Retrospective sales tax amendment upheld, but tax demand notices failed for bypassing statutory assessment procedure.

Retrospective amendment levying purchase tax on sugarcane at a flat rate, and retaining additional sales tax on an ad valorem basis, was upheld as a valid fiscal measure within legislative competence. The tribunal found the uniform classification rational, rejected the challenge under Articles 14, 19(1)(g), 301 and 304(b), and held the retrospective effect permissible. However, demand notices for differential tax, additional tax, or revised returns were invalid because the authorities bypassed the statutory assessment and recovery procedure. Those notices were quashed, with liberty to proceed afresh in accordance with law.

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Issues: (i) Whether the Tamil Nadu General Sales Tax (Third Amendment) Act, 1999 and the Tamil Nadu Additional Sales Tax (Amendment) Act, 1999, giving retrospective effect to levy purchase tax on sugarcane at a flat rate and retaining additional sales tax on ad valorem basis, were unconstitutional or ultra vires Articles 14, 19(1)(g), 301 and 304(b) of the Constitution of India. (ii) Whether demand notices issued for differential tax/additional tax or for filing revised returns without following the assessment and recovery procedure under the Act and Rules were valid.

Issue (i): Whether the retrospective levy and the amended scheme were unconstitutional or ultra vires Articles 14, 19(1)(g), 301 and 304(b) of the Constitution of India.

Analysis: The amended levy was upheld as a fiscal measure within legislative competence. The Court held that taxing legislation enjoys wide latitude in classification, and a uniform flat rate based on weight did not become invalid merely because mills with different recovery percentages experienced different impacts. The State average recovery was treated as a rational basis for fixing the flat rate, and the levy was found neither confiscatory nor arbitrary. The retrospective feature was also held permissible, since the amendment implemented a policy choice and did not merely seek to nullify an earlier judicial decision without curing any defect. The plea based on Articles 301 and 304(b) failed because the levy was treated as taxation simpliciter and not as an impermissible barrier to trade.

Conclusion: The retrospective levy under the two amending Acts was held valid and constitutional, and the challenge on merits failed.

Issue (ii): Whether the demand notices for differential tax/additional tax or directions to file revised returns were valid without following the statutory procedure for assessment and recovery.

Analysis: The Court held that, although the amended levy itself was valid, the authorities could not bypass the assessment and recovery mechanism prescribed by the Act and Rules. For completed assessments, demand could be raised only by finalising assessment under the Act; for the relevant provisional year, revision had to follow the statutory notice procedure. Direct demand notices calling upon the assessees to pay differential tax or file revised returns without following those steps were therefore procedurally infirm.

Conclusion: The demand notices were quashed, with liberty to the authorities to proceed afresh in accordance with law.

Final Conclusion: The constitutional challenge to the retrospective levy failed, but the impugned demand notices were set aside for non-compliance with the prescribed assessment procedure, leaving the authorities free to initiate fresh action lawfully.

Ratio Decidendi: A retrospective fiscal amendment fixing a uniform tax basis will be sustained if it is within legislative competence and founded on a rational classification, but recovery demands must still conform to the statutory assessment and recovery procedure and cannot be made by bypassing the Act and Rules.

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