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2016 (7) TMI 857 - BOMBAY HIGH COURT

2016 (7) TMI 857 - BOMBAY HIGH COURT - TMI - Constitutional validity of Sections 41B of the Maharashtra Sales Tax Act, 1959 - whether a different mechanism for calculating the Notional Sales Tax Liability can be introduced with retrospective effect from 01.01.1980 by inserting Section 41B to the Act and Rule 31AA to the Rules, so as to defeat the rights vested in the units established under the 1983 Scheme prior to the insertion of Rule 31AA. - Held that:- it has to be held that it is Rule 3 .....

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the sales tax law, is illegal and contrary to law. - Decided in favor of assessee. - Writ Petition No. 3862 of 1996 - Dated:- 12-7-2016 - S. C. Dharmadhikari And Dr. Shalini Phansalkarjoshi, JJ. For the Petitioner : Mr. P. C. Joshi , Mr. N. B. Shah For the Respondent : Mr. V. A. Sonpal, Special Counsel JUDGMENT ( Per Dr. Shalini PhansalkarJoshi, J. ) 1. The challenge in this writ petition is to the Constitutional validity of Sections 41B of the Maharashtra Sales Tax Act, 1959 ('Act' for .....

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ellate authority under the Act. The challenge raised in the petition to Constitutional validity of Section 41C of the Act is also subsequently not pressed into submission. 3. The basic dispute raised in this petition is, when an unit is established as per the Government Resolution dated 04.05.1983 which provides for a mechanism to calculate the Notional Tax Liability of the unit covered under Package Scheme of Incentives, 1983 ('1983 Scheme' for short), whether a different mechanism for .....

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od of determining Cumulative Quantum of Benefits ('CQB' for short) laid down under Section 41B read with Rule 31AA is in consonance with the method prescribed under para 2.11 of the 1983 GR and, therefore, no fault can be found with either Section 41B or Rule 31AA. 5. The crux of the dispute is, therefore, whether the full or partial exemption, granted to the industrial units established in pursuance of the 1983 Scheme, from payment of the tax on account of sale transactions can be taken .....

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t and dispersion of industries outside the Mumbai Thane Pune Belt, evolved various package schemes from time to time, for giving certain incentives to those industries, which may be set up in the backward areas. Under the 1983 Scheme, the entire State of Maharashtra was divided into 4 Group-s; Group-A comprising of developed areas where no incentives were made available; Group-B consisting of the areas where some development had already taken place; Group-C covering those areas which were less d .....

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fying itself about the full compliance of the procedure prescribed under the 1983 Scheme and also after satisfying about final effective steps taken by the petitioners, the 1st respondent Development Corporation of Kokan Ltd. entered into an agreement with the petitioners on 30.03.1989 and the Eligibility Certificate dated 17.03.1989 was issued to the petitioners under the said scheme for the period of 5 years from 01.04.1989 to 31.03.1994. 8. Consequent to the issue of Eligibility Certificate i .....

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under the 1983 Scheme, the petitioners were entitled for total exemption from the payment of sales tax. The petitioners' unit was also totally exempted from the payment of purchase tax on purchase of raw materials and sales tax on sale of finished products upto the financial ceiling of ₹ 25,96,600/. 9. Subsequent thereto, the State Government has, by its Amendment Act of 1995 titled as, The Maharashtra Tax Laws (Levy and Amendment) Act, 1995 inserted Section 41B and Rule 31AA to the Sa .....

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nt No.2 has been authorized to calculate cumulative quantum of benefits in the manner prescribed by the said Rule. On the basis of this Rule 31AA, the tax assessment orders were issued for the period of 01.04.1989 to 31.03.1990 and 01.04.1990 to 31.03.1991, computing Notional Sales Tax Liability. 10. The grievance of the petitioners is that the full exemption granted to the petitioners from payment of sales tax, both while purchasing raw materials and selling the finished goods, under the 1983 S .....

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urged that Section 41B is also liable to be struck down, along with Rule 31AA, as there was impermissible delegation of legislative power inasmuch as Section 41B conferred upon the Commissioner to determine the cumulative quantum of benefits from 01.01.1980 onwards. Therefore according to learned counsel for petitioners, Section 41B is ultra vires to the other provisions of the Act. It is further urged that Rule 31AA is contrary to the other provisions of the Act also, especially Rules 41B & .....

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d suffers from the vice of diagonally opposing the provisions of the Act and Rules as well as the 1983 Scheme. It is urged that these newly inserted provisions place a unit like the petitioners to a worse position than the other similarly placed units in a developed area. It is also taking away the vested rights, acquired by the petitioners under the 1983 Scheme. According to the petitioners, such a vested right cannot be disturbed by any future unilateral revision of the policy. 12. In this vie .....

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x contending, inter alia, that the petition is filed on gross misinterpretation of the 1983 Scheme and ignoring the express and explicit provisions thereof. It is denied that the provisions of Section 41B and insertion of Rule 31AA is contrary to the provisions of the said Scheme. It is submitted that the 1983 Scheme was comprehensive providing specifically how the Notional Sales Tax Liability is to be computed. The provisions of the Amendment Act, 1995, are only clarificatory in nature and on a .....

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nt of Sales Tax as provided in Section 41 of the Act and it is not for the petitioners to claim any vested rights therein. It is denied that the benefits enjoyed by the petitioners' unit are taken away in any way by the insertion of the Section 41B or the Rule 31AA. It is also denied that the said provisions are discriminatory or arbitrary in any way. Thus, according to respondent No.2, the petition being misconceived as a whole, is required to be dismissed. 14. On behalf of the petitioners .....

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the petitioners have fulfilled all the conditions set out in the Eligibility Certificate and Entitlement Certificate and accordingly the sales and purchases of raw materials effected by the petitioners during the period specified in the certificate from 01.04.1989 to 31.03.1994 and upto the financial ceiling of ₹ 25,96,600/are totally exempt from payment of sales tax/purchase tax as per entry No. 136(2)(a) and 136(2)(b) of the Notification issued under Section 41 of the Act. 17. The only d .....

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g the exemption provisions contained therein, if the petitioners' unit was not covered under the 1983 Scheme. As against it, according to respondent No.2, the calculation of CQB was liable to be made as per para 2.11 of the 1988 GR read with Section 41B and Rule 31AA by considering maximum rate of taxes levied under the Schedule to the Act, by ignoring the exemption provisions contained therein. 18. Hence in order to properly appreciate the rival contentions advanced before us by the learned .....

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er the local sales tax law but for an exemption under the 1988 Scheme and computed at the maximum rates of tax specified under the local sales tax law as applicable from time to time. For the purpose of the above clause, sales made on consignment basis within the State of Maharashtra or branch transfers within the State of Maharashtra shall also be deemed to be sales made within the State exigible to tax." Section 41B inserted to the Act by Maharashtra Act 29 of 1994 with effect from May 1, .....

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f incentives for any period whether before or after the date of commencement of the Maharashtra Tax Laws (Levy and Amendment) Act, 1994 (hereinafter, in this section, referred to as "the commencement date"), the Commissioner shall calculate the cumulative quantum of benefits in the manner prescribed in respect of all the relevant periods and the package scheme of incentives. (2) If it is found that the cumulative quantum of benefits so calculated in respect of any eligible unit has exc .....

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ll be deemed to be a notice issued under subsection (4) of section 38 and the relevant provisions of this Act shall apply to such notice as they apply to a notice issued under subsection (4) of section 38." Rule 31AA inserted to the Rules by Government notification dated March 24, 1995 with effect from March 24, 1995 (to the extent relevant) reads thus: "31AA. Calculation of the cumulative quantum of benefits. (1) The cumulative quantum of benefits received by a dealer (hereinafter ref .....

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the amended 1979 Package Scheme of Incentives and the 1983 Package Scheme of Incentives shall be the aggregate of the following sums, that is to say,- (a) a sum equal to the amount of purchase tax which would have been payable on the purchases of raw materials to the Government by the said dealer under any of the provisions of the Act and the amount of additional tax in relation to such purchase tax which would have been payable to the Government if the exemption granted under the said entry was .....

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tax; (c) a sum equal to the amount granted as drawback, setoff or, as the case may be, refund under rule 42AC to the said dealer; (d) a sum equal to 4 per cent of the turnover of interState sales of finished products manufactured by the said dealer in the eligible unit and specified in the eligibility certificate granted to him by the implementing agency and if the interState sales of such products are generally liable for Central sales tax at a rate less than four per cent then a sum calculated .....

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tion from payment of tax on any account of any sale made against any declaration or certificate prescribed under the Act, Rules or any notification issued under the Act or Rules: Provided that ..... Provided further that ...... Provided also that ..... (3) For the purpose of calculation of the cumulative quantum of benefits under the 1988 Package Scheme of Incentives, the provisions contained in subrule (2) shall apply mutatis mutandis with the qualification that the expression 'finished pro .....

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ard area based on the terms and conditions in the agreement including the method of calculating the CQB as set out under the 1983 Scheme. However, Section 41B read with Rule 31AA, introduced subsequently by way of amendment in the Act in the year 1995, seeks to provide for a totally different method of calculating the CQB, which amounts to taking away the rights vested in the petitioners under 1983 GR. Therefore, the provisions of Section 41B read with Rule 31AA must be held to be bad in law to .....

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1AA, inserted with effect from March, 24 1995, prescribes a method for calculating CQB retrospectively from 1st January, 1980, contrary to the method prescribed in the industrial policy declared by the State Government on 04.05.1983, Rule 31AA to the extent, it prescribes a different method for calculating the CQB must be held to be bad in law. As per learned counsel for the petitioners, the right to avail of the CQB as per para 2.11 of 1983 GR was a vested right of the petitioners and the State .....

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learned counsel for the respondent Nos. 2 & 3 Mr. Sonpal has challenged the very applicability of the doctrine of promissory estoppel against the statutory provisions, by relying on the decision of Bannari Amman Sugars Ltd. Vs. Commercial Tax Officer & Ors. 2004 Supp(6) SCR 264 It is urged that the party invoking the doctrine of promissory estoppel on the bald assertions without any supporting material to the effect that the said doctrine is attracted, would not be entitled to get the be .....

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that it is arbitrary and violative of the Article 14 of the Constitution, which challenge is not substantiated at all. According to him, therefore, there cannot be any estoppel, much less promissory estoppel, against the statute as the legislature is empowered to levy different taxes for different periods and different classes. 23. Mr. Sonpal has further submitted that the words "maximum rates of taxes specified under local sales tax law as applicable from time to time" in para 2.11 o .....

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or calculating CQB at the maximum rate, to accept the contention of the petitioners that the CQB has to be calculated at the concessional rate would be contrary to the scheme itself. 24. Having heard learned counsel for the petitioners and the respondents, we considered ourselves to be privileged and assured for the fact that the legal issue, involved in this writ petition, is already set at rest and can be no more called as res integra. We are having completely at our disposal the legal positio .....

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ntical arguments were advanced by these very learned counsels for parties appearing in those proceedings also. Facts of these proceedings are more or less similar to the facts of the said case. In that case also the petitioners had set up an industrial unit to manufacture electrical goods at village Mahim, Taluka Palghar, District Thane, an area declared as backward, with a view to avail of the exemption method of the assessment tax under the 1988 Scheme. The said scheme was similar or one may e .....

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etitioners in that case had challenged the Constitutional validity of Section 41B and Rule 31AA by contending that the petitioners' vested right in computing the CQB as per para 2.11 of 1988 GR was prejudicially affected. It was urged that the petitioners cannot be divested retrospectively by introduction of such rules. The same line of argument, advanced in this case that, Rule 31AA is merely of the clarificatory nature and does not introduce any new method of CQB and, therefore, does not d .....

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f tax specified under the local sales tax law as applicable from time to time. Sales tax/purchase tax are levied on sale/purchase of certain goods at the rates specified in the Schedule to the BST Act. Where the sales/purchases are covered under the partial/total exemptions granted under the BST Act/BST Rules, then, the sales tax/purchase tax in respect of those sales/purchases becomes payable at the rates prescribed under the exemption provisions. In respect of sales/purchases covered under the .....

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rates of tax. 31. Para 2.11 of the 1988 GR neither directly nor indirectly provides that in calculating the CQB availed of by a unit covered under the 1988 Scheme, the exemption provisions contained in the BST Act/BST Rules should be ignored. Para 2.11 of the 1988 GR provides that the notional tax liability of a unit covered under the 1988 Scheme would be the tax payable by a unit not covered under the 1988 Scheme, would be the tax determined as payable after taking into consideration the exemp .....

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tax specified in the Schedule to the BST Act, but is referable to the maximum rate of tax payable in view of the exemption provisions contained under local sales tax law. By using the wider expression "local sales tax law", it is amply made clear in para 2.11 that it is the tax which is actually payable by a unit not covered under the 1988 Scheme should be the basis for calculating the CQB availed of by a unit covered under the 1988 Scheme. Para 2.11 of the 1988 GR cannot be construed .....

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not be treated as the maximum rate of tax payable under local sales tax law. As noted earlier, the Schedule to the BST Act does not prescribe maximum/minimum rate of tax. It is only when partial exemption is granted under the sales tax law, the question of paying tax at the maximum rate arises. In these circumstances, it is not possible to accept the contention of the Commissioner that the expression "computed at the maximum rates of tax" in para 2.11 of 1988 GR refers to the rate of .....

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f electrical energy, then the maximum rate of tax payable by that unit would be at six per cent or four per cent depending upon the period of sales/purchases, in spite of the fact that the rate of tax prescribed under the Schedule to the BST Act is 10 per cent. Similarly, if the unit which is not covered under the 1988 Scheme makes sales/purchases to the undertakings which are not engaged in the generation and distribution of electrical energy, then the exemption provisions would not be applicab .....

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y. Therefore, in our opinion, the expression "computed at the maximum rates of tax" in para 2.11 of 1988 GR simply refers to the tax actually payable by a unit not covered under the 1988 Scheme as per the local sales tax law including the exemption provisions contained in the BST Act/BST Rules. Once it is held that para 2.11 of the 1988 GR provides for computation of notional tax liability on the basis of the tax actually payable by a unit not covered under the 1988 Scheme under the pr .....

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cified under the local sales tax law and not at the rate specified in the Schedule to the BST Act. The said terms and conditions which forms the basis for entering into a contract between the State Government and the petitioners could not be altered retrospectively by introducing rule 31AA with effect from March 24, 1995. 27. It was further held that, "40. The argument advanced on behalf of the Commissioner that rule 31AA is in consonance with para 2.11 of 1988 GR is also not acceptable, be .....

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tively. 41. It was contended on behalf of the Commissioner that the State Legislature has power to make laws with retrospective effect and accordingly section 41B of the BST Act inserted by the State Legislature and rule 31AA of the BST Rules which is laid before both the houses of the State Legislature would have the force of law. There can be no dispute that the State Legislature has power to make laws with retrospective effect, but if that law arbitrarily impairs or seeks to take away the rig .....

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aling with the reliance placed by learned counsel for the Commissioner on various decisions of the Apex Court in support of the contention that the legislature enjoys a greater latitude in relation to laws in the field of taxation, than the law touching the civil rights and the same extends to the enactment of legislation with prospective and retrospective effect, it was held that, "....... There is no quarrel with the above proposition of law laid down by the apex court. However, as notice .....

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apply retrospectively so as to divest the vested rights of the units covered under the 1988 Scheme must be held to be bad in law......." 29. Before concluding, it was further held in the said decision that, "......we may note that the package schemes of incentives were issued by the State Government from time to time with total exemption for the period specified therein, so as to attract establishment of units in the backward areas of the State. When the package scheme of incentives i .....

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.calculation of CQB availed of by a unit covered under the 1988 Scheme as per para 2.11 of the 1988 GR had to be made with reference to the tax payable by a unit not covered under the 1988 Scheme at the maximum rates of tax specified under the local sales tax, which includes the exemption provisions contained in the BST Act/BST Rules and, therefore, rule 31AA inserted to the BST Rules with effect from March 24, 1995 to the extent it provides that the calculation of CQB under the 1988 Scheme has .....

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ing the Package Scheme of 1983 but as stated above, undisputedly both the Schemes are similar, though they cover different periods. It may be reiterated that the terms and conditions of both the schemes are more or less the same and the introduction and applicability of Rule 31AA introduced with effect from 29.05.1995 was challenged in both the cases. Hence, though it is submission of learned counsel for the respondent that the said decision cannot be made applicable to the instant case, we are .....

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tion Ltd. (2015) 5 SCC 518 and others, relied upon by the learned counsel for the petitioners. Needless to state that, the binding precedent cannot be ignored on the specious plea that certain aspects were not considered or better argument could be advanced, as held by this Court in the case of The Commissioner of Sales Tax Vs. M/s. Jalani Tools (India) Ltd. Sales Tax Reference No. 9 of 2000 decided on 12th August, 2014. 32. In the present case, the ratio decidendi which is to be gathered from t .....

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to be applied and hold that the para 2.11 of 1983 Scheme provided for computation of notional tax liability on the basis of tax actually payable by unit not covered under the 1983 Scheme under the provisions of sales tax law which includes the exemption provisions contained under the Act and Rules, then, it has to be held that Rule 31AA inserted with effect from March 24, 1995 to the extent it directs the Commissioner to compute the CQB by ignoring the exemption provisions, is bad in law. 33. I .....

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