2025 (2) TMI 475 - SC - VAT / Sales Tax

State Government cannot revise assessments demanding exempted tax for non-submission of Form C and D under PSI 1993

THE STATE OF MAHARASHTRA & ORS. Versus PRISM CEMENT LIMITED & ANR.

The SC held that the State Government lacked competence to revise assessments for 2002-2005 and demand exempted tax from the assessee solely for ... Revision of assessments of the assessee-respondent made for the assessment years 2002-2003 to 2004-2005 - refund the exempted portion of the tax as per the provision of Package Scheme of Incentives 1993 on the sale of goods effected in the course of inter-State trade or commerce - HELD THAT:- The State Government though continues to have the power in public interest to grant exemption/partial exemption of tax on inter- State sale, trade or commerce but the same is subject to fulfilment of the requirements laid down under Sub-Section (4) of Section 8 of the CST Act which means that henceforth the exemption so granted would be admissible only if Form ‘C’ and ‘D’ are supplied by the dealer in context with the aforesaid interstate sale, trade and commerce. The absolute power initially conferred under Section 8(5) upon the State Government to grant exemption/partial exemption of tax in connection with inter-State sale, trade or commerce with the amendment was circumscribed and restricted to the fulfilment of the requirement of Section 8(4) of the CST Act which prescribes for the submission of Form ‘C’ and ‘D’ only w.e.f. 11.05.2002. However, such restrictions are prospective in nature and would not apply retrospectively to cases where absolute exemption was permitted much prior to the amendment. In the instant case, the assessee-respondent was granted tax benefits under the PSI 1993 issued in exercise of power under Section 8(5) of the CST Act as per the eligibility and entitlement certificates dated 20.02.1998 and 24.03.1998 respectively and that said benefit was available to the assessee-respondent up to the period of 2012 or to the extent of Rs.273.54 crore, whichever was earlier. The said benefit granted to the assessee-respondent was not with any restriction, much less the condition of submission of Form ‘C’ and ‘D’. Thus, on the basis of such exemption granted by the petitioner vide Eligibility Certificate dated 20.02.1998 and Entitlement Certificate dated 24.03.1998, a substantive right had accrued to the respondent to claim the said benefit up to the year 2012 or to the extent of Rs.273.54 crore - in view of the amendment of Section 8(5) by the Finance Act, 2002, the State Government ceases to have power to grant exemption in respect of sale of goods covered under Section 8(2) but that is not the issue herein. The precise issue in the present case is whether the aforesaid amendment would take away the right which had accrued to the assessee-respondent under the Eligibility/Entitlement certificates wherein absolute exemptions were granted without any condition of submission of Form ‘C’ and ‘D’. In the case at hand, the assessee-respondent was held eligible for absolute exemption under the PSI 1993 issued in exercise of power under Section 8(5) of the CST Act as per Eligibility certificate dated 20.02.1998 and Entitlement certificate dated 24.03.1998 granting exemption to it from payment of tax under the BST Act and CST Act to the extent of Rs. 273.54 crore or up till 2012, whichever is earlier. The said exemption granted to the assessee-respondent was much prior to the enforcement of the Finance Act, 2002 with effect from 11.05.2002. Therefore, by virtue of the unamended Section 8(5) and the Notification issued thereunder as well as under the aforesaid Eligibility and Entitlement certificates, a substantive right of exemption from payment of tax had accrued to the assessee-respondent - The requirement for fulfilling the condition of Section 8(4) of the CST Act for getting the benefit of tax exemption came subsequently after the amendment of Section 8(5) with effect from 11.05.2002 and would apply prospectively to transactions in respect of which eligibility and entitlement certificates are issued subsequently. Conclusion - The State Government was not competent to issue the impugned notices for revising the assessment of the assessee-respondent and to demand the exempted tax only for the reason that the assessee-respondent has not submitted Form ‘C’ and ‘D’ in support of inter-State sale, trade & commerce. The requirement of submission of Form ‘C’ and ‘D’ would apply prospectively after 11.05.2002 i.e., after the Finance Act of 2002. The appeal lacks merit and hence dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether exemption from tax granted under a state incentive scheme issued under Section 8(5) of the CST Act, as it existed prior to amendment, could be withdrawn or made conditional by the subsequent amendment to Section 8(5) effected by the Finance Act, 2002 with effect from 11.05.2002, where eligibility and entitlement certificates granting absolute exemption had already been issued. 2. Whether the amended Section 8(5), which makes exemptions subject to the fulfilment of Section 8(4) (production of Form 'C'/'D'), operates retrospectively to deprive rights accrued under notifications or certificates issued before 11.05.2002. 3. Whether the State could, without revoking entitlement/eligibility certificates and without notice or opportunity of hearing, issue trade circulars and assessment revision notices seeking to deny previously granted absolute exemptions on the ground of non-production of Form 'C'/'D' after the amendment. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Effect of the 2002 amendment to Section 8(5) on pre-existing exemptions granted under unamended Section 8(5) Legal framework: Prior to amendment, Section 8(5) was an overriding provision empowering State Government to grant full or partial exemption from tax on inter-State sales in the public interest, and by virtue of its non-obstante language it overrode Sections 8(1) and 8(4). Section 8(4) required declarations in Form 'C'/'D' for inter-State sales under Section 8(1). The Finance Act, 2002 amended Section 8(5) to make exemptions in respect of sales to a registered dealer or the Government explicitly subject to the requirements of Section 8(4), i.e., production of Form 'C'/'D'. Precedent treatment: The Court referenced its prior decision holding that an exercise of power under unamended Section 8(5) included dispensing with Form 'C'/'D' (Shree Digvijay). The amendment was expressly enacted to address and limit that precedent. Interpretation and reasoning: The amended Section 8(5) curtailed the erstwhile absolute power by making future exemptions conditional on compliance with Section 8(4). The Court construed this change as a prospective regulation of the State's power: it modifies the conditions applicable for grants made after 11.05.2002 but does not, by express language or necessary implication, extinguish rights already accrued under notifications or certificates issued under the unamended provision. Ratio vs. Obiter: Ratio - the amendment to Section 8(5) is prospective in operation and cannot retrospectively nullify substantive rights accrued under the unamended provision absent express legislative intent. Conclusion: The 2002 amendment did not have the effect of withdrawing or conditioning exemptions already conferred under unamended Section 8(5); beneficiaries of absolute exemptions granted prior to 11.05.2002 retain the substantive rights conferred by those grants for the period and extent specified in their certificates. Issue 2: Retrospectivity - whether amended Section 8(5) can be applied retrospectively to deny previously accrued benefits Legal framework: Principle that statutes are prima facie prospective; retrospective operation requires express words or necessary implication. Reference to General Clauses Act principles on repeal/amendment preserving rights accrued under prior law. Precedent treatment: The Court relied on authorities establishing that benefits conferred before an amendment remain protected and that withdrawal of a fixed-period exemption during its currency is arbitrary and impermissible unless statute so provides (as illustrated by cited precedents concerning entitlement certificates and fixed-period exemptions). Interpretation and reasoning: The amendment lacks express retrospective language. Applying it retrospectively would impair vested rights and create new disabilities in respect of past transactions, contrary to the presumption against retrospective operation. Therefore, the restriction (requirement of Form 'C'/'D') introduced w.e.f. 11.05.2002 applies prospectively to exemptions and certificates issued after that date. Ratio vs. Obiter: Ratio - absence of explicit retrospective intent compels a prospective construction; accrued substantive rights under prior law are protected until properly revoked in accordance with law. Conclusion: The amended provision does not operate retrospectively; it cannot be invoked to deprive beneficiaries of exemptions already accrued under the unamended law. Issue 3: Legality of unilateral administrative action (trade circulars and assessment revision notices) to deny pre-existing exemptions without revocation, notice or hearing Legal framework: Principles of protection of substantive rights, requirement of notice and opportunity before depriving vested benefits; limits on executive action to alter rights conferred by statutory exercise or certificates. Precedent treatment: Reliance on cases holding that premature deprivation of exemption rights already accrued is arbitrary and that the State cannot, by subsequent notification, take away rights earlier granted for a fixed period unless statutory provision permits. Interpretation and reasoning: Where an entitlement certificate and eligibility certificate granted absolute exemption for a specified period/amount, those certificates create a substantive right. The State's issuance of trade circulars and Section 38 notices purporting to revise assessments and demand exempted tax on the ground of non-production of Form 'C'/'D' - without revoking the certificates or affording notice and hearing - is legally untenable. The amended Section 8(5) does not itself nullify previously issued certificates nor does it authorize unilateral administrative retraction absent revocation following due process. Ratio vs. Obiter: Ratio - administrative authorities cannot deprive a taxpayer of accrued exemption rights through circulars or notices premised on a prospective legislative amendment without formally revoking the entitlement and providing notice and opportunity to the beneficiary. Conclusion: The State was not competent to issue the impugned circulars and assessment revision notices to deny the previously granted absolute exemption; absence of revocation, notice and opportunity renders such action invalid. Cross-references and synthesis The issues are interrelated: (i) the amendment to Section 8(5) curtailed future grant-making power (Issue 1), (ii) it does not operate retrospectively to affect accrued rights absent express legislative intent (Issue 2), and (iii) consequently administrative attempts to rely on the amendment to rescind pre-existing certificates without due revocation procedure and without notice/hearing are invalid (Issue 3). Precedents emphasizing protection of vested exemption rights and the presumption against retrospectivity underpin the Court's conclusions.