Bombay High Court Dismisses Serum Institute's Plea Challenging Amendment To Finance Act

The Bombay High Court has dismissed a plea by Serum Institute of India Private Limited (SII) challenging the constitutional validity of an amendment to the Finance Act in 2015. This amendment reduced subsidies and grants given by Central and State governments, including certain heads under "income," thereby making them taxable.

A division bench of Justices KR Shriram and Neela Gokhale on Monday dismissed the petition by the biotechnology company manufacturing drugs and vaccines, observing, "Matters of economic policy should be best left to the wisdom of the legislature. In the context of a changed economic scenario, the expertise of the people dealing with the subject should not be lightly interfered with."

The plea by SII

The HC was hearing a plea by SII challenging the amendment to the Finance Act whereby sub-clause (xviii) to Section 2(24) of the Finance Act was inserted. The effect of the sub-clause was that subsidies, grants, cash incentives, duty drawback, waivers, concessions, or reimbursements provided by the Central or State governments either in cash or kind would be included within the meaning of the term "income" and consequently, would be taxable under the Act. This reduces the actual cost and thereby reduces the quantum of depreciation.

SII contended that waiver or concessions are not excluded under Section 43 of the Act, that are granted either by the Central Government or by the State governments. Therefore, not only will the refund of sales tax, i.e., SGST, be liable to tax as income, but even the electricity duty exemption and the 50% exemption from payment of stamp duty are also to be treated as income.

SII, which had a manufacturing plant at Hadapsar, Pune, commissioned another manufacturing facility in the Special Economic Zone (SEZ) located at Manjari, Pune. It commenced production during the Financial Year 2019-2020.

Package Scheme of Incentives, 2013

In 2013, the Maharashtra government came up with a 'Package Scheme of Incentives, 2013' which provided various incentives to major industries depending on the type of project and the amount of investments they make. The benefits include stamp duty concessions, exemption from electricity duty, and VAT/CST/SGST subsidy.

SII fell into this category, and its project qualified as an ultra mega project. Accordingly, SII made an application on March 27, 2018, which was approved by the State of Maharashtra on October 12, 2018. It also issued an eligibility certificate on January 25, 2019, and an approval letter dated December 17, 2019. As per the approval letter, SII is entitled to a total incentive/benefit of 75% of the eligible investment.

"The mere fact that the institution of tax by virtue of the impugned sub-clause falls more heavily on petitioner cannot result in its invalidity," it concluded.