TaxTMI 
TaxTMI 
TaxTMI 
2013 (7) TMI 668
X X X X Extracts X X X X
X X X X Extracts X X X X
.... above writ petition on 25th September 2009, further proceedings under the impugned notices have been stayed by this Court. 2. By the aforesaid three trade circulars, the Commissioner has informed the trade that under Section 8(5) of the Central Sales Tax Act, 1956 ('CST Act' for short) as amended by Finance Act 2002 with effect from 11th May 2002, the State Governments are empowered to grant exemption only in respect of inter State sales to the registered dealers or to the Government covered under Section 8(1) of the CST Act unless such sales are supported by declarations in form 'C' or 'D' respectively as provided under Section 8(4) of the CST Act. By the said circulars, the traders are further informed that as a result of the amendment, any Notification issued under Section 8(5) of the CST Act prior to 11th May 2002, which is contrary to the amended Section 8(5) shall stands amended accordingly. In other words, according to the Commissioner, Section 8(5) of the CST Act as amended by the Finance Act 2002 restricts the power of the State Government to grant exemption from payment of tax in respect of sales of goods covered under Section 8(1) subject to ful....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod specified in the Eligibility / Entitlement Certificate issued by the respective authorities under the 1993 Scheme. 6. As per the Entitlement Certificate originally issued to the unit of the petitioner No.1 on 24th march 1998, the aggregate quantum of exemption from payment of tax under the BST Act and the CST Act in respect of sales of goods manufactured in the unit of the petitioner No.1 was upto Rs. 273.54 crores and was required to be availed during the period from 1st April 1998 to 31st March 2003. Subsequently, the quantum of exemption has been enhanced and the period for availing the exemption has also been extended upto 31st March 2012. Thus, under the 1993 Scheme, the unit of the petitioner No.1 was exempted from payment of tax on all sales of goods made under the BST Act and CST Act upto the monetary ceiling specified in the Entitlement Certificate or till 31st March 2012 whichever was earlier. 7. It is not in dispute that the unit of the petitioner No.1 being covered under the 1993 Scheme, the goods manufactured in the unit of petitioner No.1 falling under Entry E3 of the Notification issued under Section 41 of the BST Act, when sold within the State were exempt f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en under the amended Section 8(5), the State Governments are empowered to exempt the tax payable by any dealer under Section 8(2) and, therefore, the petitioners are entitled to avail the benefit of exemption under Notification dated 5th July 1980 upto the quantum specified and upto the period specified in the Entitlement Certificate. 10. To appreciate the rival contentions, we quote herein below entire Section 8 of the CST Act as amended by Finance Act 2002 : "Rates of tax on sales in the course of inter State trade or commerce. 8. (1) Every dealer, who in the course of inter State trade or commerce- (a) sells to the Government any goods; or (b) sells to a registered dealer other than the Government goods of the description referred to in sub-section (3); shall be liable to pay tax under this Act, with effect from such date as may be notified by the Central Government in the Official Gazette for this purpose, which shall be two per cent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, or, as the case may be, under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny other form of power; (c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale; (d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c). (4) The provisions of sub-section (1) shall not apply to any sale in the course of inter State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner (a) a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority; or (b) if the goods are sold to the Government, not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorized officer of the Government : &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r classes of goods as may be specified in the Notification, or that the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the Notification; (b) that in respect of all sales of goods or sales of such classes of goods as may be specified in the Notification, which are made, in the course of inter State trade or commerce, by any dealer having his place of business in the State or by any class of such dealers as may be specified in the Notification to any person or to such class of persons as may be specified in the Notification, no tax under this Act shall be payable or the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the Notification." 12. On perusal of Section 8(1) of the CST Act, as amended by Finance Act 2002, it it seen that every dealer, who in the course of inter State trade or commerce sells any goods to the Government or sells goods of the description referred to in Section 8(3) to a registered dealer other than the Government is liable to pay tax at two per cent of his turnover ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Government to dispense with the requirements of Section 8(4) in respect of the sales covered under Section 8(1) of the CST Act. In other words, the Apex Court in the aforesaid case has held that the State Governments under Section 8(5) of the CST Act can waive the requirement of Section 8(4), viz. furnishing particulars in form 'C' or 'D' in respect of sales covered under Section 8(1) of the CST Act. 17. To overcome the decision of the Apex Court in the case of Shree Digvijay Cement Company Limited (supra), the legislature amended Section 8(5) by Finance Act 2002. Clause 145 of the notes on clauses issued to explain the clauses in the Finance Bill 2002 makes it clear that the object of amending Section 8(5) of the CST Act by Finance Act 2002 is inter alia to make furnishing of form 'C' compulsory by the dealer except in respect of exempted goods and to withdraw powers of the State Governments to waive the requirement of 'C' form specified under Section 8(4) of the CST Act. In other words, as per the notes on clauses, Section 8(5) is amended by Finance Act 2002 with a view to withdraw the powers of the State Governments to waive the requirement of f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the requirements laid down in sub-section 4 by the dealer" in the opening part of the amended Section 8(5) would necessarily apply where the State Governments intend to grant exemption in respect of sales covered under Section 8(1) and not in respect of the sales covered under Section 8(2) because the requirements of Section 8(4) has to be fulfilled only in respect of sales covered under Section 8(1) and not in respect of sales covered under Section 8(2). If the intention of the legislature was to restrict the powers of the State Governments to grant exemption only in respect of sales covered under Section 8(1) by fulfilling the requirements of Section 8(4), then, the legislature would not have made any references to the exemption to be granted in respect of the sales covered under Section 8(2) in Section 8(5)(a) and in Section 8(5)(b). The very fact that Section 8(5) as amended by Finance Act 2002 refers to the powers of the State Governments to issue Notification prescribing rates of tax lesser than those specified in Section 8(2), clearly shows that even under the amended Section 8(5), the State Governments are empowered to grant exemption in respect of sales covered under Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to any person or class of persons". Since the requirements of fulfilling the conditions of Section 8(4) apply only in the case of sales of goods to 'registered dealer or the Government' it must be held that the said conditions would apply only in respect of sales of goods to the registered dealer / Government under Section 8(1) and not in respect of sales of goods to any person or persons covered under Section 8(2) of the CST Act. 24. Relying on the decisions of the Apex Court in the case of State of Madras V/s. N.K. Nataraja Mudaliar reported in (1968) 22 STC 376 (S.C.) and Video Electronics Private Limited V/s. State of Punjab reported in (1990) 77 STC 82 (S.C.), it is contended on behalf of the petitioners that the power to grant exemption conferred upon the State Governments under Section 8(5) is to meet the unforeseen circumstances. For example, if there is famine in the State of Bihar and the dealers in the State of Maharashtra want to sell goods to a charitable institution in the State of Bihar at a reasonable price for distribution to those who are starving at Bihar, it would be in public interest for the State of Maharashtra to grant exemption to the dealers in Ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ernments to grant exemption only in respect of sales of goods to registered dealers or the Government, even then, the said amendment would not affect the vested rights of the petitioners to avail exemption upto the quantum specified / the date specified under the 1993 Scheme, as per Notification dated 5th July 1980 issued under Section 8(5) as it stood prior to the 2002 amendment. The submission is that though the amendment to Section 8(5) by Finance Act 2002 became effective from 11th May 2002, the right of the petitioners to avail exemption on all sales under the BST Act and the CST Act upto the quantum specified and date specified got crystallised prior to 11th May 2002 and, therefore, unless the legislature has specifically taken away that right by retrospective amendment, it is not open to the Revenue to contend that in view of the amendment to Section 8(5) by Finance Act 2002, the rights vested in the petitioners to avail total exemption upto quantum specified or till 31st March 2012 whichever is earlier has been taken away. In support of the above contention, reliance is placed on the decisions of the Apex Court in the case of Govinddas V/s. Income Tax Officer reported in (1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....registered dealer / Government but also were empowered to grant total or partial exemption in respect of inter State sales to unregistered dealers or any person or class of persons specified in the Notification. After the 2002 amendment, the Parliament by inserting the words 'on the fulfillment of the requirements laid down in sub-section (4) by the dealer' in the operative part of Section 8(5) made it expressly clear that the State Governments can grant exemption only in respect of those sales which comply with the requirements of Section 8(4). The submission is that since the requirements of Section 8(4) are required to be fulfilled only in respect of sales covered under Section 8(1), the powers of the State Governments under the amended Section 8(5) must be held to be restricted to sales to registered dealer / Government covered under Section 8(1) and not in respect of the sales covered under Section 8(2) of the CST Act. 29. It is further contended on behalf of the Revenue that reference to the words "sub-section 2" and the words "to any person or such class of persons as may be specified in the Notification" in the amended Section 8(5) (a) and (b) no doubt create diffi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n support of the above contention, reliance is placed on the decision of the Apex Court in the case of Labour Contract Cooperative Society V/s. Director of Mines & Geology reported in 1993 Supp (2) SCC 315, McMonagle V/s. Westminster City Council reported in 1990 2 AC 720 at page 726 and Salman V/s. Duncombe reported in (1886) 11 AC 627 (PC). 31. Referring to the 'report of the Taxation Enquiry Commission' submitted in the year 195354, it is contended on behalf of the Revenue that unlike in the case of registered dealers who have to execute declaration in 'C' form duly signed by the appropriate authority of the State Government in the case of unregistered dealers, there being no control, there is every possibility of avoidance of tax when sales are made to unregistered dealers. To prevent such revenue loss by way of tax avoidance, the legislature by the 2002 amendment to Section 8(5) has restricted the powers of the State Governments to grant exemption only in respect of sales in the course of inter State trade or commerce who fulfill the requirement of Section 8(4) i.e. sales to registered dealers or the Government. 32. It is contended on behalf of the Revenue th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ha Prabha V/s. Union of India reported in (1996) 7 SCC 426. 35. It is further contended on behalf of the Revenue that where the statute is amended, the benefits conferred upon the assessee under the unamended statute would come to an end to the extent the statute is amended. In such a case, it is not open to the assessee to contend by invoking the principles of promissory estoppel, that the accrued benefits cannot be taken away by statutory amendment, because, the principles of promissory estoppel do not apply to statutory amendments. In support of the above contention, reliance is placed on the decision of the Apex Court in the case of Excise Commissioner V/s. Ram Kumar reported in (1976) 3 SCC 540 and Jit Ram Vs. State of Haryana reported in (1981) 1 SCC 11. 36. It is further contended on behalf of the Revenue that the amendment to Section 8(5) by Finance Act 2002 is not retrospective in nature as it does not take away the benefit granted or made available under the 1993 Scheme. The amendment neither provides for new levy of taxes nor does it reduces the gross amount of exemption nor does the period during which the exemption could be availed have been curtailed. In other words....
X X X X Extracts X X X X
X X X X Extracts X X X X
....em of tax on inter State sales arising on account of the restrictions imposed by Article 286 of the Constitution. In paragraphs 8, 17 and 18 of Chapter IV of the report, the Commission opined that complete exemption from tax on sales outside the State under Article 286 of the Constitution, places the exporting State in a disadvantageous position. It opined that a State with a backward economy and relying on revenue from the sales tax leviable on its main sources of agricultural or industrial raw materials suffers financially from the above restriction. The Commission opined that in the proposed Central legislation, there should be a provision for levy of sales tax on inter State trade specifying the rate at which the tax on sales in the course of inter State trade should be levied. The main object of proposing levy of sales tax on inter State trade, according to the Commission, was to ensure that some revenue accrues to the exporting States without any undue burden on the consumers in the importing State. The Commission in its report observed that the rate of tax to be specified in the proposed Central legislation in respect of sales between the registered dealers of one State with....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... prescribed under Section 8(1), then the rate of tax in relation to the sale of such goods in the course of inter State trade or commerce covered under Section 8(1) shall be nil or at the lower rate, as the case may be. 46. Section 8(2) of the CST Act as originally enacted, provided that the rate of tax in respect of sales of goods in the course of inter State trade or commerce not falling under Section 8(1) of the CST Act, for example, sales to unregistered dealers shall be the rate of tax payable if such sales had in fact taken place inside the appropriate State. Thus, by prescribing the rate of tax applicable to local sales to the sales in the course of inter State trade to unregistered dealers, the legislature sought to check the tax avoidance by the dealers in the exporting state and the unregistered dealers / customers in the importing State. 47. The rate of tax applicable to the sales of goods in the course of inter State trade or commerce to dealers covered under Section 8(1) and 8(2) have been amended from time to time. Prior to the 2002 amendment, the rate of tax payable in respect of sales covered under Section 8(1) was four per cent of the turn over and in respect of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opriate cases, the State Governments under Section 8(5) are empowered to grant total or partial exemption from the higher rate of tax payable under Section 8(2). While upholding the reasonableness of high rate of tax on sales covered under Section 8(2), the Apex Court in the case of Sitolakshmi Mills (see para10 supra) held that such high rate of tax was to discourage inter State sales to unregistered dealers. Thus, it is clear that the observations of the Apex Court were in the context of sustaining high rate of tax in respect of inter State sales covered under Section 8(2). Therefore, the argument of the Revenue that the legislative policy of the Government is to discourage inter State sales to unregistered dealers cannot be sustained as the said argument is contrary to the report of the Taxation Enquiry Commission and also the decisions of the Apex court referred to herein above. 51. The question then to be considered is, whether there is any merit in the argument of the Revenue that after the 2002 amendment, the power of the State Governments to grant exemption under Section 8(5) is restricted only in respect of the transactions covered under Section 8(1) and not in respect of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 8(1) or 8(2), it is not possible to accept the contention of the Revenue that after the 2002 amendment, the power of the State Government under Section 8(5) to grant total / partial exemption is restricted only in respect of the transactions covered under Section 8(1). 54. If the legislature by inserting the words 'on the fulfilment of the requirements laid down in sub-section 4 by the dealer' had intended to restrict the power of the State Governments to grant total / partial exemption only in respect of the tax payable under Section 8(1), then the legislature would not have made any reference to the power of the State Government to grant total / partial exemption from tax payable under Section 8(2). The very fact that the legislature even after the 2002 amendment has retained in Section 8(5), the words that relate to the power of the State Governments to grant total / partial exemption from tax payable under Section 8(2), clearly show that the said amendment was not intended to affect the power of the State Governments to grant total / partial exemption from the tax payable in respect of the transactions covered under Section 8(2). 55. Apart from the above, by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Section 8(2). It is relevant to note that the words 'any person or class of persons' were inserted to Section 8(5) by Central Sales Tax (Amendment) Act, 1972, with a view to empower the State Governments to grant in public interest total / partial exemption from tax payable under the CST Act as it was not possible to visualise in advance the cases in which such exemptions or reductions may be necessary. Therefore, when the power to grant exemption to any person or class of persons was conferred upon the State Governments to cater to the needs of unforeseen circumstances, it cannot be said that power has been taken away especially when Section 8(5) as amended by Finance Act 2002 specifically refers to the power of the State Governments to grant exemption from tax payable in respect of inter State sales to any person or any class of persons. In other words, when the legislature with a view to meet the unforeseen circumstances had conferred power upon the State Governments to grant total / partial exemption from tax payable by any person or class of persons under Section 8(1) or 8(2), in the absence of any material to show that either the unforeseen circumstances have ceased....