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TMI Blog2013 (6) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... t to whom an eligibility certificate has been granted shall be eligible to draw benefits only on that part of its turnover of sales or purchases as may be arrived at by applying the ratio as may be prescribed by the State Government to the total turnover of sales or purchases of the unit in that year. Section 41BB was not an enabling provision, but enacted a restriction to the effect that notwithstanding anything contained in any Package Scheme of Incentives, an eligible unit holding an eligibility certificate shall be eligible to draw benefits only on that part of its turnover of sales and purchases as would be arrived at by applying the ratio which was to be prescribed by the State Government. Section 41BB, however, left it to the government to prescribe the ratio on the basis of which only a part of the turnover of sales and purchases would qualify for incentives. When the Maharashtra Value Added Tax Act, 2002 was enacted, a specific provision was incorporated in Section 93(1) described in its heading as providing for proportionate incentives to an eligible unit in certain contingencies & also made the legislative intent clear which was that an eligible unit would be eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which they contemplate the imposition of a penalty with retrospective effect would to that extent be arbitrary. The provision in regard to the imposition of a penalty under Section 93(2) would consequently operate only prospectively. Accordingly dispose of the Petitions by upholding the constitutional validity of Maharashtra Act 22 of 2009, save and except for the imposition of a penalty under Section 93(2) which will take prospective effect. The Petitions are accordingly disposed of. There shall be no order as to costs. - Writ Petition No. 313 of 2010, Civil Application No. 2227 of 2012, Writ Petition Nos. 7925/12, 8431/09, 10637/09 With C.A.2472/10,W. P. Nos. 3909/10, 5821/10, 2889/11 And 2890 of 2011, Writ Petition Nos.1618/11 & 1445 of 2010 - - - Dated:- 10-6-2013 - Dr. D. Y. Chandrachud And A. A. Sayed, JJ. For the Petitioners : Mr. V. Sridharan, Senior Advocate with Mr. C. B. Thakkar, Mr. M. M. Vaidya For the Respondents : Mr. Haresh Jagtiani, Senior Advocate with Mr. Anil D'Souza, Mr.Suprash Jain JUDGMENT (Per DR. D. Y. Chandrachud, J.). The constitutional validity of the Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products. Paragraph 5 provided that the sales tax incentive under Part-I of the Scheme could be by way of exemption or by way of deferral which was admissible to a new unit/pioneer unit as also in the case of expansion or diversification of units set up in Groups B, C or D or No Industry Districts. An exemption was available inter alia in respect of sales tax payable under the Bombay Sales Tax Act, 1959 on the sale of finished products of the eligible unit. The quantum of sales tax incentives was provided for in paragraph 5.2 of the Scheme. For eligible units undertaking expansion or diversification, the quantum was linked to a proportion of fixed capital investment and was for a stipulated period. Scheme of 1993 4. The Package Scheme of Incentives of 1988 was succeeded by a Scheme of 1993 which was notified by a G.R. dated 7 May 1993. The object of the scheme was to achieve a dispersal of industries outside the Bombay- Thane-Pune belt and to attract them to the underdeveloped and developing areas of the State, particularly, regions away from Bombay-Thane-Pune belt. Paragraph 3.8(I)(i)(c) of the Scheme provided as follows: 3.8 Gross Fixed Capital Investment - (I) Gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded as follows: 41BB.-- Proportionate incentives to an Eligible Unit in certain contingencies.-- (1) Notwithstanding anything to the contrary contained in any Package Scheme of Incentives, any Eligible Unit, to whom the Eligibility certificate has been granted, shall be eligible to draw the benefits in the current year or in any year, whether preceding or succeeding the date of commencement of section 12 of the Maharashtra Act 22 of 2001, only on that part of its turnover of sales or purchases as may be arrived at by applying the ratio as may be prescribed by the State Government to the total turnover of sales and purchases of the said unit in that year and different ratios may be prescribed for different classes of dealers and different schemes. (2) The benefits availed of by an Eligible Unit in contravention of sub-section (1), if any, shall be and shall be deemed to have been withdrawn and such unit shall be liable to pay tax in respect of the turnover of sales and purchases in excess of the turnover arrived at under sub-section (1) and accordingly any benefit which is withdrawn shall be recovered as arrears of tax as provided in subsection (3). (3) For recovery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in production was not required. The Division Bench dealt with the amendment that was made to the provisions of the Act by the insertion of Section 41BB in 2001, but came to the conclusion that since no rules were framed by the State Government, the Deputy Commissioner was not justified in imposing a ceiling on the utilization of incentives in proportion to production attributable to the newly acquired fixed assets. The Division Bench held as follows:- It is pertinent to note that with a view to impose ceiling on the utilization of incentives by an eligible unit under different schemes, by Finance Act,2001 section 41BB has been inserted into the BST Act, thereby empowering the State Government to prescribe different ratios for different classes of dealers under different schemes. In the Statement of Objects Reasons for inserting Section 41BB in the B.S.T. Act, it is clearly stated that the said Section is introduced with a view to restrict grant of incentives in proportion to the goods manufactured in the expansion unit located in the backward areas of the State. However, for the reasons best known to the State Government, till date no Rules have been framed prescribing dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which a certificate of entitlement was granted to an eligible unit expires; or (iii) The certificate of registration granted to an eligible unit has been cancelled. Subsection (1) of Section 91 stipulates that where a certificate of entitlement has been granted to a unit under a Package Schemes of Incentives and such unit is entitled to receive benefits for any period which is to end after the appointed day, then notwithstanding anything contained in the scheme, benefits shall be availed of only in accordance with the Act, rules and notifications issued thereunder. 11. Section 93(1) of the Maharashtra Value Added Tax Act, 2002 as it originally stood, read as follows:- 93. Proportionate incentives to an Eligible Unit in certain contingencies.--(1) Notwithstanding anything to the contrary contained in any Package Scheme of Incentives, any Eligible Unit to whom the Eligibility Certificate has been granted, shall be eligible to draw the benefits in any year, after the appointed day, only on that part of its turnover of sales or purchases as may be arrived at by applying the ratio as may be prescribed by the State Government to the total turnover of sales and purchases of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lae shall be as below:- Turnover x New fixed capital investment Eligible Turnover = ------------------------------------------------------- Total gross fixed capital investments. (1B) When the eligible turnover comprises of multiple finished products, then, - (a) the production capacity of each of the finished products shall be separately considered in determining the corresponding eligible turnover, and (b) eligible turnover shall relate to those products on which the eligible investment has made impact and when eligible investment does not add to production capacity, then it shall apply to all the finished products. Simultaneously, Section 93A has been inserted to provide that Section 93 shall apply to all the Eligible Units, to whom Eligibility Certificates and Certificates of Entitlement have been issued under any of the Package Schemes of Incentives; if such certificates have been issued on or before the appointed day (1 April 2005), then from the appointed day and in any other case, from the date of effect mentioned in such certificates. 13. Section 5 of Amending Act 22 of 2009 contains a validation and savings provision which is as follows: 5. (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to a penalty greater than that which could have been imposed on him under the law in force immediately before the commencement of the said Act. The challenge The provisions of Amending Act 22 of 2009 have been called into question in this batch of petitions under Article 226 of the Constitution. The challenge during the course of the submissions is to the retrospective operation of the provisions of Sub-sections (1), (1A) and (1B) of Section 93. 14. The following submissions have been urged in support of the Petitions by Mr. V. Sridharan, Learned Senior Counsel : (i) Though the legislature has the power to enact legislation both prospectively as well as retrospectively, the reasonableness of retrospective legislation can be scrutinized in the facts of each case; (ii) In the present case, what is in issue is not a tax imposed but an incentive scheme. An unambiguous benefit was available under the Package Scheme of Incentives of 1993 in accordance with the intent of the scheme. In such a situation, it is not open to the State Legislature to withdraw a benefit which has been provided only because a power is available; (iii) The legislature can enact validating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure dispersal of industries; (v) The Amending Act of 2009 does not validate something which was done in the past nor does it effectuate an earlier intent of the legislature. Retrospective effect can be given to a curative or validating statute. On the other hand, if a fiscal provision or scheme granted relief to a citizen and the citizen enjoys the benefit of the scheme to which he is legally entitled, the withdrawal of such a benefit validly and unambiguously granted and enjoyed, must necessarily in the absence of supervening circumstances be held to be unreasonable and arbitrary, particularly in a situation such as the present where the consequence is the levy of interest and penalty. Submissions adopting the arguments have been urged by otgher learned Counsel, including Mr.Harish Jagtiani, Senior Advocate, Mr.M.S.Bhandari and Mr.C.B.Thakkar, Counsel. 16. On the other hand, it has been urged by the Learned Advocate General that: (i) Where there is a manifest intention to tax, but as a consequence of a judicial decision, the will of the legislature has not been implemented, a validating legislation can be enacted to cure the deficiency and to do what was always intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that removes the defect or vice in the earlier legislation. While the legislature cannot issue a mandate simpliciter to override the judgment of a court, it is always open to the enacting legislature to cure a deficiency that was noted in the existing legislation so as to set right an anomaly. Validating legislation assumes a retrospective character because the object of the law is to cure a defect that was noted in the original enactment and to remove the cause or foundation for a declaration of invalidity of legislative or executive action. Such a law must of necessity possess a retrospective character since the object of validating legislation is to enact the legislative provision absent the features which had rendered the provision vulnerable or incapable of fulfilling the object of the legislature. 19 In J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh 4 AIR 1961 SC 1534 a Constitution Bench of the Supreme Court laid down the following principles: (i) Where there is a sale of goods, the state legislature is competent to impose a tax and, subject to constitutional limitations, such a tax can be imposed even on sales which have taken place prior to the enactment: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively. Where the legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, but it can also provide for the retrospective operation of the said provisions. Similarly, there is no doubt that the legislative power in question includes the subsidiary or the auxiliary power to validate laws which have been found to be invalid. If a law passed by a legislature is struck down by the Courts as being invalid for one infirmity or another, it would be competent to the appropriate legislature to cure the said infirmity and pass a validating law so as to make the provisions of the said earlier law effective from the date when it was passed. This position is created as firmly established since the decision of the Federal Court in the case of United Provinces Vs. Atiqa Begum. 1940 FCR 110 At para 10 The judgment in Rai Ramkrishna is also an authority for the principle that judicial review must be exercised with circumspection and caution when a taxing statute is challenged on the ground that it violates Articles 14 or 19. A statute which is plainly discriminatory or one which provides no machinery for assessment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge is ultimately sustained and the statute is struck down, it is not unlikely that the judicial proceedings may occupy a fairly long period and the legislature may well decide to await the final decision in said proceedings before it uses its legislative power to cure the alleged infirmity in the earlier Act. In such a case, if after the final judicial verdict is pronounced in the matter the legislature passes a Validating Act, it may well cover a long period taken by the judicial proceedings in Court and yet it would be inappropriate to hold that because the retrospective operation covers a long period, therefore, the restriction imposed by it is unreasonable. That is why we think the test of the length of time covered by the retrospective operation cannot by itself be treated as a decisive test. At para 17 21. A year after the decision in Rai Ramkrishna, another Constitution Bench of the Supreme Court in Epari Chinna Krishna Moorthy vs. State of Orissa AIR 1964 SC 1581 considered the constitutional validity of a Sales Tax Validation Act enacted by the legislature in the State of Orissa. A notification had been issued under the Orissa Sales Tax Act under which gold ornaments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose. We do not see how any question of legislative incompetence can come in the present discussion. And, if the State Government was given the power either to grant or withdraw the exemption, that cannot possibly affect the legislature's competence to make any provision in that behalf either prospectively or retrospectively. Therefore, there is no substance in the argument that the retrospective operation of S.2 of the impugned Act is invalid. At para 7 page 1584 22. In Prithvi Cotton Mills Ltd. vs. Broach Borough Municipality, (1969) 2 SCC 283 the Supreme Court upheld the constitutional power of the legislature to validate a tax declared by the Court to be illegally collected under an ineffective or invalid law, so long as the case for its ineffectiveness or invalidity is removed. Chief Justice M.Hidayatullah speaking for the Constitution Bench held thus:- When a Legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the Legislature mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows:- ....there is no justification for the contention that the Legislature has usurped any judicial power. The Legislature has not purported either directly or by necessary implication to overrule the decision of the Allahabad High Court in Tilock Chand Prasan Kumar's case (supra). On the other hand it has accepted that decision as correct; but has sought to remove the basis of that decision by retrospectively changing the law. This Court has pointed out in several cases the distinction between the encroachment on the judicial power and the nullification of the effect of a judicial decision by changing the law retrospectively. The former is outside the competence of the Legislature but the latter is within its permissible limits. From the statement of objects and reasons, it appears that in the principal Act, the legislative intent was not clearly brought out. By means of the Amending Act the Legislature wanted to make clear its intent. At para 16 page 222 In that case, Section 3-D of the U.P. Sales Tax Act, 1948 levied a single point tax on the turnover of first purchases made by a dealer in the case of foodgrains including cereals and pulses. A notification was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancillary power to legislate on the particular subject. At para 10 pages 278 and 279 In Bakhtawar Trust vs. M.D. Narayan, (2003) 5 SCC 298 a Bench of two learned Judges of the Supreme Court has held that: ...it is open to the legislature to alter the law retrospectively, provided the alteration is made in such a manner that it would no more be possible for the Court to arrive at the same verdict. In other words, the very premise of the earlier judgment should be uprooted, thereby resulting in a fundamental change of the circumstances upon which it was founded. 26. Where a legislature validates an executive action repugnant to the statutory provisions declared by a court of law, what the legislature is required to do is first to remove the very basis of invalidity and then validate the executive action. In order to validate an executive action or any provision of a statute, it is not sufficient for the legislature to declare that a judicial pronouncement given by a court of law would not be binding, as the legislature does not possess that power. A decision of a court of law has a binding effect unless the very basis upon which it is given is so altered that the said dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture for achieving its confiscatory purposes.' (See Rai Ramkrishna Vs. State of Bihar (1964)1-SCR-897. At para 21 page 737 The Supreme Court observed that the intention behind the grant of the package of incentives including an exemption from the payment of excise duties was to stimulate further industrial growth in the area so that an enduring benefit of providing employment opportunity to the local populace and to the economic welfare of the State was sustained. In that context, the Supreme Court observed thus: The High Court may have been right in construing the exemption notification as it stood. Yet the respondent can contend that the words should have been used in the exemption so as to provide for sufficient safeguards to ensure that the benefit of exemption was granted only to those industries which would in turn permanently invest in the State. By the retrospective enactment this defective expression of the object of the policy, was rectified. At para 25 page 738 The judgment upheld a recission of an exemption notification with retrospective effect on the ground that as originally framed the notification had not provided sufficient safeguards that would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his hypothesis, the validity of the amendment cannot be challenged. This is indeed beyond all doubt : See Rai Ramkrishna Vs. State of Bihar (1964)1-SCR-897, Assistant Commissioner of Urban Land Tad Vs. Buckingham and Carnatic Co. Ltd. (1969)2-SCC-55, Krishnamurthi and Co. Vs. State of Madras (1973)1-SCC-75, Hira Lal Rattan Lal Vs. STO (1973)1-SCC-216 and Shiv Dutt Rai Fateh Chand Vs. Union of India (1983)3-SCC-529. Even the Bombay decision in CIT Vs. Hico Products (P) Ltd. (1991)187-ITR-517 on which the assessees heavily rely, concedes, in our opinion rightly, this position. The assessees may have some possible case only if the earlier statutory provisions can be said to have been unambiguously in favour of the assessee and the 1980 amendment had radically altered the provisions to cast a new and substantial burden on the assessee with retrospective effect. At para 17 pages 265 266 28. On the basis of these observations, it was sought to be urged on behalf of the Petitioners that the Amending Act of 2009, in substance, amounts to the imposition of a new levy and that the imposition of a fresh levy with retrospective effect is violative of Article 14. Another limb of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slative intent to allow the benefits only on a proportionate part of the turnover. 30. In the judgment of the Division Bench of this Court in Pee Vee Textiles, notice was taken of the fact that in the statement of objects and reasons explaining the basis for inserting Section 41BB in 2001, it is clearly stated that the said section is introduced with a view to restrict grant of incentives in proportion to the goods manufactured in the expansion unit located in the backward areas of the State . This legislative intent, as held in the judgment of the Division Bench, was not effectuated by the framing of rules by the State Government. Finding that there were no rules prescribing the ratio which would determine the proportion of the total turnover of sales and purchases of the unit that would be allowable for incentives, the Division Bench in its judgment dated 13 October 2008 came to the conclusion that the Deputy Commissioner was not justified by means of an administrative circular in imposing a ceiling on the utilization of incentives under the 1993 Scheme in proportion to the production attributable to the newly acquired fixed assets. This anomaly also led to the quashing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pro rata could not be effectuated. The legislature has stepped in to cure the deficiency. The validating legislation and the amendment lay down the manner in which proportionate incentives would be computed. Such a course of action is legitimately open and cannot be regarded as being arbitrary or as violative of Articles 14 or 19(1)(g) of the Constitution. The principle of allowing pro rata incentives subserves the object of the legislation. If the legislature has, as in the present case, determined that the purpose of the Package Schemes of Incentives should or would be achieved by allowing incentives to be computed on a proportional basis, that legislative assessment cannot be regarded as unconstitutional. 33. Reliance was sought to be placed on behalf of the Petitioners on a concurring judgment of Chief Justice M.H. Beg in Madan Mohan Pathak vs. Union of India. (1978) 2 SCC 50 The extract from the concurring judgment on which reliance has been placed is as follows: It is true that, in the instant case, it is a provision of the Act of Parliament and not merely a governmental order whose validity is challenged before us. Nevertheless, we cannot forget that the Act is the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue directing the Life Insurance Corporation to make payment of such bonus. If such contention had been raised, there is little doubt, subject of course to any constitutional challenge to the validity of the impugned Act, that the judgment of the learned single Judge would have been upturned and the writ petition dismissed. But on account of some inexplicable reason, which is difficult to appreciate, the Life Insurance Corporation did not press the Letters Patent Appeal and the result was that the judgment of the learned single Judge granting writ of mandamus became final and binding on the parties. It is difficult to see how in these circumstances the Life Insurance Corporation could claim to be absolved from the obligation imposed by the judgment to carry out the writ of mandamus by relying on the impugned Act. At para 8 page 65 This is the basis and foundation which led to the decision and is of utmost significance. An isolated sentence in the concurring judgment cannot be torn out of context. 35. Reliance has been placed on a judgment of a Learned Single Judge of the Karnataka High Court in Shamanur Kallapa vs. State of Karnataka. (2004) 136 STC 132 In that case, a retros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the unit would be liable to pay tax, including penalty and interest, if any, in respect of the turnover of the sales and purchases in excess of the turnover arrived at under sub-section (1). The retrospective operation of the penalty with effect from 1 April 2005 would, in our view, be harsh. A penalty is in the nature of a penal or quasi penal exaction. A penalty cannot be imposed merely because it is lawful to do so. The imposition of a penalty for the period prior to the amendment of Section 93 with retrospective effect would be arbitrary. 37. We, however, do not find any merit in the challenge to the liability to pay interest. An assessee who has retained or availed of benefits to which he is not entitled in law, can legitimately be required to pay interest by the terms of a fiscal enactment. 38. For these reasons, we are of the view that the provisions of Section 93(2) to the extent to which they contemplate the imposition of a penalty with retrospective effect would to that extent be arbitrary. The provision in regard to the imposition of a penalty under Section 93(2) would consequently operate only prospectively. We accordingly dispose of the Petitions by upholding t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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