Page 205 - GSTL_2nd April 2020_Vol 35_Part 1

2020 ] HERO MOTOCORP. LTD. v. UNION OF INDIA 107
dustrial and investment policies for promoting industrial growth and employ-
ment in industrially backward states. One of the prominent features of the
framework of the policies was to provide exemption from excise duty on goods
produced in the specified states. Similarly, some of the States had also granted
exemptions from VAT or deferment of VAT, inter alia, as part of their industrial
promotion policies to specific areas within the States or to specific industry. Inso-
far as the Central Government is concerned, the area based Central Excise Duty
exemptions were applicable to certain states including the State of Uttarakhand,
with which we are the presently concerned. Thus, an agenda item was taken up
in the second GST Council Meeting held on 30-9-2016, regarding the treatment of
existing tax incentives scheme of the Central and State Governments. The said
agenda was taken up and the inputs of the States were evaluated. The extract of
minutes of meeting of GST Council and conclusion with respect to above noted
agenda item reads as under :
“Agenda Item 3 : Treatment of the existing tax incentive schemes of the
Central and State Governments
25. The Secretary to the Council explained that the Central and State gov-
ernments had given various incentives of Central Excise and Value Added
Tax (VAT) and Central Sales Tax (CST). He pointed out that in the GST re-
gime, such incentives could not be continued as supplies would need to be
made on payment of tax in order to permit flow of tax to the destination
state. Therefore, a decision would need to be arrived at regarding the
treatment of such tax incentive schemes under the GST regime. He ob-
served that one option could be to ‘grandfather’ such schemes and provide
for a budgetary apportionment in the State and the Central budgets for re-
imbursing the tax paid to those units which enjoyed tax exemption up to a
specified period. However, while ‘grandfathering’ any such scheme, it
would need to be kept in mind that unlike VAT and the CST which were
origin-based taxes, GST was a destination-based tax and an unconditional
reimbursement scheme could lead to double outflow for the origin-state -
one by way of transfer of tax to the destination State and the other by way
of reimbursement to the supplier. Therefore, the States would need to be
careful while devising any reimbursement scheme and care could be taken
that such reimbursement was limited for supplies made within the State.
26. The Hon’ble Deputy Chief Minister of Gujarat alluded to examine
possible legal complications. The Secretary to the Council pointed out that
the agenda note contained certain judgements of the Hon’ble Supreme
Court as per which the principle of promissory estoppel would not apply in
a case where there was a supervening public equity.
27. The Hon’ble Minister from Tamil Nadu stated that the Centre should
not give budgetary support to only few States that were classified as Special
Category States for the tax incentive schemes maintained by them. The
Hon’ble Minister from Assam strongly objected to the line of argument pre-
sented by the Hon’ble Minister from Tamil Nadu and stated that small
states should get help from the Centre. He pointed out that for the last 70
years, oil and natural gas were being taken out of Assam which was used
for the benefit of all States. He pointed out that for small States to exist, the
Centre should help them; otherwise smaller States might wither away. The
Chairperson stated that no compensation was to be paid by the Centre to
any State for reimbursements relating to tax incentive schemes and that
States would need to make their own budgetary provisions for the same.

GST LAW TIMES  2nd April 2020  269