TMI Blog2017 (5) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanying 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. Section 93(1) follows providing for proportionate incentives. Once we find that from the very 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. Reliance was placed in the case of Epari Chinna Krishna Moorthy and Another Versus The State of Orissa and Others [1964 (3) TMI 55 - SUPREME COURT OF INDIA], where it was held that Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who actually produce gold ornaments or employ artisans for that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 and which were earlier entitled to claim VAT exemption benefit on the entire production of their respective industrial units, had their exemption benefit substantially curtailed, being limited to, only a portion of the total production of the unit due to the aforesaid retrospective amendment. 2) It is in this backdrop the issue is as to whether retrospective amendment in the MVAT Act stands the test of constitutionality and is valid in law. Following factual background need to be noted in order to understand the exact nature of controversy and the decisions which are taken by the appellants on the one hand and the respondent on the other. 3) In order to encourage and ensure industrialisation in the backward and underdeveloped areas, Government of Maharashtra had introduced package schemes of incentives to the industrial units for setting up in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 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 category. Vires of this Circular were challenged by filing writ petitions in the High Court. While these writ petitions were pending, the Maharashtra Sales Tax Tribunal, in its judgment dated March 17, 2001, held that the aforesaid Circular was not validly issued as such an administrative circular could not be issued, which was contrary to the 1993 Scheme, as amended, since such a Scheme was statutory in nature. It may be mentioned that the aforesaid order of the Tribunal was subsequently upheld by the High Court and it attained finality. To overcome this difficulty, the Legislature brought amendment to the Bombay Sales Tax Act, 1959 with the insertion of Section 41BB. This provision reads as under: 41BB.- Proportionate incentives to an Eligible Unit in certain contingencies. (1) Notwithstanding anything to the contrary contained in any Package Scheme of Incentives, any Eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAT 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 goods effected by a unit holding a Certificate of Entitlement, as defined in Section 88, to whom incentives are granted under any Package Scheme of Incentives, by way of exemption from payment of tax. Section 93 of the MVAT Act deals with proportionate incentives to an Eligible Unit in certain contingencies. Sub-section (1) thereof, as it originally stood, reads as under: 93. Proportionate incentives to an Eligible Unit in certain contingencies. (1) Notwithstanding anything to the contrary contained in any Package Scheme of Incentives, any Eligible Unit to whom the Eligibility Certificate has been granted, shall be eligible to draw the benefits in any year, after the appointed day, only on that part of its turnover of sales or purchases as may be arrived at by applying the ratio as may be prescribed by the State Government to the total turnover of sales and purchases of the said unit in that year and different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts, 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 add to production capacity, then it shall apply to all the finished products. Simultaneously, Section 93A has been inserted to provide that Section 93 shall apply to all the Eligible Units, to whom Eligibility Certificates and Certificates of Entitlement have been issued under any of the Package Schemes of Incentives; if such certificates have been issued on or before the appointed day (1 April 2005), then from the appointed day and in any other case, from the date of effect mentioned in such certificates. 10) Section 5 of Amending Act 22 of 2009 contains a validation and savings provision which is as follows: 5(1) Notwithstanding anything contained in any judgment, decree or order of any Court or Tribunal to the contrary, any assessment, review, levy or collection of tax in respect of sales or purchases effected by any dealer or person, or any action taken or thing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 valid legislation and such a legislation can be passed by the Legislature with retrospective effect, more so when the Legislature is empowered to enact the laws retrospectively. 13) Mr. S. Ganesh, learned senior counsel, submitted that chronology of events stated above clearly establishes that the State Government and the tax authorities led all industrial units to a bona fide belief, during the relevant period from 2005 to 2009, that the benefit of VAT exemption would be available in respect of the entire production of the industrial unit and not merely a proportionate part thereof. These industrial units were, therefore, disabled and prevented from recovering any VAT on any part of their production, as that would have been illegal and would in fact have constituted a criminal offence. If the same amendment had been made in the year 2005 itself, the industrial units would have availed of the VAT exemption benefit over a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 of affairs, which could have been put an end to forthwith by merely framing a Rule under Section 41 BB or Section 93. Accordingly, the appellant availed tax exemption on 100% of the turnover of its expanded undertaking and passed on the benefit of exemption to the appellant s customers. In the process, the appellant exhausted its entire tax exemption benefit calculated at 130% of its total fixed capital investment, long before the expiry of the appellant s 15 year exemption period which ended only in 2015. Immediately after exhausting its sales tax exemption benefit limit, the appellant started recovering VAT from its customers and paying over the same to the tax authorities. 15) The learned senior counsel also argued that the exact effect and impact of the impugned retrospective amendment made in 2009 with effect from April 01, 2005 needs to be clearly understood, as under: (a)The total exemption be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 legislate with the sole object of neutralising or over-ruling the decision of the Court. Another submission of Mr. Shrivastav was that vested rights were created in favour of the appellant and also Doctrine of Promissory Estoppel was applicable in the present case and these aspects precluded the Legislature to make the amendment retrospectively. He referred to number of judgments on the aforesaid propositions. 17) Other counsel, appearing in remaining appeals adopted the above arguments. 18) Learned counsel for the State refuted the aforesaid submissions of the counsel for the appellants and pleaded that well reasoned judgment of the High Court does not require to be interfered with. He argued that from the very beginning, the legislative intent was to allow benefit under Package Scheme of Incentives only on proportionate basis which was reflected in Section 41BB of the Sales Tax Act as well as Section 93 of the MVAT Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 huge financial loss on the State. Another submission of the counsel for the State was that a retrospective enactment cannot be impugned on the ground that the retrospective levy did not afford any opportunity to the dealers to pass on the tax to consumers, as held in Hiralal Ratanlal v. State of Uttar Pradesh , (1973) 1 SCC 216. 19) Before dealing with the aforesaid contentions of the parties on either side, it would be apposite to traverse through the impugned judgment of the High Court in order to ascertain the reasons which have prevailed with the High Court in rejecting the arguments of the appellants herein. 20) A perusal of the judgment of the High Court would show that after capturing the essence of the Scheme of 1988, 1993 and statutory provisions in the form of Section 41BB of the Act and amendments thereto from time to time (which have already been stated by us above) and recording the submissions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective 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 earlier judgment of the Bombay High Court. We are unable to accept the aforesaid submissions and find that the High Court has proceeded to deal with this aspect of the matter in a correct perspective. While repelling the aforesaid contention, the High Court observed that Section 41BB of the Bombay Sales Tax Act was introduced into this statute in the year 2001. This provision was prefaced by a non-obstante provision which was to operate notwithstanding anything to the contrary contained in any Package Scheme of Incentives. This Section specifically provided that eligible unit would be entitled to draw benefits only on that part of its turnover of sales or purchases as may be arrived at by applying the ratio as that would be prescribed by the State Government to the total turnover of sales or purchases of the unit in that year. Thus, Section 41BB of the Act was not an enabling provision, but contained a legislative manda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centives 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 certain contingencies . 24) It would also be of significance to take note of relevant provisions in respect of Package Scheme of Incentives. Chapter XIV of the MVAT Act contains provisions in regard to the Package Scheme of Incentives. Section 88(a) defines the expression Certificate of Entitlement as a certificate issued by the Commissioner in respect of sales tax incentives under the relevant Package Scheme of Incentives. The expression Eligibility Certificate is defined in Section 88(c) to mean inter alia a certificate granted by SICOM or Director of Industries in respect of sales tax incentives under a Package Scheme of Incentives designed by the State Government. An eligible unit under clause (b) of Section 88 is defined to mean an industrial unit in respect of which an eligibility certificate is issued. The expression Package Scheme of Incentives under clause (e) of Section 88 includes the 1988 and 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: 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 the case of Pee Vee Textiles , the High Court accepted that the very intent behind Section 41BB of Sales Tax Act was to restrict grant of incentive in proportion to the goods manufactured in the expansion unit. Notwithstanding the same, the only reason for quashing the circular was that the effect of the aforesaid provision was given in the form of an administrative order, whereas the law requires that the proper mode was to effectuate the same by framing Rules. This is the basis of the judgment and it is this basis which has taken away by the legislative amendment retrospectively. In these circumstances, it cannot be said that intention was to nullify the judgment of the Court. Clear intention was to rectify the earlier error committed by the Executive in not implementing the legislative intent in the form of subordinate legislation i.e. statutory rules and, trying to achieve the same by administrative action. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 purported to do by S.2 of the impugned Act is to make the intention of the notification clear. Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who actually produce gold ornaments or employ artisans for that purpose. We do not see how any question of legislative incompetence can come in the present discussion. And, if the State Government was given the power either to grant or withdraw the exemption, that cannot possibly affect the legislature's competence to make any provision in that behalf either prospectively or retrospectively. Therefore, there is no substance in the argument that the retrospective operation of S.2 of the impugned Act is invalid. In present case also, as seen earlier, the legislature had given power to the State Government to prescribe the ratio/proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 legislature to declare that a judicial pronouncement given by a court of law would not be binding, as the legislature does not possess that power. A decision of a court of law has a binding effect unless the very basis upon which it is given is so altered that the said decision would not have been given in the changed circumstances. 33) It may also be useful to refer to the judgment in the case of Indian Aluminium Co. v. State of Kerala , (1996) 7 SCC 637 wherein the Court culled out the principles laid down on this aspect by taking note of earlier judgments on the issue. We would like to reproduce the same: 56. From a resume of the above decisions the following principles would emerge: (1) The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transactions and require the court to gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 character and the legislature is competent to recover the invalid tax validating such a tax on removing the invalid base for recovery from the subject or render the recovery from the State ineffectual. It is competent for the legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition of levy collected and recovery of the tax made valid, notwithstanding the declaration by the court or the direction given for recovery thereof. (9) The consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the legislature must have competence to do the same. 34) The aforesaid judgment has been followed by this Court in Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, or validating the imposition of sales tax, when the seller is not in a position to pas it on to the consumer, is a matter of policy and does not affect the competence of the legislature. This question is concluded by the decision of this court in Tata Iron Steel Co. Ltd. v. State of Bihar , (1958) SCR 1355: (AIR 1958 SC 452). (iii) The legislature has a plenary power, subject to constitutional limitations to enact a law which is prospective or retrospective: The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective. 36) It would also be pertinent to point out that in R.C. Tobacco (P) Ltd. case, this Court authoritatively pronounced the fact that the dealer upon whom the tax is imposed is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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