Court Denies Budgetary Support Claims by Zydus Wellness and Alkem Laboratories Due to Ownership Changes

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Case Name:

Zydus Wellness Products Ltd. vs. Union of India & Ors. (High Court of Sikkim)

W.P.(C) No. 20 of 2022

Date: 12th September 2023

Key Takeaways

• The court emphasized that eligibility for budgetary support is tied to the unit’s operational status, not merely ownership.
• Changes in ownership or structure (like converting from a partnership to a company) can disqualify a unit from benefits under the Budgetary Support Scheme.
• The ruling clarifies the interpretation of “eligible units” under the Budgetary Support Scheme, reinforcing that it applies to the original entities that qualified under previous schemes.

Issue

Are Zydus Wellness Products Ltd. and Alkem Laboratories Ltd. entitled to budgetary support under the Budgetary Support Scheme despite changes in ownership and structure?

Facts

1. Zydus Wellness Products Ltd. was formed from the conversion of a partnership firm, Zydus Wellness-Sikkim, into a private limited company in February 2019.
2. Alkem Laboratories Ltd. acquired a unit from Cachet Pharmaceuticals Private Limited in October 2019.
3. Both companies sought budgetary support under a scheme intended for units that were operational and eligible before the introduction of GST on July 1, 2017.

Arguments

• Zydus Wellness Products Ltd. argued that the change in ownership should not affect their eligibility since the unit was operational and eligible before the transition to GST.
• Alkem Laboratories Ltd. contended that the Budgetary Support Scheme is unit-based, not ownership-based, and thus they should qualify for support despite the change in ownership.
• The respondents (Union of India and others) argued that the changes in ownership and structure meant that the petitioners were new legal entities and thus ineligible for the benefits under the scheme.

Key Legal Precedents

• The court referenced Dana India Pvt. Ltd. vs. Union of India, where it was held that eligibility for benefits should be based on the unit’s operational status rather than ownership.
• The court also cited the Budgetary Support Scheme guidelines, which define “eligible units” and emphasize that the benefits are tied to the original entities that qualified under previous schemes.

Judgement

The High Court of Sikkim dismissed both writ petitions, ruling that neither Zydus Wellness Products Ltd. nor Alkem Laboratories Ltd. qualified as “eligible units” under the Budgetary Support Scheme due to their changes in ownership and structure. The court reasoned that the scheme was designed to support existing units that had made investments and were operational before the GST regime, and the petitioners did not meet these criteria.

FAQs

Q1: What does this ruling mean for Zydus Wellness and Alkem Laboratories?

A: Both companies are not entitled to the budgetary support they sought, as the court determined they do not qualify under the scheme due to their changes in ownership.

Q2: Can companies still apply for budgetary support if they change ownership?

A: Generally, changes in ownership or structure can disqualify a company from receiving budgetary support, as seen in this case.

Q3: What is the significance of the term “eligible unit”?

A: An “eligible unit” refers to a manufacturing unit that was operational and qualified for benefits under previous schemes before the introduction of GST. The court clarified that this status is tied to the original entity, not the new owners.

Q4: What are the implications of this judgment for future cases?

A: This judgment sets a precedent that emphasizes the importance of maintaining the original operational status of a unit for eligibility under government support schemes, regardless of ownership changes.