2011 (6) TMI 267 - HC - VAT and Sales Tax

Court Invalidates Rule 31AA on Calculating Cumulative Quantum of Benefits

M/s. Prasad Power Control Pvt. Limited & others Versus Commissioner of Sales Tax,

M/s. Prasad Power Control Pvt. Limited & others Versus Commissioner of Sales Tax, - TMI, [2011] 41 VST 436 (Bom) Issues Involved:1. Constitutional validity of Section 41B of the Bombay Sales Tax Act, 1959.2. Constitutional validity of Rule 31AA of the Bombay Sales Tax Rules, 1959.3. Retrospective application of Section 41B and Rule 31AA.4. Calculation of Cumulative Quantum of Benefits (CQB) under the 1988 Package Scheme of Incentives.5. Conflict between the 1988 Government Resolution (GR) and Section 41B/Rule 31AA.6. Delay and laches in challenging Rule 31AA.Detailed Analysis:1. Constitutional Validity of Section 41B of the Bombay Sales Tax Act, 1959:Section 41B, effective from May 1, 1994, empowers the Commissioner of Sales Tax to determine the CQB received by any dealer under the Package Scheme of Incentives, and recover any excess benefits with interest and penalty. The court found that Section 41B itself does not prescribe a different method for calculating CQB but requires it to be calculated as per the manner prescribed in the rules.2. Constitutional Validity of Rule 31AA of the Bombay Sales Tax Rules, 1959:Rule 31AA, effective from March 24, 1995, prescribes the method for calculating CQB by ignoring the full or partial exemption from tax granted under the BST Act/Rules/Notifications. The court held that Rule 31AA, to the extent it directs the Commissioner to ignore the exemption provisions in calculating CQB, is bad in law as it conflicts with the 1988 GR.3. Retrospective Application of Section 41B and Rule 31AA:The petitioners argued that the retrospective application of Rule 31AA from January 1, 1980, is arbitrary and violates Article 14 of the Constitution. The court agreed, stating that the retrospective application of Rule 31AA divests the vested rights of the petitioners who set up their units based on the 1988 GR. Therefore, Rule 31AA cannot be applied retrospectively.4. Calculation of Cumulative Quantum of Benefits (CQB) under the 1988 Package Scheme of Incentives:The primary dispute was whether the CQB should be calculated by considering the maximum tax payable under the BST Act, including exemptions, or by ignoring the exemptions. The court interpreted para 2.11 of the 1988 GR to mean that the notional tax liability should be computed based on the tax actually payable by a unit not covered under the 1988 Scheme, including the exemptions. Thus, CQB should be calculated considering the exemptions provided under the BST Act/Rules.5. Conflict between the 1988 Government Resolution (GR) and Section 41B/Rule 31AA:The court found that Rule 31AA, which prescribes a different method for calculating CQB by ignoring exemptions, is repugnant to the industrial policy contained in the 1988 GR. Therefore, Rule 31AA, to the extent it conflicts with the 1988 GR, is bad in law. Section 41B itself was not found to be in conflict with the 1988 GR.6. Delay and Laches in Challenging Rule 31AA:The respondents argued that the petition suffers from delay and laches as Rule 31AA came into force in 1995, and the petition was filed in 2000. The court rejected this argument, noting that the petitioners challenged Rule 31AA after assessment orders were passed in August 1999, making the petition timely.Conclusion:The court held that Rule 31AA, to the extent it directs the calculation of CQB by ignoring the exemption provisions, is illegal and contrary to law. The calculation of CQB under the 1988 Scheme should be made considering the tax payable by a unit not covered under the 1988 Scheme, including exemptions. The petition was allowed, and Rule 31AA was declared invalid to the extent of its retrospective application and conflict with the 1988 GR.