Sun Pharma’s bid to amend GST tax exemption petition rejected by Sikkim High Court

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Case Name

M/s. Sun Pharma Laboratories Limited vs. Union of India and Others

Court Name: High Court of Sikkim, Gangtok (Civil Extraordinary Jurisdiction)

Case No.: I.A. No. 03 of 2020 in WP© No. 47 of 2018

Decided on: 2nd November, 2020

Key Takeaways

1. Amendments cannot change the nature of a petition: The court made it clear that under Order VI Rule 17 of the Code of Civil Procedure, 1908 (CPC), amendments to pleadings are not allowed if they introduce an entirely new cause of action or fundamentally alter the character of the original petition.

2. Late-stage amendments face a higher bar: Since the Writ Petition had already been fully heard and judgment reserved, the court applied a stricter standard — the petitioner needed to show they could not have raised the matter earlier despite due diligence. Sun Pharma failed to meet this test.

3. Supreme Court precedent was a game-changer: The Supreme Court’s ruling in Union of India & Another Etc. Etc. vs. M/s. V.V.F. Ltd. & Another Etc. Etc. (Civil Appeal Nos. 2256-2263 of 2020) had already rejected the doctrine of promissory estoppel in similar tax exemption cases, which significantly weakened Sun Pharma’s position.

4. GST transition and Budgetary Support Scheme: When GST replaced the old excise duty regime, a new Budgetary Support Scheme was introduced. The government actually increased the refund rate from 56% to 58% — giving Sun Pharma an extra 2% benefit.

5. Vested rights argument didn’t fly: Sun Pharma argued that their tax exemption benefits were “vested rights” that couldn’t be taken away. The court was not persuaded, especially in light of the Supreme Court’s ruling.

Issue

The central legal question was:

Should the court allow Sun Pharma to amend their Writ Petition to additionally challenge:

• The proviso to Section 174(2)© of the Central Goods and Services Tax Act, 2017, and
• Notification No. 21/2017-C.E. dated 18.07.2017 (which rescinded earlier excise duty exemption notifications)?

In simpler terms: Can Sun Pharma add brand new legal challenges to their existing petition at this very late stage? The court’s answer was a firm NO.

Facts

The Background:

• Sun Pharma had set up manufacturing operations in Sikkim, likely attracted by significant tax exemption incentives offered under the old Central Excise regime — specifically under Notification No. 20/2007-C.E. dated 25.04.2007.

• These exemptions were a big deal — they were essentially a government promise: “Set up your factory here, and we’ll give you tax breaks.”

The GST Disruption:

• When GST was rolled out in 2017, it replaced the old excise duty system. Along with this, Notification No. 21/2017-C.E. dated 18.07.2017 was issued, which rescinded (cancelled) the old exemption notifications, including the one Sun Pharma was benefiting from.

• The proviso to Section 174(2)© of the CGST Act, 2017 essentially said that tax exemptions granted through notifications would not continue if those notifications were rescinded.

The Original Petition (WP© No. 47 of 2018):

• Sun Pharma filed their original Writ Petition in 2018, challenging the Budgetary Support Scheme — the government’s replacement scheme under GST. Their original prayers were focused on getting full refund of CGST and 50% of IGST paid through the electronic cash ledger.

The Hearing and Supreme Court Development:

• The Writ Petition was fully heard on 03-09-2019 and judgment was reserved.

• Around the same time, the Supreme Court was hearing a batch of similar appeals. On 22-04-2020, the Supreme Court delivered its judgment in Union of India & Another vs. M/s. V.V.F. Ltd. — which went against companies like Sun Pharma on the promissory estoppel argument.

The Amendment Application:

• After this Supreme Court ruling, Sun Pharma filed I.A. No. 03 of 2020 on 06-06-2020, seeking to amend their petition to now also challenge the CGST provision and the 2017 notification.

Arguments

Sun Pharma’s Arguments (Petitioner):

1. The amendments are necessary: Sun Pharma argued that the proposed amendments were essential for the effective adjudication of the main Writ Petition.

2. No prejudice to Respondents: They claimed the amendments would cause no harm, loss, or prejudice to the other side.

3. Bona fide intent: The amendments were being sought in good faith and in the interest of justice.

4. Nature of petition unchanged: Sun Pharma argued the amendments did not change the nature and character of the Writ Petition.

5. Vested rights being taken away: Through the proposed amendments, Sun Pharma wanted to argue that:

• The proviso to Section 174(2)© of the CGST Act and Notification No. 21/2017-C.E. were taking away their vested rights
• These were contrary to the principles of promissory estoppel and legitimate expectation
• Both were violative of Article 14 of the Constitution of India (Right to Equality)

Union of India’s Arguments (Respondents No. 1 & 2):

1. Supreme Court has already decided the issue: The Respondents pointed to the Supreme Court’s ruling in Union of India & Another Etc. Etc. vs. M/s. V.V.F. Ltd. & Another Etc. Etc. (Civil Appeal Nos. 2256-2263 of 2020), which had rejected the promissory estoppel argument in similar cases.

2. Mala fide timing: The amendment application was filed at a very late stage — after the petition had been fully heard and judgment reserved — suggesting bad faith on Sun Pharma’s part.

3. Amendments change the nature of the petition: The proposed amendments would fundamentally alter the character of the Writ Petition by introducing entirely new challenges.

4. Petitioner has already been compensated: Under the new Budgetary Support Scheme, Sun Pharma was actually getting a better deal — the refund rate was fixed at 58% instead of the earlier 56%, giving them an additional 2% benefit.

5. Nothing remains for adjudication: Given the Supreme Court’s ruling, there was essentially nothing left to decide in the original petition.

Key Legal Precedents

1. Union of India & Another Etc. Etc. vs. M/s. V.V.F. Ltd. & Another Etc. Etc.

• Citation: Civil Appeal Nos. 2256-2263 of 2020 (arising out of S.L.P.© Nos. 28194-28201/2010), decided on 22-04-2020 by the Supreme Court of India

• What it decided: The Supreme Court held in Paragraph 14.3 that subsequent notifications/industrial policies do not take away vested rights conferred under earlier notifications. The subsequent notifications were merely clarificatory in nature and issued in the larger public interest. Most importantly, the Supreme Court held that such subsequent notifications are NOT hit by the doctrine of promissory estoppel.

• How it was applied here: The Respondents used this ruling to argue that Sun Pharma’s promissory estoppel-based challenge had already been rejected by the highest court. The High Court of Sikkim acknowledged this precedent as significantly undermining Sun Pharma’s proposed amendments.

2. Order VI Rule 17 read with Section 151 of the Code of Civil Procedure, 1908 (CPC)

• What it says: This provision gives courts the discretionary power to allow parties to amend their pleadings at any stage of proceedings. However, after trial has commenced, amendments can only be allowed if the court is satisfied that the party could not have raised the matter earlier despite due diligence.

• How it was applied: The court noted that the Writ Petition had already been fully heard (effectively, “trial” had concluded). Sun Pharma could not claim they were unaware of Section 174(2)© of the CGST Act — it existed when they filed the petition. Therefore, the “due diligence” test was not met.

3. Section 174(2)© of the Central Goods and Services Tax Act, 2017

• What it says: The proviso to this section states that tax exemptions granted as incentives through notifications would not continue if such notifications are rescinded.

• Relevance: Sun Pharma wanted to challenge the constitutional validity of this provision, but the court refused to allow this new challenge through the amendment route.

Judgment

Winner: Union of India (Respondents)

The Division Bench of the High Court of Sikkim, comprising Hon’ble Mrs. Justice Meenakshi Madan Rai and Hon’ble Mr. Justice Bhaskar Raj Pradhan, rejected and dismissed the amendment application (I.A. No. 03 of 2020).

1. The amendments were too late and unjustified: The Writ Petition had already been fully heard on 03-09-2019 and judgment reserved. Sun Pharma was clearly aware of Section 174(2)© of the CGST Act when they originally filed the petition — it wasn’t a new law that came later. So they couldn’t claim they were unable to raise it earlier despite due diligence.

2. The amendments would change the entire character of the petition: The original petition was about getting refunds under the Budgetary Support Scheme. The proposed amendments would turn it into a constitutional challenge against a GST provision and a central excise notification — a completely different ball game. This is not permissible under Order VI Rule 17 of the CPC.

3. The Supreme Court had already spoken: The Supreme Court’s ruling in M/s. V.V.F. Ltd. had effectively knocked out the promissory estoppel argument that Sun Pharma was trying to build through these amendments.

4. Discretion exercised against the Petitioner: The court declined to exercise its discretion in Sun Pharma’s favour, given all the above factors.

Order: The I.A. (amendment application) stands rejected and dismissed.

Dated 02-11-2020.

FAQs

Q1: What was Sun Pharma originally fighting for in the main Writ Petition?

Sun Pharma originally wanted the court to either “read down” (modify) the Budgetary Support Scheme so they could claim full refund of CGST and 50% of IGST, or alternatively, direct the government to fix a special refund rate for them equivalent to what they were getting under the old excise duty regime.

Q2: Why did Sun Pharma file this amendment application after the judgment was already reserved?

The timing was triggered by the Supreme Court’s ruling in M/s. V.V.F. Ltd. on 22-04-2020, which went against companies in similar situations. Sun Pharma likely felt they needed to broaden their legal attack by challenging the constitutional validity of the CGST provision and the rescission notification. However, the court saw this as a reactive, last-minute move.

Q3: What is the “doctrine of promissory estoppel” that keeps coming up?

In simple terms, promissory estoppel means: “If the government made a promise (like a tax exemption) and I relied on that promise to my detriment (like setting up a factory), the government cannot go back on that promise.” Sun Pharma was essentially arguing: “You promised us tax exemptions, we built our factory in Sikkim based on that promise, you can’t take it away now.” The Supreme Court rejected this argument in the M/s. V.V.F. Ltd. case.

Q4: What is the Budgetary Support Scheme?

When GST replaced the old excise duty system in 2017, the government introduced the Budgetary Support Scheme as a goodwill measure for units that were previously eligible for excise duty exemptions/refunds. Under this scheme, eligible units in states like Sikkim, J&K, Uttarakhand, Himachal Pradesh, and North-East India could get partial refunds. The refund rate was actually set at 58% — slightly better than the earlier 56%.

Q5: Does this judgment mean Sun Pharma loses everything?

This particular order only dismisses the amendment application (I.A. No. 03 of 2020). The main Writ Petition (WP© No. 47 of 2018) was already heard and judgment reserved — that judgment would be a separate order. However, given the Supreme Court’s ruling in ***M/s. V.V.F. Ltd.***, Sun Pharma’s prospects in the main petition also appear significantly weakened.

Q6: What does “Order VI Rule 17 of the CPC” actually allow?

It allows courts to permit amendments to pleadings at any stage of proceedings. The first part is discretionary (the court may allow amendments). The second part is more strict — after trial has commenced, amendments are only allowed if the party can show they couldn’t have raised the issue earlier despite due diligence. Sun Pharma failed on both counts.

Q7: What is the significance of Section 174(2)© of the CGST Act, 2017?

This is a key transitional provision in the GST law. Its proviso essentially says that if a tax exemption was granted through a notification, and that notification is later rescinded (cancelled), the exemption does not survive. Sun Pharma wanted to challenge this as unconstitutional, but the court didn’t allow them to add this challenge through the amendment route.

1. The Petitioner has filed an application under Order VI Rule 17 read with section 151 of the Code of Civil Procedure, 1908 (in short, “CPC”), seeking to insert amendments in the Writ Petition. The proposed amendments are as follows;

Insertion of Paragraph 4.1 and 4.2 after the existing Paragraph 4:

“4.1. The Petitioner is also challenging the proviso to Section 174(2)(c) of the Central Goods and Services Tax Act, 2017 which provides that tax exemption granted as an incentive through a notification would not continue if such notification is rescinded.

4.2 Further, the Petitioner is also challenging the Notification No.21/2017-C.E. dated 18.07.2017 vide which the exemption notifications issued under the erstwhile regime (including Notification No.20/2007-C.E. dated 25.04.2007) were rescinded.”

Replacing the contents of the existing Paragraph 32 with the following:

“32. Thus, aggrieved by the impugned proviso to Section 174(2)(c) of the CGST Act, the impugned Notification No.21/2017-C.E. dated 18.07.2017 and the Budgetary Support Scheme which have resulted in denial of vested right to the Petitioner to continue to enjoy the benefits promised to it, the Petitioner is filing the present petition based on the following grounds.

Each ground is independent and without prejudice to one another.”

Incorporating Paragraph A18 after the existing paragraph A17:

“A.18 It is submitted that the proviso to Section

174(2)(c) of the CGST Act and the

impugned Notification No.21/2017-C.E.

dated 18.07.2017 are in effect taking

away the vested rights of the Petitioner by

reducing the exemptions/benefits

promised to the Petitioner. Thus, the

impugned proviso to Section 174(2)(c) of

the CGST Act and the impugned

Notification No.21/2017-C.E. dated

18.07.2017 are contrary to the

established principles of promissory

estoppel and legitimate expectation as

submitted in foregoing Grounds. For this

reason, the impugned proviso to Section

174(2)(c) of the CGST Act and the

impugned Notification No.21/2017-C.E.

dated 18.07.2017 are liable to be struck

down being violative of Article 14 of the

Constitution of India and the vested rights

of the Petitioner. It may be noted that

this submission is without prejudice to

Petitioner’s contention that the

exemptions promised to the Petitioner is

a vested right.”

Incorporating the following clauses in place of

existing clauses (c) to (e):

“(c) strike down the proviso to Section

174(2)(c) of the Central Goods and

Services Tax Act, 2017 as

unconstitutional being contrary to Article

14 of the Constitution of India;

(d) strike down the Notification No.21/2017-

C.E. dated 18.07.2017 issued by the

Respondent No.1 as unconstitutional

being contrary to Article 14 of the

Constitution of India

(e) Hold that proviso to Section 174(2)(c) of

the Central Goods and Services Tax Act,

2017; Notification No.21/2017-C.E. dated

18.07.2017 and the Scheme of Budgetary

support under Goods and Service Tax

regime to the units located in the States

of Jammu & Kashmir, Uttarakhand,

Himachal Pradesh and North-East

including Sikkim to Article 14 and the

vested rights of the Petitioner;

(f) Issue any other writ, order or direction as

this Hon’ble Court may deem just and fair

and circumstances of the case;

(g) For such further and other reliefs as the

nature and circumstances of the case may

require.”

3. Learned Counsel for the Petitioner submits that the

proposed amendments are necessary for an effective adjudication of

the main Writ Petition and will under no circumstance cause any

harm, loss or prejudice to the Respondents. The proposed

amendments do not change the nature and character of the Writ

Petition and are being sought bona fide in the interest of justice. The

proposed amendments hence be considered and allowed.

4. Per contra, the Learned Counsel for the Respondents

No.1 and 2 filed his reply to the I.A. and in the averments thereof

objected to the proposed amendments. Learned Counsel contended

that post the Judgment of the Hon’ble Supreme Court in Civil Appeal

Nos.2256-2263 of 2020 arising out of S.L.P.(C) Nos.28194-

28201/2010 dated 22-04-2020 in the matter of the Union of India &

Another Etc. Etc. vs. M/s. V.V.F. Ltd. & Another Etc. Etc., the Hon’ble

Supreme Court in Paragraph 14.3 has observed as follows;

“14.3 As observed hereinabove, the subsequent

notifications/industrial policies do not take away any

vested right conferred under the earlier notifications/

industrial policies. Under the subsequent notifications/

industrial policies, the persons who establish the new

undertakings shall be continue to get the refund of the

excise duty. However, it is clarified by the subsequent

notifications that the refund of the excise duty shall be

on the actual excise duty paid on actual value addition

made by the manufacturers undertaking

manufacturing activities. Therefore, it cannot be said

that subsequent notifications/industrial policies are hit

by the doctrine of promissory estoppel. The respective

High Courts have committed grave error in holding that

the subsequent notifications/industrial policies

impugned before the respective High Courts were hit

by the doctrine of promissory estoppel. As observed

and held hereinabove, the subsequent notifications/

industrial policies which were impugned before the

respective High Court can be said to be clarificatory in

nature and the same have been issued in the larger

public interest and in the interest of the Revenue, the

same can be made applicable retrospectively,

otherwise the object and purpose and the intention of

the Government to provide excise duty exemption only

in respect of genuine manufacturing activities carried

out in the concerned areas shall be frustrated. .........”

5. That, the Hon’ble Supreme Court has thereby rejected

the original Petition of the Petitioner wherein they had sought

benefits on the ground of promissory estoppel and hence this

Petition deserves no consideration. It was further contended that

the I.A. has been brought at a belated stage when the original Writ

Petition has been heard in its entirety and the Judgment in the

matter was reserved, indicating the mala fides of the Petitioner. It

was next pointed out that with the Goods and Services Tax being

rolled out a new Scheme has been offered as a measure of goodwill,

only to the units which were eligible for drawing benefits under the

earlier excise duty exemption/refund scheme, but has no relation to

the erstwhile schemes, thus the Petitioner has been compensated

for the benefits that they were drawing in the earlier excise regime.

That, instead of the 56% that was fixed earlier, the amount to be

refunded is fixed at 58% giving the Petitioner the benefit of an

additional 2%. Denying the statements of the Petitioner in

Paragraphs 2 to 5 of the I.A. in totality it was contended that the

proposed amendments change the entire nature and character of

the suit besides the fact that nothing remains for adjudication in the

Writ Petition in view of the above cited ratiocination of the Hon’ble

Supreme Court and the proposed amendments merit no

consideration and the petition ought to be dismissed.

6. We have heard Learned Counsel for the parties at

length. We have also perused the Writ Petition and the amendments

proposed as detailed in the I.A.

7. The prayers in the Writ Petition inter alia read as follows;

“(a) Issue an appropriate Writ reading down Clause 5.1 &

5.2 of the Notification F.No.10(1)/2017-DBA-II/NER,

notifying ‘Scheme of Budgetary support under Goods

and Service Tax regime to the units located in the

States of Jammu & Kashmir, Uttarakhand, Himachal

Pradesh and North-East including Sikkim’ so as to

enable the Petitioner to claim full refund of the CGST

and 50% of IGST paid through the electronic cash

ledger;

(b) Or, in the alternative, issue a writ of mandamus or any

other writ/order/direction, to the Respondents No.1 to

3, directing them to fix a special rate of refund eligible

to the Petitioner so that under the Budgetary Support

Scheme, the Petitioner is entitled to refund equivalent

to that under the erstwhile regime;

(c) Hold that the Scheme of Budgetary support under

Goods and Service Tax regime to the units located in

the States of Jammu & Kashmir, Uttarakhand,

Himachal Pradesh and North-East including Sikkim is

contrary to Article 14 and the vested rights of the

Petitioner;

(d) Issue any other writ, order or direction as this Hon’ble

Court may deem just and fair and circumstances of the

case;

(e) For such further and other reliefs as the nature and

circumstances of the case may require.”

8. The prayers, therefore, are confined to granting the

Petitioner refund of the Central Goods and Services Tax and 50% of

the Integrated Goods and Services Tax paid through the electronic

cash ledger. An alternative prayer ensues directing the Respondents

to fix a special rate of refund eligible to the Petitioner to entitle them

to refund equivalent to that available under the erstwhile regime

which should also be granted under the budgetary support scheme.

9. Order VI Rule 17 of the CPC clothes the Court with

powers to allow either party to alter or amend their pleadings at any

stage of the proceedings on such terms as may be just. It also

requires that all such amendments shall be made as may be

necessary for the purpose of determining the real question in

controversy between the parties provided that no application for

amendment should be allowed after the trial has commenced unless

the Court comes to the conclusion that in spite of due diligence the

party could not have raised the matter before the commencement

of trial. Thus, the provisions in the first part is discretionary and in

the second part is imperative inasmuch as amendments that are

necessary for the purpose of determining the real question in

controversy between the parties ought to be allowed.

10. In the matter at hand, the Writ Petition was finally heard

on 03-09-2019 and Judgment reserved. In the interim, the

Petitioner filed an application being I.A. No.02 of 2019, wherein it

was averred that the Hon’ble Supreme Court took up the entire batch

of appeals filed by the Respondent against the Judgments passed by

the Hon’ble High Court of Gujarat, Jammu and Kashmir, Guwahati

and Sikkim on the issue of curtailment of central excise duty

exemption, on 04-09-2019 in the Miscellaneous List. The appeal filed

by the Respondent against the Judgment of this High Court dated

21-11-2017 was heard on 05-09-2019 and Judgment reserved.

This fresh development was brought to the notice of this Court.

Evidently the Judgment then came to be pronounced by the Hon’ble

Supreme Court on 22-04-2020 in M/s. V.V.F. Ltd. (supra), the

relevant Paragraph being 14.3 has already been extracted and

reflected in the arguments of Learned Counsel for the Respondents

No.1 and 2 hereinabove. Subsequent thereto, the amendment

application being I.A. No.03 of 2020 was filed on 06-06-2020,

seeking to incorporate amendments already extracted supra.

11. By the proposed amendments the Petitioner seeks to

challenge the vires of Section 174(2)(c) of the Central Goods and

Services Tax Act, 2017 and Notification No.21/2017-C.E., dated 18-

07-2017, on the ground that it takes away the vested rights of the

Petitioner by reducing the exemption/benefits to the Petitioner. The

prayers in the Writ Petition are confined to enabling the Petitioner to

claim full refund of the CGST and 50% of the IGST paid through the

electronic cash ledger. It cannot be said that the Petitioner was

unaware of the provision of the statute the vires of which they now

seek to assail, nor was it inserted at some point later in time to the

filing of the Writ Petition. The question of the Petitioner’s inability

to raise the matter in spite of due diligence, before the matter was

heard or was taken up for hearing, therefore, does not arise. In view

of the questions involved in the instant Writ Petition it cannot be said

that the amendments are necessary for determining the real

question in controversy between the parties considering the prayers

of the Petitioner referred above. The proposed amendments if

permitted would in fact change the very nature and character of the