TaxTMI 
TaxTMI 
2007 (1) TMI 510
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....er, we do not consider it proper to adjudicate upon that issue because, admittedly, the appeals have been filed by the petitioners against the said orders and the said appeals are pending before the appellate authorities constituted under the Bombay Act. Therefore, the only question to be answered in this petition is, whether section 19 of the 1990 Act is constitutionally valid? To appreciate the arguments of the counsel on both sides relating to the constitutional validity of section 19 of the 1990 Act, it is necessary to refer to the relevant statutory provisions. Article 286(3) of the Constitution provides that any State law in relation to imposition of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as the Parliament may by law specify. In Chapter IV of the Central Sales Tax Act, 1956 ("the Central Act", for short), the Parliament has specified the goods which are of special importance in inter-State trade or commerce. Chapter IV of the Central Act consists of tw....
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....sales tax Rate of purchase tax 1. 2. 3. 4. 1. . . . 2. . . . 3. Iron and steel, that is to say, -- Three paise in the rupee. Three paise in the rupee. (i) pig iron and cast iron, including ingot moulds, bottom plates, iron scrap, cast iron scrap, runner scrap, and iron skull scrap (ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes); (iii) skelp bars, tin bars, sheet bars, hoebars, and sleeper bars; (iv) steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths) ; (v) steel structurals (angles, joints channels, tees, sheet piling sections, z sections or any other rolled sections) ; The petitioner No. 1, a registered dealer under the Bombay Act and also under the Central Act is engaged in the manufacture and sale of motor vehicle chassis and its parts. The raw materials required for the manufacture of motor vehicle chassis and its parts are iron and steel sheets, bars, tubes, etc., covered under the various sub-items of iron and steel set out at serial No. 3 in Schedule B, Part I of the Bombay Act. In the process of manufacturing motor vehicle chassis an....
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....ion 14 of the Central Act is a separate taxable commodity and, therefore, tax would be payable on sale of steel rounds, flats, angles, etc., even though the raw materials from which they were manufactured have already been taxed. As a result of the aforesaid decision of the apex court, conversion of iron and steel from one sub-item into another sub-item of "iron and steel" specified at serial No. 3 in Schedule B, Part I in the Bombay Act [item (iv) in section 14 of the Central Act] was liable to be treated as manufacture and tax became payable on sale of manufactured iron and steel. In other words, on sale of manufactured iron and steel tax became payable even though the same were manufactured from a sub-item of iron and steel on which sales tax/purchase tax has already been paid. With a view to grant relief to such manufacturers of Schedule B goods from Schedule B goods on which tax has been paid, the State Government issued a notification on March 28, 1977 thereby inserting rule 41-C into the Bombay Rules. The said rule 41-C was made operative till June 30, 1981 by Government Notification dated June 25, 1981. Rule 41-C, relevant for the purposes herein, as amended in ....
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.... the above amendment, during the period from January 19, 1976 to June 30, 1981 even under the Bombay Act, tax became payable on sale or export of Schedule B goods manufactured from Schedule B goods on which tax has been paid, however, in view of rule 41-C, the manufacturer was entitled to avail the benefit of drawback, set-off, etc., of tax paid on Schedule B goods used in the manufacture of Schedule B goods. By section 19 of the 1990 Act, rule 41-C has been amended retrospectively. Section 19 of the 1990 Act reads thus: "In rule 41-C of the Bombay Sales Tax Rules, 1959, after the words 'manufacture of goods' the brackets and words '(not being waste goods or scrap goods or by-products)' shall be inserted and shall be deemed always to have been inserted." Rule 41-C as amended by section 19 of 1990 Act (to the extent relevant herein) reads thus: "Rule 41-C. Drawback, set-off, etc., of tax paid by a manufacturer of goods specified in Schedule B.--In assessing the amount of tax payable in respect of any period after the 18th of January 1976, by a registered dealer (hereinafter in this rule referred to as 'the claimant dealer'), the Commissione....
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....n sold by the petitioners on payment of sales tax at the rate specified at serial No. 3 in Schedule B, Part I of the Bombay Act. Mr. Jetly submitted that in the light of rule 41-C as it stood prior to its amendment, the petitioners had vested right to avail full set-off of tax paid on purchase of iron and steel when used in the manufacture of motor vehicle chassis/parts as well as manufacture of iron and steel scrap. In fact, the respondents had given proportionate set-off even though the petitioners were entitled to full set-off and appeals on that issue are pending before the appellate authorities. Therefore, the State could not have enacted law in the year 1990 so as to take away the vested right of the petitioners to claim full set-off under rule 41-C as originally enacted. Relying on the decision of this court in the case of Commissioner of Sales Tax v. Burmah Shell Refineries Ltd. [1978] 41 STC 337 which is upheld by the apex court in the case of Commissioner of Sales Tax v. Bharat Petroleum Corporation Ltd. reported in [1992] 85 STC 220 as also the decisions of the Maharashtra Sales Tax Tribunal in the case of Supreme Metal Industries v. State of Maharashtra delivered on Fe....
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....endment imposes a levy for the first time in the year 1990 retrospectively for the period from January 19, 1976 to June 30, 1981. This was never envisaged and/or canvassed by the department and in fact in the original assessments partial set-off was granted to the petitioners by the officers of the department. Therefore, it is not open to the Revenue to contend that rule 41-C was never intended to cover manufacturers like petitioners. Accordingly, Mr. Jetly submitted that by the impugned legislation, the vested right accrued under rule 41-C is sought to be taken away, retrospectively without any justification and, therefore, the impugned legislation is liable to be quashed and set aside. Mr. Sonpal, learned counsel appearing on behalf of the respondents submitted that the impugned Act is clarificatory in nature and that the said Act does not take away any of the benefits available to the manufacturers under rule 41-C as originally enacted. He submitted that set-off under rule 41-C was not available at any time to the class of dealers such as the petitioners. He submitted that the benefit under rule 41-C was available to the manufacturers who purchased Schedule B goods on payment o....
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....les Tax Tribunal in the case of Supreme Metal Industries (delivered on February 25, 1987) and in the case of Taparia Tools Ltd. (decided on March 28, 1988) took a pedantic and narrow view without considering the purpose, object, context and circumstances under which rule 41-C was inserted and held that where Schedule B goods on which tax has been paid are used in the simultaneous production of Schedule E goods as well as Schedule B goods, then, on sale thereof, under the rule 41-C, the manufacturer would be entitled to claim set-off of tax paid on schedule B goods used in such manufacture. He submitted that the Tribunal in the aforesaid cases erroneously applied the ratio laid down by this court in the case of Burmah Shell Refineries Limited [1978] 41 STC 337 which is distinguishable on facts. Instead of challenging the said decisions of the Tribunal, the State Government thought it fit to clarify the scope of rule 41-C by retrospectively amending it. He submitted that amendment to rule 41-C must not be interpreted literally and must be interpreted by applying the principles of purposive interpretation after taking into consideration the situation prevailing at the time of insertio....
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....SC 1167, Zee Tele Films Ltd. v. Union of India AIR 2005 SC 2677 and Bengal Immunity Company Limited v. State of Bihar [1955] 6 STC 446; AIR 1955 SC 661, Mr. Sonpal submitted that the Legislature is competent to amend any law retrospectively with a view to clarify the existing provisions. In the present case, the Maharashtra Sales Tax Tribunal in the case of Supreme Metal India Limited. (delivered on February 25, 1987) and in the case of Taparia Tools Ltd. (decided on March 28, 1988) had erroneously interpreted rule 41-C and, therefore, the Legislature thought it fit to clarify the doubts by retrospectively amending rule 41-C and bringing out clearly that since inception the said rule would not apply if the manufactured goods are waste goods or scrap goods or by-products. Mr. Sonpal further submitted that the decision of the apex court in the case of Tata Motors [2004] 136 STC 1 is distinguishable on facts because, firstly, in that case, the apex court was concerned with the retrospective amendment to rule 41-E wherein the amendment was only for the limited period from April 1, 1984 to March 31, 1988, whereas, amendment to rule 41-C is for the entire period during which rule 41-C w....
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....ther exclusively in the manufacture of Schedule B goods, or uses in the simultaneous production of Schedule C or D or E goods as well as goods covered under Schedule B would be entitled to the benefits set out therein. It is pertinent to note that rule 41-C was inserted into the Bombay Rules in the light of the judgment of the apex court in the case of Pyare Lal Malhotra [1976] 37 STC 319. In that case, the apex court held that each of the 16 sub-items of "iron and steel" specified in section 14 of the Central Act represent a distinct commercial commodity. The said 16 categories of iron and steel enumerated in section 14 of the Central Act are specified at serial No. 3 in Schedule B, Part I of the Bombay Act. "Iron and steel scrap" is one of the sub-items of "iron and steel" specified at serial No. 3 in Schedule B, Part I of the Bombay Act. Therefore, where iron and steel scrap is manufactured from iron and steel, the manufacturer would be entitled to drawback, set-off, etc., under rule 41-C. To illustrate, suppose 100 metric tons of iron and steel sheets purchased on payment of tax at three per cent specified at serial No. 3 in Schedule B, Part I (R....
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.... rule 41-C would be squarely applicable. However, in such cases, the question would be, how to determine the quantum of drawback/set-off, etc., under rule 41-C? It is for the manufacturer who claims relief under rule 41-C to establish and prove the quantity of iron and steel used in the manufacture of iron and steel scrap. To illustrate, if 100 metric tons of iron and steel are used in the simultaneous manufacture of motor vehicle chassis/its parts and iron and steel scrap, then the manufacturer who claims relief under rule 41-C must establish the quantity of iron and steel used in the manufacture of iron and steel scrap. For example, if it is established that out of 100 metric tons of iron and steel, 10 metric tons of iron and steel have been used in the manufacture of iron and steel scrap, then the drawback/set-off, etc., under rule 41-C would be the tax paid on purchase of 10 metric tons of iron and steel. If the manufacturing process is so integrated that the manufacturer cannot establish the quantity of iron and steel used in the manufacture of iron and steel scrap, then such manufacturer would not get the drawback/ set-off, etc., under rule 41-C. With a view to give relief....
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....d. Consequently, the argument of the State that section 19 of the 1990 Act is clarificatory in nature must fail. As stated earlier, the State has not placed on record any material to show that the retrospective amendment was necessitated on account of any overriding public interest or equity. The only ground urged before us is that the retrospective amendment to rule 41-C was necessitated because of the decisions of the Maharashtra Sales Tax Tribunal in the case of Supreme Metal Industries delivered on February 25, 1987 and in the case of Taparia Tools Ltd. (decided on March 28, 1988). In our opinion, in the aforesaid two cases the Sales Tax Tribunal has erroneously applied the ratio laid down by this court in the case of Commissioner of Sales Tax v. Burmah Shell Refineries Limited [1978] 41 STC 337 which is ultimately approved by the apex court in the case of Commissioner of Sales Tax v. Bharat Petroleum Corporation Ltd. reported in [1992] 85 STC 220. In the case of Bharat Petroleum Corporation Ltd. [1992] 85 STC 220 (SC), crude oil and sulphuric acid were used in the manufacture of kerosene and acid sludge. At the material time, no tax was payable on kerosene, whereas, tax was pa....