2015 (2) TMI 42 - HC - VAT and Sales Tax

Set off under rule 41E of the Bombay Sales Tax Rules, 1959 - Held that - In the garb of deciding the issue of applicability of the Hon'ble Supreme Court's judgment in M/s. Loharn Steel Ltd. (1996 (12) TMI 328 - SUPREME COURT OF INDIA) to the facts and circumstances of the present case, the tribunal travelled beyond its jurisdiction and authority. It declared rule 41E as ultra vires and unconstitutional and which it has no authority to declare. Apart therefrom the tribunal was obliged to consider the issue as to whether any assistance can be derived from the judgment of the Supreme Court assuming that the issue involved was identical. Assuming that the controversy dealt with by the Supreme Court was identical then relying on the said judgment whether rule 41E and plain language thereof can be ignored is a further question. The tribunal in the present case and in the second appeal of the assessee could not have therefore ignored rule 41E and virtually declared it unconstitutional being ultra vires Article 304(a) of the Constitution of India. This was not a permissible exercise as the tribunal derived its authority under BST Act itself. Issue of constitutionality and legality of rule 41E to the extent noted above could not have been decided by the tribunal in the second appeal of the assessee. It has clearly erred in law in undertaking the exercise of deciding the constitutionality and legality of the said rule. Therefore, the two questions will have to be answered by holding that the claim which was made in alternate would have to be dealt with and decided on the touch stone of rule 41E as it stood at the relevant time and its clear language. The tribunal could not have ignored the same in dealing with the alternate claim. - Reference disposed of.

Summary

Issues Involved:
1. Entitlement to set off under Rule 41E of the Bombay Sales Tax Rules, 1959.
2. Tribunal's authority to declare Rule 41E as unconstitutional or ultra vires.

Issue-wise Detailed Analysis:

1. Entitlement to Set Off under Rule 41E:

The primary issue revolves around whether the Tribunal was legally justified in granting the opponent dealer the set off under Rule 41E of the Bombay Sales Tax Rules, 1959, despite the manufacturing activity being carried out in another state and not in Maharashtra. The Tribunal had concluded that the stipulation in Rule 41E requiring manufacturing within the state of Maharashtra was ultra vires Article 304(a) of the Constitution of India, based on the Supreme Court's judgment in Loharn Steel Industries Ltd. vs. State of Andhra Pradesh. The Tribunal held that such a stipulation was discriminatory and thus could be ignored, allowing the dealer to claim the set off.

2. Tribunal's Authority to Declare Rule 41E as Unconstitutional or Ultra Vires:

The second issue concerns whether the Tribunal overstepped its jurisdiction by declaring Rule 41E as unconstitutional. The Tribunal, being a creature of the Bombay Sales Tax Act, 1959, does not have the authority to declare any statutory provision as unconstitutional or ultra vires. This authority lies exclusively with courts exercising constitutional powers. The Tribunal's reliance on the Supreme Court's judgment in Loharn Steel Industries Ltd. was deemed inappropriate as the case dealt with a different statutory context under the Andhra Pradesh General Sales Tax Act, which was not directly comparable to the Bombay Sales Tax Act.

Detailed Analysis:

Entitlement to Set Off:

The Tribunal had upheld the dealer's claim for set off under Rule 41E, concluding that the rule's stipulation requiring manufacturing within Maharashtra was ultra vires Article 304(a) of the Constitution. This conclusion was drawn from the Supreme Court's judgment in Loharn Steel Industries Ltd., which held that restricting benefits to within-state activities was discriminatory. However, the High Court noted that the Tribunal should not have ignored the statutory language of Rule 41E, which clearly stipulated that the manufacturing process must occur within Maharashtra for the set off to be applicable.

Tribunal's Authority:

The High Court emphasized that the Tribunal, as an entity created under the Bombay Sales Tax Act, does not possess the jurisdiction to declare any statutory provision as unconstitutional or ultra vires. The Tribunal's role is to interpret and apply the law as it stands, not to adjudicate on its constitutionality. The High Court pointed out that the Tribunal had erred in relying on the Supreme Court's judgment in Loharn Steel Industries Ltd., as the context and statutory provisions involved were different. The Tribunal's decision to ignore Rule 41E based on this judgment was beyond its jurisdiction.

Conclusion:

The High Court concluded that the Tribunal had overstepped its authority by declaring Rule 41E as ultra vires and unconstitutional. The Tribunal should have assessed the dealer's claim for set off based on the clear language of Rule 41E as it stood at the relevant time. The High Court clarified that it had not expressed any opinion on the legality or constitutionality of Rule 41E itself, leaving that determination to be made in an appropriate jurisdiction. The Reference was disposed of by holding that the Tribunal erred in law by undertaking the exercise of deciding the constitutionality and legality of Rule 41E.