J&K and Ladakh HC: Budgetary Scheme for Supporting GST Cannot Be Defined with Freedom

The GST Budgetary Support Scheme could not be interpreted liberally Jammu & Kashmir and Ladakh High Courts stated.

The new scheme furnishes some advantages through the method of budgetary support to these units which were allotted excise duty exemption beneath the former tax regime before the incorporation of the GST regime. The support of budgetary would be conditional and not blanket, The bench of Chief Justice N. Kotiswar Singh and Justice Vinod Chatterji Koul has witnessed.

With the implementation of the new GST regime, all previous notifications issued under the Central Excise Act, along with the Exemption Notification, were revoked. But, the Government of India made a policy decision to furnish budgetary support to existing qualified manufacturing units functioning in the states of Jammu and Kashmir, Uttarakhand, Himachal Pradesh, and the North Eastern States, along with Sikkim, beneath different Government of India Industrial Promotion Schemes for the residual period for which each of the units is eligible, and introduced and notified a new scheme.

As an act of goodwill, this new scheme was only made available to the units that qualified for benefits under the former excise duty exemption and refund programmes. It otherwise bears no resemblance to the earlier schemes. A unit that was eligible for an ab-initio exemption or exemption by way of refund from paying central excise duty prior to July 1, 2017, and was utilising said exemption immediately prior to that date, has been defined as an “eligible unit” under this scheme.

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The taxpayer/applicant is a partnership firm registered under the Micro, Small, and Medium Enterprises Development Act 2006 (MSME Act). it has the business of manufacturing chemical products, namely emulsifiers, micronutrients and bio-zymes, water-soluble or NPK fertilizers, pesticides, plant growth regulators, bio-pesticides and bio-pesticide fertilizers, and others.

The petitioner has questioned the respondent’s orders and letter, provided via the office of the Assistant Commissioner, Central Goods and Services Tax Division, which rejected the applicant’s application for budgetary support under a plan. It was learned that the advantage may only be applied to items manufactured under an 8-digit HSN number and cleared prior to July 1, 2017, hence the petitioner is ineligible for the reimbursement.

The petitioner started producing the products dated August 22, 2016, took advantage of the notification’s exemptions from central excise duty, and was qualified to keep receiving this benefit till October 19, 2026.

A number of indirect tax legislation, notably the Central Excise Act of 1944, were abolished as a result of the implementation of the CGST Act of 2017 and the Integrated IGST Act. As a result, the Excise Act’s benefits were likewise repealed, including the exemption it had granted to the units covered by the Exemption Notification.

The applicant questioned, whether the exemption notification mentions all the goods counted beneath Chapter 38 as qualified for the exemptions from the central excise duty. Central Government incurs no difference between the groups fetched beneath distinct sub-headings or sub-items in chapter 38 for the purpose of allotting the excise exemption. Hence for the objective of exemption notification “specified goods” could be read to learn that any goods counted beneath chapter 38 and not merely the goods beneath any certain sub-heading or entry.

The petitioner’s claim was denied by the respondents on the basis that the goods the petitioner manufactured under the exemption notification were distinct from those made when the new scheme was in force.

The applicant argued that the scheme is advantageous since it supports, entices, and offers incentives to manufacturers to locate their businesses in the state of Jammu and Kashmir, strengthening the state’s industrial infrastructure and economy. Since the plan should be broadly interpreted.

The court ruled that if the petitioner’s interpretation of the scheme notification’s provisions is adopted, every unit that was qualified for an exemption under a particular notification and began manufacturing new goods post-July 1, 2017, would assert that it qualifies for budgetary support under the new scheme. It would lead to the establishment of an unfair playing field with regard to new units that begin production or clearance of comparable items but are not qualified to get the advantage 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 cited.