1990 (11) TMI 350 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of retrospective operation of amendments to entry 155 of the First Schedule.
2. Reasonableness of retrospective taxation of agarbathis from April 1, 1984.
3. Prospective vs. retrospective operation of Ordinance 7 of 1989 and Act 3 of 1990.

Detailed Analysis:

1. Validity of Retrospective Operation of Amendments to Entry 155 of the First Schedule:

The primary issue was whether the amendments to entry 155 of the First Schedule, introduced by Ordinance 7 of 1989 and Act 3 of 1990, could validly have retrospective operation from April 1, 1984. The court noted that while the legislature has the competence to enact laws with retrospective effect, such retrospective taxation must be within certain narrow confines to be upheld by courts. The court found that retrospective taxation, which imposes an unreasonable burden, would not be protected. The retrospective operation in this case was not in the nature of a validating enactment but rather imposed a fresh tax burden for the first time, which was deemed unreasonable and arbitrary.

2. Reasonableness of Retrospective Taxation of Agarbathis from April 1, 1984:

The court examined whether the retrospective taxation of agarbathis from April 1, 1984, imposed an unreasonable and unexpected fresh burden. The court held that retrospective taxation for a long period of five years and four months would impose an unreasonable burden on the dealers, who could not pass on the additional tax burden to the buyers. The court cited several precedents, including Shew Bhagwan Goenka v. Commercial Tax Officer and State of A.P. v. V.V. Rama Rao and Company, to support its conclusion that retrospective taxation which imposes an unforeseen financial burden is unreasonable and invalid.

3. Prospective vs. Retrospective Operation of Ordinance 7 of 1989 and Act 3 of 1990:

The court considered whether Ordinance 7 of 1989 and Act 3 of 1990 could have only prospective operation or whether they could have retrospective operation. The court found that the amendments to entry 155 were instances of first-time taxation and not in the nature of validating enactments. Therefore, they could only have prospective operation from August 29, 1989, the date of promulgation of the Ordinance, and could not have retrospective operation from April 1, 1984.

Conclusion:

The court held that the amendments to entry 155 of the First Schedule introduced by Ordinance 7 of 1989 and Act 3 of 1990 could not have retrospective operation from April 1, 1984. They could only have prospective operation from August 29, 1989. The retrospective taxation of agarbathis from April 1, 1984, was deemed unreasonable and invalid. As a result, the court quashed the notices and demands for additional tax based on the retrospective application of the amendments.

Individual Judgments:

1. O.P. No. 9375 of 1989: Exhibit P1 and similar notices issued to petitioners 2 to 9 quashed.
2. O.P. No. 10385 of 1989: Exhibit P1 quashed, and similar notices to other petitioners cancelled.
3. O.P. No. 7682 of 1990: Exhibit P3 quashed; department not entitled to collect additional tax.
4. O.P. No. 1092 of 1990: Exhibit P1 modified to levy only 5% tax on agarbathis.
5. O.P. No. 1022 of 1990: Exhibit P3 modified to levy only 5% tax on agarbathis.
6. O.P. No. 433 of 1990: Exhibit P1 quashed; turnover of agarbathis taxable at 5%.
7. O.P. No. 7571 of 1990: Exhibit P1 quashed; department not entitled to collect additional tax.
8. O.P. No. 10378 of 1989: Exhibit P2 demand notice quashed.
9. O.P. No. 1059 of 1990: Tax at 5% for June 1, 1989, to August 28, 1989; 10% for August 29, 1989, to October 31, 1989; exhibit P1 modified accordingly.

In conclusion, the court allowed all the original petitions, quashing the retrospective tax demands and modifying the orders to levy tax prospectively from August 29, 1989.

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