Prospective operation of exemption variation limits retrospective tax curtailment for vermicelli sales and reopens assessment

Section 17(3) of the Tamil Nadu General Sales Tax Act, 1959 does not permit retrospective cancellation or variation of an exemption notification unless that power is expressly conferred. Read with section 17(1), which specifically refers to prospective or retrospective exemption or reduction, the omission of similar words in section 17(3) confines later variation to prospective operation only. On that basis, the exemption for vermicelli sales continued from 1 April 1988 to 6 October 1988, while sales thereafter had to be reworked according to the availability of C forms and the applicable Central Sales Tax rate.

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Issues: (i) Whether the State Government's varying notification under section 17(3) of the Tamil Nadu General Sales Tax Act, 1959 could operate retrospectively so as to curtail the exemption granted to vermicelli sales from 1 April 1988. (ii) Whether the assessee's inter-State sales of vermicelli were liable to be taxed for the period 1 April 1988 to 6 October 1988 and thereafter in accordance with the availability of C forms.

Issue (i): Whether the varying notification under section 17(3) could operate retrospectively.

Analysis: Section 17(1) expressly empowered the Government to grant exemption or reduction in tax prospectively or retrospectively, but section 17(3), which enabled the Government to cancel or vary an earlier notification, contained no corresponding words authorising retrospective effect. The language of sub-section (3) was therefore treated as confining such cancellation or variation to prospective operation only. The earlier decision on the same statutory provision was applied as governing authority.

Conclusion: The varying notification could operate only prospectively from 7 October 1988 and not retrospectively from 1 April 1988.

Issue (ii): Whether the assessee's inter-State sales were taxable for the two relevant periods.

Analysis: Once retrospective operation was rejected, the exemption continued for inter-State sales effected between 1 April 1988 and 6 October 1988. For sales from 7 October 1988 to 31 March 1989, the tax position depended on the production or non-production of C forms and the applicable rate under the Central Sales Tax Act, 1956. The assessment orders and the Tribunal's order proceeded on an incorrect premise that the revised turnover limit could apply retrospectively to the earlier period.

Conclusion: The assessee was entitled to exemption for the period 1 April 1988 to 6 October 1988, while the later period had to be reworked on the basis of C forms and the appropriate rate.

Final Conclusion: The tax demand based on retrospective curtailment of the exemption was unsustainable, and the matter had to be sent back for fresh quantification and assessment in accordance with the prospective effect of the later notification.

Ratio Decidendi: Where a statute authorises retrospective exemption or reduction of tax in express terms but authorises cancellation or variation of the exemption without such words, the cancellation or variation operates only prospectively.

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