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Ganesh Metcoke Industries Versus State of Assam

2015 (11) TMI 262 - GAUHATI HIGH COURT

Challenge to rule 57A of Assam Value Added Tax Rules, 2005 - Specific activities which are not to be treated as manufacture - Availment of tax benefit - request for grant of eligibility certificate - Held that:- rule 57A framed by way of delegated legislation is beyond the competence of the State. The definition of "manufacture" in the Act clearly discloses that the process of manufacture would mean that the process of change in the product and bringing out a new product or combination of produc .....

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Oils (P.) Ltd. (2006 (3) TMI 234 - Supreme Court) succinctly makes a distinction between the legislation and subordinate legislation and the limitation of subordinate legislation.

Delegated legislation cannot take away the right that is vested or accrued by way of retrospective amendment. Therefore, in view of the said reasons, we hold that the amended rule 57A(1) ultra vires the provisions of the definition of "manufacture" under the Act and beyond the competence of rule-making power .....

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K. SAIKIA, J. For The Appellant : Dr. Ashok Saraf, D. Baruah, Miss N. Hawelia, Ms. M.L. Gope, S. Chetia, A. Goyal, K. Choudhury and P. Baruah For The Respondent : K.N. Choudhury, R. Dubey and D. Saikia ORDER K. Sreedhar Rao, Actg. CJ. - The writ petitioners are the industrial units employed in manufacturing of coal into coke. The State of Assam issued the Industrial Policy, dated October 1, 2008, which gave VAT concessions to the industries established and production commenced on or after Octob .....

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all not be treated as manufacture for the purposes of the Act retrospectively with effect from October 1, 2008, namely:- (a) saw mill, (b) Tea industry, (c) Galvanization, corrugation of sheet or both, (d) Marble and decorative stone cutting from slabs/sheets and polishing unit, (e) Paper cutting from roll paper, (f) Coal to washed coal, sized coal, (g) Conversion of plain rod to tor rod, (h) Refining and packaging of mustard oil, (i) Refining of engine oil, (j) Purification and/or packaging of .....

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out a change in an article or articles as a result of some process, treatment, labour and results in transformations into a new and different article so understood in commercial parlance having a distinct name, character use, but does not include such activity of manufacture as may be prescribed." 4. Dr. A. K. Saraf, learned senior counsel for the petitioners, submitted that as per the definition of "manufacture", the process of conversion of coal to coke is a manufacturing proce .....

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executive, by its rule-making power, cannot alter any provision of the Act under the guise of rule-making power, since Rules shall always be subordinate to the provisions of the Act and cannot prevail or override the provisions of the Act. Therefore, the rule 57A(1) is ultra vires. It is further argued that by virtue of the definition of "manufacture" under the Act, the industrial policy, which extended tax benefit to the industries, which commenced production on or after the date of .....

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to 23, 36, 37, 40 to 43, pages 378, 379, 382 to 384 in 145 STC): "21. Mr. Manjeet Singh, learned counsel appearing on behalf of the State, on the other hand, submitted that: (a) Draft rules having been published by the State by way of a notification dated January 3, 1996 all the prospective entrepreneurs were aware that the said Rules may be amended. (b) There was no reason for the appellants' being misled by reason of the existing Rules. (c) As on the date of final notification, the ap .....

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s of the said Rules. The State, as noticed hereinbefore, made a long term industrial policy. From time to time it makes changes in the policy keeping in view the situational change. 23. The State intended, inter alia, to grant incentive to include industrial units by way of waiver and/or deferment of payment of sales tax wherefor rule 28A was made. The sales tax laws enacted by the State, as noticed hereinbefore, contain a provision empowering the State to grant such exemption. 24. The relevant .....

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y state, that the Rules shall stand amended. It is now well-settled principle of law that the draft rules can be invoked only when no rule is operative in the field. Recourse to draft rules for the purpose of taking a decision in certain matters, can also be taken subject to certain conditions. (See Union of India v. V. Ramakrishnan [2005] 8 SCC 394, SCC paras 23 and 24.) 38. The promises/representations made by way of a statute, therefore, continued to operate in the field. It may be true that .....

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ited, is entitled to alter his position pursuant to or in furtherance of the promises or representations made by the State. The State accepted that equity operated in favour of the entrepreneurs by issuing Note 2 to the notification dated December 16, 1996 whereby and whereunder solvent extraction plant was for the first time inserted in Schedule III, i.e., in the negative list. ............... 41. We may at this stage consider the effect of omission of the said note. It is beyond any cavil that .....

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plication. See West v. Gwynne [1911] 2 Ch 1. 43. A retrospective effect to an amendment by way of a delegated legislation could be given, thus, only after coming into force of sub-section (2A) of section 64 of the Act and not prior thereto. 44. By reason of Note 2, certain rights were conferred. Although there lies a distinction between vested rights and accrued rights as by reason of a delegated legislation, a right cannot be taken away. The amendments carried out in 1996 as also the subsequent .....

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n so as to have an adverse effect in the matter of promotion, seniority, substantive appointment, etc., of the employees. The said expressions have been used in the context of a right flowing under the relevant rule which was sought to be altered with effect from an anterior date and thereby taking away the benefits available under the rule in force at that time. It has been held that such an amendment having retrospective operation which has the effect of taking away a benefit already available .....

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decision of the Supreme Court in R.C. Tobacco (P.) Ltd. v. Union of India [2005] 7 SCC 725, and made a specific reference to the observations made in paragraphs 20, 21 and 22, which read as follows (paras 21 to 23, pages 494 and 495 in 5 RC): "20. The competence of Parliament and the State Legislatures to repeal, amend or supersede an exemption notification is unquestionable. The power to do so retrospectively cannot be and is also not doubted. The limitation on this power is that the legi .....

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hat it could only be imposed by a law which is valid by conformity to the criteria laid down in the relevant articles of the Constitution. These are that the law should be (1) within the legislative competence of the Legislature being covered by the legislative entries in Schedule VII of the Constitution ; (2) the law should not be prohibited by any particular provision of the Constitution such as, for example, articles 276(2), 286, etc., and (3) the law or the relevant portion thereof should no .....

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in some other additional factors. The retrospective operation of a fiscal statute would have to be found to be unduly oppressive and confiscatory before it can be held to be so unreasonable as to violate constitutional norms: '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. I .....

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nable or confiscatory that it violates articles 14 and 19 of the Constitution. 22. The factors which are generally considered relevant in answering this questions are : (i) the context in which retrospectivity was contemplated, (ii) the period of such retrospectivity, and (iii) the degree of any unforeseen or unforeseeable financial burden imposed for the past period. Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 (SC) and Ujagar Prints v. Union of India [1989] 179 ITR 317 (SC).&quo .....

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position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by article 229 of the Constitution. The rule of promissory estoppel being an equitable doctrine has to be moulded to suit the particular situation. It is not a hard-and-fast rule but an elastic one, the objec .....

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ing applied against the Government and defence based on executive necessity would not be accepted by the court. However, if it can be shown by the Government that having regard to the facts as they have subsequently transpired, it would be inequitable to hold the Government to the promise made by it, the court would not raise an equity in favour of the promisee and enforce the promise against the Government. Where public interest warrants, the principles of promissory estoppel cannot be invoked. .....

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be compelled to make a provision which is contrary to law. …....... 35. A critical analysis of the abovequoted passage makes it evident that the two-Judge Bench in Sant Steels' case [2008] 2 SCC 777 was of the view that the notification issued under section 49 of the Act of 1948 can be revoked/modified only if express provision was made for the revocation/modification of the said notification under section 49 itself and the court found that as there was no such provision contained in .....

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urtailing the benefit to 17 per cent. were treated as contrary to section 49 of the Act of 1948. On review of the law on the subject and the relevant statutory provisions, this court finds that, for the reasons mentioned hereinafter, the above statement of law is not an accurate proposition of law. …....... 43. This court finds that the proposition of law laid down by the two-Judge Bench in the decision in Sant Steels' case [2008] 2 SCC 777 mentioned above is too wide and has tendency .....

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erefore, the principle of promissory estoppel would not apply to them." 9. Sri Saikia, summarizing the ratio laid down in the said decisions, argued that the legislative power to amend the provisions of the Act retrospectively cannot be denied and if once any legislation is made with retrospective effect, it shall prevail over the executive notifications and the policy decisions of the executive. 10. In the instant case, the amendment is effected with retrospective effect. Therefore, the pr .....

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anufacture would mean that the process of change in the product and bringing out a new product or combination of products in the process to bring out a new product would amount to manufacture. The process of making coal from coke will bring a new product from the coal; therefore, it amounts to manufacture within the definition of section 2(30) of the Act. Under the guise of the rule-making power, the State could not have amended the definition of "manufacture" to omit or to alter the a .....

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