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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.842 OF 2000
1. M/s.Prasad Power Control Pvt. Limited,
a Private Limited Company having
its registered office at A-5,
Parvana Apartments, Sai Baba Nagar,
2.
Borivli (East), Mumbai - 400 092.
Shri B.P. Yadav, of Mumbai,
Indian Inhabitant and a Director of
Petitioner No.1 having his office at
A-5, Parvana Apartments, Sai Baba
Nagar, Borivli (East), Mumbai - 92 ......Petitioners
Versus
1. Commissioner of Sales Tax,
having his office at 8th Floor,
Vikrikar Bhavan, Mazgaon,
Nesbit Road, Mumbai - 400 010.
2. Deputy Commissioner of Salex Tax,
(Incentive & Enforcement)
having his office at 6th Floor,
Vikrikar Bhavan, Mazgaon,
Nesbit Road, Mumbai - 400 010.
3. Deputy Commissioner of Sales Tax,
Thane Division, Thane.
4. Sales Tax Officer (E 205)
Enforcement Branch, having his
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office at 5th Floor, Vikrikar Bhavan,
Mazgaon, Nesbit Road, Mumbai 10
5. Development Corporation of
Konkan Limited, having its office
at Warden House, 5th floor, Sir P.M.
Road, Fort, Mumbai - 400 001.
6. State of Maharashtra,
having its office at Mantralaya,
Mumbai - 400 032 ......Respondents.
Mr.P.C. Joshi i/by Mr.N.B. Shah for the petitioners.
Mr.Vinay Sonpal, AGP for the respondents.
CORAM : J.P. Devadhar & Smt. R.S. Dalvi, JJ.
Judgment reserved On : 1st April 2011.
Judgment delivered On : 8th June, 2011
ORAL JUDGMENT (Per J.P. Devadhar, J.)
1. The challenge in this Writ Petition is to the Constitutional
validity of Section 41B of the Bombay Sales Tax Act, 1959 (“BST Act”
for short) as also the constitutional validity of Rule 31AA of the
Bombay Sales Tax Rules, 1959 (“BST Rules” for short) to the extent that
the said provisions are made applicable retrospectively from 1st January
1980. The petitioners have also challenged the validity of the
assessment orders passed on 2nd August 1999, 3rd August 1999 and 6th
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August 1999 for the period 1994-1995, 1995-1996 and 1996-1997
respectively. However, Mr.Joshi, learned counsel appearing on behalf of
the petitioners has not pressed the challenge to the said assessment
orders as the petitioners have filed appeals against the said assessment
orders before the Appellate Authority constituted under the BST Act
and that the said appeals are pending.
2. The basic dispute raised in this Writ Petition is, when a unit
is established as per the Government Resolution dated 30 th September
1988 (‘1988 GR’ for short) which provides for a mechanism to calculate
the notional sales tax liability of a unit covered under the 1988 Package
Scheme of Incentives (“1988 Scheme” for short), whether a different
mechanism for calculating the notional sales tax liability can be
introduced with retrospective effect from 1st January 1980 by inserting
Section 41B to the BST Act and inserting Rule 31AA to the BST Rules,
so as to defeat the rights vested in the units established under the 1988
Scheme prior to the insertion of Rule 31AA ?
3. Section 41B of the BST Act inserted with effect from 1st
May 1994 empowers the Commissioner of Sales Tax to determine the
Cumulative Quantum of Benefits (“CQB” for short) received by any
dealer to whom a Certificate of Entitlement under the Package Scheme
of Incentives has been granted under Entry 136/E-3 of the Schedule to
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the Notification issued under Section 41 of the BST Act at any time
after 1st January 1980 in the manner prescribed by the Rules and if the
CQB so calculated exceeds the relevant monetary ceiling, then recover
the same with interest and penalty. Rule 31AA inserted to the BST
Rules with effect from 24th March 1995 inter alia provides that in
calculating the CQB in respect of any period commencing on or after 1st
January 1980, no regard shall be had to the full or partial exemption
from payment of tax on any account of any sale made against any
declaration or certificate prescribed under the Act / Rules /
Notification. In other words, by Rule 31AA, it is provided that the CQB
availed by the units covered under any of the package scheme of
incentives on or after 1st January 1980 shall be calculated by ignoring
the full or partial exemption granted under the BST Act / BST Rules /
Notifications issued under the BST Act.
4. According to the petitioners, Section 41B and Rule 31AA to
the extent they are inconsistent with para 2.11 of the 1988 GR are bad
in law. According to the Commissioner, the method of determining the
CQB under Section 41B read with Rule 31AA is in consonance with the
method prescribed under para 2.11 of the 1988 GR and, therefore, no
fault can be found with either Section 41B or Rule 31AA.
5. The relevant facts are that, since 1964 the State
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Government with a view to achieve dispersal of Industries outside the
Bombay-Thane belt and to attract them to the under-developed and
developing areas of the State had resolved to give a Package Scheme of
Incentives to new units / expansion set up in the developing region of
the State, under a Scheme popularly known as Package Scheme of
Incentives. The first Package Scheme of Incentives introduced in the
year 1964 was amended from time-to-time. The amended Schemes are
commonly known as the 1969 Scheme, 1976 Scheme, 1979 Scheme,
1983 Scheme and 1988 Scheme. In the present case, we are concerned
with the 1988 Scheme.
6. The 1988 Package Scheme of Incentives announced by the
State Government as per 1988 GR was to remain in operation for a
period of five years from 1st October 1988 to 30th September 1993. The
units established under the 1988 Scheme could either opt for
exemption from payment of tax for the period specified therein and
upto the specified financial limit or opt for deferred payment of tax.
7. The petitioners, with a view to avail the exemption method
prescribed under the 1988 Scheme, decided to set up a unit to
manufacture electrical goods at Village Mahim, Taluka Palghar, District
Thane. Accordingly, the petitioner No.1 applied for and obtained an
eligibility certificate dated 3rd January 1992 from the implementing
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agency, namely, the Development Corporation of Konkan Limited valid
for seven years from 3rd January 1992 to 2nd January 1999, with a
financial ceiling of Rs.22,64,971/- which was increased to Rs.
26,87,800/- by a corrigendum dated 5th November 1999. As per the
said eligibility certificate, the petitioners were required to set up an
industrial unit at Village Mahim, Taluka Palghar, District Thane to
manufacture tower and tower accessories, marshaling boxes, L.T. & H.T.
Fuses, switches and switch gear panels etc. and during the period from
3rd January 1992 to 2nd January 1999 the petitioners were entitled to
purchase raw materials and sell the manufactured goods without
payment of purchase tax / sales tax subject to the above financial
ceiling.
8. After issuance of the Eligibility Certificate on 3rd January
1992, the State Government entered into an agreement with the
petitioners on 7th January 1992 wherein the terms and conditions for
grant of exemption from payment of sales tax / purchase tax on sales of
finished goods and on purchase of raw materials required in the
manufacture of the electrical goods at the petitioners unit at Mahim,
Taluka Palghar, District Thane, were recorded.
9. Thereafter, the Deputy Commissioner of Sales Tax, Thane
Division, Thane issued a certificate of entitlement dated 17th March
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1992, wherein it is specifically recorded that the petitioner No.1 is
entitled to claim exemption to the extent specified therein, in respect of
sales and purchases made by the industrial unit at Mahim, Palghar
during the period specified in the Entitlement Certificate in respect of
goods falling under Entry 136 of the Notification issued under Section
41 of the BST Act.
10. At the relevant time, the sales tax / purchase tax on the
electrical goods of all kinds was levied at 10% under Entry 44 of
Schedule C, Part II of the BST Act. By inserting Entry 47 into the
statutory notification issued under Section 41 of the BST Act, it was
provided that with effect from 1st July 1981 sales by a registered dealer
to the undertakings engaged in the generation or distribution of energy
would be exempt from purchase tax / sales tax in excess of 4% subject
to the conditions set out therein. During the period from 26 th March
1987 to 30th September 1995, such exemption was restricted to the
amount of sales tax exceeding 6%. With effect from 1st October 1995,
such exemption was restored to the amount of tax exceeding 4%.
Thus, on sale of electrical goods sales tax was payable at 10% as per
the schedule to the BST Act, but when sales were effected to the
undertakings engaged in the generation of electricity, sales tax /
purchase tax was payable at 4% or at 6% as per the notification issued
under Section 41 of the BST Act.
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11. However, in respect of the units established in a backward
area, as per the package scheme of incentives framed by the State
Government total exemption was granted up to the specified period
and upto a specified amount of tax. In the case of a unit established
under the 1988 Scheme to manufacture electrical goods, total
exemption was granted as per Notification entry 136(2)(a) and (b)
under Section 41 of the BST Act. The said entry 136(2)(a) of the
Notification provides that sale by a registered dealer, being an
Industrial Unit set up in the developing regions of the State of
Maharashtra and certificated by the relevant Regional Development
Corporation as an eligible unit under the 1988 Scheme falling under
the Package Scheme of Incentives and to whom a Certificate of
Entitlement has been granted would be exempt from the whole of the
sales tax. Similarly, Entry 136(2)(b) of the Notification issued under
Section 41 of the BST Act provides that sales of any goods being raw
materials by a registered dealer to a registered dealer referred to in
Entry 136(2)(a) shall be exempt from whole of purchase tax.
12. Thus, the levy of sales tax / purchase tax on electrical
goods of all types was at 10% as per the Schedule to the BST Act.
However, by Entry 47 of the Notification issued under Section 41 of the
BST Act, partial exemption was granted from payment of purchase tax
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on purchase of raw materials and sales tax on sale of electrical goods
when made to undertakings engaged in the generation or distribution
of electrical energy. The exemption from payment of purchase tax /
sales tax was in excess of 4% (from 1st July 1981 to 25th March 1987),
in excess of 6% (from 26th March 1987 to 30th September 1995) and in
excess of 4% from 1st October 1995 onwards. In other words, when a
registered dealer purchased raw materials and on manufacture sold the
electrical goods to undertakings engaged in the generation or
distribution of electrical energy, as per Notification issued under
Section 41 of the BST Act, the maximum sales tax / purchase tax
payable by that dealer was 4% or 6% as the case may be, and, when
sold to others the tax payable was at 10% as per Schedule entry in the
BST Act. A unit covered under the 1988 Scheme was, however, totally
exempted from payment of purchase tax on purchase of raw materials
and sales tax on sale of finished electrical goods as per Entry 136(2)(a)
and 136(2)(b) of the Notification issued under Section 41 of the BST
Act.
13. In the present case, it is not in dispute that the petitioner’s
unit is covered under the 1988 Scheme. It is not in dispute that the
petitioners have fulfilled all the conditions set out in the Eligibility
Certificate / Entitlement Certificate and accordingly the sales and
purchases of raw materials effected by the petitioners during the period
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specified in the Certificate (from 3rd January 1992 to 2nd January 1999)
and upto the financial ceiling of Rs.26,87,800/- are totally exempt from
payment of sales tax / purchase tax as per Entry 136(2)(a) and 136(2)
(b) of the Notification issued under Section 41 of the BST Act.
14. The only dispute is in relation to the calculation of the
cumulative quantum of benefits (CQB) received by the petitioners on
the respective sales / purchases effected during the validity period of
the Certificates issued under the 1988 Scheme till reaching the
financial ceiling provided under the Entitlement Certificate.
15. Calculation of CQB, according to the petitioners was liable
to be made as per para 2.11 of the 1988 GR by considering the
maximum tax that would have been payable under the BST Act / BST
Rules including the exemption provisions contained therein, if the
petitioner’s unit was not covered under the 1988 Scheme. According to
the Commissioner, 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 tax levied under the Schedule to the BST
Act by ignoring the exemption provisions contained therein.
16. Para 2.11 of the Government Resolution dated 30th
September 1988 reads thus :-
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“2.11 Notional Sales Tax Liability :-
(a) Sales Tax / purchase tax / additional tax
that would have been payable by the Eligible Unit on the
purchases of raw materials and sales tax / turnover tax /
additional tax that would have been payable by the
Eligible Unit on the sales of finished products / by-
products / scrap goods of the Eligible Unit under 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”.
17. Section 41B inserted to the BST Act by Maharashtra Act 29
of 1994 with effect from 1st May 1994 reads thus :-
“41B. Calculation of cumulative quantum of benefits
under Package Scheme of Incentives.(1) In order to determine whether the
cumulative quantum of benefits received by any dealer
to whom a Certificate of Entitlement has been granted
by the Commissioner under entry 136 of the Schedule tothe notification issued under Section 41, has at any time
after the 1st January 1980 exceeded the relevant
monetary ceiling under any Package Scheme of
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 ::: Downloaded on - 09/06/2013 17:19:29 ::: 12 wp842-00benefits so calculated in respect of any Eligible unit has
exceeded the relevant monetary ceiling where suchceiling is provided in the Package Scheme of Incentives,
then the Commissioner shall, require the dealer by orderin writing to pay the tax, interest or penalty in respect of
each relevant period and shall for the purpose of
recovery of such tax, interest or penalty, serve on the
dealer a notice.Provided that, no order under this section shall be
passed without giving the dealer a reasonable
opportunity of being heard.(3) The notice so issued, shall be deemed to be
a notice issued under sub-section (4) of section 38 andthe relevant provisions of this Act shall apply to such
notice as they apply to a notice issued under sub-section
(4) of section 38.”18. Rule 31AA inserted to the BST Rules by Government
Notification dated 24th March 1995 with effect from 24th March 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 referred to as “the said dealer”) to
whom a Certificate of Entitlement has been granted by theCommissioner under entry 136 of the Schedule to the
notification issued under section 41 shall be calculated by
the Commissioner in respect of any period commencing
on or after the 1st January 1980 in the manner prescribed
herein.(2) The cumulative quantum of benefits received
by the said dealer to whom the said certificate has been
granted under the 1979 Package Scheme of Incentives
including 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::: Downloaded on – 09/06/2013 17:19:29 :::
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(a) a sum equal to the amount of purchase
tax which would have been payable on thepurchases 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 underthe said entry was not available;
(b) a sum equal to the amount of sales tax
which would have been payable by a selling dealernot holding a Certificate of Entitlement on the sale
of raw materials to the said dealer if the set offunder rule 42AC is not admissible to the said dealer
in respect of such purchases;Provided that during the period from 15th
April, 1994 to 30th November, 1994, the calculation
shall be made at the rate of tax applicable to such
goods as reduced by 4% from the applicable rate oftax;
(c) a sum equal to the amount granted as
drawback, set-off 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 inter-State 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 inter-State sales of such products are generally liable for
Central sales tax at a rate less than 4 per cent then
a sum calculated at such lower rate on the said
turnover;(e) a sum equal to the amount of tax
(including sales tax, additional tax and turnover
tax) which would have been payable to
Government on any sales of products manufactured
by the said dealer in the eligible unit and specified
in the eligibility certificate granted to him by the
implementing agency if the said dealer was not::: Downloaded on – 09/06/2013 17:19:29 :::
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regard was had or any deduction from the saidturnover or full or partial exemption from payment
of tax on any account of any sale made against anydeclaration 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 sub-rule
(2) shall apply mutatis mutandis with the qualificationthat the expression “finished products” shall be deemed to
include by-products and scrap products generated during
the process of manufacture in the eligible unit of products
specified in the eligibility certificate granted to the saiddealer.
(4) ……………
(5) In this Rule the expression “raw materials”
shall have the same meaning as assigned to it in theExplanation II appended to the said entry 136.”.
19. Mr.Joshi, learned counsel for the petitioners submitted that
the petitioners had set up a unit in the backward area based on the
terms and conditions in the agreement including the method of
calculating the CQB set out under the 1988 Scheme contained in the
1988 GR. Since Section 41B read with Rule 31AA seeks to introduce a
different method of calculating the CQB, it amounts to taking away the
rights vested in the petitioners under the 1988 GR and, therefore, the
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provisions of Section 41B read with Rule 31AA must be held to be bad
in law to the extent they are in conflict with para 2.11 of the 1988 GR.
20. Mr.Joshi submitted that in the case of petitioners, the CQB
as per para 2.11 of the 1988 GR was liable to be calculated on the basis
of the maximum sales tax / purchase tax that would have been payable
if the petitioner’s unit was not covered under the 1988 Scheme. If the
petitioner’s unit was not covered under the 1988 Scheme, then on
purchase of raw materials and sale of electrical goods to undertakings
engaged in the generation / distribution of electrical energy, the
petitioners would have been liable to pay purchase tax / sales tax at 6%
or 4% as the case may be as per the Notification issued under Section
41 of the BST Act and was liable to pay purchase tax / sales tax at 10%
when sales were made to others. The submission is that as per para
2.11 of the 1988 GR, the “notional sales tax liability” computed cannot
exceed the actual sales tax liability that would have been incurred by
the unit if not covered under the 1988 Scheme. In support of the
above contention, Mr.Joshi relied upon the decisions of this Court in
the case of Varun Polymol Organics Limited V/s. State of
Maharashtra reported in 97 STC 55 (Bom.), decision in the case of
Multifilms Plastics Private Limited V/s. SICOM reported in 105 STC
458 (Bom.), decision of the Gujarat High Court in the case of ARDEEC
Engg (Saurashtra) Private Limited V/s. State of Gujarat reported in
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117 STC 178 (Guj.) and a decision of the Orissa High Court in the case
of Luis Packaging Private Limited V/s. State of Orissa reported in
(2010) 32 VST 481 (Ori.).
21. Relying on a decision of the Apex Court in the case of
State of Bihar V/s. Suprabhat Steel Limited reported in 112 STC 258
(S.C.), Mr.Joshi submitted that since Rule 31AA inserted with effect
from 24th March 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
30th September 1988, the Rule 31AA to the extent it prescribes a
different method for calculating CQB must be held to be bad in law. He
submitted that the right to avail the CQB as per para 2.11 of the 1988
GR was a vested right of the petitioners and the State Government
could not divest that right by inserting Rule 31AA retrospectively from
1st January 1980. In support of the above contention, Mr.Joshi relied
upon the decisions of this Court in the case of Tapti Oil Industries V/s.
State of Maharashtra reported in 56 STC 193 (Bom.) and Olympic
Oil Industries V/s. State of Maharashtra reported in 65 STC 191
(Bom.).
22. Mr.Joshi further submitted that when the State
Government has specifically introduced Rule 31AA with effect from 24th
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March 1995, the said Rule cannot be applied retrospectively. He
submitted that the principles of promissory estoppel are applicable in
the present case, as the petitioner’s have set up the unit in the
backward area relying on the promise contained in the 1988 GR which
is sought to be taken away arbitrarily by introducing Rule 31AA with
retrospective effect from 1st January 1980. He submitted that a unit
which is not covered under the package scheme of incentives when
purchases raw materials / sells electrical goods, then the purchase tax /
sales tax payable would be at 4% or 6% when sold to undertakings
engaged in the generation / distribution of the electrical energy and at
10% when sold to others. The expression ‘maximum rate of tax’ in para
2.11 of the 1988 GR refers to the maximum rates of tax that would
have been payable by the Unit if not covered under the 1988 Scheme as
per the exemption Notification issued under the BST Act and is not
referable to the tax levied under the Schedule to the BST Act.
Accordingly, Mr.Joshi submitted that petition be allowed by granting
the reliefs claimed in the petition.
23. Mr.Sonpal, learned counsel appearing on behalf of the
Commissioner, on the other hand, submitted that the Writ Petition filed
to challenge the validity of Rule 31AA suffers from gross delay and
laches as Rule 31AA came into force with effect from 24th March 1995,
whereas the Writ Petition is filed belatedly in the year 2000. He
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submitted that Rule 31AA is in consonance with para 2.11 of the 1988
GR, as is evident from the fact that even before the insertion of Rule
31AA, para 2.11 was interpreted in consonance with Rule 31AA and
assessment orders were passed for the period 1991-92, 1992-93 and
1993-94 on 6th January 1995 and the said assessment orders have been
accepted by the petitioners. Therefore, it is not open to the petitioners
to contend that Rule 31AA is inconsistent with para 2.11 of the 1988
GR.
24. Plain reading of para 2.11 in the 1988 GR, according to
Mr.Sonpal is that the maximum rate of tax that would have been
leviable should be considered for the calculation of CQB and any sale
on any declaration except ‘C’ form are liable to be ignored. He
submitted that Rule 31AA is clarificatory in nature. Mr.Sonpal
submitted that it is not the case of the petitioners that the State
legislature lacked the legislative competence to introduce Rule 31AA to
the BST Rules. The only ground on which Rule 31AA is assailed is that
it is arbitrary and violative of Article 14 of the Constitution. He
submitted that Rule 31AA inserted to the BST Rules, as per Section
74(5) of the BST Act has been placed before both the houses of the
legislature and, therefore, Rule 31AA has the force of law as statute.
He submitted that there is no estoppel against the statute and the
legislature is empowered to levy different taxes for different classes.
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25. Mr.Sonpal further submitted that the words “maximum
rates of tax specified under the local sales tax law as applicable from
time-to-time” in para 2.11 of the 1988 GR clearly refers to the rates of
tax set out in the Schedule to the BST Act. The exemption notifications
do not redefine the maximum rate of tax. Therefore, para 2.11 of the
1988 GR as also the provisions contained in the earlier Package Scheme
of Incentives referred to the maximum rates of tax provided under the
Schedule to the BST Act and that position has been clarified by
inserting Rule 31AA with effect from 1st January 1980. Accordingly, he
submitted that when the 1988 Scheme provides for 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.
26. Relying on the decision of the Apex Court in the case of the
Indian Express Newspapers (Bombay) P. Limited V/s. Union of India
reported in (1985) 3 SCC 641, counsel for the Commissioner
contended that a subordinate legislation can be challenged only if it is
manifestly arbitrary. In the present case, para 2.11 of the Scheme
clearly provides for the notional sales tax liability to be calculated at
the maximum rates specified under the sales tax law and, therefore,
Rule 31AA which incorporates the provisions contained in para 2.11
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cannot be said to be manifestly arbitrary and consequently, the
challenge to Rule 31AA cannot be sustained.
27. It is further contended on behalf of the Commissioner that
by a Circular No.9 of 1990 dated 12th April 1990, the Commissioner of
Sales Tax in the light of the clarification dated 26th March 1990 issued
by the Industries, Energy and Labour Department had clearly brought
to the notice of the persons in the trade, that the rate of tax to be
applied for calculating the notional sales tax liability would be the rate
shown in the Schedule appended to the BST Act and not the rate as
reduced by any notification issued under Section 41 of the BST Act.
Therefore, it is not open to the petitioners belatedly in the year 2000 to
contend that the CQB has to be calculated at the rate specified in the
exemption notification.
28. We have carefully considered the rival submissions. The
question to be considered in the present case is, whether under para
2.11 of the 1988 GR, the CQB was liable to be calculated by ignoring
the exemption provisions contained in the BST Act / BST Rules ?
29. Plain reading of para 2.11 of the 1988 GR clearly shows
that the quantum of benefits availed by a unit covered under the 1988
scheme has to be calculated with reference to the tax that would have
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been payable by a unit if not covered under the 1988 Scheme on
assessment at the maximum rates of tax specified under the local sales
tax law as applicable from time-to-time.
30. 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 exemption provisions,
the rate of tax applicable is the rate of tax set out in the exemption
provisions and not the rate of tax set out in the schedule to the BST
Act. Thus, computation of tax at the maximum rate arises only when
the sales / purchases are covered under the exemption provisions.
Where the sales / purchases are not covered under the exemption
provisions, the tax is payable at the rate prescribed under the schedule
to the BST Act and there is no question of paying taxes at the maximum
rates of tax.
31. Para 2.11 of the 1988 GR neither directly nor indirectly
provides that in calculating the CQB availed by a unit covered under
the 1988 Scheme, the exemption provisions contained in the BST Act /
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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. Computation of tax payable by a unit not covered under the
1988 Scheme, would be the tax determined as payable after taking into
consideration the exemptions granted under the BST Act / BST Rules.
Therefore, the CQB availed by a unit covered under the 1988 Scheme,
as per para 2.11 of the 1988 GR had to be computed on the basis of the
tax payable by a unit not covered under the 1988 Scheme as per the
provisions including the exemption provisions contained in the BST Act
/ BST Rules.
32. The expression “computed at the maximum rates of tax
under the local sales tax law” clearly denotes that the computation is
not referable to the rate of 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 by a unit covered under the 1988 Scheme. Para 2.11 of the
1988 GR cannot be construed to mean that the computation of tax has
to be made by ignoring the exemption provisions contained in the BST
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Act / BST Rules. When a notification issued under Section 41 of the
BST Act grants partial exemption, then the tax payable pursuant to the
notification is the maximum rate of tax payable on sale / purchase of
goods referred to in the notification. There is nothing in para 2.11 to
suggest that the tax payable by a unit in the light of notification issued
under Section 41 of the BST Act should 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 tax specified in the
schedule to the BST Act and not to the rate of tax payable under the
sales tax law including the exemption provisions contained in the sales
tax law.
33. As noted earlier, para 2.11 of the 1988 GR refers to the tax
payable by a unit not covered under the 1988 Scheme at the maximum
rate of tax specified under the local sales tax law. If a unit not covered
under the 1988 Scheme sells the electrical goods exclusively to a
undertaking engaged in the generation and distribution of electrical
energy, then the maximum rate of tax payable by that unit would be at
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6% or 4% 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%. 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 applicable and the tax payable by
that unit would be at 10% as per the Schedule to the BST Act. Para
2.11 of the 1988 GR neither stipulates that in determining the notional
tax liability, the exemption provisions under the BST Act / BST Rules
have to be ignored nor does it stipulate that the sales to the
undertakings engaged in the generation and distribution of electrical
energy should be treated as sales to undertakings which are not
engaged in the generation and distribution of electrical energy.
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.
34. 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
provisions of the sales tax law which includes the exemption provisions
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contained under the BST Act / BST Rules, then it would have to be held
that Rule 31AA inserted with effect from 24th March 1995 to the extent
it directs the Commissioner to compute the CQB by ignoring the
exemption provisions is bad in law. The reason being that the
petitioners had established a unit in the backward area on the
assurance contained in the 1988 GR to the effect that the CQB would
be computed at the maximum rates specified 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
24th March 1995.
35. In the case of Suprabhat Steel Limited (supra), the Apex
Court was called upon to consider the validity of a notification issued
by the State Government which was repugnant to the industrial policy
approved by the State Government. The Apex Court on consideration
of the rival contentions held (see para 7) thus :-
“7. Coming to the second question, namely, the
issuance of notification by the State Government in
exercise of power under section 7 of the Bihar Finance
Act, it is true that issuance of such notifications entitles
the industrial units to avail of the incentives and benefits
declared by the State Government in its own industrial
incentive policy. But in exercise of such power it would
not be permissible for the State Government to deny any::: Downloaded on – 09/06/2013 17:19:29 :::
26 wp842-00benefit which is otherwise available to an industrial unit
under the incentive policy itself. The IndustrialIncentive Policy is issued by the State Government after
such policy is approved by the Cabinet itself. Theissuance of the notification under section 7 of the Bihar
Finance Act is by the State Government in the Finance
Department which notification is issued to carry out the
objectives and the policy decisions taken in the
industrial policy itself. In this view of the matter, anynotification issued by the Government order in exercise
of power under Section 7 of the Bihar Finance Act, if is
found to be repugnant to the Industrial Policy declared
in a Government resolution, then the said notificationmust be held to be bad to that extent. ………”
In the present case also, Rule 31AA is framed by the State
Government in exercise of powers conferred by Section 74 of the BST
Act and since Rule 31AA is repugnant to the industrial policy contained
in the 1988 GR, it must be held to be bad in law to the extent it seeks
to take away the rights conferred upon the petitioners under the 1988
GR.
36. It may be noted that Section 41B inserted to the BST Act
with effect from 1st May 1994 merely provides that the Commissioner
shall calculate the CQB from 1st January 1980 in the manner prescribed
for that period. Section 41B does not provide that the manner of
calculating CQB should be different from the manner prescribed under
the package scheme of incentives. Thus, in our opinion, it is Rule 31AA
and not Section 41B which is repugnant to the industrial policy and,
therefore, Rule 31AA to the extent it is repugnant to the industrial
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policy must be held to be bad in law.
37. The argument advanced on behalf of the Commissioner
that the petition suffers from delay and laches is without any merit,
because, Rule 31AA has been invoked in the case of petitioners by
passing assessment orders in August 1999 for the period 1994-95 to
1996-97 and the writ petition has been filed in January 2000. In such
a case, the argument that the petition suffers from delay and laches
cannot be entertained.
38. It is true that the Assessing Officer in his assessment orders
for the period from 1991-92 to 1993-94 as also the Commissioner in
Circular No.9 of 1990 dated 12th April 1990 on the basis of the
clarification issued by the Industries, Energy and Labour Department
have held that under para 2.11 of 1988 GR, the CQB has to be
calculated by ignoring the exemption granted under the BST Act / BST
Rules. In our opinion, the aforesaid interpretations are contrary to the
plain language of para 2.11 in the 1988 GR and hence the said
interpretation given in the assessment orders and the circular must be
held to be contrary to the 1988 GR. If the assessments for 1991-92 to
1993-94 have attained finality then the consequences for those years
would be as per the assessments, but the same would not affect the
assessments which are pending before the adjudicating authority or the
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appellate authority.
39. 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, because, in our opinion, Rule 31AA introduced with effect
from 24th March 1995 for the first time provides for calculation of CQB
by ignoring the exemption provisions contained in the the BST Act /
BST Rules, which is contrary to para 2.11 of the 1988 GR. Such a Rule
which purports to take away retrospectively the vested rights of the
traders who have established their units in the backward areas based
on para 2.11 of the 1988 GR must be held to be bad in law to the
extent it is made applicable retrospectively.
40. 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 rights vested in the citizens, then such a law must be held to
be bad in law to the extent it is made applicable retrospectively. In the
present case, the petitioners had a vested right in computing CQB as
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per para 2.11 of the 1988 GR and since that vested right is sought to be
divested by introducing Rule 31AA retrospectively, it must be held that
Rule 31AA to the extent it seeks to apply to the units established under
the 1988 Scheme prior to the insertion of Rule 31AA is bad in law.
41. This Court in the case of Multifilms Plastics Private Limited
(supra) has on interpretation of para 2.11 of the 1988 GR held that for
the purposes of CQB the tax payable at the maximum rate would be the
rate of tax which is effectively payable by a registered dealer not
covered under the 1988 Scheme. We respectfully agree with the view
expressed in the above decision.
42. Reliance was placed by the 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 laws touching the civil rights and the same extends to
the enactment of legislation with prospective and retrospective effect.
There is no quarrel with the above proposition of law laid down by the
Apex Court. However, as noticed above, the Apex Court has also laid
down the proposition of law that any Rule which is repugnant to the
industrial policy of the State Government and which seeks to deny any
benefit which is otherwise available to an industrial unit under the
incentive policy itself must be declared to be bad in law. In the present
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case, giving retrospective effect to Rule 31AA prejudicially affects the
interests of the units established under the 1988 Scheme and,
therefore, Rule 31AA to the extent it seeks to 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. We do not consider it necessary to deal
with various other decisions relied upon by the Counsel for the
Commissioner as all those decisions are distinguishable on facts / have
no relevance to the facts of the present case.
43. Before concluding, we may note that the package scheme
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 itself was to operate based on the
exemption granted under the sales tax law, it is difficult to envisage
that in calculating the CQB, the scheme intended to ignore the
exemptions available under the sales tax law. In any event, as noted
above the language used in para 2.11 of the 1988 GR does not either
directly or indirectly indicate that in calculating the CQB the exemption
provisions contained under the sales tax law have to be ignored.
44. For all the aforesaid reasons, we hold that calculation of
CQB availed by a unit covered under the 1988 Scheme as per para 2.11
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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 24th March 1995 to the
extent it provides that the calculation of CQB under the 1988 Scheme
has to be made by ignoring the exemption provisions contained under
the sales tax law is illegal and contrary to law.
45. In the result, Rule is made absolute in the above terms
with no order as to costs.
(Smt.R.S. Dalvi, J.) (J.P. Devadhar, J.)
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