1986 (7) TMI 382 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional Validity of the Bombay Sales Tax (Amendment) Act, 1985.
2. Discrimination Against Edible Oil Units.
3. Retrospective Effect of the Legislation.
4. Applicability of Promissory Estoppel.
5. Reasonableness and Arbitrariness of the Legislation.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Bombay Sales Tax (Amendment) Act, 1985:
The petitioners challenged the constitutional validity of the Bombay Sales Tax (Amendment) Act, 1985, as being ultra vires of Articles 14, 19(1)(g), and 300A of the Constitution of India. The court examined the legislative competence and the validity of the Act, concluding that the legislature has the authority to enact such laws, and the Act does not violate the constitutional provisions.

2. Discrimination Against Edible Oil Units:
The petitioners argued that Section 41A of the Act, which cancels the eligibility certificates and certificates of entitlement granted to edible oil units, is discriminatory and violates Article 14 of the Constitution. The court noted that the classification of edible oil units as a separate class was based on several factors, such as their agro-based nature, easy access to raw materials, and the ability to recoup capital investment quickly. The court held that this classification was reasonable and had a rational nexus with the object sought to be achieved by the Act. Therefore, the legislation was not discriminatory.

3. Retrospective Effect of the Legislation:
The petitioners contended that the retrospective effect of the Act, which came into force from 24th May 1985, was confiscatory and violated Article 14. The court found merit in this argument, noting that the Maharashtra Ordinance No. 5 of 1985 had allowed industrial units to continue enjoying sales tax exemption until they reached 100% of their gross fixed capital investment. The court held that the retrospective withdrawal of this benefit was unreasonable and arbitrary. Consequently, the court declared that the Act would come into force prospectively from 1st August 1985, for edible oil units.

4. Applicability of Promissory Estoppel:
The petitioners argued that the doctrine of promissory estoppel should prevent the State from withdrawing the tax exemptions promised under the 1979 scheme. The court referred to the Supreme Court's decision in Union of India v. Godfrey Philips India Ltd., which stated that there can be no promissory estoppel against the legislature in the exercise of its legislative functions. The court held that the principle of promissory estoppel could not be applied to prevent the legislature from enacting the Amendment Act.

5. Reasonableness and Arbitrariness of the Legislation:
The petitioners claimed that the Act was arbitrary and unreasonable, violating Article 14. The court examined the reasons provided by the State for treating edible oil units as a separate class and found them to be relevant and reasonable. The court emphasized that the legislature has wider latitude in matters of economic regulation and taxation. It concluded that the classification made by the legislature was not arbitrary or unreasonable and had a rational nexus with the object sought to be achieved by the Act.

Conclusion:
The court partially allowed the writ petitions, holding that the retrospective effect of the Maharashtra Act No. 15 of 1985, from 24th May 1985, was invalid for edible oil units. The Act would come into force prospectively from 1st August 1985, for these units. All other challenges raised by the petitioners were rejected, and the rule was made partly absolute. No costs were awarded, and the request for leave to appeal to the Supreme Court was refused.