Britannia Industries LTD. vs. State Of Karnataka

Briefly stated the facts giving rise to the present petition as contended by the petitioner are as under:-

1 On 26.04.2016, the 1st respondent accorded in-principle approval to the investment proposal of the petitioner to establish a Unit for manufacture of biscuit and bakery products with an investment of INR 194.70 crores generating employment to about 1350 persons at Balaveeranahalli village, Bidadi, Ramanagara, on the land measuring 15 acres 30 guntas situated in plot No.23 of Bidadi Industrial Area. The petitioner issued a letter to the 2nd respondent dated 16.05.2016 which is acknowledged by the 2nd respondent on 25.05.2017 that the petitioner had commenced industrial / commercial production of the products.

2 It is contended that the applicable VAT rate under the KVAT Act was 14.5% upto 01.07.2017 when the CGST / KGST HC-KAR NC: 2025:KHC:48511 regime came into force, in pursuance of which, the 2nd respondent issued VAT reimbursement Eligibility Certificate dated 07.08.2017 to the petitioner under the 2015 Policy. Thereafter, petitioner issued a letter dated 19.01.2018 to the 2nd respondent as regard grant of fiscal incentives under the 2015 Policy. It is contended that vide the impugned Government Order (G.O) dated 13.03.2018, the respondents have resiled from their promise and has significantly altered the incentives and concessions granted to the petitioner under the 2015 policy after the implementation of the GST regime. The petitioner has also challenged the impugned Circular dated 26.02.2019 issued by the 3rd respondent – Revenue which reiterates the contents of the impugned G.O. dated 13.03.2018. It is contended that the petitioner is entitled to fiscal incentives under the 2015 Policy and that the 2nd respondent is to reimburse from July 2017 onwards under the GST regime, the corresponding amount that was reimbursed under the VAT regime. It is further contended that under the VAT regime, petitioner was eligible for 70% of net VAT reimbursement and that since the applicable VAT rate till 01.07.2017 was 14.5%, the petitioner was entitled to reimbursement of approximately 10% of the sale value. HC-KAR NC: 2025:KHC:48511

3 The petitioner further contends that under the GST regime, tax rate on biscuits is 18% consisting of SGST of 9% and CGST of 9% and in order to correspond with the benefit under the VAT regime, the respondent was liable to grant reimbursement of gross GST (not net GST) which would amount to 9% of sale which benefit is to be extended from 5 years to 7 years in view of lower reimbursements. It is contended that though the impugned G.O. dated 13.03.2018 notes that the reimbursement contemplated under the 2015 Policy has to be continued even after the GST regime came into force from 01.07.2017, the impugned G.O dated 13.03.2018 states that no compensatory incentive will be considered in case SGST rate is less than the VAT rate and also in view of abolition of CST. In the present petition, petitioner challenges the impugned G.O. dated 13.03.2018 to the limited extent that it provides that no compensatory incentive will be considered in the event SGST rate is lesser than the VAT rate without considering the consequences thereof which would result in reduction in the incentive entitlement in favour of the petitioner. Petitioner is also aggrieved by the fact that the respondents – State who are entitled to a portion of IGST as well as to receive HC-KAR NC: 2025:KHC:48511 compensation during the transition period (5 years) under the Goods and Services Tax (compensation to State) Act, 2017 is not being made over to the petitioner who is entitled to refund from the aforesaid IGST and compensation received as well. It is further contended that even the impugned Circular issued by the 3rd respondent – Revenue replacing VAT with SGST was challenged to the limited extent that it reiterates the impugned G.O. which provides that no compensatory incentive will be considered in case SGST rate is lesser than the VAT rate and the inaction on the part of the respondents – State in making over to the petitioner additional taxes made available to the respondents by the Union of India in the form of IGST and compensation. Under these circumstances, aggrieved by the impugned order and Circular to the extent that they do not ensure the same benefits that were promised to the petitioner earlier will continue to be provided notwithstanding the change in the taxation regime from VAT to GST, petitioner is before this Court by way of the present petition.

On 19.01.2022, respondents filed statement of objections contesting the petition interalia contending that after introduction of the GST regime, the petitioner was not entitled to reimbursement of HC-KAR NC: 2025:KHC:48511 net VAT but only reimbursement of net GST under the SGST Act and not under the KVAT Act as per the 2015 policy, which clearly states that no compensatory incentive will be considered in case SGST rate is lesser than the VAT rate. It is contended that under the 2015 Policy with regard to VAT / CST incentives, it is clearly mentioned that on introduction of GST, no compensatory incentive will be provided in case of abolition of CST or any other tax or change in rate of tax, however, VAT related incentive will be converted to SGST related incentive which scope as originally approved. It was therefore contended that the petitioner who had availed the benefit under VAT was not entitled to the benefit on introduction of GST as per the operative guidelines issued under the Karnataka Industrial Policy, 2014-19 issued by the respondents and as such, there was no merit in the petition and that the same was liable to be dismissed.

The petitioner filed its rejoinder dated 31.01.2022 disputing and denying the various contentions urged by the respondents – State in its statement of objections dated 19.01.2022. It was reiterated that merely because the taxation had changed from VAT to GST, petitioner does not become disentitled HC-KAR NC: 2025:KHC:48511 to 100% reimbursement which was promised to the petitioner and that the respondents who are adequately compensated at an assured rate of 14% p.a. on base revenue for F.Y.2015-16 for any loss in tax revenue post implementation of GST, pursuant to the Goods and Services Tax (compensation to States) Act, 2017 are estopped from resiling from their promise of enabling petitioner from achieving reimbursement to the extent of 100% of the value of the fixed assets constructed by them in the State of Karnataka. It was contended that in pursuance of the 2015 policy, the petitioner had altered its position by investing a sum of Rs.190 crores and was entitled to reimbursement of a maximum of 100% of the value of the fixed assets constructed by it in Karnataka by way of net VAT reimbursement.

The petitioner denied the contention of the respondents that the Karnataka Industrial Policy, 2014-19 was applicable to the instant case. It is contended that the 2015 Policy (Agri Food Policy) was applicable, under which, the petitioner is entitled to the benefit as sought for by it. Alternatively, it is contended that even under the Karnataka Industrial Policy, 2014-19, the entire VAT benefit would be available to the petitioner in view of the guidelines that all HC-KAR NC: 2025:KHC:48511 VAT related incentives would be converted with SGST related incentives with scope as originally approved in favour of the petitioner. Petitioner would accordingly reiterate the various contentions urged in the petition and submit that the same deserves to be allowed.

Subsequently, the respondents filed one more statement of objections dated 16.02.2024 reiterating its contentions and produced certain documents at Annexures-R1 to R5, to which, the petitioner filed one more rejoinder on 07.03.2024 denying and disputing the contentions of the respondents.

Heard Sri.K.G.Raghavan, learned Senior counsel for the petitioner and Sri.Vikram Huilgol, learned Senior counsel along with Sri.Hema Kumar, learned AGA for the respondents-Revenue and perused the material on record.

In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner submits that the petitioner who was granted benefit under the VAT regime by virtue of the 2015 Policy, was entitled to the same benefit under the GST regime also and HC-KAR NC: 2025:KHC:48511 the impugned G.O. and Circular to the extent the respondents purport to resile from their earlier promise and deny compensatory incentive in favour of the petitioner as per the VAT rate and instead replacing the VAT rate with the SGST rate which was lesser / lower is illegal, arbitrary and contrary to law and facts warranting interference by this Court in the present petition. In support of his submissions, learned Senior counsel placed reliance upon the following judgments:-

Goods and Services Tax Act, 2017 was brought into force on 01.07.2017. 2. 2. The Government Orders dated 13.03.2018 [Pg. 29/Annex-A, Writ Petition] and 26.02.2019[Pg. 40/Annex- B, Writ Petition] have been issued by Respondent Nos. 2 and 3, respectively. The impugned portions of the said orders are as follows: “ VAT Incentives GST Incentives Remarks MSME: 75% OF Net VAT Reimbursement for a period of 5 years subject to maximum of 100% VFA. A, B, C Enterprises: 60%, 70%, 80% of net VAT reimbursement respectively for a period of 5 years subject to maximum of 100% VFA MSME: 75% of net SGST reimbursement for a period of 5 years subject to maximum of 100% VFA.

The Impugned Orders have been assailed in the writ petition, only to the extent that they provide that no compensatory incentive will be considered in case SGST rate is less than VAT rate.

Under VAT-regime the Petitioner was paying 14.5% VAT which accrued to the State Government resulting in aneffective reimbursement of 9-10%. Under GST the Petitioner pays 9% SGST resulting in reimbursement of5- 6%.

The Petitioner would have received reimbursement to the tune of its entire investment i.e., Rs

48 Crores had VAT regime continued which is evidenced by the CA certificate submitted in this Court. However, due to GST implementation it is now eligible for only Rs. 90 HC-KAR NC: 2025:KHC:48511 Crores from the eligible value of capital investment of Rs

48 Crores[Pg. 15/Annex-A,Rejoinder filed on 07.3.2024].

In K.M. Refineries &InfraspacePvt. Ltd. v. State of Maharashtra & Ors., W.P. No. 2209 of 2018,the Hon’ble High Court of Bombay has held that reduction of benefit granted under an incentive scheme due to GST is not permissible and has directed modification of the scheme to bring it in line with GST without reducing or restricting the benefit under the scheme [Para. 4, 25, 28 @ Pg. 3, 22 to 24 of List of Authorities-I “LoA”].

Promise in favour of the Petitioner by the Respondent under the Agri-Food Policy

Eligibility certificate 3.1. 1. After the enactment & enforcement of Goods and Services Tax Act, 2017 on 01.07.2017, Respondent No. 2 issued the eligibility certificate dated 07.08.2018(“Eligibility Certificate”) [Pg. 109/Annex -K, Writ Petition] to the Petitioner which stated as follows: “Para 10 - As per the accepted value of Fixed assets as at (8) the Enterprise is entitled for reimbursement of 70% for Category “B” of Net VAT to an extent of Rs. 139.48 Crore being 100 % of the value of the fixed assets over a period of 5 years subject to maximum of fixed assets certified in Sl. No. (8) above.”

Operative guidelines under Karnataka Industrial Policy 2014- 19 dated 07.05.2015 3.2. 1. The Agri-Food Policy 2015 states as that “Whatever is not defined/ mentioned here in this Policy will have the same meaning as given in the Karnataka Industrial Policy 2014- 19 for all purposes and also for calculating the eligibility criteria” [Pg.48/Annex-C, Writ Petition]. 3.2. 2. The applicable Operative Guidelines on package of incentives and concessions under Karnataka Industrial Policy 2014-2019 as approved by letter dated 07.05.2015 (“2015 Guidelines”) stated as follows: “Clause 9 (q): VAT/ CST related incentives: v. On introduction of GST, no compensatory incentive will be provided in case of abolition of CST or any other tax or change in rate of tax, which currently accrue to the State HC-KAR NC: 2025:KHC:48511 Government. However, VAT related incentive will be converted to SGST related incentive with scope as originally approved.” [Pg. 15/Annex -R1, written submissions by Respondents] The scope as originally approved for the Petitioner was 100% of its capital expenditure, or Rs. 139.48 crores as per its Eligibility Certificate.

Petitioner has modified its position under the Agri-Food Policy and therefore the Respondent is estopped from resiling from the incentives promised to the Petitioner

To avail the benefits under the Agri-Food Policy the Petitioner has altered its position inter alia in the following manner: 4.1. 1. As per the Agri-Food Policy the Petitioner purchased new plant and machinery and was not allowed to use old/hired/leased plant & machinery; this was an additional cost incurred by the Petitioner. 4.1. 2. Petitioner has employed persons domiciled in Karnataka as opposed to labour from other states. In the subject matter manufacturing unit, the local population from Karnataka constitute around ~70% of the total number of people employed by the Petitioner. 4.1. 3. The Petitioner committed and undertook the investment in Karnataka owing to the incentives offered under Karnataka Agri business and Food processing policy, 2015 alongside other states, which were also granting the HC-KAR NC: 2025:KHC:48511 Petitioner similar or higher incentives against and for the investments made. 4.1. 4. Reliance is placed on State of Punjab v. Nestle, Pawan Alloys (2004 6 SCC 465), [Para No. 47, @Pg. 160 of LoA], State of Jharkhand and Others v. Brahmaputra Mettalics Limited, Ranchi and Another (2023) 10 SCC 634 [Para Nos. 4, 38-41, 48-51 @Pg. Nos. 265, 280-282, 286- 287]

State Government is compensated through the Goods and Services Tax (Compensation to States) Act, 2017

Value added tax was levied by the State government. VAT along with other indirect tax levies was subsumed into Goods and Services Tax which is jointly levied by State & Central Government.

Petitioner’s tax payment (on Biscuits) has not been reduced but the rate of tax is split between State Government and Central Government as 9% each (SGST & CGST on sale within Karnataka and IGST at 18% on sale to states outside Karnataka).

Under the Goods and Services Tax (Compensation to States) Act, 2017 [Pg. 209 of LoA] the Central Government is also compensating Respondent No.1for loss of revenue which would have accrued to State Government due to discontinuation of VAT. Under the said Act the Respondent No.1 will be compensated at an assured growth rate of 14 % p.a. on base revenue of FY 2015-2016 by the Central government for any loss in tax HC-KAR NC: 2025:KHC:48511 revenue post-implementation of GST up to a period of 5 years from date of implementation of GST. Therefore, there is no loss or prejudice to the Respondents or public intent at large if the benefit continued to be conferred on the Petitioner.

Reliance is placed on Motilal Padampat Sugar Mills Co. Ltd. v. State of UP (1979) 2 SCC 409[Para No. 24 @ Pg. 130 of LoA-I],Bannari Aman Sugar Ltd. v. Commercial Tax Officer and Others (2005) 1 SCC 625 [Para nos. 8 & 9 @Pg. 33 & 34 of LoA-I], KishorekumarPrabhudas Tanna and Anr. v. State of Gujarat & Others (2009) 2 GLH (NOC 4) 4 [Para nos. 144 & 158 @ Pg. 82-83 & 86 of LoA-I].

Rejoinder Arguments

Judgment in Hero Motocorp Ltd. v. Union of India, 2022 SCC OnLine 1436 is not applicable as the case at hand is not that of exemption from application of a fiscal statute. 6.1. 1. In the case of Hero Motocorp supra, a tax exemption was granted (not reimbursement). Upon the advent of GST, the said exemption from paying statutory tax was withdrawn under Section 174(2)(c) of CGST Act. 6.1. 2. In the case at hand,Petitioner is not exempted from paying statutory tax but are entitled to a reimbursement, from the State Government, of the tax it pays. The reimbursement of tax is a mode to provide the benefit of reimbursement of upto 100% of petitioner’s capital expenditure. This benefit of reimbursement of capital expenditure accrues to the Petitioner from a policy of HC-KAR NC: 2025:KHC:48511 Respondent No.1 and not from any previous tax statute/notification, specifically not under Section 174(2)(c) of CGST Act.

Corrigendum dated 16.01.2023 to the Eligibility Certificate has been issued in a colourable exercise of power 6.2. 1. Interim order dated 09.04.2021 was issued by this Hon’ble Court in this writ petition wherein this Hon’ble Court directed as follows: “it would be appropriate that pending further consideration it is clarified that payment of taxes, without claiming benefit of reimbursement as was available under the Agribusiness Policy would be subject to decision to be taken by the Government and to the outcome of this petition and it is also made clear that the issues raised in the present petition will be open for adjudication despite payment of tax by the petitioner as referred to above.” 6.2. 2. The interim order makes it clear that the Petitioner’s payment of tax is subject to outcome of the writ petition. This position is sought to be altered retrospectively in violation of the interim order by seeking to impermissibly, pendente lite, alter the terms of the Eligibility Certificate by the Corrigendum dated 16.01.2023 [Pg. 19/Annex-R3, Statement of Objections to Writ Petition]. 6.2. 3. Without prejudice, the Corrigendum seeks to withdraw the vested right by stating that the Petitioner is entitled to Net VAT/SGST which is impermissible in law. The fact that the Respondent No. 1 seeks to amend the Eligibility HC-KAR NC: 2025:KHC:48511 Certificate itself demonstrates that the Eligibility Certificate vested a right in favour of the Petitioner. 6.2. 4. Though the Corrigendum does not state that no compensatory incentives will be considered in case of GST rate is less VAT rate, however, without prejudice, it appears that the Corrigendum has been issued to give effect to order dated 13.03.2018 and circular dated 26.02.2019 impugned in the writ petition. Assuming the writ petition is allowed, the said Corrigendum will also lose its effect.

Operative guidelines as amended on 18.02.2017 (“2017 Guidelines”) is not applicable to the Petitioner. 6.3. 1. The Petitioner has availed benefit under the Food Agri-Policy 2015 at which time the operative guidelines dated 07.05.2015 (as extracted above were applicable). The 2017 Guidelines cannot be made retrospectively applicable to the Petitioner 6.3. 2. Without prejudice 2017 Guidelines does not state that the Petitioner will not be entitled to any compensatory benefits upon introduction of GST. The 2017 Guidelines merely states that the compensatory benefits cannot be guaranteed, and the eligibility of the reimbursement will be examined separately. Pursuant to which the Impugned Orders have been issued and have been challenged in this writ petition. The 2017 Guidelines are not applicable and in itself do not take away the vested right of the Petitioner. HC-KAR NC: 2025:KHC:48511

Per contra, learned Senior counsel along with learned AGA for respondents would reiterate the various contentions urged in the statement of objections and placed reliance upon the judgments of the Apex court in the cases of Hero Motocorp Limited vs. Union of India & others - 2023(1) SCC 386 and UOI vs. Unicorn Industries – 2019 (10) SCC 575 and submits that there is no merit in the petition and that the same is liable to be dismissed. The respondents would file written submissions dated 22.07.2024 which are as under:-

On 11.12.2015, Respondent No. 1-State of Karnataka issued the 2015 Policy to provide certain incentives and concessions industries in the agricultural/food processing sector. T Petitioner Industry, which is covered under Category 'B' under the said policy, was eligible to receive reimbursement of 70% Net VAT, for a period of 5 years, subject to a maximum limit d 100% of the value of fixed assets

An application was to be made by any industry seeking to avail the incentives available under the 2015 Policy, specifying their investment proposal, and upon being assessed to be eligible reimbursement of VAT could be claimed under the Policy Accordingly, the Petitioner applied on 27.01.2016 to avail the Incentives available under the 2015 Policy.

Respondent No. 1 vide G.O. No. CI 120 SPI 2016, dated 26.04.2016 accorded in-principle approval to the investment proposal submitted by the Petitioner, to establish a unit for manufacture of biscuits and bakery products with an investment of Rs. 194.7 Crores, generating employment for about 1,350 persons. HC-KAR NC: 2025:KHC:48511

The Petitioner commenced business operations in the newly established unit at Bidadi, Karnataka and intimated Respondent No. 2 regarding the same on 16.05.2016. 2. 5. The Goods and Services Tax Regime came into effect on 01.07.2017. The GST has subsumed a majority of the indirect taxes in India, including VAT.

On 07.08.2017, Respondent No. 2 issued a VAT reimbursement Eligibility Certificate to the Petitioner herein under the 2015 Policy. It was stated in the said certificate that as per the accepted value of the fixed assets of the Petitioner, the Petitioner was entitled to receive refund of 70% of the Net VAT, upto a maximum limit of Rs. 139.46 Crores, over a period of 5 years. The said refund was made subject to the following conditions: a) That the Petitioner shall not remove any of its fixed assets, taking note of which approval has been granted; b) That the Petitioner shall engage in CSR activities as per the requirements under the Companies Act (Amendment) Act, 2013; ) c) That the Petitioner shall create maximum possible direct employment and a minimum of 70% of the total number of employees shall be Kannadigas, d) That VAT refund shall not be claimed as a matter of right, and the same shall be disbursed on seniority basis depending upon the budget allotment of the State Government.

On 19.01.2018, the Petitioner addressed a letter to Respondent No. 2 stating therein as under: a) That the VAT reimbursement Eligibility Certificate issued by the Department would be valid only under the VAT Regime, viz. till 30.06.2017. Therefore, a suitable tax reimbursement scheme HC-KAR NC: 2025:KHC:48511 needs to be announced by the Government under the GST Regime. b) A request was made to the Department, to consider reimbursing from July, 2017, the same amount that was to be reimbursed under the VAT Regime. c) A request was also made, that the period of reimbursement be enhanced from 5 years to 7 years. Therefore, the said letter, was in essence, a request to issue a suitable Notification providing for a tax reimbursement scheme under the GST Regime.

On 13.03.2018, Respondent No. 1 issued the impugned Government Order to provide for a tax reimbursement scheme under the GST Regime. As per the said G.O., category 'B' enterprises, such as the Petitioner, would be eligible for 70% net SGST reimbursement for a period of 5 years, subject to a maximum of 100% value of total fixed assets [As against 70% of Net VAT, for a period of 5 years, subject to a maximum limit of 100% of the value of fixed assets, which was the incentive available under the VAT regime). The said G.O. forms the subject matter of challenge in the instant petition, inasmuch as it clarifies that no compensatory incentive would be given in case SGST rate is less than VAT rate.

Subsequently, a circular dated 26.02.2019 was issued by the Respondent-State, by which instructions have been laid down as to the manner in which tax reimbursement scheme under the GST Regime, is to be implemented. The said Circular reiterates the content of the Government Order dated 13.03.2018. The same has also been assailed in the instant petition. HC-KAR NC: 2025:KHC:48511

The G.O. dated 13.03.2018 and the Circular dated 26.02.2019, have been assailed by way of the instant W.P., inter-alia, on the following grounds:

That, the impugned G.O. dated 13.03.2018, by providing that no compensatory incentive will be considered in case SGST rate is less than VAT rate, has the effect of unilaterally reducing the incentive entitlement of the Petitioner. Since SGST rate (9%) is less than VAT rate (14.5%) in the present case, it would result in a lower claim for refund in favour of the Petitioner.

That, as per the eligibility certificate dated 07.08.2017, an amount of Rs. 139.46 Crores could be recovered by the Petitioner over a period of 5 years. The formula adopted for the purpose of calculating the refund to be given was 70% of the net VAT paid each year. However, if net SGST is considered (instead of net VAT) and 70% thereof is fixed as the rate at which refund could be claimed, then, as against the amount of Rs. 139.46 Crores which could have otherwise been recovered in 5 years, only Rs. 90.32 Crores may be recovered by the Petitioner.

That, by issuing the impugned circular, the Respondents have significantly altered the incentives and concessions that were granted to the Petitioner under the 2015 Policy. The Respondents were estopped from resiling from their promises under the 2015 Policy, by significantly altering the concessions/incentives granted. quantum of concessions/ incentives granted. I. Preliminary Submissions. HC-KAR NC: 2025:KHC:48511

By way of the instant petition, the Petitioners are in effect seeking a writ of mandamus against the Respondent State to reimburse 70% of the projected VAT liability of the Petitioner, for a period of 5 years, even following migration from the VAT regime to the GST regime with effect from 01.07.2017. 4. 1. It is submitted at the outset that, it is trite that a mandamus may not be issued to compel an authority to do something, unless it is demonstrated that there is a statute/other instrument having the force of law, which imposes a legal duty on such authority to perform such an act, vide Bihar Eastern Gangetic Fishermen Co- operative Society us. Sipahi Singh, (1977) 4 SCC 145 Union of India us. Bharat Forge Ltd., (2022) 17 SCC 188,

Therefore, unless the Petitioner demonstrates that even following migration from the VAT regime to the GST regime with effect from 01.07.2017, they are statutorily entitled to be reimbursed 70% of the projected VAT liability, for a period of 5 years, a mandamus to this effect may not be issued. It is further submitted that in considering whether a mandamus of such nature may be issued, the Petitioner's claim may be considered as against their statutory entitlement alone, rather than by applying the principle of promissory estoppel, as urged by the Petitioner.

It is submitted that the change in reimbursement basis (which is now expressed as a percentage of net SGST rather than as a percentage of net VAT) is in HC-KAR NC: 2025:KHC:48511 accordance with the transition to the new tax system. The said change is also in line with Section 173 of the Karnataka Goods and Services Tax Act, 2017 ("KGST Act"), which provides for repeal, inter-alia, of the Karnataka Value Added Tax Act, 2003 ("KVAT Act").

It is therefore submitted in fine, on behalf of the Respondent-State, that there is no statutory foundation whatsoever in favour of the Petitioner's claim to the effect that even following migration from the VAT regime to the GST regime with effect from 01.07.2017, they are entitled to be reimbursed 70% of the projected VAT liability, for a period of 5 years. Therefore, . mandamus may not be issued directing reimbursement as claimed by the Petitioner herein.

In fact, admittedly the Petitioner addressed a letter dates 19.01.2018 to Respondent No. 2 requesting that a suitable tax reimbursement scheme be announced by the Government under communication evidences the GST regime. Such a acknowledgement by the Petitioner that following the transition into the GST regime, the entitlement of the Petitioner and like enterprises ought to be prescribed afresh. II. Re: Altering the quantum of incentives;

The mainstay of the Petitioner's case is that SGST rate (9%) is less than VAT rate (14.5%), and since the impugned Government Order which provides that no compensatory incentive will be considered in case SGST rate is less than VAT rate, it would have the effect of HC-KAR NC: 2025:KHC:48511 unilaterally reducing the incentive entitlement of the Petitioner. It is the Petitioner's case that the reduced SGST rate of 9% would correspondingly result in a 5.5% reduction (14.5% -9%) in the incentive received. However, it is humbly submitted on behalf of the Respondent-State that such a submission is based on a rather simplistic and erroneous understanding of certain aspects that lie at the very core of the transition into the GST regime.

First, it is pertinent to highlight that what was held out to be reimbursed under the pre-GST regime was 70% of the 'net VAT paid, subject to a maximum of 100% of the value of fixed assets. VAT was a multi-stage tax, levied at each step of production of goods and services which involved sale/purchase. Input VAT was paid by a business on its purchases while output VAT was charged by a business on the sale of goods and services. Therefore, stated in the most simple terms, net VAT represents the difference between output VAT and input VAT.

When viewed in light of the aforesaid elementary understanding. it would emerge that what was held out to the Petitioner under the pre-GST regime was not reimbursement of 14.5% VAT which was levied at the very end, but of the net VAT. In calculating the net VAT, it is not only the VAT rate of 14.5% levied on the final product which is offered for sale that is relevant, but also the input VAT (VAT paid on inputs such as butter, sugar, milk etc.).. as, it is the difference between the two ('net VAT) that would determine the quantum of reimbursement. Similarly, under the GST regime, it is 70% of the 'net SGST' that is to HC-KAR NC: 2025:KHC:48511 be reimbursed. In that context, it is submitted that the assumption of the Petitioner that the reduced SGST rate of 9% would correspondingly result in a 5.5% reduction in the incentive, is artificial, inasmuch as such an understanding ignores the following elementary aspects:

It is therefore submitted that this Hon'ble Court may not accept the submission of the Petitioner and proceed on the basis that the reduced SGST rate of 9% would correspondingly result in a 5.5% reduction (14.5%- 9%) in the incentive received. Such an assumption ignores the aforesaid elementary aspects and does not factor in variables such as reduction in the rate of tax paid on inputs, effect on overall tax burden, upon migrating to the GST regime etc. III. Re: Entitlement of the Petitioner to receive incentive amounting to Rs. 139.46 Crores, as per the eligibility certificate dated 07.08.2017:

The Petitioner has asserted that as per the eligibility certificate dated 07.08.2017, an amount of Rs.

46 Crores could be recovered by the Petitioner over a HC-KAR NC: 2025:KHC:48511 period of 5 years. However, if net SGST is considered (instead of net VAT) and 70% thereof is fixed as the rate at which refund could be claimed, then, as against the amount of Rs. 139.46 Crores which could have otherwise been recovered in 5 years, only Rs. 90.32 Crores may be recovered by the Petitioner.

It is clarified at this juncture that Rs. 139.46 Crores does not represent the absolute entitlement of the Petitioner, but only the maximum amount or ceiling limit of incentive/reimbursement that can be availed. Further, the said amount is not to be viewed in isolation, but in light of the formula that is to be applied in determining the precise amount of reimbursement due- 70% of the net VAT/SGST, as the case may be. The value of fixed assets (Rs. 139.46 crores in the instant case) is only one of the two factors that together determine the quantum of incentive that may be validly claimed; the other factor being the net tax liability in a particular year.

The argument of the Petitioner that they are entitled to incentive amounting to Rs. 139.46 Crores regardless of the amount of tax liability incurred by them, cannot be countenanced. In other words, it cannot be accepted that the reimbursement be calculated by considering the projected VAT liability, rather than the actual SGST liability. If such a submission is accepted, it would give rise to an absurd consequence wherein the reimbursement claimed/awarded is far greater the tax HC-KAR NC: 2025:KHC:48511 liability of the assessee. Such a consequence definitely could not be reasonably contemplated under law. IV. Re: Promissory estoppel:

The gravamen of challenge in the instant petition is that the Respondent-State, by issuing the impugned circular, has significantly altered the incentives and concessions that were granted to the Petitioner under the 2015 Policy, although they were estopped from doing so.

It is submitted in response to the aforesaid contention that the doctrine of promissory estoppel cannot be invoked against a statute/government policy which has Hon'ble Supreme Court in Hero MotoCorp Ltd. vs. Union of India, (2023) 1 SCC 386. The facts relevant to the controversy therein were that prior to the advent of the goods and services tax (GST), the government provided certain area-based exemptions, such as a 100% excise tax exemption for industrial units for ten years from the date on which such industrial units commenced commercial production. That exemption was partially withdrawn post- GST. The assessee therein had, under the pre-GST regime, established a new industrial unit that qualified for HC-KAR NC: 2025:KHC:48511 the exemption, but was subsequently notified that the exemption was no longer available because of a change in law. Such withdrawal of incentives formed the subject matter of dispute before the Hon'ble Apex Court, which declared that the doctrine of promissory estoppel cannot be invoked against legislative action withdrawing certain area- based excise tax exemptions. The pertinent observations of the Hon'ble Supreme Court are extracted hereinunder:

However, a common thread in all these judgments that could be noticed is that all these judgments consistently hold that there can be no estoppel against the legislature in the exercise of its legislative functions. The Constitution Bench in the case of M. Ramanatha Pillai (supra) has approved the view in American Jurisprudence that the doctrine of estoppel will not be applied against the State in its governmental, public or sovereign capacity. It further held that the only exception with regard to applicability of the doctrine of estoppel is where it is necessary to prevent fraud or manifest injustice. The analysis of all the judgments of this Court on the issue would reveal that it is a consistent view of this Court, reiterated again in Godfrey Philips India Ltd. (supra), that there can be no promissory estoppel against the legislature in the exercise of its legislative functions.

Undisputedly, the Notification dated 18th July 2017 withdrawing the exemption notifications was issued in pursuance of the statutory mandate as provided under Section 174(2)(c) of the CGST Act. If the contention as raised by the appellants is to be accepted, it would make HC-KAR NC: 2025:KHC:48511 the provisions under the proviso to Section 174(2)(c) of the CGST Act redundant and otiose. The legislature in its wi om has specifically incorporated the proviso to Section 174(2)(c) providing therein that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded. If the contention is accepted, it will amount to enforcing a representation made in the said O.M. of 2003 and 2003 Notification contrary to the legislative incorporation in the proviso to Section 174(2)(c) of the CGST Act. In other words, it will permit an estoppel to be operated against the legislative functions of the Parliament. We are, therefore, of the considered view that the claim of the appellants on estoppel is without merit and deserves to be rejected.

It is further to be noted that this Court has also consistently held that when an exemption granted earlier is withdrawn by a subsequent notification based on a change in policy, even in such cases, the doctrine of promissory estoppel could not be invoked. It has been consistently held that where the change of policy is in the larger public interest, the State cannot be prevented from withdrawing an incentive which it had granted through an earlier notification. 71. [...]

We are, therefore, of the considered view that even on the ground of change of policy, which is in public interest or in view of the change in the statutory regime itself on account of the GST Act being introduced as in the instant case, it will not be correct to hold the Union bound by the representation made by it, i.e. by the said HC-KAR NC: 2025:KHC:48511 O.M. of 2003. Further, this would be contrary to the statutory provisions as enacted under Section 174(2) (c) of the CGST Act." It is therefore submitted that the claim of the Petitioner, that even following migration from the VAT regime to the GST regime with effect from 01.07.2017, they are entitled to be reimbursed 70% of the projected VAT liability, for a period of 5 years, has neither any statutory basis nor any legal foundation and is hence, liable to be rejected.

I have given my anxious consideration to the rival submissions and perused the material on record.

It is an undisputed fact that the petitioner had applied for incentives under the AGRI – Food policy. It is also an undisputed fact that after the enactment & enforcement of Goods and Services Tax Act, 2017 on 01.07.2017, Respondent No. 2 issued the eligibility certificate dated 07.08.2018 to the Petitioner which stated as follows: “Para 10 - As per the accepted value of Fixed assets as at (8) the Enterprise is entitled for reimbursement of 70% for Category “B” of Net VAT to an extent of Rs. 139.48 Crore being 100 % of the value of the fixed assets over a period of 5 years subject to maximum of fixed assets certified in Sl. No. (8) above.” HC-KAR NC: 2025:KHC:48511

The Petitioner contends that if VAT regime continued, the Petitioner would have its recovered its entire entitlement of Rs. 139.48 crores under the AGRI – Food policy and Eligibility Certificate in the usual course. However, Petitioner is aggrieved by the portion of the Impugned Government Order which though notes that the reimbursement contemplated under the AGRI – Food policy has to be continued even after the GST regime came into force from 01.07.2017 but provides that no compensatory incentive will be considered in case SGST rate is less than the VAT rate and the Impugned Circular which repeats the same. In view of the above, the questions that arise for consideration in the present petition is as to whether the Impugned Government and Impugned Circular to the extent they state that no compensatory incentive will be considered in case SGST rate is less than the VAT rate infringe the Petitioner’s rights under the AGRI – Food policy and Eligibility Certificate and whether the Respondent is precluded by the principle of promissory estoppel from issuing the Impugned Government Order/Impugned Circular. HC-KAR NC: 2025:KHC:48511

Before adverting to the rival contentions, it would be necessary to extract the relevant portion of the Agri– Food policy, reads as follows:

Reimbursement of VAT to MSME & Category A, B & C Enterprises MSME: 75% of net VAT will be reimbursed for a period of 5 years subject to a maximum of 100% of the Value of Fixed Assets irrespective of promoter & zonal classification to be claimed on yearly basis. For Category ‘A’, ‘B’ & ‘C’ enterprises net VAT reimbursement will be to an extent of 60%, 70% & 80% respectively for a period of 5 years subject to a maximum of 100% of the Value of Fixed Assets irrespective of promoter & zonal classification to be claimed on yearly basis.”

The Respondents have contended that Value of Fixed Assets is only one of the two factors that together determine the quantum of incentive that may be validly claimed; the other factor being the net tax liability in a particular year. The Respondents also contend that the Petitioner does not have entitlement to 100% of its fixed asset and therefore, the Impugned Government Order/Impugned Circular do not take away any vested right. The Respondent contends that the policy does not make a promise of 100% refund and it only prescribes an upper limit or a ceiling limit. The Respondent also contends that the percentage of annual HC-KAR NC: 2025:KHC:48511 refund is fixed i.e. 60%, 70% & 80%, but no promise is made that 100% of Value of Fixed Assets will be refunded. Thus, the Respondent submits that since no promise was made for 100% refund, the question of a vested right of receipt of 100% of the Value of Fixed Assets does not arise. The Respondent further contends that the reimbursement claimed cannot be in excess of tax liability of the Petitioner, for that would be an absurd consequence.

Per contra, the Petitioner submits that reimbursement of 70% of Net VAT was the method of achieving the incentive of maximum of 100% of the Value of Fixed Assets and the Petitioner had complied with the policy and had sufficient sales to achieve the maximum amount through tax reimbursement. The Petitioner also contends that it made investments in Karnataka and achieved sales to entitle it to 100% reimbursement and therefore, Petitioner cannot be denuded of this right because of a change in tax regime. The Petitioner’s case is this vested right ought not to be taken away retrospectively when Petitioner has altered its position relying on the policy. HC-KAR NC: 2025:KHC:48511

A perusal of the material on record will indicate that the Petitioner was provided an incentive of being able to get a reimbursement of 100% of its Value of Fixed Assets in Karnataka by the means of 70% of Net VAT reimbursement. The fact remains that the policy recognized entitlement to 100% of Value of Fixed Asset. The policy fixed 70% of Net VAT as a means or method of recovery up to 100%. The question then is should the Petitioner be denied the entitlement of 100% Value of Fixed Asset merely because of change in the nature of taxation.

The Petitioner has produced a certificate from a chartered accountant to contend that had the VAT regime continued, the Petitioner would have recovered 100% of the Value of Fixed Assets. In other words, it is not seriously in dispute that, had the VAT regime continued, the Petitioner would have been entitled to 100% of the Value of Fixed Assets as per the eligibility certificate. Therefore, merely because the taxation methodology has changed should not be a reason to deny the Petitioner of an entitlement that was promised to it in the policy. The underlying rationale appears to be that, if the Petitioner invests in the State of Karnataka and achieves a certain quantum of business after such HC-KAR NC: 2025:KHC:48511 investment, the Petitioner will be entitled to tax refund to the extent of 100% of Value of Fixed Assets as per its eligibility certificate. Therefore, the Petitioner was not only required to invest and set up a business but also achieve sufficient sales so as to get the refund. That the Petitioner has achieved such quantum of sales is not seriously disputed and therefore, the Petitioner has complied with both conditions expected of it i.e., investment and sales. In such a scenario, it would be impermissible for the Respondent to deny such entitlement only on the basis that taxation methodology has changed.

A very similar issue was also dealt with by the High Court of Bombay, Nagpur Bench, in K.M.Refineries case supra, where inter alia an incentive under an Incentive Scheme was reduced because of advent of GST and it was held as under:-

In the case at hand the AGRI – Food policy was made consistent with GST by the Impugned Government Order/ Impugned Circular but by virtue of the words “No compensatory incentives will be considered in case SGST rate is less than VAT rate” benefits under the AGRI – Food policy which were otherwise available to the Petitioner under the AGRI – Food policy have been restricted. The same amounts to taking away of vested right retrospectively and therefore cannot be sustained. In this case, making of investments under the policy and receipt of eligibility certificate brought about a vested right in favour of the Petitioner to receive 100% of Value of Fixed Assets subject to achieving the necessary quantum of sales.

The Respondents have contended that a mandamus cannot be issued unless there is a statute of other instrument having the force of law which imposes a legal duty to perform such an act. In this context, it is relevant to state that the Agri–Food policy is issued under Article 162 of the Constitution of India and HC-KAR NC: 2025:KHC:48511 thus constitutes law within the meaning of Article 13. The binding nature of the policy has neither been disputed by the Respondents nor can the Respondents dispute it because the Respondents have continued the entitlement to refund under SGST. Thus, there cannot be any serious debate that the said policy decision under the Constitution is law and that a mandamus can issue for failure to adhere to such a policy decision. Once this Court has come to the conclusion that the policy entitled the Petitioner to a 100% reimbursement for the Value of Fixed Assets, a plea that a mandamus cannot be issued cannot be countenanced. In Bihar Eastern Gangetic Fishermen Co-operative Society’s case and Bharat Forge Ltd’s case supra, the Apex Court held as follows:

Nothing has been produced by the respondents to demonstrate that the AGRI – Food policy was a policy under KVAT Act. There is nothing in the Policy to suggest that it was issued under the KVAT Act. As held above, the AGRI – Food policy is issued under Article 162 of the Constitution to provide for fiscal benefits in the State of Karnataka. Therefore, Section 173 of the Karnataka Goods and Services Tax Act, 2017, which provides for repeal, interalia, of the Karnataka Value Added Tax Act, 2003 has no applicability. In fact, under the policy in question, there is no tax exemption - it is a case of a tax reimbursement upto a certain entitlement. Since the Petitioner is not exempt from paying tax under the AGRI – Food policy enforcement of the policy does not violate any tax legislation. The Respondents have to make good the promise contained in the AGRI- Food Policy. The right of reimbursement arises under the AGRI- Food Policy independently.

In Hero MotoCorp’s case supra, relied upon by the respondents was a case of tax exemption and therefore, does not HC-KAR NC: 2025:KHC:48511 apply to the case on hand. As noticed above, it is the Petitioner’s case that even upon considering Net VAT and Net GST, the Petitioner would have achieved the maximum entitlement of Rs.

48 Crore under the Eligibility Certificate, if it was not for the Impugned Government Order/Circular. The Petitioner has filed CA certificate with details of its sales for the relevant period and the certificate demonstrates that the Petitioner would have been entitled to 100% of the Value of Fixed Assets under the VAT regime and therefore, if not for the change in taxation methodology, the Petitioner would be entitled to 100% of the Value of Fixed Assets. Thus, the Impugned Government Order/Circular takes away right vested in favour of the Petitioner and cannot be sustained.

The law on promissory estoppel is well settled. In addition to the benefit/promise of the benefit in favour of the Petitioner as explained above, the promise in favour of the Petitioner is also contained in the Eligibility Certificate, which was issued after the advent of GST. In Motilal Padampat Sugar Mills case supra, the Apex Court held as under: 24. ….The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it HC-KAR NC: 2025:KHC:48511 would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. It is elementary that in a republic governed by the rule of law, no one, howsoever high or low, is above the law. Everyone is subject to the law as fully and completely as any other and the Government is no exception. It is indeed the pride of constitutional democracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of the law is concerned : the former is equally bound as the latter. It is indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the doctrine of promissory estoppel. Can the Government say that it is under no obligation to act in a manner that is fair and just or that it is not bound by considerations of “honesty and good faith”? Why should the Government not be held to a high “standard of rectangular rectitude while dealing with its citizens”? There was a time when the doctrine of executive necessity was regarded as sufficient justification for the Government to repudiate even its contractual obligations; but, let it be said to the eternal glory of this Court, this doctrine was emphatically negatived in the Indo- Afghan Agencies case and the supremacy of the rule of law was established. It was laid down by this Court that the HC-KAR NC: 2025:KHC:48511 Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. If the Government does not want its freedom of executive action to be hampered or restricted, the Government need not make a promise knowing or intending that it would be acted on by the promisee and the promisee would alter his position relying upon it. But if the Government makes such a promise and the promisee acts in reliance upon it and alters his position, there is no reason why the Government should not be compelled to make good such promise like any other private individual. The law cannot acquire legitimacy and gain social acceptance unless it accords with the moral values of the society and the constant endeavour of the Courts and the legislature, must, therefore, be to close the gap between law and morality and bring about as near an approximation between the two as possible. The doctrine of promissory estoppel is a significant judicial contribution in that direction. But it is necessary to point out that since the docrine of promissory estoppel is an equitable doctrine, it must yield when the equity so requires. If it can be shown by the Government that having regard to the facts as they have transpired, it would be inequitable to hold the Government to the promise made by it, the Court would not raise an equity in favour of the promisee and enforce the promise against the Government. The doctrine of promissory estoppel would be displaced in such a case because, on the facts, equity would not require that the Government should be held bound HC-KAR NC: 2025:KHC:48511 by the promise made by it. When the Government is able to show that in view of the facts as have transpired since the making of the promise, public interest would be prejudiced if the Government were required to carry out the promise, the Court would have to balance the public interest in the Government carrying out a promise made to a citizen which has induced the citizen to act upon it and alter his position and the public interest likely to suffer if the promise were required to be carried out by the Government and determine which way the equity lies. It would not be enough for the Government just to say that public interest requires that the Government should not be compelled to carry out the promise or that the public interest would suffer if the Government were required to honour it. ...”

For enforcement of promissory estoppel, the Petitioner relying on the AGRI – Food Policy, has modified its position by (i) purchasing new plant and machinery; and (ii) employed persons domiciled in Karnataka. Overall, the Petitioner undertook the investment in the State of Karnataka in view of the AGRI-Food Policy. Therefore, the Impugned Government Order to the extent it is challenged ought to be set aside as being contrary to the promise under AGRI- Food Policy.

There is no pleading by the Respondents to demonstrate what public interest is being sub served by the Impugned HC-KAR NC: 2025:KHC:48511 Government Order/Impugned Circular restricting the entitlement under the promise in the AGRI-Food Policy. In fact, the State is entitled to a portion of IGST as well as to receive compensation from the Union of India during the transition period (5 years) under the Goods and Services Tax (compensation to State) Act, 2017 demonstrates there is no loss to the public, if the promise in the AGRI-Food Policy is enforced and the Impugned Government Order/Circular is set aside to that extent.

During the pendency of the writ petition, the respondents have issued a corrigendum dated 16.01.2023 after an interim order dated 09.04.2021 passed by this Court seeking to restrict the entitlement under the Eligibility Certificate dated 07.08.2018 to net VAT reimbursement. This corrigendum is in furtherance of the Impugned Government order and the Impugned Government Circular, both of which restrict the entitlement to net VAT reimbursement. This corrigendum does not advance the case of the Respondents because this corrigendum is a consequential document under the Impugned Government Order which has already been held to be in violation of principles of promissory estoppel. HC-KAR NC: 2025:KHC:48511

The Impugned Government Order/Circular also is contrary to the Operative guidelines under the Karnataka Industrial Policy 2014-19 dated 07.05.2015, which states that: “Clause 9 (q): VAT/ CST related incentives: v. On introduction of GST, no compensatory incentive will be provided in case of abolition of CST or any other tax or change in rate of tax, which currently accrue to the State Government. However, VAT related incentive will be converted to SGST related incentive with scope as originally approved.”

The scope as originally approved for the Petitioner is reimbursement of 70% for Category “B” of Net VAT to an extent of Rs.139.48/- Crore being 100 % of the value of the fixed assets over a period of 5 years and thus, these Operative Guidelines do not advance the case of the Respondents.

The Respondents have sought to press into service the Operative guidelines as amended on 18.02.2017 to submit that there was no promise to compensate the Petitioner. However, the said guidelines cannot be applied retrospectively to investments made prior to such Operative Guidelines. HC-KAR NC: 2025:KHC:48511

In view of the aforesaid facts and circumstances, I am of the considered opinion that the claim of the petitioner deserves to be upheld and the petition deserves to be allowed accordingly.

In the result, I pass the following:- ORDER (i) Petition is hereby allowed; (ii) The Government Order No. CI 162 SPI 2017, Bengaluru dated 13.03.2018 (Annexure "A"), issued by Respondent No.1 to the extent “No compensatory incentive will be considered in case SGST rate is less than VAT rate” is hereby quashed; (iii) Similarly, the Circular dated 26.02.2019 bearing No.KSA.GST.CR-108/2018-19 (Annexure "B") to the extent that it reiterates the impugned portion of the Government Order No. CI 162 SPI 2017, Bengaluru dated 13.03.2018 issued by Respondent No.1 to the extent “No compensatory incentive will be considered in case SGST rate is less than VAT rate” is hereby quashed; (iv) The Respondents are directed to comply with the Agri Business and Food Processing Policy, 2015 as well as the eligibility certificate dated 07.08.2017 and ensure that the 100% of the Value of Fixed Assets as per the Eligibility Certificate that the Petitioner HC-KAR NC: 2025:KHC:48511 would have been entitled to under the VAT regime as explained above is provided to the Petitioner under the GST regime and proceed further within a period of two months from the date of receipt of a copy of this order. (S.R.KRISHNA KUMAR) JUDGE