TMI Blog1986 (7) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... itial stages of its production, a cash refund of sales tax paid by the industry on the raw materials purchased by it and on the finished goods for the the first 13 years from the date of the registration and/or licence, provided the refund on account of the sales tax did not exceed in a year 8 per cent of the capital investment. This incentive scheme was framed for dispersal of the industries outside Bombay-Thane and Pune-Pimpri-Chinchwad. By another resolution dated 2nd April, 1969, the State Government, in partial modification of its earlier resolution of 1964, introduced a modified incentives scheme, under which eligible units were granted interest-free loan equivalent to the sales tax paid by them on raw materials and finished products for the first 6 years of production, repayable in 18 years of the disbursement of loan in 3 easy annual instalments, provided the quantum of loan in any one year will not exceed 8 per cent of the gross fixed assets. Thereafter with a view to give graded incentive so as to ensure that the new industries going into interior and more backward regions get more incentives progressively at a reduced rate, the State Government by its resolution dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l effective steps was required to be completed after 1st August, 1979, was considered as a new unit. The period of eligibility in respect of the eligible unit or the new unit was 3, 5, 7, 9 and 13 years, depending on the nature and location of the eligible unit. The areas of the State were classified into 4 groups for the purpose of the said scheme. An eligible unit in the small-scale industries sector, was given exemption from the purchase tax on the raw materials purchased by it as also from the sales tax on the sales effected by it during the period of eligibility without any limit. Thus by the 1979 scheme the total exemption from payment of purchase tax and sales tax without any limit was provided. 5.. According to Government these incentives scheme were introduced with a view to secure planned and co-ordinated development of various regions of the State and to reduce progressively disparities in the level of developments between different regions of the State. Thus the package scheme of the incentives was meant for promotion of industries in undeveloped and developing parts of the State. The 1979 scheme was under 2 parts, i.e., parts 1 and 2, giving option to the entrepreneu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficult to compete with new units who are getting unlimited sales tax exemption under the 1979 scheme. The State Government, therefore, by its resolution dated 5th July, 1982, modified the 1979 package scheme of incentives, inter alia, by limiting the total cumulative sales tax incentives to 100 per cent of the fixed capital investment during the period of entitlement. The said resolution was made effective from 10th January, 1983, as under the 1979 scheme, the Government had agreed to give 6 months notice for any amendment of the 1979 scheme. It was also made clear in the said resolution that the units governed by the 1979 scheme prior to the amendment, will continue to be governed by the unamended 1979 scheme. During the period from 5th July, 1982 to 10th January, 1983 several new units were set up who got advantage of the 1979 scheme. The number of the edible oil units being the largest, with a view to save the old units from fierce competition the Government tried to regulate the issue of eligibility certificate or entitlement certificate, by administrative instructions but the same came to be challenged before this Court in Tapti Oil Industries case [1984] 56 STC 193 (FB); AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units covered by the 1979 scheme, by executive or administrative orders. 10.. Thus, having realised that the enjoyment of unlimited exemption from payment of sales tax by the units under the 1979 scheme had not only resulted in huge draw on the public exchequer which was never intended, when the package scheme of incentives was designed and announced, but had also created unhealthy trade practices and competition, the Government issued an Ordinance No. 5 of 1985 on 24th May 1985, inter alia, to limit the benefit derived on account of exemption from payment of sales tax under the 1979 scheme to the extent of 100 per cent of gross fixed capital investment by the eligible units at the time of grant of eligibility certificates or such other lower percentage, if any, as may be provided under the eligibility certificate issued in accordance with the provision of any package scheme of incentives. 11.. The said Ordinance came to be challenged in this Honourable Court by various industrial units, including the units in edible oil industry. During the pendency of those petitions, and before the Ordinance was replaced by the Act, the Government received number of representations from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Act or under the Central Sales Tax Act, 1956, and the certificate of entitlement issued in favour of such registered dealer by the Commissioner under entry 136 of the Schedule to the notification issued under section 41 shall stand automatically cancelled on the commencement date and such registered dealer shall not be entitled to claim any further benefit of exemption from payment of such tax under the eligibility certificate or the certificate of entitlement on and after the commencement date, and he shall surrender the certificate of entitlement together with all the unused form BC which have been attested by the sales tax authorities to the Commissioner forthwith and in any case on or before the 31st day of August, 1985, unless he has already surrendered the same earlier." 14.. Shri Dhanuka, learned counsel appearing for the petitioners contended before us that section 41A purporting to cancel the eligibility certificate and the certificate of entitlement granted to the edible oil unit alone, who acting upon the scheme set up their units in undeveloped and underdeveloped areas, is wholly arbitrary, discriminatory, unreasonable and confiscatory. Entry 136 was incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the corresponding obligation qua the petitioners continues. This is being done at a stage when a return to the status quo ante is impossible. The impugned Act does not affect the benefits to those units who have opted out for the scheme of deferral and only affect the edible oil units who have opted for the alternate scheme. 16.. The learned counsel then contended that the rights accrued to the citizens qua tax exemption under the certificate of entitlement amounts to property. The obligation of the State to continue these tax benefits and concessions amounts to liability enforceable at law. The impugned Act therefore is confiscatory in nature so far as it purports to extinguish the rights of the citizen with effect from 24th May, 1985, when the certificate of entitlement was operative till 31st October, 1991. The Maharashtra Ordinance No. 5 of 1985 permitted the entrepreneurs to use the certificate of entitlement even after 24th May, 1985, where the cumulative benefits enjoyed by them had not exceeded 100 per cent of the gross capital investment. Some of the units did not collect tax in view of the exemption granted on the footing that the certificate of entitlement continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to pay the sales tax which was not payable, and, therefore, obviously not transferred to the consumers. This is confiscatory in nature and, therefore, the impugned enactment is also void on that count. 18.. On the other hand it is contended by Shri Singhavi, learned Special Counsel appearing for the respondents, that the challenge in these petitions is to the provisions of the Bombay Sales Tax Act which is a fiscal statute. In the very nature of things the tax is a compulsory extraction and the selection of the items to be taxed must be left to the legislature. The competence of the legislature to enact the law has not been challenged. Normally tax is imposed for the purpose of augmenting the revenue. Further the burden to show that the provision is discriminatory or the classification is bad, is upon the person who challenges it, since there is presumption that the law enacted is valid and constitutional. The notification issued under section 41 of the Act adding entry 136 was in the nature of exemption. By this enactment the said exemption has been withdrawn. The matter of exemption is outside the province of the court and unless it is demonstrated that the withdrawal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the decisions of the Supreme Court in Charanjit Lal Choudhury v. Union of India AIR 1951 SC 41, Shri Ram Krishna Dalmia v. Shri justice S.R. Tendolkar AIR 1958 SC 538, Mohamed Hanif Quareshi v. State of Bihar AIR 1958 SC 731, East India Tobacco Co. v. State of Andhra Pradesh [1962] 13 STC 529 (SC); AIR 1962 SC 1733, Orient Weaving Mills (P.) Ltd. v. Union of India AIR 1963 SC 98, R.K. Garg v. Union of India AIR 1981 SC 2138, K. Nagaraj v. State of Andhra Pradesh AIR 1985 SC 551, T. Venkata Reddy v. State of Andhra Pradesh AIR 1985 SC 724, Jalan Trading Co. Pvt. Ltd. v. Mill Mazdoor Sabha AIR 1967 SC 691, Bombay Conductors and Electricals Ltd. v. Shri K. Chandramouli, Under Secretary to the Government of India [1984] 55 STC 162 (Delhi) [FB] and Cashmir Spices v. State of Jammu and Kashmir [1985] 59 STC 25 (J K). 20.. Shri Thakore, learned counsel appearing for the interveners, i.e., owners of edible oil units established prior to 1979, adopted the arguments advanced by Shri Singhavi and contended that as a matter of fact the exemption of sales tax granted in favour of the edible oil units under the 1979 scheme was itself ultra vires of article 14 being discriminatory. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this scheme inequitable as against the Government and also vis-a-vis the edible oil units covered by pre-1979 scheme as also the edible oil units established after coming into force of the 1983 Package Scheme of Incentives which are ineligible for sales tax exemption. It had also been represented to Government that such small-scale units claiming benefits under the Package Scheme of Incentives, 1979 took undue advantage of the absence of any monetary limit in claiming exemption from sales tax and were consequently creating unhealthy trade practice and competition. 2.. The Government of Maharashtra in its Package Scheme of Incentives, 1983, announced under Government Resolution, Industries, Energy and Labour Department, No. IDL-1082/(4077)/IND-8, dated 4th May, 1983 had sought to exclude edible oil units from the purview of incentive scheme by specifically providing that the edible oil industry comprising delinting, decortication or processing of groundnuts or other oil-seeds, crushing of oil-seeds and manufacture of edible oil, refining of edible oil or hydrogenation of edible oil shall not be considered eligible for any incentives under the 1983 scheme. 3.. Even earlier, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and anomaly that would continue under the Incentives Scheme of 1979 under which the edible oil industry enjoyed unlimited exemption of sales tax. Therefore, Government considers that it would not be in the public interest to continue the concession to the edible oil units covered by the 1979 Scheme of Incentives as it is inequitable against the Government as also against the pre-1979 scheme units and the edible oil units established after the 1983 Scheme of Incentives. Government has, therefore, decided to modify the provisions of the Ordinance and to make suitable provisions in the Bombay Sales Tax Act, 1959 to declare that the oil units covered by the Package Scheme of Incentives of 1979 shall not be eligible for continued benefits of exemption from payment of sales tax under the said scheme. 6.. The Bill is intended to replace the said Ordinance by an Act of the State Legislature with modifications as aforesaid." From the bare reading of this, the object of the legislation is more than clear. It is quite obvious that the total exemption from the sales tax had resulted in huge draw on the public exchequer which was never intended by the State Government when the Packag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (j) units in edible oil industry did not suffer from the disabilities with which the units in other industries were suffering due to their being located in rural areas." The respondents have denied the various adverse allegations made in the petitions. The respondents have annexed to their affidavit a statement showing the investment in the fixed assets and the total sales tax benefits which these units would have derived during the period of 9 years. According to this statement they would have derived this benefit almost 17 times of their fixed capital investment. Further it is the case of the respondents that after promulgation of the Ordinance and before its replacement by the Act several representations were received by the Government from various small-scale, medium scale and large scale industries. According to the information available with the Government around 400 units were established in edible oil industry to avail of the sales tax exemption under the 1979 scheme and those units constitute 9 per cent to 10 per cent of all the units getting advantage under the 1979 scheme. In western Maharashtra edible oil industry units are concentrated in Dhule, Jalgaon area, partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority. The doctrine of promissory estoppel would be displaced in such a case, because on the facts, equity would not require that the Government or public authority should be held bound by the promise or representation made by it. This aspect has been dealt with fully in Motilal Sugar Mills case [1979] 44 STC 42 (SC); AIR 1979 SC 621 and we find ourselves wholly in agreement with what has been said in that decision on this point." However, relying upon certain observations in M.M. Pathak v. Union of India AIR 1978 SC 803, it is contended by Shri Dhanuka that the said principle is also relevant for judging the reasonableness of a provision, while considering the challenge under article 14 of the Constitution of India. In this context he has placed strong reliance upon the following observations in para 11 of the said judgment: "11. Furthermore, I think that the principle laid down by this Court in Union of India v. Anglo Afghan Agencies [1968] 2 SCR 366; AIR 1968 SC 718 can also be taken into account in judging the reasonableness of the provision in this case. It was held there (at page 385 of SCR) (at page 728 of AIR): 'Under our jurisprudence the Government is not exempt f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht become relevant. However, even if the present enactment is tested on the touchstone of the said observations, still, having regard to the facts and circumstances of the present case, it is difficult to hold that the present enactment is any way arbitrary or unreasonable. We have already reproduced in detail the reason as to why the legislature considered the units in edible oil industry as a separate and distinct class. As observed by the Supreme Court in D.S. Nakara's case AIR 1983 SC 130 article 14 forbids class legislation but permits reasonable classification for the purpose of legislation which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the object sought to be achieved by the statute in question. 24.. Further the classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The courts cannot insist on delusive exactness or apply doctrinaire tests for determining the validity of the classification in any given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straight-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (1957) 354 US 457 where Frankfurter, J., said in his inimitable style: 'In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll-settled that the legislature is not required to tax everything in order to tax something. Further it must be presumed that the legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience, and that discriminations are based on adequate grounds. That the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be clearest. It is the function of the State, in order to raise revenue for State purposes to determine what kind of taxes shall be levied and in what manner. In substance, its function is to raise revenue for public purposes. Even if the exemption was given in public interest, and if after experience the public interest demands otherwise then the legislature can withdraw the exemption. Unless it is demonstrated that the discretion exercised is palpably discriminatory or arbitrary the court cannot go into the propriety of the legislative wisdom. In our view having regard to the facts and circumstances disclosed in the affidavit and the statement of objects and reasons it could safely be held that the classification made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have to be rejected. In the very nature of things the taxes are imposed in the public interest. Taxation is the sovereign power of the legislature and raising revenue of the State is in the public interest. Further the petitioners are entitled to shift the burden of sales tax to consumers. Therefore it is not a restriction on trade or business much less, unreasonable. It also cannot be held that the petitioners are deprived of any property save by authority of law within the contemplation of article 300A of the Constitution, once it is held that the legislation is not violative of article 14 of the Constitution then the challenge based on articles 19(1)(g) and 300A of the Constitution must fail. 29.. However, we find some substance in the contentions raised by the petitioners, that giving retrospective effect to an enactment qua the edible oil units is bad in law. The Maharashtra Ordinance No. 5 of 1985 had expressly permitted industrial units who had not enjoyed sales tax exemption to the extent of 100 per cent of their gross fixed capital investment to continue to enjoy the same until they reach the said limit. There are many edible oil units who had till 24th May, 1985 not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, the Maharashtra Act No. 15 of 1985 will come into force with effect from 1st August, 1985, and not from 24th May, 1985. To that extent the petitioners are entitled to get relief in these writ petitions. 31.. Shri Bhatt, learned counsel appearing in Writ Petition No. 3562 of 1985, has also made a grievance that the petitioners in that case were granted eligibility certificate qua other oil units also, that is, other than edible oil units. By Maharashtra Act No. 15 of 1985 the said eligibility certificate is sought to be cancelled as a whole and the said cancellation is not restricted to edible oil units only. On the other hand it is contended by Shri Singhavi that the cancellation of the certificate under section 41A of the Act is qua edible oil units only and not qua other units. Therefore it will not result in cancellation of the certificate qua other units if certificate is a composite one. In our view there is much substance in the contention of Shri Singhavi. If section 41A of the Act is read as a whole and between the lines, together with the relevant definitions, it is quite clear that the cancellation of certificate is restricted to edible oil units only and not the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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