2006 (7) TMI 647 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to cancellation of sales tax exemption granted to bottled drinking water manufacturers.

Analysis:
The appellants, who are manufacturers of bottled drinking water, challenged the cancellation of the exemption from sales tax granted to them. The dispute arose regarding the taxability of the package of drinking water, which was taken up to the High Court and the Supreme Court. Despite previous rulings denying them exemption, the Government issued a notification exempting these units from sales tax for a specific period. However, a subsequent notification, Ext. P8, cancelled this exemption retrospectively, imposing tax liability on the appellants. The appellants argued that the cancellation was invalid as it was done retrospectively and the Government was estopped from doing so based on the doctrine of promissory estoppel.

The learned single Judge upheld the cancellation of the exemption, stating that it was justified due to incorrect data and misplaced sympathy in granting the initial exemption. However, the High Court found that Ext. P8, cancelling the tax exemption retrospectively, exceeded the powers conferred by the statute. While the Government had the power to grant exemptions retrospectively, the power to cancel such exemptions did not include the authority to do so retrospectively. Therefore, the notification Ext. P8 was deemed ultra vires the powers conferred under Section 10(3) of the Act.

Consequently, the High Court reversed the impugned judgment and quashed Ext. P8, ruling in favor of the appellants. The Court rejected the Government Pleader's argument that Ext. P8 was merely withdrawing the benefit conferred in Ext. P10, emphasizing that the method adopted in Ext. P8 was cancellation and not variation. The Court held that the power to cancel or vary notifications under Section 10(3) only applied prospectively, making the retrospective cancellation in Ext. P8 impermissible.

In conclusion, the Writ Appeals were allowed, and the cancellation of the sales tax exemption for bottled drinking water manufacturers was deemed invalid and quashed. The Court's decision was based on the lack of statutory authority for retrospective cancellation and the specific provisions of the law governing such actions.