Bombay High Court
M/S Rajesh Steel Industries vs Development Corporation Kokan ... on 12 July, 2016
Bench: S.C. Dharmadhikari
WP 3862-96 (J)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
Amk
WRIT PETITION NO. 3862 OF 1996
1. Rajesh Steel Industries ]
having its factory at Dheku, ]
Taluka-Khalapur, ]
District-Raigad. ] Petitioners
2. Mr. Rajendraprasad C. Vaish ]
residing at A-22, Ketan Apartment, ]
Katrak Road, Wadala, ]
Mumbai - 400 031. ig ]
Versus
1. Development Corporation of Konkan Ltd. ]
having its office at Warden House, ]
5th Floor, Sir P. M. Road, Mumbai-400 001. ]
2. Commissioner of Sales Tax ]
Maharashtra State ] Respondents
having his office at Vikrikar Bhavan, ]
Mumbai - 400 010. ]
3. State of Maharashtra ]
having its office at Mantralaya, ]
Mumbai - 400 032. ]
Mr. P. C. Joshi i/b Mr. N. B. Shah for the Petitioner.
Mr. V. A. Sonpal, Special Counsel for Respondent Nos.2 to 3.
CORAM : S.C. DHARMADHIKARI &
DR. SHALINI PHANSALKAR-JOSHI, J.J.
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WP 3862-96 (J)
Judgment Reserved on : 28.06.2016
Judgment Pronounced on : 12.07.2016
JUDGMENT (Per Dr. Shalini Phansalkar-Joshi, 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
short), as also Rule 31AA of the Maharashtra Sales Tax Rules, 1959, as
amended from time to time ('Rules' for short), to the extent of their
retrospective application, from 01.01.1980.
2. The petitioners have also challenged the validity of assessment
orders passed on 20.10.1995. However, challenge to the same is,
subsequently, given up by learned counsel for the petitioners as the
petitioners have already preferred the appeals against the said assessment
orders before the competent appellate 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
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short), 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.
4. According to the petitioners, Section 41B and Rule 31AA, to
the extent they are inconsistent with para 2.11 of the 1983 GR, are bad in
law, whereas; according to respondent No.2-Commissioner of Revenue, the
method 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 away by the subsequent introduced Section 41B and Rule 31AA,
so as to put the industrial units established in remote undeveloped areas in
a situation far worse than the units established in the other areas? The
necessary corollary to the said question is, 'whether the government can
defeat the legitimate expectations which the petitioners had under the
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1983 Scheme?'
6. The relevant facts, for deciding these issues, can be stated as
under:
The State had, with a view to achieve development 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 Groups; 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 developed than
those under Group B and lastly, Group-D covering the rest of the areas
which were least developed. The Village Dheku in Tal. Khalapur was
covered under Group-C under the said Scheme.
7. The petitioners, with the sole object of availing the benefits of
1983 Scheme, established their Small Scale Industrial Unit at village
Dheku, Tal. Khalapur for manufacturing iron and steel items like; MS Steel
casting, rerolling of bars flats, angles and twisting of bars, channels etc.
After satisfying itself about the full compliance of the procedure prescribed
under the 1983 Scheme and also after satisfying about final effective steps
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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 in favour of
the petitioners, the 2nd respondent through his subordinate Deputy
Commissioner of Sales Tax, issued a Certificate of Entitlement to the
petitioners on 01.04.1989. As per the said Certificate of Entitlement, the
petitioners were exempted from payment of sales tax in respect of the sales
and purchases relating to the said industrial unit effected during the period
of validity of the said certificate. Thus, according to the petitioners, as the
unit was established in the backward area 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 Rs.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 Sales
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Tax Act. Section 41B empowers the Commissioner of Sales Tax, respondent
No.2 herein, to compute the cumulative quantum of benefits raised under
entry No.136 of the Schedule to the Notification issued under Section 41
right from 01.01.1980 and also to determine as to whether the benefits so
enjoyed have exceeded the relevant monetary ceiling under any Package
Scheme of Incentives, including the 1983 Scheme. Moreover, consequent
to the framing of Rule 31AA with effect from 24.03.1995, respondent 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 Scheme is
now completely taken away by the insertion of Section 41B read with Rule
31AA, as they create retrospectively new and fresh liability, never
contemplated, nor covered by the provisions of 1983 Scheme. It is urged
that Rule 31AA is framed beyond rule making powers contained in Section
74 of the Act and hence is void ab initio. By the said Rule, concession
granted by the Government under the 1983 Scheme is sought to be
whittled down, without showing it to be in the public interest. It is urged
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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 & 41D. By those
rules, a unit in a developed area will suffer the reduction of set off by only
2% for the transfers of the manufactured goods to the branch situated
outside the State of Maharashtra, whereas a unit in backward area under
rule 31AA will have to suffer a greater degree by the addition of 6% to the
benefits computed under other sub-rules.
11. Thus, it is submitted that the Rule 31AA is totally inconsistent
and contrary to the Scheme of the Act as well as the Rules framed
thereunder and 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.
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12. In this view of the matter, it is urged by learned counsel for
petitioners that this Court may be pleased to declare Section 41B read with
Rule 31AA of the Bombay Sales Act, 1959 to be ultra vires and illegal in so
far as it affects the vested rights of the petitioners. The provisions are
unconstitutional as well for they contravene the mandate of Articles 14 and
19(1)(g) of the Constitution of India.
13.
On behalf of respondent No.2, an affidavit-in-reply is filed by
the Assistant Commissioner of Sales Tax 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 account of introduction of those provisions,
no adverse impact or loss is caused to the petitioners or to the other
similarly placed units in the backward area. According to respondent No.2,
the insertion of Section 41B and Rule 31AA do not change the position of
the assessment of taxes, the set off allowed and the cumulative quantum of
benefits, which are in accordance with principles specified in the 1983
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Scheme. It is urged that, it is for the State to grant any benefits or
concession in payment 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 an affidavit in rejoinder is filed of
its partner, reiterating its earlier stand.
15. We have heard learned counsel for petitioners Shri P. C. Joshi
and learned counsel for respondent Nos.2 & 3 Shri Sonpal, at length. With
their assistance, we have also perused the entire scheme of the Act and
Rules, and in particular Section 41B and Rule 31AA.
16. In the present case, it is not in dispute that the petitioners'
industrial unit is covered under the 1983 Scheme. It is also undisputed
that 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
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specified in the certificate from 01.04.1989 to 31.03.1994 and upto the
financial ceiling of Rs.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 dispute is in relation to the calculation of the
cumulative quantum of benefits received by the petitioners on the
respective sales/purchases effected during the validity period of the
certificate issued under the 1983 Scheme till reaching the financial ceiling
provided under the Entitlement Certificate. Calculation of CQB, according
to the petitioners, was required to be made as per para 2.11 of 1983 GR by
considering the maximum tax that would have been payable under the Act
and Rules, including 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 counsel for the petitioners and
respondents, it would be enlightening to reproduce the relevant provisions
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of Government Resolution of 1983 Scheme as under:
"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."
Section 41B inserted to the Act by Maharashtra Act 29 of 1994 with
effect from May 1, 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 or, as the case may be, under entry
E3 of the Schedule to the notification issued under section 41, has
at any time after the January 1, 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 benefits so
calculated in respect of any eligible unit has exceeded the relevant
monetary ceiling where such ceiling is provided in the package
scheme of incentives, then the Commissioner shall, require the
dealer by order in 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
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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 and the relevant provisions of
this Act shall apply to such notice as they apply to a notice issued
under sub-section (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 referred to as, "the said dealer") to whom a
certificate of entitlement has been granted by the Commissioner
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 January 1, 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
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 not available;
(b) a sum equal to the amount of sales tax which would
have been payable by a selling dealer not holding a certificate of
entitlement on the sale of raw materials to the said dealer if the set
off under rule 42AC is not admissible to the said dealer in respect of
such purchases:
Provided that during the period from April 15, 1994 to
November 30, 1994, the calculation shall be made at the rate of tax
applicable to such goods as reduced by four per cent from the
applicable rate of tax;
(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
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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
four 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 holding the said certificate of entitlement and no regard was
had or any deduction from the said turnover or 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
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 qualification that 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 said
dealer.
(4) .....
(5) In this rule the expression 'raw materials' shall have
the same meaning as assigned to it in the Explanation II appended
to the said entry 136."
19. It is submission of learned counsel for the petitioners that the
petitioners had set up the unit in the backward 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
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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 the extent they are in conflict with
para 2.11 of 1983 GR.
20. According to learned counsel for the petitioners, as per para
2.11 of the 1983 GR, the notional sales tax liability computed cannot
exceed the actual tax liability that would have been incurred by the unit, if
not covered under the 1983 Scheme.
21. Relying on the decision of the Apex Court in the case of State
of Bihar Vs. Suprabhat Steel Ltd. 1, learned counsel for the petitioners
would submit that since Rule 31AA, 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 Government cannot divest them from that right by inserting
1 [1999] 112 STC 258 (SC)
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Rule 31AA retrospectively from January 1, 1980. In this respect, the
learned counsel for the petitioners would rely upon the principles of
promissory estoppel, as applicable in the present case, as the petitioners
have set up the unit in the backward area, relying on the promise
contained in the 1983 GR, which is sought to be taken away arbitrarily by
introducing Rule 31AA with retrospective effect from January 1, 1980.
22. Per contra, 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. 1 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 benefit of that
doctrine. Here, according to learned counsel for respondent Nos.2 & 3,
Shri Sonpal, the provisions of Rule 31AA are merely clarificatory in the
nature; they do not introduce any new rule of assessment; neither they
affect the petitioners adversely. He has submitted that it is not the case of
the petitioners that the State Legislature lacked the legislative competence
to introduce Rule 31AA and retrospective effect given thereto. The only
ground on which Rule 31AA is assailed is that it is arbitrary and violative of
1 2004 Supp(6) SCR 264
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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 of the 1983 GR clearly refers to the rates of taxes as set
out to the Schedule in the Act. The exemption notifications do not redefine
the maximum rate of taxes. Therefore, para 2.11 of the 1983 GR, as also
the provisions contained in the earlier Package Scheme of Incentives
referred to the maximum rates of taxes provided under the Schedule to the
Act and that position has been clarified by inserting Rule 31AA with effect
from 1st January, 1980. Thus, according to him, when 1983 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.
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
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disposal the legal position elucidated and set at rest by the judgment of the
Division Bench of this Court in Prasad Power Control Pvt. Ltd. and
Another Vs. Commissioner of Sales Tax, Mumbai and Others, 1 wherein
identical question of law relating to the Package Scheme of 1988 was
raised.
25. In that case also, the challenge was raised to the Constitutional
validity of Section 41B read with Rule 31AA to the extent, it was found
repugnant to the industrial policy contained in 1988 Package Scheme.
Identical 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 even
call identical with the Scheme of 1983 with which presently we are
concerned. Both the schemes were introduced by the State Government
with a view to achieve dispersal of industries outside the Mumbai-Pune-
Thane belt. To attract these units to the under developed and developing
areas, the State Government had evolved a Package Scheme of Incentives
1 [2011] 41 VST 436 (Bom)
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to new units set up in the developing regions.
26. In view of introduction of Rule 31AA to the Act and Rules
having effect from 1st January, 1980, petitioners 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 divest the petitioner therein of his vested rights,
was advanced by the learned counsel for the Revenue and while dealing
with this argument, it was held by Division Bench of this Court as follows:
"A plain reading of para 2.11 of the 1988 GR clearly shows
that the quantum of benefits availed of by a unit covered under the
1988 scheme has to be calculated with reference to the tax that
would have 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.
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
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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 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 exemptions granted under the
BST Act/BST Rules. Therefore, the CQB availed of 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 of 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 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
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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 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 applicable and
the tax payable by that unit would be at 10 per cent 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.
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 th sales tax law which includes the
exemption provisions contained under the BST Act/BST Rules,
then it would have 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. 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
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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, because, in our opinion, rule 31AA introduced with effect
from March 24, 1995 for the first time provides for calculation of
CQB by ignoring the exemption provisions contained in 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.
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 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 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.
28. While dealing 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
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effect, it was held that,
"....... 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 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......."
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 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.'
30. In the end, it was concluded that,
".......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 to be made by
ignoring the exemption provisions contained under the sales tax law
is illegal and contrary to law."
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31. The position of law, as elucidated and illustrated in the above
said decision of the Division Bench, squarely covers and binds this Court
also in the facts of the present case as they are identical to the facts of this
reported decision, except for the fact that in the said decision the Court was
dealing with the Package Scheme of 1988, whereas in this case, we are
considering 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 not
ready to accept the said submission. After all, one has to consider the ratio
decidendi arrived at any particular decision, to know whether it is binding
or not and such ratio decidendi has to be gathered from the principles
deductible from the judgment and not the conclusion in a particular case,
as held in the various authorities of the Supreme Court viz. The Regional
Manager and Anr. Vs. Pawan Kumar Dubey,1 Deepak Bhadari Vs.
Himachal Pradesh State Inds Development Corporation Ltd. 2 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
1 AIR 1976 SC 1766
2 (2015) 5 SCC 518
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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.1
32. In the present case, the ratio decidendi which is to be gathered
from the principles deductible from the decision of this Court in Prasad
Power (supra) is that a particular method of calculation of CQB laid down
in the scheme, relying on which the party has acted in a particular manner,
by setting up the industrial unit in a backward area, cannot be changed
subsequently with retrospective effect, so as to divest the party of the
vested rights. Principles of promissory estoppel are fully applicable in such
situation. In the instant case, the same ratio decidendi has 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. In this respect we can also place reliance on the observations
1 Sales Tax Reference No. 9 of 2000 decided on 12th August, 2014
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of the Supreme Court in the case of Suprabhat Steel Ltd. (supra) wherein
the Supreme Court was called upon to consider the validity of the
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 submissions, held in para 7 as under :
"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 benefit which is
otherwise available to an industrial unit under the incentive policy
itself. The industrial incentive policy is issued by the State
Government after such policy is approved by the cabinet itself. The
issuance 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, any notification 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 notification must be held to be bad to that
extent....."
34. To sum up, therefore, it has to be held that it is Rule 31AA,
though not Section 41B, which is repugnant to the industrial policy as
declared by the State in 1983 Scheme. Accordingly it is held that, Rule
31AA introduced with effect from March 24, 1995 to the extent it is
repugnant to the said industrial policy and to the extent it seeks to apply to
the units established under 1983 Scheme retrospectively, to the extent that
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it provides that the calculation of CQB under the 1983 Scheme has to be
made by ignoring the exemption provisions contained under the sales tax
law, is illegal and contrary to law.
35. In the result, the Rule is made absolute in above terms, with
no order as to costs.
[DR. SHALINI PHANSALKAR-JOSHI, J.] [S.C. DHARMADHIKARI, J.]
