Gangtok, September 14, 2023- In a significant legal development, the Sikkim High Court in Zydus Wellness Products Limited Vs. Union of India W.P.(C) No. 20 of 2022 has pronounced a decisive ruling, stating that units undergoing relocation, expansion, or a change of ownership are no longer eligible under the ambit of the Budgetary Support Scheme. The judgment, delivered by Justice Bhaskar Raj Pradhan, elucidates the intent behind the Government of India’s Budgetary Support Scheme, which was designed to aid “eligible units” for a limited period following the withdrawal of certain exemptions.

The Genesis of the Budgetary Support Scheme

To comprehend the significance of this ruling, it’s crucial to delve into the origins and objectives of the Budgetary Support Scheme. This scheme, initiated by the Government of India, sought to address a particular challenge faced by manufacturing units in Sikkim. These units had previously operated under various Industrial Promotional Schemes administered by the Indian government. However, these schemes provided exemptions for specific goods, as per exemption notification no. 20/2007-CE.

Mitigating the Effects of Exemption Withdrawal

The Budgetary Support Scheme aimed to provide financial relief to existing manufacturing units in Sikkim that had not fully availed the benefits of exemption notification no. 20/2007-CE throughout their operational history. This support was designed to ease the hardship arising from the cessation of these exemptions. Crucially, it was intended to extend this goodwill gesture solely to units eligible for benefits under previous excise duty exemption and refund schemes. The connection to earlier initiatives was tenuous, with the scheme primarily focusing on the eligibility of the units themselves.

Two Landmark Writ Petitions

The Sikkim High Court’s ruling stemmed from two pivotal writ petitions, each presenting unique circumstances.

In the case of Zydus Wellness Products Limited, a significant transformation occurred on February 28, 2019. Zydus Wellness-Sikkim, initially a partnership firm, underwent a metamorphosis into Zydus Nutritions Limited, following the provisions of Section 7 (2) of the Companies Act, 2013, and Rule 18 of the Companies (Incorporation) Rules, 2014. Subsequently, ZydusNutritions Limited underwent yet another alteration, changing its name to Zydus Wellness Products Limited, pursuant to Rule 29 of the Companies (Incorporation) Rules, 2014. ZydusWellness Products Limited now sought budgetary support under the “Scheme of Budgetary Support dated 05.10.2017” for the “residual period” during which Zydus Wellness Sikkim was entitled to exemption under Notification No. 20/2007-C dated April 25, 2007.

In the case of Alkem Laboratories Limited, a significant transfer of Unit-V occurred in October 2019. This transfer took the form of a slump sale from Cachet Pharmaceuticals Private Limited, the transferee company, to Alkem Laboratories Limited, executed on a running and going concern basis as per Section 54 of the Transfer of Property Act, 1882. The petitioner, AlkemLaboratories Limited, petitioned for the allocation of a fresh unique identity (UID) for Unit-V and the processing of verification and claim applications under the Budgetary Support Scheme. These claims pertained to the “residual period” for which Cachet Pharmaceuticals Private Limited had been eligible for exemption under Notification No. 20/2007-C dated April 25, 2007.

Navigating the Changes

Both cases entailed significant changes, including the issuance of new UIDs and registration numbers. However, the core issue that emerged was whether these petitioners remained eligible for budgetary support under the scheme, considering the changes in ownership.

Petitioner’s Argument

The petitioners in both cases contended that the change of ownership, which necessitated the issuance of new UIDs and registration numbers, should not disqualify them from availing budgetary support. They argued that the Budgetary Support Scheme sought to provide assistance to “eligible units,” regardless of the ownership structure.

Department’s Position

Contrary to the petitioners, the department maintained that the change in ownership rendered the petitioners ineligible. They argued that, due to the change in ownership, the petitioners now constituted entirely new legal entities, thereby disqualifying them from receiving further budgetary support.

Court’s Ruling

In a verdict that holds significant implications, the Sikkim High Court dismissed the writ petitions seeking “budgetary support” on the grounds of a change in ownership. The Court’s ruling underscores that the eligibility under the Budgetary Support Scheme is contingent on the unit’s status itself, rather than the ownership structure. Therefore, a change of ownership disqualifies units from further budgetary support, as the scheme is intricately tied to the unit’s historical eligibility.

Significance of the Ruling

This precedent-setting judgment provides important clarity on the eligibility criteria for units under the Budgetary Support Scheme. It elucidates the government’s intent to support existing units facing challenges post-exemption withdrawal while reinforcing the importance of unit status in determining eligibility. As a landmark decision, this ruling sets a guiding precedent for future cases and ensures a consistent approach to the interpretation of the Budgetary Support Scheme.

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