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2013 (10) TMI 256 - HC - VAT and Sales TaxAmendment to u/s 41C of Bombay Sales Tax Act - Constitutional validity - Cessation of SSI units - Package Incentive Scheme of 1979 - validity of Eligibility Certificates - Held that - Government was aware of the alleged error in the 1979 Scheme since 1982 & took some steps to provide cure through 5.7.1982 modification. But then consistent with the commitments contained in 1979 policy, it gave option to SSI units & allowed them to continue under 1979 unmodified Scheme. The amendment in the shape of S.41C(1)(a)(i)(A) has come in 1995 and it results in curtailment of the benefit period & also imposes an unforeseen tax liability. Till then all benefits without any ceiling or then, after 10.1.1983, incentives equal to 100% of the fixed capital investments made during entire period of eligibility qualified for claiming the exemptions. That has been suddenly changed & eligibility is pegged down to initial year in which the eligibility certificate was issued. This drastic change results in retrospective cancellation of the eligibility certificate. Need for such a measure was felt in 1982 itself & it lead to issuance of 5.7.1982 modification. Why State Government could not bring in such an amendment immediately after 1982 is not clear. If the measure of imposing ceiling on quantum of incentives was evolved in public interest, its advance notice to aspiring investors was possible & also must. But, even in 1982 modification, the Petitioner Units are given exemption equal to cent-percent capital investments made during the period of eligibility. The mode & manner of calculating quantum continued without any ceiling for all these Petitioners & they may have also expanded their projects by investing back the exemptions granted. Even otherwise, it is obvious that no SSI unit under 1979 Scheme would have surrendered & voluntarily subjected themselves to any ceiling and hence, if Government wanted really to remedy the mischief, bringing proper legislation at the earliest was the only solution. The legislation has been brought after majority of the units completed their eligibility period. A liability not in contemplation, has been fastened for past investments which were then eligible for exemption. Past investments may be expansions which catered to the development of underdeveloped area & therefore, advanced the objective of State Government. Thus, such investments & appropriation of incentives are now irreversible & it is irrational to disallow the same & demand taxes. It is strange to levy penalty for the same. We, therefore, see no justification in subjecting very few units to such legislation ie to S.41C(1)(a)(i)(A). Had the legislation been enacted immediately after 1982 & all SSI units were subjected to it, a different perspective may have been required to be adopted. The present situation demands a liberal approach & as observed by Hon. Apex Court (supra) the Government has itself come forward alluring industrial units to set up their industries . Since we do not see absence of power in State Legislature, it is not necessary to quash & set aside said provision which may have outlived itself considering the fact that out of total possible 14, only three matters are before us. But then exposing Petitioners to such unforeseen liability prejudices their entire planning, projections & future. We reiterate that it is not the case of the Respondents that expansion of project or then investment in capital affected the status of Petitioner Units & thereby, they ceased to be SSI Units or then the Petitioners have violated any other term or condition of the 1979 Scheme. Appropriations made & expansions are now irreversible. No commercial concern can shoulder such a burden for past legal transactions. Therefore permitting S.41C(1)(a)(i)(A) to be used against the Petitioners will be inequitable & may result in killing the Units & defeat the 1979 Scheme which was deliberately designed to be broad-based. Interest of justice can be met with by directing the Respondents not to extend the provision of S.41C(1)(a)(i)(A) to the Petitioners if their Units never ceased to be SSI units during the eligibility period as per the eligibility & entitlement certificates granted to them. - Decided partly in favour of assessee.
Issues Involved:
1. Constitutionality of the amendment to Section 41C of the Bombay Sales Tax Act, 1959. 2. Retrospective application of the amendment. 3. Impact on Eligibility Certificates under the 1979 Package Incentive Scheme. 4. Equal treatment under Article 14 of the Constitution of India. 5. Principles of estoppel and legitimate expectation. 6. Administrative delay and its consequences on the petitioners. Detailed Analysis: 1. Constitutionality of the Amendment to Section 41C: The petitioners challenged the amendment to Section 41C of the Bombay Sales Tax Act, 1959, claiming it was ultra-vires Articles 14 and 19(1)(g) of the Constitution of India. They argued that the amendment imposed a ceiling on the quantum of benefits retrospectively, which was not present in their original Eligibility Certificates under the 1979 Package Incentive Scheme. The court noted that the amendment added a concept of "Approved Gross Fixed Capital Investment" and stipulated automatic cancellation of Eligibility Certificates if the benefits exceeded this investment. 2. Retrospective Application of the Amendment: The petitioners contended that the retrospective application of the amendment adversely affected them, as it imposed a ceiling on incentives that were initially unlimited. They argued that their Eligibility Certificates did not contain any such condition or rider. The court observed that the amendment dated 05.07.1982, which came into force on 10.01.1983, introduced a ceiling limit of 100% of the Gross Fixed Capital Investment during the eligibility period. However, this amendment was not implemented in the case of the petitioners. 3. Impact on Eligibility Certificates under the 1979 Package Incentive Scheme: The petitioners argued that their Eligibility Certificates, issued under the unamended 1979 Scheme, did not stipulate any ceiling on incentives. The court noted that the 1979 Scheme allowed for cumulative sales tax incentives without a ceiling for Small Scale Units (SSI). The amendment to Section 41C, however, imposed a ceiling based on the initial capital investment, which was not in line with the original scheme's provisions. 4. Equal Treatment under Article 14 of the Constitution of India: The petitioners claimed that the amendment resulted in unequal treatment, as other units that applied along with them enjoyed full benefits without any ceiling. The court found that the amendment affected only a few units that received their Eligibility Certificates belatedly due to administrative delays. This selective application was deemed arbitrary and violative of Article 14, as it subjected these units to unforeseen liabilities and penalties. 5. Principles of Estoppel and Legitimate Expectation: The petitioners relied on the judgments of Tata Motors Ltd. vs. State of Maharashtra and others to argue that the principles of estoppel and legitimate expectation should protect their vested rights under the original scheme. The court agreed, noting that commitments made under the original 1979 Scheme could not be altered retrospectively to the detriment of the petitioners. 6. Administrative Delay and Its Consequences on the Petitioners: The court acknowledged that the petitioners' applications for Eligibility Certificates were delayed due to administrative issues, including complaints and investigations. This delay resulted in their eligibility period extending beyond the amendment date, subjecting them to the new ceiling. The court found that the petitioners should not suffer due to administrative delays and were entitled to the benefits as per the original scheme. Conclusion: The court concluded that the amendment to Section 41C, which imposed a ceiling on incentives retrospectively, could not be applied to the petitioners. The court directed the respondents not to extend the provision of Section 41C(1)(a)(i)(A) to the petitioners if their units remained Small Scale Units during the eligibility period. The writ petitions were partly allowed, and the rule was made absolute without any order as to costs.
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