HC Dismisses Serum Institute's Challenge to Finance Act Amendment

The court emphasized that the mere fact that the tax institution, as a result of the contested sub-clause, places a heavier burden on the petitioner, in this case, SII, does not render it invalid

HC Dismisses Serum Institute's Challenge to Finance Act Amendment

The Bombay High Court has recently dismissed the plea made by the Serum Institute of India Private Limited (SII) challenging the constitutional validity of a 2015 amendment to the Finance Act. This amendment, which reduced subsidies and grants provided by both Central and State governments, encompassing specific categories classified as "income" and consequently rendering them subject to taxation, was the focal point of the dispute.

High Court Verdict

An article in the Free Press Journal mentioned that the division bench, consisting of Justices KR Shriram and Neela Gokhale, delivered the verdict on Monday, dismissing the petition filed by the biotechnology firm, which is renowned for manufacturing pharmaceuticals and vaccines. The court's observation was unequivocal, emphasizing that matters related to economic policy are best entrusted to the judgment of the legislature, and it cautioned against unwarranted interference with the expertise of those responsible for shaping economic policies.

Examining the Challenged Amendment

The Bombay High Court, during the hearing, scrutinized SII's plea, which contested the amendment to the Finance Act that introduced sub-clause (xviii) to Section 2(24) of the Finance Act. This particular sub-clause encompassed subsidies, grants, cash incentives, duty drawback, waivers, concessions, or reimbursements provided by either Central or State governments, in cash or in kind, under the definition of "income." Consequently, these previously exempt benefits were rendered taxable under the Act, resulting in a reduction in the actual cost and, subsequently, the depreciation amount.

SII's Argument

SII argued that waivers or concessions, whether granted by the Central or State governments, were not excluded under Section 43 of the Act. This meant that not only would the sales tax refund, specifically SGST, be subject to taxation as income, but also exemptions related to electricity duty and the 50% reduction in stamp duty payments would fall within the taxable income category.

SII's Expansion and Incentives

The Serum Institute of India, in its pursuit of expansion and development, established a manufacturing facility in Hadapsar, Pune, which was later complemented by the construction of an additional manufacturing unit within the Special Economic Zone (SEZ) in Manjari, Pune. The new facility commenced production during the 2019-2020 fiscal year. In 2013, the Maharashtra government introduced the 'Package Scheme of Incentives, 2013,' designed to provide various incentives to major industries based on project type and investment amount. These incentives encompassed stamp duty reductions, exemptions from electricity duty, and subsidies for VAT/CST/SGST.

SII's Eligibility for Incentives

SII qualified for these incentives as its project met the criteria for an ultra mega project. Accordingly, the company submitted an application on March 27, 2018, which was subsequently approved by the State of Maharashtra on October 12, 2018. An eligibility certificate was issued on January 25, 2019, followed by an approval letter dated December 17, 2019. As per the approval letter, SII was entitled to a total incentive or benefit equivalent to 75% of the eligible investment.

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