2005 (9) TMI 616 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Impact of the amendment to Section 8(5) on existing tax exemptions.
2. Applicability of the principle of promissory estoppel.
3. Retrospective vs. prospective application of tax exemption notifications.

Detailed Analysis:

1. Impact of the Amendment to Section 8(5) on Existing Tax Exemptions:
The primary issue revolves around whether the amendment to Section 8(5) effective from June 1, 2002, and the subsequent Notification No. 2373 FT dated August 2, 2002, could affect the tax exemption granted to the assessee under the earlier Notification No. 1660 FT dated July 9, 1996. The assessee was initially granted a five-year tax holiday under the 1996 notification. The amendment introduced a restriction that tax holidays would only apply to sales made to registered dealers or the Government. The Tribunal had to determine if this amendment could curtail the existing right of the assessee for the unexpired period of the tax holiday.

2. Applicability of the Principle of Promissory Estoppel:
Mr. Gupta argued that the principle of promissory estoppel could not be applied as the legislative power is plenary and unrestricted, and the notification was issued in public interest. He cited decisions such as State of Punjab v. Nestle India Ltd. [2004] 136 STC 35 (SC) and Union of India v. Godhawani Brothers [1997] 11 SCC 173, which held that no estoppel can be presumed against the Government when it acts in public interest. However, Mr. Chakraborty countered this by relying on Pournami Oil Mills v. State of Kerala [1987] 65 STC 1 (SC), which established that once a tax exemption is granted, it cannot be withdrawn if it affects vested rights, and the principle of promissory estoppel can apply.

3. Retrospective vs. Prospective Application of Tax Exemption Notifications:
The Tribunal examined whether the notification dated August 2, 2002, which was issued in consonance with the amended Section 8(5), could have a retrospective effect on the exemption granted under the 1996 notification. The Tribunal noted that the 2002 notification was issued for general application and did not specifically supersede the earlier notification. It was concluded that the earlier notification created a vested right for the assessee, which could not be affected by the subsequent amendment and notification. The Tribunal referenced Health Guard Laboratories v. Assistant Commissioner of Commercial Taxes [W.P.T.T. No. 2 of 1999], where it was held that an exemption granted under existing rules creates a vested right that cannot be taken away by subsequent amendments.

Conclusion:
The Tribunal dismissed the appeal, affirming the order of the learned single judge. It was held that the amendment to Section 8(5) and the subsequent notification could not affect the existing tax exemption granted to the assessee under the 1996 notification for the unexpired period of the tax holiday. The principle of promissory estoppel was applicable, and the vested rights created by the earlier notification could not be curtailed by the subsequent amendment and notification.