1998 (3) TMI 642 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of G.O. Ms. No. 498 and its subsequent amendments.
2. Legality of retrospective legislation under Act No. 14 of 1995.
3. Constitutionality of restricting sales tax holiday benefits.
4. Impact of retrospective legislation on fundamental rights under Articles 14 and 19(1)(g) of the Constitution.
5. Validity of legislative power to override judicial decisions.

Analysis of the Judgment:

1. Interpretation of G.O. Ms. No. 498 and its Subsequent Amendments:
The Government Order (G.O.) Ms. No. 498, dated October 16, 1989, introduced a liberalized incentive scheme providing a five-year sales tax holiday with a ceiling of Rs. 35 lakhs for small-scale industrial units (SSI units) set up after October 3, 1989, and commencing production before March 31, 1995. The petitioners, who established SSI units based on this G.O., were granted eligibility certificates. However, authorities later restricted the sales tax holiday to the maximum limit of capital investment or Rs. 35 lakhs, whichever was less, through a manual of guidelines, which was contested and declared illegal by the court in an earlier judgment (P.P.P. Industries v. Commissioner of Industries [1994] 92 STC 110).

2. Legality of Retrospective Legislation under Act No. 14 of 1995:
Act No. 14 of 1995 was enacted to limit the sales tax holiday to 100% of the fixed capital investment or Rs. 35 lakhs, whichever is less, and was given retrospective effect from October 16, 1989. The petitioners challenged this Act, arguing that it overruled the court's previous decision and imposed undue hardship due to its retrospective nature. The court held that the Legislature has the power to enact laws retrospectively, provided it removes the defects pointed out in judicial decisions. The Act was found to be a valid exercise of legislative power to rectify the defect identified in the earlier judgment.

3. Constitutionality of Restricting Sales Tax Holiday Benefits:
The court examined whether the restriction imposed by Act No. 14 of 1995 was constitutional. It was held that the Legislature could limit the sales tax holiday to 100% of the fixed capital investment or Rs. 35 lakhs, whichever is less, as long as the conditions of commencing production before March 31, 1995, were met. The court found that the restriction did not violate the petitioners' constitutional rights, as the legislative amendment was a valid method to cure the defect identified in the previous judgment.

4. Impact of Retrospective Legislation on Fundamental Rights:
The petitioners argued that the retrospective effect of the legislation was arbitrary, unreasonable, and violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution. The court referred to several Supreme Court judgments, including Ujagar Prints v. Union of India [1989] 74 STC 401 (SC) and Empire Industries Ltd. v. Union of India [1987] 64 STC 42 (SC), which upheld the validity of retrospective legislation if it cured defects in statutes. The court concluded that the retrospective effect of Act No. 14 of 1995 did not impose unreasonable restrictions on the petitioners' fundamental rights.

5. Validity of Legislative Power to Override Judicial Decisions:
The petitioners contended that Act No. 14 of 1995 effectively overruled the court's earlier decision, which was impermissible. The court distinguished between legislative power to amend laws retrospectively and judicial power, holding that the Legislature could enact laws to remove the legal basis of earlier judicial decisions. The court found that the Act did not simply declare the earlier decision invalid but addressed the defect identified by the court, making the legislation valid and constitutional.

Conclusion:
The court dismissed the writ petitions, upholding the validity and constitutionality of Act No. 14 of 1995. The retrospective legislation was found to be a permissible exercise of legislative power to cure defects in the earlier G.O. Ms. No. 498, and it did not impose unreasonable restrictions on the petitioners' fundamental rights. The petitioners' arguments regarding the invalidity and arbitrariness of the Act were rejected, and the court affirmed the Legislature's authority to enact retrospective laws to rectify identified defects.

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