TaxTMI 
TaxTMI 
2013 (6) TMI 362
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....ince 1964, the Government of Maharashtra had introduced Package Schemes of Incentives to achieve a dispersal of industries outside the Bombay-Thane-Pune belt and to attract industries to underdeveloped and developing areas of the State. The Package Scheme of Incentives of 1964 was followed by amended schemes in 1969, 1973, 1976, 1979 and 1983. On 30 September 1988, the State Government notified a new package scheme of incentives for the period between 1 October 1988 and 30 September 1993 with a view to rationalize the scope, scale and mode of release of incentives and accelerate the dispersal of industries from the developed areas of the State to underdeveloped regions. The Package Scheme of Incentives of 1988 was succeeded by a scheme which was notified on 7 May 1993. Scheme of 1988 3. Under the Package Scheme of Incentives of 1988, areas of the State were classified into groups. Group-A comprised of developed areas where no incentives were available; Group-B comprised of areas where some development had already taken place; Group-C of areas which were less developed than those in Group-B; Group-D of the least developed areas not covered by Groups-A, B and C; and 'No Ind....
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....xed Assets outside the project scheme accepted by the Implementing Agency can be considered for the purposes of proportionate incentives during residual eligible period provided such acquisition is not less than 25% of the Gross Fixed Capital Investment at the end of the previous financial year of the Eligible Unit." By a G.R. dated 6 July 1994, paragraph 3.8(I)(i)(c) was amended and substituted by deleting the word "proportionate" from the Scheme of 1993. As a result, it was stipulated that an acquisition of new fixed assets outside the project scheme accepted by the implementing agency could be considered for incentives other than special capital incentives if the acquisition was not less than twenty five percent of the gross fixed capital investment. However, for the purposes of sales tax benefits, the quantum of entitlement would be limited to seventy five percent of that admissible to a new unit. Existing units were also entitled to benefits of the clause. Administrative Circular : the earlier decision of the Sales Tax Tribunal 5. By a circular of 17 January 1998, the Commissioner of Sales Tax stipulated that under the Scheme of 1993, incentives would be given in prop....
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....ingly; Provided that, no order under this section shall be passed without giving the dealer a reasonable opportunity of being heard. Explanation.- For the purposes of the provisions contained in section 41BA and 41BB the terms "Existing Unit, Eligible Unit, implementing Agency, Eligibility Certificate and Certificate of Entitlement" shall have the same meaning as provided in the relevant Package Scheme of Incentives" The Statement of Objects and Reasons accompanying the introduction of the Bill stipulated that the Bombay Sales Tax Act, 1959 was being amended "to restrict grant of incentives in proportion to goods manufactured in the expansion units located in the backward areas of the State". The decision in Pee Vee Textiles 8. Following its decision in Pee Vee Textiles, The Sales Tax Tribunal declined to make a reference to this Court on an application filed before it by the Commissioner of Sales Tax. A Sales Tax Application was thereafter filed under Section 61 of the Bombay Sales Tax Act, 1959 (The Commissioner of Sales Tax vs. Pee Vee Textile Ltd.). Sales Tax Application 8 of 2007 in Reference Application 90 of 2001 A Division Bench of this Court in a judgment dated....
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....duction attributable to the newly acquired fixed assets cannot be accepted." 3 At para 26 MVAT Act, 2002 9. The Maharashtra Value Added Tax Act, 2002 ( "the MVAT Act") was enacted by the State Legislature and came into force on 1 April 2005. Section 8(4) empowers the State Government to provide for an exemption from the payment of the whole of tax in respect of any class or classes of sales of goods effected by a unit holding a certificate of entitlement as defined in Section 88 to whom incentives are granted under any Package Scheme of Incentives, by way of exemption from the payment of tax. 10. Chapter XIV of the MVAT Act contains provisions in regard to the Package Scheme of Incentives. Section 88(a) defines the expression "Certificate of Entitlement" as a certificate issued by the Commissioner in respect of sales tax incentives under the relevant Package Scheme of Incentives. The expression "Eligibility Certificate" is defined in Section 88(c) to mean inter alia a certificate granted by SICOM or Director of Industries in respect of sales tax incentives under a Package Scheme of Incentives designed by the State Government. An eligible unit under clause (b) of Section 88....
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..... Section 3 of the Amending Act provides that Sub-section (1) of Section 91, as originally enacted, shall be substituted by sub-sections (1), (1A) and (1B) and shall be deemed always to have been substituted. As amended, sub-sections (1), (1A) and (1B) of Section 93 read as follows:- "(1) Notwithstanding anything to the contrary contained in any Package Scheme of Incentives, any Eligible Unit, to whom the Eligibility Certificate and Certificate of Eligibility have been granted at any time before or after the appointed day, on account of increase in the production capacity or, as the case may be, acquisition of new fixed capital assets, shall be entitled to draw the benefits in any year, only on that part of its turnover of sales or purchases as may be arrived at by applying the provisions of subsection (1A) to the total turnover of sales and purchases of the said unit in that year. (1A) In case where the Eligible Unit has, - (a) maintained separate accounts of sales and purchases and is able to identify the sales and purchases pertaining to the increase in the production capacity or, as the case may be, the said eligible investment, then the portion of the turnover eligibl....
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....r thing done in relation to such assessment, review, levy or collection under the provisions of the Maharashtra Value Added Tax Act, 2002 (hereinafter in this section referred to as "the Value Added Tax Act"), before the date of the commencement to the Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 2009 (hereinafter referred to as "the said Act"), shall be deemed to be valid and effective as if such assessment, review, levy or collection or action or thing had been duly made, taken or done under the Value Added Tax Act, as amended by the said Act, and accordingly,- (a) all acts, proceedings or things done or taken by the State Government or by any officer of the State Government or by any other authority in connection with the assessment, review, levy or collection of any such tax, shall, for all purposes, be deemed to be, and to have always been done or taken in accordance with law ; (b) no suit, appeal, application or other proceedings shall lie or be maintained or continued in any Court or before any Tribunal, officer or other authority, for the refund of any tax so paid, and (c) no Court, Tribunal, officer or other authority shall enforce any decree ....
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....esh levy of tax or the withdrawal of an exemption, unambiguously granted is never permissible even by way of validating legislation; (iv) A validating enactment only legalizes a levy already imposed, but does not impose a fresh tax; (v) The state legislature has by enacting Section 93 in its amended form, sought to collect a tax after the Petitioners have taken the benefit of the exemption and passed on the benefit, which is unreasonable.; (vi) For the subsequent years, the assesee cannot collect the tax from its customers because the legislation contemplates that it should have been collected earlier; (vii) The retrospective amendment to Section 93 does not seek to remove an ambiguity or to correct a cause of invalidity but in essence seeks to impose a fresh levy for the first time which is unreasonable and arbitrary; (viii) Under Sub-section (2) of Section 93, the assessee would be liable to pay not only the tax, but also interest and penalty which is manifestly unreasonable. On these grounds it has been urged that the amending and validating provisions offend Articles 14 and 19(1)g of the Constitution. 15. The following submissions have been urged by Mr.Aspi....
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....les Tax Act, 1959 and Section 93(1) in its original form in the Maharashtra Value Added Tax Act, 2002, the legislative intent to grant proportionate incentives was clear. Section 41BB and Section 93(1) were not enabling provisions or facilitative, but were restrictive in nature; (iv) The validation of an infirmity is always permissible so long as a legislative provision reflects an intent to tax and does not constitute an imposition of a new levy; (v) The basis of the judgment of the Division Bench of this Court in Pee Vee Textiles was that the principle of proportionality could not be enforced in the absence of rules. This basis was cured by the amended provisions of Section 93(1) by which proportionality has been mandated and a formula for the computation of proportionate incentives has been provided; (vi) In view of the settled principle of law laid down in judgments of Constitution Benches of the Supreme Court, the length of time over which an amendment is retrospective does not determine its constitutional validity. Similarly, the fact that the tax cannot be passed on by a dealer is of no consequence to its validity; and (vii) Section 93(1)(A) provides only a machi....
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....will be competent to the legislature to impose a tax on sales which had taken place prior to the enactment of the legislation." (ii) Though ordinarily a sales tax is intended to be passed on to the buyer, the power of the legislature is not conditional on the burden being passed on:- "It is no doubt true that a sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. But it is not an essential characteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. Whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pas it on to the consumer, is a matter of policy and does not affect the competence of the legislature. This question is concluded by the decision of this court in Tata Iron & Steel Co. Ltd. v. State of Bihar, (1958) SCR 1355: (AIR 195....
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....within the competence of the legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes Article 19, courts would naturally be circumspect and cautious. Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, Courts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the Court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the legislature for achieving its confiscatory purposes."At Para 12 The decision in Rai Ramkrishna has also laid down that the length of time over which a statute is retrospective in operation is not decisive as to its constitutionality. A validating enactment may conceivably operate retrospectively over a length of time, but that again is not a decisive test. The observations of the Supreme Court in that regard are as follows: "We do not think that such a mechanical test can be applied in determining the validity of the ret....
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....d product for whom it was made either by his paid employee or even by independent artisans on receipt of raw materials and labour charges. After the judgment of the Orissa High Court, the State Legislature enacted validating legislation to the effect that notwithstanding anything contained in any judgment, decree or order of any Court, the expression "manufacturer" occurring in the schedule to the notification shall always be deemed to have meant a person who by his own labour works up materials into suitable forms and a person who owns or runs a manufactory for the purpose of business. The intention of the Government in issuing the notification was not to give the benefit of the exemption to traders or shopkeepers who were only commission agents and who did not personally produce gold ornaments. The submission before the Supreme Court in challenge to the legislation was that an exemption was granted in exercise of a statutory power and while the legislature may withdraw an exemption, it could not do so retrospectively. Rejecting the submission, Chief Justice P.B. Gajendragadkar speaking for the Constitution Bench of the Supreme Court held as follows:- "The argument is, the powe....
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....nt to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the Legislature gives its own meaning and interpretation of the law under which tax was collected and by legislative fiat makes the new meaning binding upon courts. The Legislature may follow any one method or all of them and while it ....
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....t context, the Supreme Court observed as follows: "...the amendment of the Act was necessitated because of the Legislature's failure to bring out clearly in the principal Act its intention to separate the processed or split pulses from the unsplit or unprocessed pulses. Further the retrospective amendment became necessary as otherwise the State would have to refund large sums of money. The contention that the retrospective levy did not afford any opportunity to the dealers to pass on the tax payable to the consumers, has not much validity. The tax is levied on the dealer; the fact that he is allowed to pass on the tax to the consumers or he is generally in a position to pass on the same to the consumer has no relevance when we consider the legislative competence." At para 21 pages 223 & 224 The judgment is thus also an authority for the proposition that the fact that the dealer upon whom the tax is imposed, is not in a position to pass on the tax on his consumers has no relevance to the competence of the legislature. An amendment is permissible even when the principal Act fails to bring out clearly the intention of the legislature. 23. In The Government of Andhra Prade....
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.... by giving a package of incentives including an exemption from excise duties, several notifications exempting excisable goods were issued. The Petitioners before the Supreme Court in R.C. Tobacco (P) Ltd. v. Union of India (2005) 7 SCC 725 had set up units in a specified growth centre and claimed the benefit of an exemption notification which was initially allowed, but subsequently disallowed. During the pendency of the proceedings before the High Court, the Finance Act of 2003 was enacted by Parliament by which exemptions available to manufacturers of cigarettes were rescinded retrospectively. As a consequence, the excise duty which was refunded to the Petitioners became liable to be recovered; no further refunds could be made and the Petitioners became liable to pay excise duty which was not paid when the exemption was in force. This was challenged inter alia on the ground that no reasons were given for retrospectively removing a benefit which was consciously granted. While repelling the challenge Hon'ble Mrs. Justice Ruma Pal, delivering the judgment of the Supreme Court held as follows: "A law cannot be held to be unreasonable merely because it operates retrospectively. ....
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.... Statutory Interpretation11th Edition 2008 page 48 Justice G.P. Singh has succinctly summarised the position thus : "... the Supreme Court has rejected constructions advanced in respect of validation Acts which if accepted would have led to the conclusion that the Legislature failed to achieve the object of validating prior executive acts which it avowedly had as expressed in the preamble and also apparent from other provisions of the Acts in question Krishnachandra Gangopadhyaya v. Union of India, AIR 1975 SC 1389 p. 1393. A validating Act may even make ineffective judgments and orders of competent courts provided it by retrospective legislation removes the cause of invalidity or the basis which had led to those judgments. Bhubaneshwar Singh v. Union of India, JT 1994 (5) SC 83, p. 88." 26. Bennion on Statutory Interpretation Fifth Edition page 189 defines the purpose of a Validation Act as follows : "Validation Acts A validation Act removes actual or possible voidness, disability or other defect by confirming the validity of anything which is or may be invalid." 27. On behalf of the Petitioners reliance has been placed on the dissenting judgment of Hon'ble Mr.Justice....
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....he 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. 29. We are unable to accede to the submission. Section 41BB of the Bombay Sales Tax Act, 1959 was introduced into the statute in 2001. Section 41BB 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. Th....
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....e the State Cabinet by the Principal Secretary, (Revenue) in August 2009 stated that as a result of the decision of this Court for a period of five years after 1 April 2005, there was a revenue implication of an amount of nearly rupees five hundred crores. Counsel appearing on behalf of the Petitioners criticised this approach and submitted that the object was only to override the judgment of this Court. The fact that the decision of this Court would result in serious revenue implications was certainly not a matter that was extraneous to the legislative process. In Hiralal Ratanlal (supra), the Supreme Court noted that the retrospective amendment had become necessary as otherwise the State would have to refund large sums of money. This was, in the view of the Supreme Court, not a reason which would impinge upon the constitutional validity of a retrospective amendment that was adopted by the State Legislature. 32. Essentially, the issue before the Court is as to whether the validating legislation has cured the vice that was noted in the judgment of this Court. Alternately, whether the same judgment could have been rendered despite the amended provisions of the law. The judgment o....
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....the representations made, the conduct of the Government, and equities arising therefrom, may all be taken into consideration for judging whether a particular piece of legislation, initiated by the Government and enacted by Parliament, is reasonable." At para 34 page 87 34. In Madan Mohan Pathak's case, a settlement was arrived at between the Life Insurance Corporation and its employees in relation to various issues, including the payment of bonus on 24 January 1974. Bonus was paid to Class III and IV employees for two years until 31 March 1975, but not thereafter. In a writ proceeding filed before the Calcutta High Court by the Association of Employees, a Learned Single Judge issued a writ of Mandamus, directing LIC to act in accordance with the terms of settlement and a writ of prohibition restraining LIC from refusing to pay the cash bonus along with the salary for the month of April 1976. In the meantime, legislation was enacted during the pendency of a Letters Patent Appeal by which it was provided that the settlement in so far as it related to the payment of an annual cash bonus to Class III and IV employees shall not have any force or effect from 1 April 1975. The Lett....
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....ttu (as His Lordship then was) held that as a result of the retrospective amendment "for the first time, tax is sought to be imposed on imported sugar by inserting the words "produced and manufactured in India" after the word "sugar" in Entry 31-B of the Fifth Schedule retrospectively from the inception of the statute itself". At para 36 page 151 Thus what was in issue before the Karnataka High Court was the imposition for the first time of a tax on imported sugar. This was an unexpected and unforeseen liability since on the date of the transaction there was no charge or liability under the Act. A similar position arose before the Kerala High Court in a judgment of a Learned Single Judge in Mega Traders vs. State of Kerala, (1991) 83 STC 59 where what was imposed was held to be an "unreasonable and unexpected fresh burden". At para 26 page 81 The judgment of a Division Bench of this Court in Olympic Oil Industries Ltd. vs. State of Maharashtra, (1987) 65 STC 191 has been relied upon in support of the proposition that the retrospective withdrawal of an exemption from sales tax would be violative of Article 14 of the Constitution since the unit having not collected tax from the parti....