Goods & Services Tax (GST) in IndiaDoctrine of Promissory Estoppel is not Applicable Against the State while Exercising it’s Legislative Power

November 22, 20220

The Supreme Court in M/s. Hero Moto Corp v. Union of India [Civil Appeal No. 7405 of 2022 decided on 17.10.2022] has held that the promise of estoppel is not applicable against the legislative power of the State and the writ of Mandamus cannot be issued for the same.


The Government of India issued an Office Memorandum  on 07.01.2003 (hereinafter referred to as the “OM of 2003”) which provided 100% exemption of excise duty for 10 years  from the date of commencement of commercial production to the new industrial units and existing industrial units on their substantial expansion for the States of Uttaranchal and Himachal Pradesh.

The OM of 2003 additionally provided 100% income tax exemption for the first five years, followed by a subsequent period of five years at 30% for companies and 25% for other companies, from the commercial commencement of production. The OM of 2003 also provided various other incentives.

Hero MotoCorp Ltd. (hereinafter referred to as “the Appellant No. 1”), had established a new industrial unit for motorbikes at Uttarakhand, and the commercial production commenced on 07.04.2008. The exemption was availed by the Appellant No. 1 until 01.07.2017, when the Goods and Service Tax (hereinafter referred to as the “GST”) was introduced and the benefit to the Appellant No.1 was decreased to 58% through the Budgetary Support Policy.

Sun Pharma Laboratories Ltd. (hereinafter referred to as “the Appellant No. 2”), had setup its first industrial unit and commenced the commercial production on 20.04.2009. The Appellant No.2 eventually established second plant and commenced commercial production on 20.04.2014. Both of the industrial units of the Appellant No.2 were receiving a complete refund of the central excise taxes paid by them as per Notification No. 56/2003, pursuant to Office Memorandum dated 17.02.2003.

After the introduction of the GST regime, the benefit received by the Appellant No.2 was reduced to 58% through the implementation of the Budgetary Support Policy.

The Respondent vide Notification No.21/2017-CE dated 18.07.2017 under Section 174(2)(e) of the Central Goods and Services Act, 2017 (hereinafter referred to as the “CGST Act”) rescinded the tax exemption notifications from 01.07.2017, hence, OM of 2003 also ceased to operate.

The GST Council on 30.09.2016, also decided that the entities exempted from the payment of indirect tax, would pay the tax under GST regime, unless any specific exemption or incentive provided by the Central or State Government under GST Law.

The Central Government vide Budgetary Support Scheme dated  05.10.2017, provided to reimburse the Central Share of Central Goods and Services Tax (hereinafter referred to as “CGST”) and Integrated Goods and Services Tax (hereinafter referred to as the “IGST”) to certain eligible industrial units in the North Eastern and Himalayan States. The Central Share was determined at 58% of CGST and 29% of IGST.

Aggrieved by the Notification dated 05.10.2017; the Appellants filed petitions before the Delhi High Court and the High Court of Sikkim respectively, for limiting the refund to only 58% of CGST and 29% of IGST and not to provide a 100% refund of CGST. In their respective decisions, the Delhi High Court and the High Court of Sikkim dismissed the petitions.

 Aggrieved by the orders of the High Courts, the Appellants have preferred an appeal before the Supreme Court, claiming 100% tax exemption till completion of period of 10 years for the commencement of commercial production.


  1. Whether the doctrine of promissory estoppel would operate against a statute?
  2. Whether the writ of mandamus can be issued against the Central Government for allowance of 100% exemption of GST?


The Appellants submitted that the Central Government had made an unequivocal representation vide OM of 2003 of 100% tax exemption for 10 years, and relying upon that the Appellants have altered their position and setup the industries, hence, the Respondent is estopped from resiling from the representation made to the Appellants.

The Appellants contended that the refund of 58% is decided in arbitrary and irrational manner. Moreover, under the earlier tax regime, the revenue was shared by Central as well as State Government, even then 100% tax exemption was provided, and there was no reason why the same shall not be continued.

The Appellants argued that the OM of 2003 had a higher pedestal than a statutory provision or Union Notification, because before the GST regime,  same effect was given.

The Appellants pleaded that Section 11 of the CGST Act empowers the Government to exempt tax and hence, the Central Government can provide tax exemption under the same.

The Appellants argued that the Central Government had come up with a policy for promoting industrial growth and employment for backward areas and thus, pursuant to this, even after the GST regime, the tax exemption should have been continued.

The Appellants also contended that the High Court of Sikkim had erred in appreciating facts and relied upon the wrong judgement and hence had dismissed the petition wrongly.

The Respondent submitted that promissory estoppel would not apply to a representation made by Union of India, if the material change is pursuant to larger public interest that warrants the withdrawal of the exemption.

The Respondent contended that the Article 279A of the Constitution of India, (hereinafter referred to as the “Constitution”) has established GST Council, which is empowered to make recommendations to the Union and States about which taxes are to be subsumed under GST.

The Respondent argued that Article 279A (6) of the Constitution directs for a harmonised structure under GST. Moreover, Article 246(1) of the Constitution empowers the Parliament as well as the State Legislature to make laws, whereas, Article 246(2) of the Constitution only empowers the Parliament to make law.

The Respondent pleaded that the earlier leviable taxes were origin based, whereas, the GST is a destination-based tax. Moreover, under the GST regime, States as well as Union can uniformly levy the tax.

The Respondent also submitted that by the virtue of Section 174(2)(c) of the CGST Act, the already existing tax exemptions rescinded. Moreover, the Central Government is not bound to give any exemptions but have exempted the 58% of the Central Government.

The Respondent further argued that the writ of mandamus is not tenable as the authority has not neglected to perform a duty casted upon it and hence, the OM of 2003 need not be complied.


The Supreme Court placed reliance on the case of M. Ramanathan Pillai v. The State of Kerala & Anr. [(1973) 2 SCC 650] wherein it was held by the Supreme Court that the doctrine of promissory estoppel would not apply against the State in its governmental, public or sovereign capacity and hence, it is an exception to the doctrine.

The Supreme Court further relied on State of Kerala v. The Gwalior Rayon Silk Manufacturing (WVG) Co. Ltd [(1973) 2 SCC 713] and observed that when the legislature exercises its powers for the public good, the earlier representation would not operate against the Government as an equitable estoppel.

The Supreme Court further relied on the case of M/s. Jit Ram Shiv Kumar & Others v. State of Haryana and Ors. [(1981) 1 SCC 11] wherein the Supreme Court had laid down the scope of the promissory estoppel against the Government and held that the promissory estoppel would not be available against the exercise of legislative functions of State. that

The Supreme Court further opined that the OM of 2003 is contrary to the legislative intent of incorporation of proviso of Section 174(2)(c) of the CGST Act, 2017.

The Supreme Court relied on Kasinka Trading and Anr. v. Union of India & Anr. [(1995) 1 SCC 274], Shriji Sales Corporation v. Union of India [ (1997) 3  SCC 398], State of Rajasthan v. Mahveer Oil Industries [ (1999) 4 SCC 357], Shree Sidhbali Steels Ltd. v. State of UP [ (2011) 3 SCC 193] and Director General of Foreign Trade vs. Kanak Exports [ (2016) 2 SCC 226] and held that  when earlier notification is withdrawn by a subsequent notification, based on a policy change, then also doctrine of promissory estoppel cannot be invoked.

The Supreme Court observed that on ground of change in policy,  in public interest  or on account of change in statutory regime, GST Act being introduced, the Respondent was not bound by OM of 2003, which would be otherwise contrary to Section 174(2)(c) of the CGST Act.

The Supreme Court further relied upon The Bihar Eastern Gangetic Fishermen Co-operative Society Ltd v. Sipahi Singh and others[ (1977) 4 SCC 145] and held that unless any Statutory duty is casted upon the Respondent, a writ of mandamus cannot be issued for 100% of refund.

The Supreme Court further held that a writ of mandamus cannot be issued to the Central Government to exercise the power under Section 11 of the CGST Act, for exemption, because it has to be exercised on the recommendations of the GST Council.

It was further opined that the Supreme Court cannot interfere in policy matters of the Government unless the policy is palpably arbitrary and irrational.

The Supreme Court was of the opinion that based on OM of 2003, many industrial units have been opened and such units generate employment for a large number of people. The GST Council has stated that the tax exemption of more than 58% cannot be provided due to budgetary distribution amongst the State and the Central Government.

The Supreme Court directed the Appellants to make representations the respective State Governments and GST Council, which shall be dealt expeditiously. The appeals were dismissed.


A legal principle of promissory estoppel prevents someone from breaking a commitment even if a formal contract is not in place. Whether a promise was made as a contract or not, it is still enforceable. The Supreme Court has held that promissory estoppel is not applicable against a State which is exercising legislative capacity.

The Supreme Court has reiterated its stance, that when earlier notification is struck off by a subsequent notification, the promissory estoppel is not applicable.  The decision is yet another significant one in the area of promissory estoppel, and it is important to correctly assess any changes in the law when setting up any unit to receive a tax benefit and to write the agreements suitably.

– Team AMLEGALS assisted by Ms. Ishita Jaiswal (Intern)

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