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TMI Blog1990 (4) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... , eligible units were entitled every year to the sales tax incentive at 4 per cent of the cost of the fixed assets plus employment incentive based on the average employment worked out at Rs. 12,000 per job per year, limited to 4 per cent of the cost of fixed assets, provided the total amount so calculated was limited to the total sales tax liability during the year or 8 per cent of the gross value of the fixed assets whichever is lower. Further, special capital incentive scheme with effect from August 1, 1977, was also introduced. By Government resolution dated October 18, 1979, the special capital incentive scheme was extended for a further period of one year, i.e., up to July 31, 1980. 4.. Thereafter, by Government resolution dated January 5, 1980, the Government introduced modified package scheme of incentives. It was to remain in force from August 1, 1979 to March 31, 1983, with liberty to Government to amend the scheme at any time after giving six month's notice. Under the scheme, the unit in production prior to August 1, 1979, was considered as an existing unit, while an industrial unit, for setting up of which at least one of final effective steps was required to be comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and particularly by the edible oil units which had gone into production prior to 1979. These units faced severe competition from the eligible units under the 1979 scheme and consequently they made several representations to the State Government to discontinue the incentives given to the new units under the 1979 scheme. Other industrial units which did not get the advantage of incentives under the 1979 scheme also made representations that they were finding it difficult to compete with the new units who were getting unlimited sales tax exemptions under the 1979 scheme. The State Government, therefore, by resolution dated July 5, 1982, modified the 1979 package scheme of incentives, inter alia, by limiting the total cumulative sales tax incentives to 100 per cent of the fixed capital investment during the period of entitlement. The said resolution was made effective from January 10, 1983, as under the 1979 scheme the Government had agreed to give 6 months notice for any amendment of the 1979 scheme. During the period from July 5, 1982, to January 10, 1983, several new units were set up who got the advantage of the 1979 scheme. The number of edible oil units being largest, with a vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he enjoyment of unlimited exemption from payment of sales tax by the units under the 1979 scheme had not only resulted in huge draw on the public exchequer which was never intended, but it also created unhealthy trade practices and competition, the Government issued an Ordinance No. 5 of 1985 on May 24, 1985, inter alia, to limit the benefit derived on account of exemption from payment of sales tax under 1979 scheme to the extent of 100 per cent of gross fixed capital investment by the eligible units at the time of grant of eligibility certificates or such other lower percentage, if any, as may be provided under the eligibility certificate issued in accordance with the provisions of any package scheme of incentives. Petitions were filed by eligible oil units under the 1979 scheme challenging the said Ordinance. During the pendency of the said petitions, the Ordinance was replaced by the Act. During this intervening period, the Government received a number of representations from the small-scale industries. The Government also received representations from the units in edible oil industry which had started production either before August 1, 1979, or after April 1, 1983, to the effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of entitlement on and after the commencement date, and he shall surrender the certificate of entitlement together with all the unused forms BC which have been attested by the sales tax authorities to the Commissioner forthwith and in any case on or before the 31st day of August, 1985, unless he has already surrendered the same earlier. " 10.. Several edible oil units eligible under the scheme of 1979 challenged the validity of the said section. One such unit was Olympic Oil Industries Limited. The said petition was heard by the Division Bench of this Court along with several other petitions challenging the said section. 11.. The main challenge to the constitutional validity of the said section 41A, as amended, was on the basis of it being violative of article 14 of the Constitution of India. Section 41A was also attacked as wholly arbitrary being unreasonable and also not in public interest. Doctrine of promissory estoppel was also pressed into service. On the other hand, it was contended on behalf of the State that the Bombay Sales Tax Act is a fiscal statute. It was always competent for the Legislature to enact this law. That the matter of exemption is outside the province ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the category of edible oil units even in respect of such a process of refining washed cotton seed oil. The matter was taken up under the provisions of section 52 of the Bombay Sales Tax Act before the Commissioner of Sales Tax. However, the Commissioner of Sales Tax rejected the contention and held that even the said activity of refining washed cotton seed oil and to make it edible makes the unit an edible oil unit. 16.. The petitioner in Writ Petition No. 2101 of 1987, viz., M/s. Narendra Oil Refineries filed Writ Petition No. 1280 of 1986 before this Court challenging the said interpretation made by the Commissioner of Sales Tax. The Division Bench of this Court, by its judgment dated December 11, 1986*, upheld the contention of the petitioner therein. It held that so far as the activity of the petitioner therein of refining washed cotton seed oil into refined cotton seed oil *Reported as Narendra Oil Refineries v. State of Maharashtra [1988] 68 STC 208 (Bom). is concerned, the same is not covered by the definition of "edible oil unit" and a relief limited to that extent was granted to the petitioners, viz., M/s. Narendra Oil Refineries. 17.. It is thereafter that the Governo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roactive operation of the Act. In other words, they are challenging the operation of the definition of "edible oil unit" made effective from the 1st day of August, 1985. They have clearly submitted that they cannot and do not challenge the validity of the said Act in so far as its prospective operation from September 23, 1987, is concerned. 20.. Shri Manohar contended that he is also not challenging the legislative competence of enacting the said provision. However, he is seriously challenging the retroactive or retrospective implementation of the same from 1st of August, 1985, as being violative of article 14 of the Constitution of India being arbitrary, unreasonable and almost unconscionable. Shri Manohar in that behalf submitted that though the petitioners who started enjoying exemption from payment of sales tax from 1981-82 to the extent of 4 per cent of sales tax on the purchase of their raw material and also 4 per cent of sales tax on the sale of their finished product, the petitioners themselves are not able to retain the benefit and the benefit in fact has passed on either to oilseed producers or the consumers of the finished product. Shri Manohar contended that the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the retroactive operation is unconscionable, arbitrary and most unreasonable and deserves to be struck down on that ground. It is further stated in paragraph 27 of the petition that during the relevant period, viz., August 1, 1985 to September 22, 1987, the petitioners have not realised the amounts or charged the amounts either of the purchase tax or the sales tax to their consumers and the benefit has been passed to the consumers only. The tax liability now attempted to be raised retroactively would cast the entire burden on the shoulders of the petitioner and they will have to pay it from their own pocket. It is submitted that the petitioners established their units under the 1979 scheme, relying on the promises contained in the same scheme. The petitioners to their detriment established their industry in the backward region. They were assured of the sales tax exemption for a period of 7 years. In the implementation of the schemes, various agreements were entered into between the petitioners and the State. For example, under the agreement entered into by the eligible units with the implementing agency, the eligible unit is under an obligation to continue working for a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1961 SC 1534 (J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh), [1985] 58 STC 12 (SC); AIR 1985 SC 12 (K.M. Mohamed Abdul Khader Firm v. State of Tamil Nadu), [1987] 65 STC 191 (Bom) (Olympic Oil Industries Ltd. v. State of Maharashtra), [1988] 70 STC 59 (SC); AIR 1988 SC 1247 [Assistant Commissioner of Commercial Taxes (Asst.), Dharwar v. Dharmendra Trading Company], AIR 1985 SC 746 (Collector of Customs Central Excise v. Oriental Timber Industries), [1988] 71 STC 298 (SC); AIR 1988 SC 1814 (West Bengal Hosiery Association v. State of Bihar), [1990] 76 STC 67 (SC) (Shri Krishna Enterprises v. State of Andhra Pradesh), AIR 1990 SC 1020; 1990 (1) SVLR (T) 122 (Rathi Alloys Steel Ltd., Alwar v. Collector, Central Excise, Jaipur) and other cases. Shri Deshpande on his part, cited [1989] 72 STC 354 (SC); [1989] Supp 1 SCC 153 (Bharat General and Textile Industries Ltd. v. State of Maharashtra), AIR 1963 SC 1667; [1963] 50 ITR 171 (SC) (Rai Ramkrishna v. State of Bihar), [1989] 75 STC 105 (SC); AIR 1989 SC 644 [Collector of Central Excise, Bombay-I v. Parte Exports (P) Ltd.], [1985] 58 STC 1 (SC); AIR 1984 SC 1780 (D. Cawasji Co., Mysore v. State of Mysore) and [1988] 68 STC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guous in the light of the judgment* of this Court in Writ Petition No. 1280 of 1986, it was always competent to the Legislature to make the same explicitly clear by amending the law and making it operative retroactively. Shri Karekar submitted that the action of making it retroactive cannot be called arbitrary at all. The object was to withdraw the exemption totally from all edible oil units and when it was found that edible oil unit like the petitioners, in so far as they are undertaking the activity of manufacturing edible oil, by refining non-edible, viz., washed cotton seed oil, were inadvertently omitted from the earlier definition, the said lacuna is attempted to be cured. Shri Karekar further submitted that section 41A is held to be valid by the decision of this Court in Olympic Oil Industries Ltd. v. State of Maharashtra [1987] 65 STC 191. He referred to the various passages from the said judgment and pointed out that almost identical challenges were repelled by this Court with reference to the constitutional validity of section 41A of the Bombay Sales Tax Act. Shri Karekar submitted that admittedly all the petitioners are the edible oil units. The mistake was committed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 13 of the said judgment (page 437 of STC) reads as under: "And then it is argued that a sales tax being an indirect tax, the seller who pays that tax has the right to pass it on to the consumer, that a law which imposes a sales tax long after the sales had taken place deprives him of that right, that retrospective operation is, in consequence, an incident inconsistent with the true character of a sales tax law, and that the Validation Act is therefore not a law in respect of tax on the sale of goods, as recognised, and it is ultra vires entry 54. We see no force in this contention. It is no doubt true that a sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. But it is not an essential characteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. Whether a law should be enacted, imposing a sales tax, or validating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect tax from the purchasers. The Supreme Court has further observed that whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the Legislature. In paragraph 15 of the said judgment, the Supreme Court has observed that the power of the Legislature to enact with reference to a topic entrusted to it is unqualified, subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the Legislature to enact a law, which is either prospective or retrospective. 25.. In [1985] 58 STC 12; AIR 1985 SC 12 (K.M. Mohamed Abdul Khader Firm v. State of Tamil Nadu), in paragraph 11 (page 17 of STC), the Supreme Court has referred to the earlier decision in [1974] 34 STC 73; AIR 1974 SC 2272 (Kodar v. State of Kerala) wherein the Supreme Court has observed as follows: "As regards the second contention that the provisions of the Act are violative of the fundamental r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age was being taken of the same, was considered by the Supreme Court. The said contention was not accepted. It was observed that no counteraffidavit was filed by the appellant before the trial court in the writ petition. Beyond the statement of counsel, there is nothing to show that any misuse was made of these concessions or undue advantage taken of the same. It was observed that it is true that the preamble to the order dated January 12, 1977, does recite that the concessions given by the earlier order had given room for many types of misuse but such a recital by itself cannot establish that the concessions were, in fact, misused. If that were so, it was the duty of the Government and the concerned authorities to file a counter-affidavit and place the relevant facts establishing the misuse before the court. This they have totally failed to do. It was further observed that it is well-settled that if the Government wants to resile from a promise or an assurance given by it on the ground that undue advantage was being taken or misuse was being made of the concessions granted, the court may permit the Government to do so but before allowing the Government to resile from the promise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrary nor unreasonable. Thus, this Court had already found enough justification for withdrawal of the tax exemptions qua the edible oil units. 27.. Shri Manohar also relied upon [1988] 71 STC 298 (SC); AIR 1988 SC 1814 (West Bengal Hosiery Association v. State of Bihar). He relied upon paragraph 9 of the judgment (page 303 of STC) where the Supreme Court held that the notification dated August 1, 1984 is void and quashed the same. The Supreme Court observed in paragraph 9 of the said judgment (page 303 of STC) as follows: "............We realise that quashing of this notification on the ground that it was void ab initio might lead to undue hardship for the dealers in the State of Bihar who might have sold locally manufactured hosiery goods without taking into consideration any amount on account of the liability to sales tax in view of the exemption granted by the said notification dated August 1, 1984. In order to obviate this hardship, we direct that the arrears of sales tax which would become payable by the dealers in the State of Bihar in respect of sales of local hosiery goods made during the period when the said notification was in operation should not be collected." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, the Supreme Court did not think that there was any justification for review. In our opinion, these observations of the Supreme Court must be read in the context and especially in the context that they were made while rejecting the review petition on consideration of various aspects involved in the matter before the Supreme Court. Shri Manohar also referred to the decision of the Supreme Court reported in AIR 1990 SC 1020; 1990 (1) SVLR (T) 122 (Rathi Alloys Steel Ltd., Alwar v. Collector, Central Excise, Jaipur) wherein the Supreme Court observed as under: "What is apparent is that leviability of duty on runners and risers as covered by tariff item No. 26 was not free from difficulty. The Board, the Government and even the department by and large was clearing these items as scrap entitled to benefit of notifications exempting or levying duty on concessional rate on item covered by tariff item No. 26. Even in the State of Punjab it was cleared for some time till dispute arose. Although it would not operate as estoppel but rule of fairness is yet another principle which is well-settled and precludes public bodies, specially the Government departments from reopening such ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason of the tax exemption, and that the other eligible units engaged in the manufacture of other products including non-edible oils have not derived benefit to such an extent as to justify revocation of the tax exemption benefit, this assessment exercise falls purely within the domain of the executive and it is not for the court to see whether other edible oil units also derive huge benefits and as such Government ought to have revoked the tax exemption benefit in their cases as well. The classification between units engaged in producing edible oils and non-edible oils is on an intelligible and sustainable basis and as such the court cannot hold that the Government should treat both kinds of units alike and direct the withdrawal of the tax exemption benefit in the case of non-edible oil producing units also. It is clear that the question before the Supreme Court was whether units manufacturing washed cotton seed oil are to be treated as units manufacturing edible oil. The State Government has taken a stand that units manufacturing washed cotton seed oil cannot be treated as units which are manufacturing edible oil, whereas in the facts before us, it is an admitted position that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that, in substance, the taxing statute is a cloak adopted by the Legislature for achieving its confiscatory purposes........" But, the Supreme Court, in paragraph 13, while considering the validity of the retrospective operation of the Act in the said case, considered the argument of the counsel that, in respect of passengers carried by the owner between April 1, 1950 and the date of the Act, how can the owner recover the tax he is now bound to pay to the State. The Supreme Court observed that prima facie, the argument appears to be attractive, but a closer examination would show that the difficulty which the owner may experience in recovering the tax from the passengers will not necessarily alter the character of the tax. The Supreme Court found that the nature of the tax in the case before it is the same both in regard to prospective and retrospective operations. In paragraph 17, the Supreme Court observed that it is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional; but the test of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has by the impugned amendment sought to raise the rate of tax from 6 1/2 per cent to 45 per cent with retrospective effect from April 1, 1966 to avoid the liability of refunding the excess amount of sales tax collected and has further purported to nullify the judgment and order passed by the High Court directing the refund of the excess amount illegally collected by providing that the levy at the higher rate of 45 per cent will have retrospective effect from April 1, 1966. The Supreme Court observed that the judgment of the High Court declaring the levy of sales tax on excise duty, education cess and health cess to be bad become conclusive and is binding on the parties. It may or may not have been competent for the State Legislature to validly remove the lacuna and remedy the defect in the earlier levy by seeking to impose sales tax through any amendment on excise duty, education cess and health cess; but, in any event, the State Government has not purported to do so through the amending Act. As a result of the judgment of the High Court declaring such levy illegal, the State Government became obliged to refund the excess amount wrongfully and illegally collected by virtue of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that if the retrospective feature of a law is arbitrary and burdensome, the statute will not be sustained and the reasonableness of each retrospective statute will depend on the circumstances of each case; and the test of the length of time covered by the retrospective operation cannot, by itself, necessarily be a decisive test." 33.. In AIR 1987 SC 2310 [Utkal Contractors Joinery (P) Ltd. v. State of Orissa], in paragraph 14, the Supreme Court has observed as follows: "The Legislature may, at any time, in exercise of the plenary power conferred on it by articles 245 and 246 of the Constitution render a judicial decision ineffective by enacting a valid law. There is no prohibition against retrospective legislation. The power of the Legislature to pass a law postulates the power to pass it prospectively as well as retrospectively. That of course, is subject to the legislative competence and subject to other constitutional limitation. The rendering ineffective of judgments or orders of competent courts by changing their basis by legislative enactment is a well-known pattern of all validating Acts. Such validating legislation which removes the causes of ineffectivene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the Legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon courts. The Legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the Legislature and legal and adequate to attain the object of validation. If the Legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in the validating la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1972 SC 2455 (Krishnamurthi and Co. v. State of Madras), in paragraph 13 (page 200 of STC), the Supreme Court has observed as under: "Mr. Setalvad has referred to the fact that the appellants did not realise the sales tax on the sale of furnace oil at the rate of 6 per cent during at least some part of the period for which retrospective operation had been given to the amending Act. It is contended that this fact should weigh with this Court in striking down the provisions of the amending Act. There is, in our opinion, no force in this contention. The fact that a dealer is not in a position to pass on the sales tax to others does not affect the competence of the Legislature to enact a law imposing sales tax retrospectively because that is a matter of legislative policy." The Supreme Court referred to the case of J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh [1961] 12 STC 429; AIR 1961 SC 1534 wherein the following observations were made: "And then it is argued that a sales tax being an indirect tax, the seller who pays that tax has the right to pass it on to the consumer, that a law which imposes a sales tax long after the sales had taken place deprives him of that right, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke "small repairs" is a permissible mode of legislation and is frequently resorted to in fiscal enactments. 38.. In the light of the aforesaid decisions, we find that the submissions made on behalf of the petitioners have no force. 39.. At the outset, it must be appreciated that both the learned counsel on behalf of the petitioners have not challenged the legislative competence of the Legislature to enact the amending law. It is accepted that it is a valid law so far as it operates prospectively. The only challenge is to the retrospective operation on the ground of it being unreasonable, arbitrary and almost unconscionable. 40.. Shri Manohar, the learned counsel appearing for the petitioners in Writ Petition No. 2101 of 1987 and W.P. No. 2195 of 1987, emphasised the aspects that the petitioners have neither collected the tax nor made any profit out of it and the benefit has passed on either to the seed dealers or to the consumers who have purchased the final refined washed cotton seed oil. It is submitted that in case of the first petitioner in Writ Petition No. 2101 of 1987, he has sold the washed cotton seed oil in market as it was profitable for him to do so and in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty should have been excluded. We find much force in the submission of Mr. Karekar on behalf of the State that this was just an inadvertent mistake on the part of the Legislature while defining and the Legislature has, by the Amending and Validating Act, made its intention clear which was always *See [1988] 68 STC 208 (Bom). so. In the facts and the circumstances of the case, therefore, we find that it was always competent for the State Legislature to enact the Amending and Validating Act and it cannot be stated that the same is unreasonable, arbitrary or unjust only because of the fact that it exposes the petitioners to the financial liability. We do not feel that the provision is arbitrary, as we find that without any basis, the petitioners' units so far as pertaining to their activity of refining washed cotton seed oil is concerned, were excluded under the definition, though all edible oil units were intended to be covered by the said definition and therefore, it was competent for the Legislature to make the definition clearer which it has done by the Amending and Validating Act. We find that there is enough basis and reason and on no count the said provision can be said to be ei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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