2013 (6) TMI 362 - HC - VAT and Sales Tax

Court upholds Maharashtra VAT Act 2009, limits penalty; clarifies incentives under Package Scheme of Incentives

The court upheld the constitutional validity of the Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 2009, except for the imposition of a ... Retrospective legislation - Withdrawal of benefit - Constitutional validity - reasonableness - amendment in Package schemes of incentive - whether validating enactment only legalizes a levy already imposed, but does not impose a fresh tax - Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 2009 - urged on behalf of the Petitioners that the Amending Act of 2009 amounts to the imposition of a new levy and that the imposition of a fresh levy with retrospective effect is violative of Article 14 & the introduction of the mandate of proportionality by the amendment to Section 93 in 2009 would be violative of Article 19(1)(g) of the Constitution Held that:- Unable to accede to the submission of appellant as Section 41BB of the Bombay Sales Tax Act, 1959 was introduced into the statute in 2001 which was prefaced by a non-obstante provision which was to operate notwithstanding anything to the contrary contained in any Package Scheme of Incentives. Section 41BB provided that any eligible unit to whom an eligibility certificate has been granted shall be eligible to draw benefits only on that part of its turnover of sales or purchases as may be arrived at by applying the ratio as may be prescribed by the State Government to the total turnover of sales or purchases of the unit in that year. Section 41BB was not an enabling provision, but enacted a restriction to the effect that notwithstanding anything contained in any Package Scheme of Incentives, an eligible unit holding an eligibility certificate shall be eligible to draw benefits only on that part of its turnover of sales and purchases as would be arrived at by applying the ratio which was to be prescribed by the State Government. Section 41BB, however, left it to the government to prescribe the ratio on the basis of which only a part of the turnover of sales and purchases would qualify for incentives. When the Maharashtra Value Added Tax Act, 2002 was enacted, a specific provision was incorporated in Section 93(1) described in its heading as providing for proportionate incentives to an eligible unit in certain contingencies & also made the legislative intent clear which was that an eligible unit would be eligible to draw benefits only on a proportional part of its turnover of sales or purchases as would be arrived at by applying the ratio which was to be prescribed by the State Government. Both Section 41BB of the erstwhile Bombay Sales Tax Act, 1959 and Section 93(1) as enacted in the MVAT Act, 2002 disclosed a legislative intent to allow the benefits only on a proportionate part of the turnover. The validating legislation and the amendment lay down the manner in which proportionate incentives would be computed. Such a course of action is legitimately open and cannot be regarded as being arbitrary or as violative of Articles 14 or 19(1)(g) of the Constitution. The principle of allowing pro rata incentives subserves the object of the legislation. If the legislature has, as in the present case, determined that the purpose of the Package Schemes of Incentives should or would be achieved by allowing incentives to be computed on a proportional basis, that legislative assessment cannot be regarded as unconstitutional. Thus there is no merit in the challenge to the constitutional validity of Maharashtra Act 22 of 2009 by which inter alia the provisions of sub-sections (1), (1A) and (1B) came to be substituted by way of an amendment to Section 93. The legislature has not transgressed the limitations on its constitutional power while enacting the validating legislation. Sub-section (2) of Section 93 has enacted that the benefit, if any, availed of by an eligible unit in contravention of sub-section (1) shall be and shall be deemed to have been withdrawn and the unit would be liable to pay tax, including penalty and interest, if any, in respect of the turnover of the sales and purchases in excess of the turnover arrived at under sub-section (1). The retrospective operation of the penalty with effect from 1 April 2005 would, be harsh. A penalty is in the nature of a penal or quasi penal exaction. A penalty cannot be imposed merely because it is lawful to do so. The imposition of a penalty for the period prior to the amendment of Section 93 with retrospective effect would be arbitrary. No merit in the challenge to the liability to pay interest. An assessee who has retained or availed of benefits to which he is not entitled in law, can legitimately be required to pay interest by the terms of a fiscal enactment. Thus the provisions of Section 93(2) to the extent to which they contemplate the imposition of a penalty with retrospective effect would to that extent be arbitrary. The provision in regard to the imposition of a penalty under Section 93(2) would consequently operate only prospectively. Accordingly dispose of the Petitions by upholding the constitutional validity of Maharashtra Act 22 of 2009, save and except for the imposition of a penalty under Section 93(2) which will take prospective effect. The Petitions are accordingly disposed of. There shall be no order as to costs. Issues Involved:1. Constitutional validity of the Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 2009.2. Retrospective operation of the amendment and validation.3. Proportionality of incentives under the Package Scheme of Incentives.4. Imposition of penalty and interest with retrospective effect.Issue-wise Analysis:1. Constitutional Validity of the Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 2009:The constitutional validity of the Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 2009 was challenged. The court upheld the validity of the Act, stating that the legislature has the power to enact laws with retrospective effect to cure defects noted in judicial decisions. The court emphasized that validating legislation is constitutionally permissible to remove defects in the original enactment and to set right an anomaly.2. Retrospective Operation of the Amendment and Validation:The retrospective operation of the provisions of Sub-sections (1), (1A), and (1B) of Section 93 was challenged. The court held that retrospective legislation is permissible if it is intended to cure a defect and does not impose a new levy. The court noted that the legislative intent to grant proportionate incentives was clear from the introduction of Section 41BB in the Bombay Sales Tax Act, 1959, and Section 93(1) in the Maharashtra Value Added Tax Act, 2002. The court concluded that the amendment was a legitimate exercise of legislative power to cure the deficiency noted in the judgment of this court.3. Proportionality of Incentives under the Package Scheme of Incentives:The court examined the proportionality of incentives under the Package Scheme of Incentives of 1993. It noted that Section 41BB and Section 93(1) disclosed a legislative intent to allow benefits only on a proportional part of the turnover. The judgment in Pee Vee Textiles had noted that the legislative intent could not be effectuated in the absence of rules prescribing the ratio for the grant of proportionate incentives. The court held that the amending legislation provided a mechanism for computing proportionate incentives and was not arbitrary or violative of Articles 14 or 19(1)(g) of the Constitution.4. Imposition of Penalty and Interest with Retrospective Effect:The court addressed the imposition of penalty and interest under Section 93(2). It held that while the liability to pay interest was justified, the retrospective imposition of a penalty was harsh and arbitrary. The court stated that a penalty is in the nature of a penal or quasi-penal exaction and cannot be imposed merely because it is lawful to do so. Consequently, the court held that the imposition of a penalty under Section 93(2) would operate only prospectively.Conclusion:The court upheld the constitutional validity of Maharashtra Act 22 of 2009, except for the imposition of a penalty under Section 93(2), which would take prospective effect. The petitions were disposed of with no order as to costs.