Page 209 - GSTL_2nd April 2020_Vol 35_Part 1

2020 ] HERO MOTOCORP. LTD. v. UNION OF INDIA 111
2.71. Para 3.3.2.(viii) of the draft of “An Approach to the 11th Five Year
Plan “has also commented on the undesirability of the area based exemp-
tions. To quote :-
“The existing incentive programmes such as those available for the
North East, J & K, Himachal Pradesh and Uttranchal need to be re-
viewed with a view to assessing their impact on industrialization in
these regions. The extension of excise duty exemption to Himachal
and Uttranchal has had an adverse impact on industrial invest-
ments in both the North Eastern region and the adjacent States.
Consideration would need to be given to restricting these incentives
to only hilly areas or to replacing these incentives by a special pro-
gramme for roadways and railway development in these States.“
2.72. The area based exemptions erode the tax base. The revenue foregone
on account of area-based exemptions is estimated to be Rs. 8,073 crores in
2007-08.
2.73. Further, the case for providing area based exemption is extremely
weakened in the face of our recommendation for a sharp reduction in the
combined rates of CGST and SGST and the ease of compliance through a
combined transaction reporting and payment Form No. GST-I.
2.74. In view of the above, we recommend that the area based exemption in re-
spect of Cenvat should not be continued under the GST framework. In case it is
considered necessary to provide support to industry for balanced regional
development, it would be appropriate to provide direct investment linked
cash subsidy.“
(emphasis supplied)
24. GST has now enabled seamless flow of input tax credits across the
chain. The Central Excise Duty exemptions did not envisage exemption from
VAT, which is now available as input tax credit on account of being subsumed in
GST and the credit thereof is now available for payment of duty. Similarly, VAT
exemptions did not envisage exemption from Service Tax and excise duty, which
is now available as input credit on account of being subsumed in GST. In this
changed scenario, the Government has decided to grandfather the incentives that
were given to specific industry under the existing industrial policy of States, or
through a scheme of the Government. The new tax structure and merging of in-
direct taxes and the mechanism provided for input tax credit of state taxes that
were earlier part of the State and Central Legislations has now resulted in a com-
pletely new tax which is known as GST. Therefore, the Petitioner’s argument that
the policy decision of 2003 still holds the field and can be enforced against the
Government as a promise, to our understanding is not correct. The 100% tax ex-
emption under the industrial policy was envisaged under the previous regime.
The policy can no longer be invoked and therefore, the exemption notifications
issued implementing the said policy also have lost the mandate. Merely because
the Government has acknowledged the difficulties faced by the industrial units
and introduced Budgetary Support Scheme, it cannot be said that the Petitioners
as a matter of right, are entitled to insist that the support should be on the entire
fiscal benefits that were originally envisaged under the 2003 policy. The Budget-
ary Support Scheme under the GST, is not in lieu of exemptions that were grant-
ed under the previous fiscal incentives schemes for providing exemptions under
the Central Excise Act, 1944 and other such legislations. Just because, the Re-
spondents have acknowledged that the units located in the States of Jammu &

GST LAW TIMES  2nd April 2020  273