Orissa High Court Strikes Down Retrospective Exclusion of Cement Units from SGST Incentive Under IPR 2015

JSW Cement challenged an Odisha Government Resolution dated 18 August 2020 that retrospectively excluded cement manufacturing and grinding units from net SGST reimbursement under IPR 2015 with effect from 1 July 2017. The Division Bench found that the petitioners had acted on the existing policy, made substantial investment and applied for provisional Priority Sector status before the retrospective exclusion. It held that the pending application attracted deemed approval under the statutory and policy framework and that the retrospective exclusion was arbitrary and unconstitutional, offending promissory estoppel and legitimate expectation. The Court set aside the retrospective exclusion and directed determination and release of the SGST reimbursement with applicable interest (Paras 38–83).

Key Proposition: A State may modify an industrial incentive policy prospectively, but a retrospective exclusion cannot be sustained where an industrial unit had acted on the existing policy and its entitlement had accrued; in such circumstances, retrospective withdrawal may violate constitutional guarantees and the doctrines of promissory estoppel and legitimate expectation.

• Industrial Policy Resolution, 2015 – Clause 5.4.5(a) – SGST reimbursement – retrospective exclusion of cement units – Held, retrospective exclusion was arbitrary and unconstitutional in the circumstances (Paras 39–52, 80–82).
• Orissa Industries (Facilitation) Act, 2004 – Section 11 – deemed approval – pending application for Priority Sector status – Held, statutory consequence applied on the facts (Paras 55–76).
• Constitution of India – Articles 14, 19(1)(g) and 300A – industrial incentive – Held, retrospective arbitrary exclusion could not stand (Para 78).

Background / Synopsis :

• Odisha introduced IPR 2015 on 24 August 2015 to promote industrial development through incentives and facilitation.
• JSW’s project received in-principle approval on 2 December 2015; land was allotted on 22 January 2016.
• The first fixed-capital investment was recorded on 31 July 2017. The petitioners stated that total capital investment was approximately ₹350 crore and fixed-capital investment ₹167.78 crore.
• On 16 August 2017, the petitioners applied for provisional Priority Sector status; the RIC acknowledged and inspected the unit and forwarded the application with verification material.
• On 18 August 2020, the State amended IPR 2015 to exclude cement manufacturing and grinding units from SGST reimbursement retrospectively from 1 July 2017.
• The petitioners challenged the retrospective exclusion and the authorities’ treatment of their pending Priority Sector application.

Issues For Consideration :

• Whether the 18 August 2020 amendment could retrospectively exclude cement units from SGST reimbursement from 1 July 2017.
• Whether the petitioners’ 16 August 2017 application for provisional Priority Sector status attracted deemed approval because the authorities failed to decide it within the prescribed period.
• Whether the unit fell within the Negative List and was therefore excluded from the incentive.
• Whether consequential SGST reimbursement was payable subject to verification and the policy conditions.

Submissions Of Parties :

Petitioner / Appellant:

• The petitioners argued that the State could change the incentive scheme prospectively but could not retrospectively withdraw the benefit after they had altered their position and invested substantially under the existing policy.
• They relied on Ultratech Cement and other authorities concerning retrospective withdrawal, promissory estoppel and legitimate expectation.
• They invoked Articles 14, 19(1)(g) and 300A and argued that the pending application attracted deemed approval under Section 11 of the Facilitation Act.
• They also disputed classification of the unit under the Negative List, pointing to investment above the threshold and the nature of its manufacturing process.

Respondent / State:

• The State argued that industrial incentives were policy choices that could be modified in response to changed economic circumstances, including the fiscal impact of GST.
• It disputed that a pending application or provisional recommendation created an accrued entitlement before formal approval.
• It also argued that the unit fell within the Negative List and that no vested right to reimbursement existed.

Court's Observations & Analysis :

Re: Retrospective withdrawal of SGST incentive

• The Court accepted that the State had power to frame and modify industrial policy, including fiscal incentives.
• The critical distinction was between prospective policy change and retrospective withdrawal affecting projects that had already acted on the existing policy.
• The chronology showed approval, land allotment, investment and the Priority Sector application before the retrospective exclusion.
• Ultratech Cement was treated as directly relevant because it concerned the same 18 August 2020 Resolution and retrospective exclusion of cement units from tax reimbursement; that reasoning had also been affirmed by the Supreme Court.
• Held: The retrospective exclusion under the 18 August 2020 Resolution was arbitrary and unconstitutional in the circumstances and could not be applied to the petitioners’ accrued claim.

Re: Deemed approval under the Facilitation Act and Operational Guidelines

• The petitioners’ application was inspected and forwarded by the RIC.
• The Court examined the statutory consequence of failure to decide the application within the prescribed period.
• The absence of a later formal certificate could not by itself defeat the statutory/policy consequence where the prescribed process and timelines had been engaged.
• Held: The petitioners were to be treated as having obtained deemed approval of the provisional Priority Sector application.

Re: Negative List and consequential reimbursement

• The relevant Negative List entry concerned specified size-reducing, size-separating, grinding and mixing units below the prescribed investment threshold and contained an exception relating to manufacture of cement with clinker.
• The petitioners demonstrated investment above the threshold and relied on clinker, fly ash and blast furnace slag as principal raw materials.
• The RIC verification recorded that the unit did not fall within the Negative List.
• The Court therefore found no sufficient basis to deny consideration merely by describing the unit as cement manufacturing or grinding.
• Held: The unit could not be denied consideration on the Negative List objection; reimbursement remained subject to verification of the amount and other applicable conditions.

Decision & Directions :

• The writ petition was allowed.
• The petitioners were treated as having obtained deemed approval of the 16 August 2017 application in accordance with the applicable policy.
• The retrospective portion of the 18 August 2020 Resolution excluding cement manufacturing and grinding units from SGST reimbursement from 1 July 2017 was set aside.
• The authorities were directed to determine and release the petitioner’s SGST reimbursement under IPR 2015, along with applicable interest, within four weeks.

Legal Provisions Discussed & Precedents Cited :

• Constitution of India – Articles 14, 19(1)(g) and 300A – constitutional challenge to retrospective withdrawal of an industrial incentive.
• Industrial Policy Resolution, 2015 – Clause 5.4.5(a) – net SGST reimbursement for eligible Priority Sector units.
• Orissa Industries (Facilitation) Act, 2004 – Section 11 – deemed approval where the statutory process is not completed within the prescribed period.
• IPR 2015 Operational Guidelines – procedure and timelines for provisional Priority Sector status.
• Doctrines – promissory estoppel and legitimate expectation – protection against arbitrary retrospective withdrawal after reliance and altered position.
• Ultratech Cement Limited and Another v. State of Odisha and Ohers, 2022 SCC OnLine Ori 13 – relied on/applied to retrospective exclusion of cement units from tax reimbursement.
• M/s Maa Bhairabi Industries LLP v. State of Odisha – relied on concerning retrospective withdrawal of industrial incentives.
• MRF Ltd. v. Assistant Commissioner (Assessment), Sales Tax, (2006) 8 SCC 702 – relied on regarding promissory estoppel and legitimate expectation.
• State of Uttar Pradesh v. Birla Corporation Limited, [2019] SCC OnLine SC 1569 – relied on regarding governmental burden to justify departure from a promise and retrospective withdrawal.
• Manuelsons Hotels Pvt. Ltd. v. State of Kerala, (2016) 6 SCC 766 – referred to on promissory estoppel.
• State of Punjab v. Nestle India Ltd., (2004) 6 SCC 465 – referred to on promissory estoppel.
• Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409 – referred to on promissory estoppel.