2014 (4) TMI 64 - SC - VAT and Sales Tax

Supreme Court rules against retrospective notifications, clarifying limits of State Government power

State of Rajasthan And Others Versus M/s. Basant Agrotech (India) Ltd. And Others

The Supreme Court upheld the High Court's decision, declaring the retrospective application of the notification dated 23.1.2009 as ultra vires. The ... Environment and health cess - Retrospective applicability of the notification - Delegation power - Whether the amended notification has been issued in consonance with the power given under the Act - Constitutional validity of Chapter VII of the Rajasthan Finance Act, 2008 - Words “time to time” u/s 16 interpretated - Held That:- Notification as far as it covers the period prior to the date of publication of the notification in the official Gazette is really a transgression of the statutory postulate – There can be no cavil that the legislature has the authority to pass a law both retrospectively and prospectively within the constitutional parameters. There is no doubt that unlike legislation made by sovereign legislature, subordinate legislation made by a delegate cannot have retrospective effect unless the rule-making power in the concerned statute expressly or by necessary implication confers power in this behalf - The Court opined that the same did not affect the vested rights as nothing had been done earlier and hence, no right had vested in the citizens - We may state that the said enactment was treated to be valid as it did not invite the wrath of Article 14 of the Constitution - We are really not testing the retrospective applicability of the law made by the legislature but a notification issued by the State Government in exercise of power conferred under a statutory provision. Needless to say, there is a sea of difference between the two - The aforesaid authority is of no assistance to the appellant-State because the controversy that has emanated in that case is altogether a different one - To put it differently, the proposition laid down in the aforesaid authority does not buttress the submission sought to be urged - In fact, it is farther away from the “North Pole”. Words “time to time” u/s 16 of the Act - We really cannot discern from the language employed in the said provision that because of the use of the words “time to time” a notification can be issued imposing a rate of tax with retrospective effect or apply the notification retrospectively - A notification can only be issued prospectively, and we are inclined to think so as legislature has deliberately used the words “from time to time”. The use of the said words in the Section 16 of the Act cannot be said to have conferred the jurisdiction on the State Government or delegate to issue a notification in respect of the rate with retrospective effect - Such an interpretation does not flow from the statute which is the source of power - Thus, the notification as far as it covers the period prior to the date of publication of the notification in the official Gazette is really a transgression of the statutory postulate – Thus, we find that the view expressed by the High court on this score is absolutely flawless and we concur with the same - The lis in these appeals fundamentally pertain to the retrospective applicability of the notification issued by the State Government as regards the rate of cess on the major mineral, i.e. Rock Phosphate - The appeals, being devoid of merit, stand dismissed – Decided against revenue. Issues Involved:1. Constitutional validity of Chapter VII of the Rajasthan Finance Act, 2008.2. Competence of the State Legislature to impose environment and health cess on major minerals.3. Nature of the cess as a fee or tax.4. Retrospective application of the notification dated 23.1.2009 amending the earlier notification dated 25.2.2008.Detailed Analysis:1. Constitutional Validity of Chapter VII of the Rajasthan Finance Act, 2008:The respondent challenged the constitutional validity of Chapter VII of the Rajasthan Finance Act, 2008, which provides for the levy of cess on mineral rights. The High Court of Rajasthan was approached to declare this chapter unconstitutional, arguing that the State Legislature lacked the competence to impose such a cess as the field is occupied by the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), an enactment by the Parliament.2. Competence of the State Legislature:The respondent contended that the State Legislature had no competence to impose the environment and health cess on major minerals, as the MMDR Act and the Rules framed under it occupy the field. The power to levy tax on mineral rights in respect of major minerals is vested in the Parliament under Entries 54 and 55 of List-I of the Seventh Schedule to the Constitution of India. The State Legislature could not have enacted such a law for imposing cess on major minerals.3. Nature of the Cess:The respondent argued that the cess in question is in the nature of a fee and not a tax. They relied on the decision in India Cement Ltd. v. State of Tamil Nadu, where it was held that royalty is a tax. The State, on the other hand, relied on the Constitution Bench decision in State of W.B. v. Kesoram Industries Ltd., which differentiated between tax and fee. The Court in Kesoram Industries stated that a levy in the nature of a tax for augmenting the revenue resources of the State or a fee for rendering services by the State does not encroach upon the field of regulation and control belonging to the Central Government.4. Retrospective Application of the Notification:The High Court declared the notification dated 23.1.2009, which amended the earlier notification dated 25.2.2008 with effect from 1.4.2008, as ultra vires. The Court held that the notification could only be prospectively effective and not have retrospective operation, as the legislature had not conferred the power on the Executive to issue such a notification retrospectively. The Supreme Court examined whether the retrospective application of the notification was valid and justified.The Supreme Court referred to several precedents and principles of fiscal legislation, emphasizing that a subordinate legislation can be given retrospective effect only if the principal Act contains a power in this behalf. The Court concluded that the words 'from time to time' in Section 16 of the Act do not confer the power to issue notifications with retrospective effect. The notification could only be issued prospectively.Conclusion:The Supreme Court upheld the High Court's decision, declaring the retrospective application of the notification dated 23.1.2009 as ultra vires. The appeals were dismissed, and the Court refrained from imposing costs despite the appellant's change of stance. The judgment clarified that the State Government or its delegate does not have the power to issue notifications with retrospective effect unless explicitly provided by the statute.