High Court of Jammu and Kashmir Dismisses Petition Challenging Withdrawal of Budgetary Support Scheme; Holds Doctrine of Promissory Estoppel and Legitimate Expectation Not Applicable

Court’s Decision:

The High Court of Jammu and Kashmir dismissed the petitions challenging the withdrawal of the Budgetary Support Scheme under SRO 431 of 2018, stating that the doctrines of promissory estoppel and legitimate expectation were not applicable. The court concluded that the government acted within its rights to withdraw the scheme and replace it with the Turnover Incentive Scheme, effective from 01-04-2021.

Facts:

The petitioners, various industrial units operating in Jammu and Kashmir, challenged the withdrawal of the Budgetary Support Scheme under SO 239 dated 16-07-2021, which was originally introduced to provide reimbursement for IGST under the IGST Act, 2017. The scheme was initially set to last until 31-03-2026, as per SRO 431 of 2018. The petitioners contended that the withdrawal violated the doctrines of promissory estoppel and legitimate expectation, arguing that the scheme was prematurely revoked despite promises made under the Industrial Policy 2016 and SRO 431.

Issues:

• Whether the withdrawal of the Budgetary Support Scheme violated the doctrines of promissory estoppel and legitimate expectation.
• Whether the Turnover Incentive Scheme could validly replace the earlier scheme, thereby removing the Budgetary Support.

Petitioner’s Arguments:

The petitioners argued that they had invested substantial amounts in setting up their units based on the promises of incentives, including the Budgetary Support Scheme. They asserted that the withdrawal of the scheme before 31-03-2026 violated the doctrine of promissory estoppel, as the government had made an unequivocal representation through SRO 431, on which they relied. They also claimed that the withdrawal breached their legitimate expectation to continue receiving benefits until the end of the scheme’s term.

Respondent’s Arguments:

The government contended that the Budgetary Support Scheme was never guaranteed for a fixed period and was subject to review at the end of each financial year as per clause 7 of SRO 431. The respondents argued that the new Turnover Incentive Scheme replaced the earlier scheme, providing similar benefits in a different form. They further stated that there was no unequivocal promise made to the petitioners that would attract the doctrine of promissory estoppel, and the decision to withdraw the scheme was made in the public interest.

Analysis of the Law:

The court relied on the legal principles governing promissory estoppel and legitimate expectation, as articulated in Supreme Court judgments, including Brahmputra Mettalics Ltd. v. State of Jharkhand and Manuelsons Hotels Pvt. Ltd. v. State of Kerala. It held that for promissory estoppel to apply, there must be a clear and unequivocal promise, and the party must act to its detriment based on that promise. In this case, the court found that SRO 431 clearly stated that the scheme was subject to review at the end of each financial year, which negated the claim of an unequivocal promise.

Precedent Analysis:

The court examined several precedents, including Motilal Padampat Sugar Mills Co. Ltd v. State of U.P and State of Punjab v. Nestle India Limited, where the Supreme Court discussed the conditions under which the doctrines of promissory estoppel and legitimate expectation apply. It reiterated that these doctrines cannot override the state’s power to alter its policies in public interest.

Court’s Reasoning:

The court reasoned that the petitioners failed to demonstrate any detriment suffered due to the withdrawal of the scheme. It emphasized that the Turnover Incentive Scheme, which replaced the Budgetary Support Scheme, continued to provide similar benefits, albeit in a different form. The court further held that the government acted within its rights to review and withdraw the scheme in light of the changing tax regime under the GST.

Conclusion:

The court dismissed the petitions, holding that the withdrawal of the Budgetary Support Scheme was neither arbitrary nor in violation of the doctrines of promissory estoppel and legitimate expectation. The court upheld the government’s decision to introduce the Turnover Incentive Scheme, finding it to be a reasonable policy shift that did not prejudice the petitioners.

Implications:

This judgment reinforces the principle that government policies, particularly those related to taxation and fiscal incentives, are subject to change based on evolving circumstances. It clarifies that the doctrines of promissory estoppel and legitimate expectation cannot bind the government to maintain a particular policy indefinitely, especially when such policies are explicitly subject to review.

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