2011 (3) TMI 1521 - HC - VAT and Sales Tax

Quashing of notification dated May 13, 2008, making retrospective amendment from January 1, 2006 to the Schedule to the Haryana Value Added Tax Act, 2003 (the Haryana VAT Act) thereby making the goods in question taxable seeked Held that - In the present case, the damaged wheat was covered by cattle feed and was exempted from tax being in tax-free goods. It is only for the first time that the same has been excluded from the said category vide impugned notification dated May 13, 2008 operating retrospectively with effect from January 1, 2006. No reason has been given as to why retrospective amendment became necessary. There was no dispute about interpretation during the relevant period. In these circumstances, we have to hold that the impugned notification to the extent of retrospectivity is arbitrary and beyond the competence of rule-making authority exercising power of delegated legislation. Limitation on exercise of retrospective power applicable to plenary Legislature obviously applies to a subordinate Legislature. If plenary Legislature cannot exercise retrospective power in certain situations, obviously it cannot authorise delegated authority to do. Contention of the petitioner has, thus, to be upheld.

Summary

Issues:
Challenge to retrospective amendment of the Haryana Value Added Tax Act, 2003 making goods taxable, interpretation of entry 4 of Schedule B, whether the amendment is clarificatory or creates taxability from a retrospective date, the validity of retrospective legislation under article 14, and the competence of rule-making authority.

Analysis:
The petition sought to quash a notification retrospectively amending the Haryana VAT Act to make goods taxable. The petitioner, a registered dealer, purchased damaged wheat as animal feed, which was tax-free under entry 4 of Schedule B. The petitioner claimed a refund based on a court judgment but was rejected. The State defended the amendment as clarificatory, excluding damaged wheat explicitly from animal feed. The court analyzed the original and amended entries, questioning the retrospective taxability of goods for the first time.

Under the Haryana VAT Act, tax is levied on goods, with entry 4 of Schedule B mentioning animal feed. Previous court judgments interpreted animal feed broadly, including damaged wheat. The amendment excluded damaged wheat from animal feed retrospectively. The court deliberated on whether the amendment was clarificatory or created new taxability from a retrospective date.

The court discussed the power of the Legislature to enact retrospective legislation, emphasizing limitations to uphold fundamental rights under article 14. Retrospectivity should not be arbitrary or unreasonable. The court cited cases to illustrate the conditions under which retrospective amendments could be valid, emphasizing the need for justification and reasonableness. In this case, the retrospective amendment excluding damaged wheat was deemed arbitrary and beyond the rule-making authority's competence.

The court held that the retrospective amendment was arbitrary and not justified, as there was no dispute about interpretation during the relevant period. The court concluded that the retrospective aspect of the notification was beyond the delegated legislation's power and upheld the petitioner's contention. The matter of refund was left open for further proceedings in accordance with the law.

In conclusion, the court disposed of the writ petition, ruling in favor of the petitioner regarding the retrospective amendment's validity and emphasizing the importance of adhering to the limitations on retrospective legislation to protect fundamental rights and prevent arbitrary exercise of power.