Retrospective purchase tax and strict exemption rules upheld, while vague pre-assessment interest demand was curtailed

Retrospective purchase tax under the Haryana sales tax law was upheld because the Legislature had competence to amend the charging scheme and clearly intended to remove doubts and plug loopholes. Section 9 did not create any surviving exemption in favour of purchasers of paddy for export-oriented rice manufacture, and exemption from tax was required to be express and unambiguous. Interest under section 25(5) could not be imposed for the earlier disputed period on the basis of a vague demand, though interest could still run from the date a valid assessment and demand were made if payment remained withheld.

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Issues: (i) whether the Haryana amending legislation and the substituted section 15A were constitutionally valid and operated retrospectively so as to fasten purchase tax on paddy used for manufacture of rice exported out of India; (ii) whether section 9 of the Haryana General Sales Tax Act granted any exemption from purchase tax to the petitioners; and (iii) whether interest could be levied on the petitioners under section 25(5) of the Act.

Issue (i): Whether the Haryana amending legislation and the substituted section 15A were constitutionally valid and operated retrospectively so as to fasten purchase tax on paddy used for manufacture of rice exported out of India?

Analysis: The State Legislature was held to have competence under the constitutional scheme to enact and amend the sales tax law, including with retrospective effect. The omission of section 9 and the substitution of section 15A were treated as a legislative response to earlier judicial decisions and as a valid measure to remove doubts and plug loopholes. Retrospective taxation was held permissible where the Legislature had competence and the intent to impose liability was clear. The court also found that the charging provisions, read with the relevant levy provisions, validly subjected the purchase of paddy to tax.

Conclusion: The amending legislation and section 15A were held valid and intra vires, and the retrospective levy of purchase tax was upheld.

Issue (ii): Whether section 9 of the Haryana General Sales Tax Act granted any exemption from purchase tax to the petitioners?

Analysis: Section 9 was construed as a charging provision that also indicated certain situations where tax was not attracted, but any exemption from tax had to be specific and unambiguous. The court held that after the omission of section 9 and the retrospective amendments, no exemption survived in favour of the petitioners. The petitioners, who purchased paddy and exported rice, were not shown to fall within any surviving exempt category, and the burden of establishing exemption was not discharged.

Conclusion: Section 9 was held not to confer any enforceable exemption on the petitioners from purchase tax.

Issue (iii): Whether interest could be levied on the petitioners under section 25(5) of the Act?

Analysis: The court accepted that liability to interest could not be fastened in the absence of a clear and valid demand and where the tax liability itself had remained genuinely in dispute. The impugned demand for interest was found to be vague and not properly founded for the period prior to the assessment and demand notice. At the same time, once the petitioners became aware of their liability under a valid demand, interest could run from that date if payment was still withheld.

Conclusion: The demand of interest for the earlier period was quashed, and fresh determination of interest from the date of assessment and demand was left open.

Final Conclusion: The petitioners were held liable to purchase tax on the paddy used for manufacturing rice exported outside India, but the levy of interest was interfered with to the limited extent indicated by the court.

Ratio Decidendi: A sales tax statute may validly impose retrospective purchase tax if the Legislature has competence and clearly manifests that intent, while exemption from tax must be expressly or unmistakably shown and cannot be inferred by implication.

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