2017 (5) TMI 496 - SC - VAT and Sales Tax

Doctrine of Promissory Estoppel - Investment in Backward area - constitutional validity of the MVAT Act, 2009 which amended certain provisions in the MVAT Act, 2002 with retrospective effect from April 01, 2005 - case of Revenue is that the effect and consequence of this amendment was that, with retrospective effect from April 01, 2005, industrial units which had made capital investments in very backward areas in the State of Maharashtra and which were earlier entitled to claim VAT exemption benefit on the entire production of their respective industrial units, had their exemption benefit substantially curtailed, being limited to, only a portion of the total production of the unit due to the aforesaid retrospective amendment - whether retrospective amendment in the MVAT Act stands the test of constitutionality and is valid in law? Held that - It would be of relevance to emphasise that at the time of insertion of Section 41BB by amendment vide Amendment Act 22 of 2001, the Statement of Objects and Reasons accompanying the introduction of the Bill specifically stated that the purpose of the amendment was to restrict grant of incentives in proportion to goods manufactured in the expansion units located in the backward areas of the States . Thus, the legislative intent was manifest by inserting the said provision to provide the incentives to the eligible units on proportionate basis. Section 93(1) follows providing for proportionate incentives. Once we find that from the very beginning the statutory scheme itself provided for proportionate incentive and this legislative intent was expressed even in the Objects and Reasons, it cannot be said that there was no provision of this nature prior to 2009 and such a provision was inserted for the first time in the year 2009. Reliance was placed in the case of Epari Chinna Krishna Moorthy and Another Versus The State of Orissa and Others 1964 (3) TMI 55 - SUPREME COURT OF INDIA , where it was held that Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who actually produce gold ornaments or employ artisans for that purpose. In any event, we do not think that in the circumstances of this case it would be possible to hold that by making the provision of section 2 of the Orissa Sales Tax Validation Act, 1961 retrospective the Legislature has imposed a restriction on the petitioners fundamental right under Article 19(1)(g) which is not reasonable and is not in the interest of the general public - there is no substance in the argument that the retrospective operation of S.2 of the impugned Act is invalid. The impugned amendment is upheld - appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Constitutional validity of the retrospective amendment to the Maharashtra Value Added Tax (MVAT) Act, 2002.
2. Impact of retrospective amendment on industrial units.
3. Legislative competence to enact retrospective laws.
4. Validity of validating legislation.
5. Doctrine of Promissory Estoppel and vested rights.

Detailed Analysis:

1. Constitutional Validity of the Retrospective Amendment:
The primary issue was whether the retrospective amendment to the MVAT Act, 2002, introduced by the Maharashtra Value Added Tax (Levy, Amendment, and Validation) Act, 2009, was constitutionally valid. The High Court upheld the amendment, stating that the legislature has the power to enact laws both prospectively and retrospectively. The appellants argued that the High Court failed to consider the practical impact of the retrospective amendment on industrial units that had made significant investments based on the original provisions.

2. Impact of Retrospective Amendment on Industrial Units:
The appellants contended that the retrospective amendment adversely affected industrial units that had invested in backward areas of Maharashtra, believing they were entitled to 100% VAT exemption on their production. The amendment limited the exemption to a proportionate part of the production, causing financial losses as these units could not recover VAT from their customers retrospectively. The appellants argued that this was unfair, arbitrary, and violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution.

3. Legislative Competence to Enact Retrospective Laws:
The High Court recognized the legislative competence to enact laws retrospectively. It emphasized that the legislature can cure defects in earlier legislation by enacting validating laws. The retrospective amendment aimed to rectify the error of not framing rules under Section 41BB of the Bombay Sales Tax Act and Section 93 of the MVAT Act, which initially intended to provide proportionate incentives.

4. Validity of Validating Legislation:
The High Court discussed the principles of validating legislation, stating that the legislature can enact laws to remove defects identified by the courts. The retrospective amendment was not a new levy but a correction of the method of implementing the legislative intent of providing proportionate incentives. The High Court cited several judgments supporting the legislative power to pass validating laws retrospectively.

5. Doctrine of Promissory Estoppel and Vested Rights:
The appellants argued that the retrospective amendment violated the Doctrine of Promissory Estoppel, as the State had induced them to make investments based on the promise of full VAT exemption. They also claimed vested rights in the benefits promised under the original provisions. The High Court rejected these arguments, stating that the legislative intent was always to provide proportionate incentives, and the amendment merely corrected the implementation method.

Conclusion:
The Supreme Court upheld the High Court's judgment, affirming the constitutional validity of the retrospective amendment to the MVAT Act. The Court found that the amendment did not impose a new levy but corrected the implementation of proportionate incentives, which was always the legislative intent. The appeals were dismissed, emphasizing that the retrospective amendment was within the legislative competence and did not violate constitutional principles or the Doctrine of Promissory Estoppel.