year 2018 for providing budgetary support to manufacturing units in the UT, by reimbursement of Integrated Goods and Service Tax.

A division bench of Justices Sanjeev Kumar and Rajesh Sekhri observed that the Scheme did not create any legitimate expectation in the units nor did it attract promissory estoppel on the government.

It reasoned that the Scheme was never unequivocal and rather, its viability was subject to annual review by the Finance Department.

Moreover, the bench pointed out that the Scheme was replaced by 'Turnover Incentive Scheme 2021' and thus, the eligible units were not deprived of the incentives but were extended the same in a different form.

“In the absence of any prejudice pleaded by the petitioners, the action of the respondents, replacing the Budgetary Support Scheme by the other scheme, both aimed at providing incentives to the industrial units like the petitioners, cannot be said to be irrational, unreasonable or arbitrary,” it held.

Background

Petitioners are Industries set up in J&K in the year 2011 and before, while the Industrial Policy 2004 was in operation. They claimed to have been allured by a slew of incentives offered by the Government from time to time.

They assailed the withdrawal of the government's Budgetary Support Scheme with effect from April 01, 2021.

It was contended that the relevant Statutory Rules and Order (SRO) clearly provided that the benefit of Budgetary Support Scheme shall be available to the eligible units till the last date of Industrial Policy 2016 i.e. March 31, 2026 and, therefore, the Government could not have withdrawn the scheme prematurely without allowing the petitioners to avail the benefit for the complete period.

The government on the other hand argued that a right was reserved in the Finance Department to review the viability of the policy at the end of every financial year with special reference to its continuance in the next financial year, determination of the amount of reimbursement, etc.

At the outset, the High Court observed that promissory estoppel operates even in the legislative field and applies against the Government, even when acting in exercise of its sovereign or executive functions.

“Everyone is subject to the law as fully and completely as any other and the Government is no exception,” it observed.

Similarly, it observed that the doctrine of legitimate expectations is founded on the principles of fairness in government dealings and would come into play if a public body leads an individual to believe that they will be a recipient of a substantive benefit.

“If, because of a previous practice, which is clear and consistent, a party is led to legitimately expect that such practice shall be continued, the withdrawal or discontinuance of such practice arbitrarily and without any justifiable reasons would invite wrath of Article 14 of the Constitution of India,” it observed.

However, in the case at hand, the High Court noted it was not the case of any of the petitioners that, acting upon representation contained in the Budgetary Support Scheme, they changed their position in a particular manner to their detriment or otherwise.

The Court agreed with the Petitioners that the benefit of exemption under Industrial Policy 2016 was promulgated for a period of 10 years i.e. up to March 2026. However, in the same breath it added that the government had reserved the right to issue fresh guidelines/ orders/ notification separately relating to Tax matters and incentives in supersession of the existing notifications /orders and circulars on adoption of the GST regime (which happened in July 2017).

Accordingly, it dismissed the petitions.

Difference between the doctrine of promissory estoppel and doctrine of legitimate expectation

In its order, the High Court also discussed Supreme Court's judgment in State of Jharkhand and ors v. Brahmputra Metallics Ltd. and another, (2023) which enunciated the difference between the doctrine of promissory estoppel and doctrine of legitimate expectation. High Court summarized the same as follows:

-Under English law, the doctrine of legitimate expectation initially developed in the context of public law as an analogy to the doctrine of promissory estoppel found in private law.

-Legitimate expectation can constitute a cause of action whereas the doctrine of promissory estoppel can only be used as a shield.

-The scope of legitimate expectation is wider than the promissory estoppel because it not only takes into consideration a promise made by a public body but also an official promise, as well.

-Under the doctrine of promissory estoppel, there may be a requirement to show a detriment suffered by a party due to the reliance placed on the promise.

So far as the Indian Law is concerned, the High Court said there is often a conflation and overlapping between the two doctrines.

“At times, the expressions “legitimate expectation” and “promissory estoppel” are used interchangeably, but that is not a correct usage because “legitimate expectation” is a concept much broader in scope than “promissory estoppel”,” the High Court said.

Appearance: Petitioners through M/S B. L. Narsimhan, Ankit Awal, J. A. Hamal, Advocates. Mr. Surjit Singh Andotra, Advocate Vice Mr. Jatin Mahajan, Advocate; Respondents through Mr. D. C. Raina, Advocate General with Mr. K. D. S. Kotwal, Dy.AG.

Case title: Sudhir Power Limited v. Union Territory of Jammu and Kashmir & Ors.

Case no.: WP(C) No.2784/2021

Click Here To Read/Download The Order