2016 (7) TMI 857 - HC - VAT and Sales Tax

Court Invalidates Rule 31AA for Retroactive Application, Contrary to Law

The court held that Rule 31AA, introduced with effect from March 24, 1995, was illegal and contrary to law as it sought to apply retrospectively and ... Constitutional validity of Sections 41B of the Maharashtra Sales Tax Act, 1959 - whether a different mechanism for calculating the Notional Sales Tax Liability can be introduced with retrospective effect from 01.01.1980 by inserting Section 41B to the Act and Rule 31AA to the Rules, so as to defeat the rights vested in the units established under the 1983 Scheme prior to the insertion of Rule 31AA. Held that:- it has to be held that it is Rule 31AA, though not Section 41B, which is repugnant to the industrial policy as declared by the State in 1983 Scheme. Accordingly it is held that, Rule 31AA introduced with effect from March 24, 1995 to the extent it is repugnant to the said industrial policy and to the extent it seeks to apply to the units established under 1983 Scheme retrospectively, to the extent that it provides that the calculation of CQB under the 1983 Scheme has to be made by ignoring the exemption provisions contained under the sales tax law, is illegal and contrary to law. - Decided in favor of assessee. Issues Involved:1. Constitutional validity of Sections 41B of the Maharashtra Sales Tax Act, 1959, and Rule 31AA of the Maharashtra Sales Tax Rules, 1959.2. Whether the retrospective application of Section 41B and Rule 31AA from 01.01.1980 is valid.3. Whether the new mechanism for calculating Notional Sales Tax Liability introduced by Section 41B and Rule 31AA can defeat vested rights under the 1983 Scheme.4. Applicability of the doctrine of promissory estoppel against statutory provisions.5. Whether Rule 31AA is contrary to the provisions of the Act and the 1983 Scheme.Detailed Analysis:1. Constitutional Validity of Sections 41B and Rule 31AA:The petitioners challenged the constitutional validity of Sections 41B and Rule 31AA, arguing that these provisions, to the extent they are inconsistent with para 2.11 of the 1983 Government Resolution (GR), are bad in law. They claimed that these provisions retrospectively imposed new liabilities, undermining the full exemption granted under the 1983 Scheme. The respondents argued that Section 41B and Rule 31AA are in consonance with the method prescribed under para 2.11 of the 1983 GR.2. Retrospective Application from 01.01.1980:The petitioners contended that the retrospective application of Section 41B and Rule 31AA from 01.01.1980 was invalid as it created new liabilities not contemplated under the 1983 Scheme. They argued that the provisions of Rule 31AA were framed beyond the rule-making powers contained in Section 74 of the Act and were void ab initio. The respondents maintained that these provisions were merely clarificatory and did not adversely affect the petitioners.3. New Mechanism for Calculating Notional Sales Tax Liability:The core dispute was whether the new mechanism introduced by Section 41B and Rule 31AA could retrospectively alter the method of calculating Notional Sales Tax Liability, thereby defeating the vested rights of units established under the 1983 Scheme. The petitioners argued that the method of calculating CQB should be as per para 2.11 of the 1983 GR, considering the maximum tax payable under the Act and Rules, including the exemption provisions. The respondents contended that the calculation should be as per Section 41B and Rule 31AA, considering the maximum rates of taxes levied under the Schedule to the Act.4. Applicability of Promissory Estoppel:The petitioners invoked the doctrine of promissory estoppel, arguing that they had set up their unit in the backward area based on the promise contained in the 1983 GR, which was now being arbitrarily taken away by the retrospective application of Rule 31AA. The respondents countered that promissory estoppel could not be invoked against statutory provisions and that Rule 31AA was clarificatory, not introducing any new rule of assessment or adversely affecting the petitioners.5. Rule 31AA's Consistency with the Act and 1983 Scheme:The petitioners argued that Rule 31AA was inconsistent and contrary to the Act and the 1983 Scheme, placing units in backward areas in a worse position than those in developed areas. They claimed that the provisions were unconstitutional as they contravened Articles 14 and 19(1)(g) of the Constitution of India. The respondents denied these claims, asserting that Rule 31AA was in line with the 1983 Scheme and did not adversely impact the petitioners.Judgment:The court held that the legal issue was already settled in the case of Prasad Power Control Pvt. Ltd. vs. Commissioner of Sales Tax, where it was determined that a method of calculating CQB laid down in a scheme could not be changed retrospectively to divest vested rights. The court found that Rule 31AA, to the extent it directed the calculation of CQB by ignoring exemption provisions, was bad in law. The court concluded that Rule 31AA was repugnant to the industrial policy declared in the 1983 Scheme and could not retrospectively alter the vested rights of units established under the scheme. Consequently, the court declared Rule 31AA, introduced with effect from March 24, 1995, to be illegal and contrary to law to the extent it sought to apply retrospectively and ignored exemption provisions. The rule was made absolute with no order as to costs.