1997 (8) TMI 504 - AT - VAT and Sales Tax

Summary

Issues:
Challenge to notification reducing tax exemption with retrospective effect under the Rajasthan Sales Tax Act, legality of assessment orders and demand notices, interpretation of section 4(2) of the RST Act and section 8(5) of the CST Act, constitutionality under Article 14 of the Constitution of India.

Analysis:
The writ petitions were filed to challenge a notification reducing tax exemption from 100% to 50% with retrospective effect under the Rajasthan Sales Tax Act, along with contesting the legality of assessment orders and demand notices issued as a consequence. The petitioner argued that the notification, assessment orders, and demand notices were illegal and should be quashed. The respondents admitted most averments but argued that the notification was legal. The petitioner contended that withdrawal of exemption with retrospective effect was impermissible under section 4(2) of the RST Act and section 8(5) of the CST Act, citing violation of Article 14 of the Constitution of India and potential irreparable loss. The respondents argued that if an exemption could be granted retrospectively, it could also be withdrawn retrospectively.

The Tribunal noted that the impugned notification reducing the exemption was passed with retrospective effect, making the petitioner liable for tax without collecting from customers during the relevant periods, which was deemed harsh and unreasonable. It was held that exemptions granted under the RST Act and CST Act could not be withdrawn retrospectively, as evidenced by legal precedents. The Tribunal referred to the State of Madhya Pradesh v. G.S. Dal and Flour Mills case and a previous decision by the Tribunal, emphasizing that exemptions cannot be withdrawn retrospectively. The principle of promissory estoppel was also invoked to protect the petitioner's legitimate expectations and investments based on the earlier exemption.

Consequently, the Tribunal allowed the writ petitions, quashing the retrospective operation of the notification while maintaining its prospective effect. The assessment orders and demand notices were also quashed. The decision upheld the principle that exemptions cannot be withdrawn retrospectively, ensuring fairness and legal certainty in taxation matters.

Conclusion:
The Tribunal's judgment in the present case clarifies the limitations on withdrawing tax exemptions with retrospective effect under the relevant statutes, emphasizing the protection of legitimate expectations and investments. By invoking legal principles and precedents, the Tribunal ensured that the petitioner was not unfairly burdened with tax liabilities arising from the retrospective reduction of exemptions. The decision upholds the rule of law and provides clarity on the scope of tax exemptions under the Rajasthan Sales Tax Act and the Central Sales Tax Act.