2010 (8) TMI 825 - HC - VAT and Sales Tax

Invalid sales tax exemption withdrawal; promissory estoppel protects promised exemptions

The court held that the notification withdrawing the sales tax exemption was invalid as it contradicted promises made under the Industrial Policy and ... Legality of the notification dated September 5, 2005 issued by the Principal Secretary to the Government of Meghalaya, Excise, Registration, Taxation and Stamps Department (respondent No. 2), which has the effect of withdrawing/cancelling the exemption of sales tax payable for sale of goods, manufactured by the petitioners, in the course of inter-State trade or commerce and confining such exemption only to registered dealers or the Government questioned Held that:- The notification dated April 12, 2001 allowing the tax exemption in respect of sales of goods in the course of inter-State trade or commerce not necessarily to a registered dealer did not fall foul of section 8(5) of the Central Sales Tax Act, 1956 prior to its amendment, which came into force only with effect from May 11, 2002: the notification dated April 12, 2001 is, therefore, not contrary to law. No evidence is shown nor is such a plea made by the State-respondents that public interest would be prejudiced if they are required to carry out the promise. Neither is it the case of the State-respondents that the representation was made outside the authority or power of its officials to make. Under the circumstances, I have no alternative but to hold that the State-respondents are barred by the doctrine of promissory estoppel from issuing the impugned notification, which, ex facie, is bad in law. The petitioner has, therefore, made out a clear case for the application of the doctrine of promissory estoppel to the facts of this case warranting the interference of this court. Resultantly, this writ petition succeeds. The impugned notification dated September 5, 2005 (annexure G), the assessment order dated February 15, 2007 (annexure E) and the notice of demand dated February 20, 2007 (annexure F) emanating therefrom cannot stand and are hereby quashed. Let a writ of mandamus issue forbearing the State-respondents from recovering a sum of ₹ 98,085 from the petitioner in terms of the impugned demand notice. Issues Involved:1. Legality of the notification dated September 15, 2005, which withdrew/cancelled the exemption of sales tax for inter-State trade or commerce.2. Applicability of the doctrine of promissory estoppel.3. Retrospective effect of the amendment to Section 8(5) of the Central Sales Tax Act, 1956.4. Validity of the assessment orders and demand notices issued based on the impugned notification.Issue-wise Analysis:1. Legality of the Notification Dated September 15, 2005:The petitioners challenged the notification dated September 15, 2005, issued by the Principal Secretary to the Government of Meghalaya, which restricted the sales tax exemption to sales made only to registered dealers or the Government. The petitioners argued that this notification superseded the earlier notification dated April 12, 2001, which provided broader sales tax exemptions under the Meghalaya Industrial Policy, 1997, and the Meghalaya Industries (Sales Tax Exemption) Scheme, 2001. The petitioners contended that the 2005 notification was issued purportedly in accordance with the amendment of Section 8(5) of the Central Sales Tax Act, 1956, by Act 20 of 2002, which came into effect from May 11, 2002. They argued that the amendment was prospective and should not affect the exemptions already granted under the pre-amended Section 8(5).2. Applicability of the Doctrine of Promissory Estoppel:The petitioners claimed that they had set up their industries and made significant investments based on the promises and assurances made by the State Government under the Industrial Policy, 1997, and the Meghalaya Industries (Sales Tax Exemption) Scheme, 2001. They argued that the State Government was bound by the doctrine of promissory estoppel and could not withdraw the promised tax exemptions. The court noted that the petitioners had indeed acted upon the unequivocal assurance of sales tax exemption and had altered their positions by making substantial investments.3. Retrospective Effect of the Amendment to Section 8(5) of the Central Sales Tax Act, 1956:The court examined whether the amendment to Section 8(5) of the Central Sales Tax Act, 1956, which came into effect on May 11, 2002, could have a retrospective effect. The court held that the amendment was prospective in nature and did not affect the exemptions granted under the pre-amended Section 8(5). The court emphasized that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective effect. There was no indication that the newly amended Section 8(5) had any retrospective effect.4. Validity of the Assessment Orders and Demand Notices:The assessment orders and demand notices issued based on the impugned notification dated September 15, 2005, were also challenged by the petitioners. The court found that the assessment orders and demand notices, which restricted the sales tax exemption to sales made to registered dealers or the Government, were based on the invalid notification. Consequently, these assessment orders and demand notices were quashed.Conclusion:The court held that the notification dated September 15, 2005, was invalid as it was contrary to the promises made under the Industrial Policy, 1997, and the Meghalaya Industries (Sales Tax Exemption) Scheme, 2001. The doctrine of promissory estoppel applied, and the State Government could not withdraw the promised tax exemptions. The amendment to Section 8(5) of the Central Sales Tax Act, 1956, was prospective and did not affect the exemptions granted under the pre-amended provision. The assessment orders and demand notices issued based on the invalid notification were quashed. The court issued a writ of mandamus directing the State-respondents not to recover the assessed amounts from the petitioners.