The apex court pointed out that tax paid needs to be sanctioned by the Centre only in cases where there is actual manufacturing of goods and not where goods are only manufactured on paper.

This will have a financial impact on industrial units who would have received refunds on a provisional basis following the favorable High Courts orders, experts said.

Experts also suggested that the order may have an impact on exemption or refund mechanism as applicable in the GST (Goods & Services Tax) regime.

The matter pertains to two Central government initiatives to promote industrial activity. One was introduced in 2001 in Kutch, Gujarat, after the devastating earthquake, prescribing 100 per cent excise duty exemption to new industrial units set up prior to July 31, 2003 (extended to December 31, 2005) for a period of five years from date of commencement of commercial production.

Sensing misuse of the scheme, the Centre limited the benefit to value addition through two notifications in 2008. The refund was first capped at 34 per cent of the duty paid, but was later raised to 75 per cent. Upset by the move, the industry approached the Gujarat High Court, which held that that 100 per cent exemption should hold and the differential amount should be refunded to the writ petitioners.

Similarly, 100 per cent excise duty exemption was extended to products manufactured in the North East regions through the revised industrial policy in 2007, but the benefit was restricted a year later to prevent misuse. ALSO READ: Forward premia collapse as markets see dollar crunch even as crude falls

The Supreme Court noted that the intent of the was the notification by the Union government was to grant refunds on excise duty paid on genuine manufacturing activities. The intention would not have been to grant refunds irrespective of actual manufacturing/manufacturing activities, it noted.

Abhishek Rastogi, partner, Khaitan and Co, said that this has a huge financial impact on industrial units who would have received the differential refunds on a provisional basis following the favorable High Courts which have now ultimately been overturned.

Rajat Mohan, partner , AMRG Associates, said that it was a welcome ruling that establishes that public money is to be used in accordance with underlying objectives of the tax benefits, any technical and malafide interpretation of laws would be rejected both by executive and judiciary.