2005 (10) TMI 512 - HC - VAT and Sales Tax

Retrospective amendment deems oil refining as 'manufacture' under tax law, court upholds decision.

Godrej Soaps Ltd. and another Versus State of Maharashtra and others

The court upheld the retrospective amendment deeming refining of oil as 'manufacture' under the Bombay Sales Tax Act, 1959. It found the retrospective ... - Issues Involved:1. Validity of retrospective amendment to section 2(17) of the Bombay Sales Tax Act, 1959.2. Whether refining of oil amounts to 'manufacture' under the Act.3. Reasonableness of the retrospective operation of the amendment.4. Legislative competence and constitutional validity of the retrospective amendment.Issue-wise Detailed Analysis:1. Validity of Retrospective Amendment to Section 2(17) of the Bombay Sales Tax Act, 1959:The petitioners challenged the amendment to section 2(17) of the Act by Maharashtra Act No. 9 of 1989, which retrospectively deemed refining of oil as 'manufacture' from January 1, 1960. The court noted that the retrospective challenge presupposes that the process of refining could be termed as 'manufacture' by legislative device but cannot be with retrospective effect. The court examined whether the retrospective effect given to the amendment was justified and concluded that the legislative power to enact amending Acts with retrospective effect is well-established. The court found that the amendment was a clarificatory one, aiming to rectify judicial misinterpretation and was thus justified.2. Whether Refining of Oil Amounts to 'Manufacture' Under the Act:The court examined the definition of 'manufacture' under section 2(17) of the Act, both before and after the amendment. The original definition included producing, making, extracting, altering, finishing, or otherwise processing, treating, or adapting any goods. The amendment added Explanation II, explicitly stating that refining of oil shall be deemed to be manufacture. The court referred to various judgments, including Union of India v. Delhi Cloth & General Mills Co. Ltd., which held that a new substance brought into existence through processing amounts to manufacture. The court concluded that refining of oil results in a new product and thus amounts to manufacture.3. Reasonableness of the Retrospective Operation of the Amendment:The court considered the reasonableness of the retrospective effect of the amendment, noting that retrospective legislation, including fiscal legislation, is not per se unreasonable. The court cited several judgments affirming the legislative power to enact retrospective laws, especially when they are clarificatory or intended to rectify judicial misinterpretations. The court found that the retrospective amendment did not impose a new tax but clarified the existing levy, thus validating the levy already imposed. The court held that the retrospective effect was reasonable and necessary to prevent revenue loss and ensure consistent tax treatment.4. Legislative Competence and Constitutional Validity of the Retrospective Amendment:The petitioners contended that the retrospective amendment was beyond the legislative competence of the State of Maharashtra and violated Articles 14 and 19(1)(g) of the Constitution. The court dismissed these arguments, stating that the power to legislate retrospectively is well within the legislative competence. The court found no discrimination or violation of constitutional rights, as the amendment applied uniformly to all dealers refining oil. The court observed that the retrospective amendment was necessary to align the statutory provisions with the legislative intent and to prevent revenue loss due to judicial misinterpretation.Conclusion:The court upheld the retrospective amendment to section 2(17) of the Bombay Sales Tax Act, 1959, deeming refining of oil as 'manufacture.' The court found the retrospective effect reasonable and necessary to rectify judicial misinterpretation and ensure consistent tax treatment. The petition was dismissed, and the rule was discharged with no order as to costs.