TaxTMI 
TaxTMI 
2017 (5) TMI 496
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....n) Act, 2009 which amended certain provisions in the Maharashtra Value Added Tax Act, 2002 (for short, the 'MVAT Act') with retrospective effect from April 01, 2005. The High Court has based its judgment by referring to various judgments of this Court which held that Legislature has the power to enact prospectively as well as retrospectively. The appellants do not, and in fact cannot possibly, have any objection at all with this proposition. However, they argue that the High Court has failed to appreciate the effects and consequences and the practical impact of the retrospective amendment on the industrial units which had, in response to the State Government's Scheme, made huge investments in the most extremely backward areas of Maharashtra and which were led to believe that they were entitled to claim exemption from Value Added Tax (for short, 'VAT') on 100% of their production and accordingly did not recover any VAT from their customers. According to them, the effect and consequence of this amendment was that, with retrospective effect from April 01, 2005, industrial units which had made capital investments in very backward areas in the State of Maharashtra an....
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....l year of the Eligible Unit." 5) By Government Resolution (GR) dated July 06, 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 25% of the gross fixed capital investment. However, for the purposes of sales tax benefits, the quantum of entitlement would be limited to 75% of that admissible to a new unit. Existing units were also entitled to benefits of the clause. 6) Notwithstanding the deletion of the word 'proportionate' in the 1993 Scheme, on January 17,1998, Trade Circular was issued by the Commissioner of Sales Tax, which stipulated that under the 1993 Scheme incentives would be given in proportion to the expansion capacity to the total capacity or the investment ratio of new fixed capital investment to the total gross fixed capital investment after the expansion/investment and not on the entire production of an eligible unit covered under such cate....
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....he 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." It would, however, be pertinent to mention that though Section 41BB provided for grant of proportionate incentives, it could be as prescribed by the State Government by framing rules in this behalf. However, no rules were ever framed. 7) This provision clearly introduced the concept of proportionality, which is also clear from the Statement of Objects and Reasons accompanying the Introduction of that Bill, categorically stipulating that the Act was being amended 'to restrict grant of incentives in proportion to the goods manufactured in the expansion units located in the backward areas of the State'. 8) In the year 2002, VAT regime was introduced and the State of Maharashtra also enacted the MVAT Act thereby replacing the Bombay Sales Tax Act, 1959. It came into force on April 01, 2005. Section 8(4) of the MVAT Act empowers the State Government to provide for an exemption from payment of the whole of the tax in respect of any class or classes of sales of ....
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....he case may be, the said eligible investment, then such benefits shall be calculated after applying the formulae in sub-clause (i) or, as the case may be, sub-clause (ii) given as under: (i) in case where there is increase in production capacity, then for the Package Scheme of Incentives for 1988 or, as the case may be, Package Scheme of Incentives for 1993, the formulae shall be as below: Eligible Turnover = Turnover x Increase in production capacity Total production capacity after such increase (ii) in case where there is no increase in production capacity, then for the Package Scheme of Incentives for 1993, the formulae shall be as below: Eligible Turnover = Turnover x New fixed capital investment Total gross fixed capital investments (1B) When the eligible turnover comprises of multiple finished products, then, - (a) the production capacity of each of the finished products shall be separately considered in determining the corresponding eligible turnover, and (b) eligible turnover shall relate to those products on which the eligible investment has made impact and when eligible investment does not ....
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....said Act, any assessment, review, levy or collection of tax referred to in sub-section (1), or (b) from claiming refund of any tax paid by him in excess of the amount due from him by way of tax under the Value Added Tax Act, as amended by the said Act. (3) Nothing in the Value Added Tax Act, as amended by the said Act shall render any person liable to be convicted of any offence in respect of anything done or omitted to be done by him, before the commencement of the said Act, if such act or omission was not an offence under the Value Added Tax Act but for the amendments made by the said Act; nor shall any person in respect of such act or omission be subject to a penalty greater than that which could have been imposed on him under the law in force immediately before the commencement of the said Act." 11) As pointed out in the beginning itself, it is only the retrospective operation of sub-sections (1), (1A) and (1B) of Section 93 of the MVAT Act which is the subject matter of challenge. 12) The High Court has brushed aside the challenge holding the retrospective operation of the said amendment to be permissible on the ground that it was in the nature of a val....
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....4) He argued that where the Government has created the situation which makes it illegal or impossible for a manufacturer/dealer to recover sales tax/VAT from its customers, then no demand for amount of tax can be raised, as held in West Bengal Hosiery Association & Ors. v. State of Bihar & Anr., (1988) 4 SCC 134 and British Physical Lab India Ltd. v. State of Karnataka & Anr., (1999) 1 SCC 170. In this behalf, he pointed out that throughout the period 2005 to 2009, the appellant and other industries covered by the said exemption, were entitled to claim sales tax exemption benefit on the entire turnover of their respective expanded undertakings, only because no Rule was framed by the State Government, firstly under Section 41BB of the Sales Tax Act and thereafter under Section 85 of the VAT Act. Consequently, the appellant and other industries were effectively disabled and prohibited from recovering sales tax or VAT on any part of their turnover. In fact, if the appellant recovered sales tax on any part of its turnover from its customers, the appellant would have been guilty of a criminal offence under the VAT Act. It is the respondents who are completely responsible for this state ....
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....antly to the production and turnover of their undertakings and, thereby, greatly expanded the tax base of the State of Maharashtra. (d)Counsel for the State of Maharashtra gave no explanation or justification at all for the retrospective amendment except to say that it was for correction of an error or anomaly, which, as already pointed out, was an unstateable argument. 16) Mr. Anil Shrivastav, learned counsel who appeared in Civil Appeal No. 4499 of 2016 additionally argued that the retrospective amendment vide Amendment Act 2009 does not seek to remove an ambiguity or to correct a cause of invalidity but, in essence, seeks to impose a fresh levy of tax on the appellant for the first time, which is unreasonable and arbitrary and is, therefore, liable to be struck down as being ultra vires the Constitution of India. His submission in this behalf was that the High Court failed to consider that the sole purpose of the amendment made from retrospective effect was to neutralize the effect of the judgment dated July 27, 2009 and the orders dated October 13, 2008 and June 19, 2009 of the Bombay High Court, which was not permissible. He also submitted that Legislature cannot l....
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....o various judgments showing that not only Legislature is empowered to enact a law, including a fiscal statute, either prospectively or retrospectively, but Legislature is also empowered to nullify the effect of a judicial decision by changing the law retrospectively by removing the basis on which the decision was founded. The learned counsel emphasised that it is in the public interest to restrict the benefits given under a Package Scheme of Incentives in any year to the proportion of additional capital investment as this balances the burden of tax amongst various sectors and prevents an unsustainable drain of financial resources of the State. The Legislature in enacting the Validating Act has, in its wisdom, decided that the grant of benefits on a pro rata or proportionate basis is in public interest and subserves the objective of the Package Scheme of Incentives. The Validating Act not only carries out the intent and purpose of Section 93, as originally framed, but also subserves the underlying objectives of the Package Scheme of Incentives as a means of benefiting public interest as well as the State and safeguards against these objectives being nullified by the imposition of a ....
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....y be arrived at by applying the ratio that may be prescribed by the Government. The Government did prescribe this ratio but chose wrong method by issuing administrative circular rather than issuing statutory notification in the form of rules. It is that which is achieved by the validating Act and therefore it was not a new levy. 21) The High Court has also discussed that the aforesaid kind of legislation would be in the nature of validating legislation inasmuch as the very basis of foundation of the earlier decision was sought to be undone. 22) With this we advert to the arguments advanced by the appellants. We have already taken note of those arguments. It is pertinent to point out that at the time of arguments, learned counsel for the appellants had accepted the legal proposition that the legislature is competent to enact the laws retrospectively. However, Mr. Anil Shrivastav has argued before us that the retrospective amendment does not seek to remove the ambiguity or correct a cause of invalidity but, in essence, it seeks to impose a fresh levy of tax. He has also argued that the sole purpose of amendment made from retrospective effect was to neutralise the effect of the ....
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....ributable to the newly acquired fixed assets. Because of this legal infirmity this circular was set aside by the High Court. According to the High Court, it is this defect which was sought to be cured by amending the statutory provision itself by making the said amendment retrospectively. On the aforesaid basis, the High Court rejected the contention of the writ petitioners that a new levy was imposed with retrospective effect. 23) It would be of relevance to emphasise that at the time of insertion of Section 41BB by amendment vide Amendment Act 22 of 2001, the Statement of Objects and Reasons accompanying the introduction of the Bill specifically stated that the purpose of the amendment was 'to restrict grant of incentives in proportion to goods manufactured in the expansion units located in the backward areas of the States'. Thus, the legislative intent was manifest by inserting the said provision to provide the incentives to the eligible units on proportionate basis. Similar intention can clearly be discerned from the provisions of MVAT Act. We have already reproduced Section 93(1) of the said Act which specifically provides for 'proportionate incentive to an eligible unit in....
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....ery beginning the statutory scheme itself provided for proportionate incentive and this legislative intent was expressed even in the Objects and Reasons, it cannot be said that there was no provision of this nature prior to 2009 and such a provision was inserted for the first time in the year 2009. 26) Coming to the argument of the appellants that the effect of 2009 amendment was to neutralise or overrule the decision of the Court, we do not find it to be so. The High Court has rightly analysed the earlier judgment of the Sales Tax Tribunal in Pee Vee Textiles case which was followed by the Division Bench of the High Court as well as its own earlier judgment in Mirc Electronics Limited case. It may be noted that the High Court in Pee Vee Textiles case recognised the fact, after going through the Statement of Objects and Reasons, explaining the purpose of Section 41BB in Sales Tax Act in the following words: "30. ... 'it is clearly stated that the said section is introduced with a view to restrict grant of incentives in proportion to the goods manufactured in the expansion unit located in the backward areas of the State' ..." 27) Thus, while rendering the judgment in ....
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.... be competent to the appropriate legislature to cure the said infirmity and pass a validating law so as to make the provisions of the said earlier law effective from the date when it was passed. This position is created as firmly established since the decision of the Federal Court in the case of United Provinces v. Atiqa Begum. 1940 FCR 110 (emphasis added)" 30) We would also like to quote the following passage from another Constitution Bench judgment in the case of Epari Chinna Krishna Moorthy v. State of Orissa , AIR 1964 SC 1581: "10. ...The argument is, the power to grant exemption having been conferred on the State Government it was validly exercised by the State Government and though the legislature may withdraw such exemption, it cannot do so retrospectively. It is obvious that if the State Government which is the delegate of the legislature can withdraw the exemption granted by it, the legislature cannot be denied such right. But it is urged that once exemption was validly granted, the legislature cannot withdraw it retrospectively, because that would be invalidating the notification itself. We are not impressed by this argument. What the legislature has purport....
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....he 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." 32) We would also like to reproduce the following discussion from the judgment of this Court in Bakhtawar Trust v. M.D. Narayan, (2003) 5 SCC 298: "25. ...it is open to the legislature to alter the law retrospectively, provided the alteration is made in such a manner that it would no more be possible for the Court to arrive at the same verdict. In other words, the very premise of the earlier judgment should be uprooted, thereby resulting in a fundamental change of the circumstances upon which it was founded. 26. Where a legislature validates an executive action repugnant to the statutory provisions declared by a court of law, what the legislature is required to do is first to remove the very basis of invalidity and then validate the executive action. In order to validate an executive action or any provision of a statute, it is not sufficient for the legislatu....
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....n is consistent with the rights guaranteed in Part III of the Constitution. (7) The court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy. These are not judicial functions but the exclusive province of the legislature. Therefore, they are not encroachment on judicial power. (8) In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect from a particular date. The legislature can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such ....
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....sales which have taken place prior to the enactment: "But where the transaction is one of sale of goods as known to law, the power of the State to impose a tax thereon is plenary and unrestricted subject only to any limitation which the Constitution might impose, and in the exercise of that power, it 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 sales tax....