2015 (11) TMI 262 - HC - VAT and Sales Tax

Challenge to rule 57A of Assam Value Added Tax Rules, 2005 - Specific activities which are not to be treated as manufacture - Availment of tax benefit - request for grant of eligibility certificate - Held that - rule 57A framed by way of delegated legislation is beyond the competence of the State. The definition of manufacture in the Act clearly discloses that the process of manufacture would mean that the process of change in the product and bringing out a new product or combination of products in the process to bring out a new product would amount to manufacture. The process of making coal from coke will bring a new product from the coal; therefore, it amounts to manufacture within the definition of section 2(30) of the Act. Under the guise of the rule-making power, the State could not have amended the definition of manufacture to omit or to alter the activities, which come within the definition of manufacture , that apart, the decision of the Supreme Court in Mahabir Vegetable Oils (P.) Ltd. (2006 (3) TMI 234 - Supreme Court) succinctly makes a distinction between the legislation and subordinate legislation and the limitation of subordinate legislation. Delegated legislation cannot take away the right that is vested or accrued by way of retrospective amendment. Therefore, in view of the said reasons, we hold that the amended rule 57A(1) ultra vires the provisions of the definition of manufacture under the Act and beyond the competence of rule-making power to alter the definition of manufacture . Dispute with regard to the date on which the industry was set up and it commenced the commercial production. - Held that - disputes are basically questions of fact, which has to be resolved by the industries Department where the application for grant of eligibility certificate is pending - Petition disposed of.

Issues Involved:
1. Validity of Rule 57A of the Assam Value Added Tax Rules, 2005.
2. Retrospective amendment and its impact on vested rights.
3. Definition of "manufacture" under the Assam Value Added Tax Act, 2003.
4. Application of the principle of promissory estoppel against retrospective legislation.
5. Determination of the date of establishment and commencement of production of the petitioners' industrial units.

Detailed Analysis:

1. Validity of Rule 57A of the Assam Value Added Tax Rules, 2005:
The petitioners, industrial units engaged in converting coal to coke, challenged the validity of Rule 57A, which retrospectively excluded their activity from being considered as "manufacture" under the Assam Value Added Tax Act, 2003. The court found that Rule 57A, framed through delegated legislation, was beyond the competence of the State. The rule altered the definition of "manufacture" in a manner inconsistent with the primary Act, which clearly included the conversion of coal to coke within its scope. Therefore, Rule 57A was declared ultra vires and invalid.

2. Retrospective Amendment and Its Impact on Vested Rights:
The court examined the retrospective amendment of Rule 57A and its impact on the petitioners' vested rights. Citing the Supreme Court's decision in Mahabir Vegetable Oils (P.) Ltd. v. State of Haryana, it was emphasized that a delegated legislation could not take away vested or accrued rights through retrospective amendments. The court held that the retrospective application of Rule 57A, which altered the definition of "manufacture," was beyond the State's rule-making power and invalid.

3. Definition of "Manufacture" under the Assam Value Added Tax Act, 2003:
Section 2(30) of the Assam Value Added Tax Act, 2003, defines "manufacture" as any activity resulting in a change in an article, creating a new and different article understood in commercial parlance. The court agreed with the petitioners' argument that the conversion of coal to coke constituted a manufacturing process under this definition. The retrospective amendment through Rule 57A, which excluded this process, was found to be inconsistent with the Act's definition and thus invalid.

4. Application of the Principle of Promissory Estoppel Against Retrospective Legislation:
The petitioners argued that the principle of promissory estoppel should prevent the State from retrospectively altering the definition of "manufacture" and denying them tax benefits. The court referred to the Supreme Court's decisions in R.C. Tobacco (P.) Ltd. v. Union of India and Shree Sidhbali Steels Ltd. v. State of Uttar Pradesh, which stated that promissory estoppel could not be invoked against a statute or legislative power. However, the court found that the retrospective amendment in this case was not a valid exercise of legislative power, thus supporting the petitioners' contention.

5. Determination of the Date of Establishment and Commencement of Production:
There was a factual dispute regarding whether the petitioners' industrial units were established and commenced production before or after the Industrial Policy of 2008. The State argued that the units were established in 2005, thus not eligible for the policy's benefits. The petitioners contended that their units commenced production after the policy's declaration. The court directed the Industries Department to resolve this factual dispute by considering the facts and materials and providing a fair opportunity to both parties.

Conclusion:
The court held that Rule 57A was ultra vires and beyond the State's rule-making power, as it retrospectively altered the definition of "manufacture" under the Assam Value Added Tax Act, 2003. The retrospective amendment could not take away the petitioners' vested rights. The factual dispute regarding the establishment and commencement of production of the petitioners' units was directed to be resolved by the Industries Department. Consequently, the writ petitions were disposed of.

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