2018 (11) TMI 342 - HC - VAT and Sales Tax

Exemption from tax under package Scheme of Incentives - eligibility - prorata turnover or entire turnover of Ratnagiri unit - exemption from whole of tax under Serial No.1 of N/N. VAT/1505/Cr 122/Taxation dated 1.4.2005 issued under Section 8(4) of Mah.VAT, 2003 - Chapter 14 of MVAT Act, 2002 as retrospectively amended/substituted by Mah.Act 22 of 2009 - applicability of Section 93 of MVAT Act, 2002 as amended by Act 22 of 2009 - monetary ceiling limits of exemption before 28.08.2009 being the date of coming into force Maharashtra Act 22 of 2009 Held that - the appellant availed a fresh eligibility and entitlement certificate on 21st October 2002/10th February 2003 and in the said certificate, the SICOM has not incorporated any condition to the effect that the availment of benefit would be proportionate to the increase in production capacity additional investment. The certificates have been issued after issuance of circular dated 17th January 1998 There is force in the submission of the learned counsel when he submits that Section 93 would come into effect only from 27th August 2009 and the units which have not already exhausted the monetary ceiling limits by the said date would continue to be governed by the amended Section 93 irrespective of the date of the eligibility or entitlement certificate. i.e. before 1st April 2005 or after 1st April 2005 or whether before 27th August 2009 or after 27th August 2009. The appellant who has already exhausted the ceiling limit on 27th August 2009 thus cannot be governed by Section 93(1) since its cumulative quantum benefits are already availed. If the assessment order is perused, it can be seen that the appellant has paid full tax on sales from 1st April 2009 i.e. after exhausting the Cumulative Quantum of Benefits in terms of the eligibility certificate in March 2009. The life of the certificate was till May 2011 but since the ceiling limit was exhausted by March 2009 from April 2009, the appellant unit becomes liable for payment of sales tax. The returns were filed by the appellant for the years 2005 -06 and he was also granted refund of ₹ 5,65,39,588/ on 4th February 2006 and 1st March 2006. However, subsequently, the assessment order had been passed on 22nd March 2013 which raised a demand of tax of ₹ 1,42,36,378/ by partially recalling the refund already granted. This also includes the interest of ₹ 1,49,48,197/levied under Section 30(3) of the MVAT Act, 2002. The dealer though had claimed 100% exemption without applying pro rata and he has not produced any books of accounts nor has he enlisted the goods manufactured by his old and new units and there is no identification as a dealer is liable for pro rata application. In this backdrop, the appellate authority confirmed the order passed by the Assessing Authority and held that the appellant is liable to pay an amount of ₹ 2,91,84,575/ . This order was upheld by the Tribunal on more or less same grounds and the Tribunal concluded that there is no conflilct between Section 8(4) of the Bombay Sales Act and Section 93 of the MVAT Act, 2002 and they are independent provisions, mutually exclusive for units holding entitlement certificate and both operate in separate sphere. The Tribunal held that the argument of the appellant that he is entitled for full exemption is not accepted since Section 93 came to be amended with retrospective effect from 2009 and this amendment has been upheld by the Hon'ble High Court as well as the Apex Court and thus, the appellant is entitled to enjoy the benefits on pro rata basis. The amendment inserted by Act No.XXII of 2009 would only govern those units where the Cumulative Quantum of Benefits has not yet lapsed without full utilization and is in the process of being availed. The eligibility availed under Section 93(1) is computed for a particular year and if there is excess availment, then, the benefits can be withdrawn. The orders passed by the Assessing Authority, the Appellate Authority and the Tribunal cannot be sustained and they suffer from a gross illegality. The appellant could not have been made to pay the tax for the sales affected from 1st April 2005 to 27th August 2009 and the assessment order is liable to be quashed and set aside. The assessment order quashed - decided against Revenue.

Summary

Issues Involved:
1. Exemption from whole of tax under Notification No. VAT/1505/Cr 122/Taxation dated 1.4.2005.
2. Applicability of Section 93 of MVAT Act, 2002 as amended by Act 22 of 2009.
3. Availability of full exemption under the validation and saving provision contained in Section 5 of Maharashtra Act 22 of 2009.

Issue-wise Detailed Analysis:

Issue 1: Exemption from whole of tax under Notification No. VAT/1505/Cr 122/Taxation dated 1.4.2005

The Appellant Company, engaged in manufacturing PVC products, set up a factory in Ratnagiri in 1994 and made significant investments. The factory was granted an eligibility certificate under the 1988 Package Scheme of Incentives (PSI) and later under the 1993 PSI. The eligibility certificate issued on 10th February 2003 classified the Ratnagiri unit as a "Pioneer Unit," making it eligible for maximum sales tax incentives. The Appellant claimed complete exemption from taxes for the entire turnover of sales made from the Ratnagiri unit for the financial years 2005-06 to 2008-09. However, the Assessing Authority applied Section 93 of the MVAT Act, 2002, retrospectively substituted by Maharashtra Act No.XXII of 2009, and allowed exemption only to the extent of pro-rata turnover of 35%. The First Appellate Authority and the Tribunal upheld this decision, leading the Appellant to challenge the applicability of Section 93 to its case.

Issue 2: Applicability of Section 93 of MVAT Act, 2002 as amended by Act 22 of 2009

The Appellant argued that the amended Section 93 of the MVAT Act, 2002, which introduced a pro-rata basis for availing incentives, should not apply to its unit. The Appellant contended that the eligibility certificate and the entitlement certificate did not contain any condition of proportionality. The Appellant had exhausted the eligible quantum of benefits under the entitlement certificate by March 2009, before the amendment to Section 93 came into force on 27th August 2009. The Appellant maintained that the retrospective application of the amended Section 93 was not applicable to units that had fully utilized their benefits before the amendment date. The Appellant relied on previous judgments, including the Division Bench judgment in the case of Associated Cement Ltd Vs State of Maharashtra, which held that the ceiling of entitlement for a pioneer unit could not be curtailed by applying the amended provisions.

Issue 3: Availability of full exemption under the validation and saving provision contained in Section 5 of Maharashtra Act 22 of 2009

The Appellant argued that Section 5(1) of Maharashtra Act No.XXII of 2009 validated all acts, proceedings, or things done by the State Government or any officer in connection with the assessment, levy, or collection of any taxes. The Appellant contended that the certificate of entitlement granted on 10th February 2003 was validated by this provision, and any order passed in contradiction to the certificate was deemed invalid. The Appellant emphasized that it had exhausted its Cumulative Quantum of Benefits (CQB) by March 2009 and, therefore, could not be governed by the amended Section 93 of the MVAT Act. The Appellant argued that the retrospective amendment should not apply to sales made between 1st April 2005 and 28th August 2009, as it would affect vested rights and create new liabilities.

Judgment Analysis:

The Court acknowledged the Appellant's arguments and the legal precedents supporting its case. It noted that the eligibility and entitlement certificates did not contain any condition of proportionality and that the Appellant had exhausted the CQB before the amendment to Section 93. The Court referred to previous judgments, including the Division Bench judgment in ACC Ltd Vs. State of Maharashtra, which held that the ceiling of entitlement for a pioneer unit could not be curtailed by the amended provisions. The Court also considered the validation provision in Section 5(1) of Maharashtra Act No.XXII of 2009, which validated the certificates issued before the amendment.

The Court concluded that the orders passed by the Assessing Authority, the First Appellate Authority, and the Tribunal were erroneous and could not be sustained. It held that the Appellant could not be made to pay tax for the sales affected from 1st April 2005 to 27th August 2009, as the amended Section 93 did not apply to units that had exhausted their CQB before the amendment date. The Court quashed the assessment order and allowed the appeal in favor of the Appellant, answering the substantial questions of law in favor of the Dealer and against the Revenue.