2016 (8) TMI 922 - HC - VAT and Sales Tax

Court rules against retrospective application of Section 41D & Rule 31AAA, upholds promissory estoppel.

The court ruled in favor of the petitioners, holding that the retrospective application of Section 41D and Rule 31AAA was not permissible in this case. ... Retrospective amendment - curtailment of the sales tax incentives by way of deferral – constitutional validity - impact on completed assessment - section 41D of the Bombay Sales Tax Act, 1959 - the Maharashtra Tax Laws (Levy and Amendment) Act, 1995 - Rule 31AAA of the Bombay Sales Tax Rules, 1959 – manufacture and sale of jelly filled telephone cables. Held that: - the scheme will remain in operation for a period of five years from 1st April, 1983 to 31st March, 1988. Consistent with the objectives of the scheme, however, the Government may, at any time, make any amendments to the scheme. Any larger question much less about the legality and validity of the provisions need not be considered. The petition must succeed without examining the issue as to whether section 41D and Rule 31AAA can be held to be unconstitutional and ultra vires Articles 14 and 265 of the Constitution of India. The amended provisions cannot be invoked and applied in the present factual controversy. Decided in favor of petitioner / asseessee. Issues Involved:1. Constitutional validity of Section 41D of the Bombay Sales Tax Act, 1959 and Rule 31AAA of the Bombay Sales Tax Rules, 1959.2. Application of retrospective amendments to the petitioners' case.3. Doctrine of promissory estoppel and its applicability.4. Legality of the notice issued under Section 57 of the Bombay Sales Tax Act.5. Interpretation of the Package Scheme of Incentives, 1983 and related agreements.Detailed Analysis:1. Constitutional Validity of Section 41D and Rule 31AAA:The petitioners challenged the constitutional validity of Section 41D of the Bombay Sales Tax Act, 1959, and Rule 31AAA of the Bombay Sales Tax Rules, 1959, asserting that these provisions are ultra vires the Constitution of India. They argued that these provisions curtail the sales tax incentives by way of deferral availed by them under the Package Scheme of Incentives, 1983. The court examined the statutory framework and the amendments, noting that Section 41D, inserted by Maharashtra Act XVI of 1995, imposes an annual ceiling on benefits availed under the Package Scheme of Incentives, and Rule 31AAA appraises the annual production capacity of eligible units.2. Application of Retrospective Amendments:The petitioners contended that Section 41D and Rule 31AAA, introduced retrospectively, should not apply to their case, as their assessment for the period 1991-92 was finalized before these amendments were enacted. The court agreed, stating that the amendments, effective from 1st October 1995, cannot govern assessments finalized before this date. It emphasized that retrospective application of these provisions would be unjust and not in conformity with the law prevailing at the time of the original assessment.3. Doctrine of Promissory Estoppel:The petitioners argued that the doctrine of promissory estoppel prevents the respondents from curtailing the incentives promised under the Package Scheme of Incentives, 1983. They highlighted that they had made significant investments based on the assurances provided by the scheme. The court acknowledged the applicability of promissory estoppel, noting that the petitioners had altered their position based on the promises made by the state and that these promises cannot be unilaterally revoked to the detriment of the petitioners.4. Legality of the Notice Issued Under Section 57:The notice issued under Section 57 of the Bombay Sales Tax Act proposed to revise the assessment order by restricting the sales tax incentives and levying interest and penalties. The petitioners argued that this notice was without jurisdiction and in excess of the authority conferred by the Act. The court scrutinized the notice and the basis for its issuance, concluding that the notice was improper as it sought to apply the amendments retrospectively to a closed matter, which is not supported by any legal provision.5. Interpretation of the Package Scheme of Incentives, 1983:The court examined the terms of the Package Scheme of Incentives, 1983, and the related agreements, eligibility certificates, and entitlement certificates. It found that there was no explicit ceiling on the maximum production capacity in the scheme or the certificates issued to the petitioners. The court referred to previous judgments, including Maharashtra Metal Powders Pvt. Ltd. and PCE VEE Textile Ltd., which held that such schemes should be interpreted in favor of the industrial units to promote industrial growth in backward areas. The court concluded that the petitioners were entitled to the incentives as per the original terms of the scheme without the retrospective application of the amendments.Conclusion:The court ruled in favor of the petitioners, holding that the retrospective application of Section 41D and Rule 31AAA was not permissible in this case. The court upheld the principles of promissory estoppel and quashed the notice issued under Section 57 of the Bombay Sales Tax Act. The writ petition was allowed, and the rule was made absolute in terms of prayer clause (c).