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TMI Blog2010 (9) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule-making authority to decide the manner in which this degree of parity should be brought about and, since the amended rule does bring about a high degree of parity between the converted and the original tax deferment units, it cannot be said to fall foul of section 69(1) of the Act. Rule 67(5) makes it clear that the amount of tax deferment availed of in the first year of conversion shall be repaid in the succeeding month in which the period for which the unit is eligible for availment of incentives is completed. Since rule 67(5) stipulates that repayment of the deferred tax would commence on completion of the balance period of availment, the mode of repayment is prescribed by the Rules and not merely by the amended illustration. This contention also necessitates rejection Since the VAT Act has itself delegated the power to the rulemaking authority, the contention that the right of deferment can only be taken away by plenary legislation does not merit acceptance. Since the converted and the original tax deferment units constitute two different and distinct classes, the question of similarly situated persons being treated differently, or equals being treated unequal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of purchasing bengal gram and manufacturing fried gram known as putnalu . It is a dealer registered under the Andhra Pradesh General Sales Tax Act, 1957 and the Andhra Pradesh Value Added Tax Act, 2005 (hereinafter referred to as, the Act ). In order to accelerate industrial development in the State, the State Government introduced a new industrial policy called Target 2000 which was notified in G.O. Ms. No. 108, Industries and Commerce (I.P.) Department, dated May 20, 1996. Under Target 2000 all new industrial units, whether large, medium or small, which had commenced production on or after November 15, 1995 were eligible for certain incentives including sales tax concessions. Under para 6.03 of Target 2000 each industry was given two options. The first option was that they were entitled for sales tax deferment, limited to 135 per cent of the fixed capital investment, for a period of 14 years. The deferred amount was to be treated as a deemed loan on the security of the fixed assets of the industry pari passu with the financial institutions, and on finalization of assessment by the commercial tax authorities each year. The second option was sales tax exemption for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fifth respondent, by proceedings dated June 16, 2009, called upon the petitioner to pay Rs. 2,05,271 immediately as the said amount had become due in terms of the amended Rules. A demand notice was issued on January 19, 2010. Oral submissions were made, and written arguments filed, by Sri P.S. Rajasekhar, Sri S. Dwarakanath and Sri V. Bhaskar Reddy, learned counsel for the petitioners and Sri A.V. Krishna Koundinya, learned Special Standing Counsel for Commercial Taxes. The rival contentions can conveniently be classified under the following heads: I. Classification is arbitrary and in violation of article 14 of the Constitution of India: It is contended on behalf of the petitioners that, under G.O. Ms. No. 108 dated May 20, 1996, the sales tax deferred during the first year had to be repaid in a lump sum at the end of 14 years without interest; as the petitioners had opted for sales tax holiday they were not required to pay sales tax till they had exhausted the sales tax incentives fixed in their eligibility certificate; the sales tax incentives offered to tax holiday units was dual in nature; one was with a view to pass on the benefit to the ultimate consumers, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hdrawing an exemption notification; it is open to the Legislature to classify dealers for raising revenues and granting exemptions; it is open to the Legislature to leave it to the executive to determine details relating to the working of tax laws; the scheme of repayment has been amended, taking away the undue advantage which the petitioners had in comparison with the original tax deferment units; and the amendment only regulates repayment and would apply till the entire amount is repaid. The tax holiday units, which before March 31, 2005 were exempted from payment of sales tax, were statutorily required by section 69(1) of the Act to be converted as tax deferment units. Prior to April 1, 2005 (when the Act came into force) the tax holiday units and the tax deferment units formed two distinct and different classes whose period of entitlement, repayment period, etc., were at variance from one another. Treating the erstwhile tax holiday units and the original tax deferment units as one class after April 1, 2005 would require the benefits which the tax holiday units were extended prior to April 1, 2005, and which the tax deferment units were disentitled, to be ignored. These two c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 SCC 447). In the field of taxation, if the test of article 14 is satisfied by generality of the provisions, courts would not substitute judicial wisdom for that of the Legislature. (State of U.P. v. Kamla Palace [2000] 1 SCC 557). Classification for taxation, and the application of article 14 in that context, must be viewed liberally, not meticulously. (Ganga Sugar Corporation Ltd. v. State of U.P. [1980] 45 STC 36 (SC); [1980] 1 SCC 223). In tax cases, there are good reasons for judicial self-restraint if not official deference to legislative judgment. The complexity of economic regulation, the uncertainty, and the bewildering conflict of expert opinion, would show that self-limitation is the path to judicial wisdom. (State of Gujarat v. Ambica Mills Ltd. [1974] 4 SCC 656, P.M. Ashwathanarayana Setty v. State of Karnataka [1989] Supp 1 SCC 696). In view of the inherent complexity of fiscal adjustments, courts give a larger discretion to the Legislature in these matters and effectuate the chosen system in all possible and reasonable ways. If two or more methods of adjustment are available, the legislative preference in favour of one of them cannot be questioned on the ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CT-II), Department, dated March 31, 2005. Rule 67 of the Rules relates to tax deferment and sub-rules (1) to (3) and sub-rule (4) thereof read as under: (1) Where any unit is availing a tax holiday on the date of commencement of the Act, it shall be treated as converted as the unit availing tax deferment. The balance period available as on the 31st day of March 2005 to such units shall be doubled. The eligibility amount shall be the balance available to such unit as on that date. Balance period means the difference of period between date of completion of eligibility shown in the certificate of eligibility and the 1st day of April 2005. (2) The units already availing tax deferment prior to commencement of the Act, shall continue to be eligible to avail the balance amount available as on the 31st day of March, 2005 and for the period as mentioned in the eligibility certificate. (3) The tax payable and the tax to be claimed as deferment for each period shall be the net tax, (i.e., output tax less input tax) which shall be debited to the eligibility amount. Wherever the input tax exceeds output tax for a tax period and the deferment unit made any export sales or sales in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total period of 14 (fourteen) years, as availed to the units under Deferment Scheme originally. The balance period to be availed after April 1, 2005 is 36 months and 18 days. As per the above sub-rule (1) of this rule, the dealer now is eligible to avail tax deferment for the balance amount of Rs. 20,12,000 for a period of 36 months and 18 days, i.e., April 1, 2005 to April 18, 2008. The amount of deferment availed for each month shall be paid at the end of fourteenth year, i.e., the amount of tax deferred for the month of April 2005 shall be paid on or before 30th April 2019. The amount of deferment, availed for each year, shall be paid after the end of the period of availment, to the dealer after the conversion from tax holiday scheme to deferment scheme. The calculation is as follows: 1.Actual period of availment under tax holiday scheme: October 10, 1999 to October 9, 2006. 2.Period left as on April 1, 2005: April 1, 2005 to October 9, 2006. 3.Period left one year six months nine days. 4.Period doubled as per rule: Three years and 18 days. 5.Period up to which the unit is eligible for incentive: April 18, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed in the year 2005-06 is payable: May 2008. The month and year in which the tax deferment availed in subsequent year is payable: May 2009 and so on. Rule 67(2) stipulates that units which were already availing tax deferment, prior to commencement of the Act, (i.e., prior to April 1, 2005), would continue to be eligible to avail the balance amount, available as on March 31, 2005, for the period mentioned in the eligibility certificate. It is only those tax holiday/tax exempted units, under G.O. Ms. No. 108 dated May 20, 1996, which are treated as units availing tax deferment, and a degree of parity is sought to be brought between tax holiday/tax exempted units (now converted as tax deferment units) on the one hand and the original tax deferment units on the other. Under G.O. Ms. No. 108 dated May 20, 1996, while the tax holiday/tax exempted units were given the benefit of tax exemption for a period of seven years, and were required not to collect tax for the said period, the tax deferment units were extended the benefit of tax deferment for 14 years, (i.e., double the period for which exemption was granted to the tax holiday units), and were permitted to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of deferment, availed each year, to be repaid at the end of the period of availment available to these units after conversion from the tax holiday scheme to the tax deferment scheme. As noted hereinabove, the tax deferment units, under G.O. Ms. No. 108 dated May 20, 1996, were required to repay the tax collected by them on completion of the availment period of 14 years. The amended illustration to rule 67, therefore, requires the converted tax deferment units, whose remaining period of eligibility has been doubled, also to commence repayment soon after completion of their availment period. The rule-making authority has, thereby, brought about a high degree of parity between the converted units and the original tax deferment units under G.O. Ms. No. 108 dated May 20, 1996. Section 69(1) of the VAT Act has no application to those tax holiday units whose period of availment expired by March 31, 2005. In such cases, as the entire period of exemption expired before the Act came into force, the question of such units being treated as tax deferment units under the Act does not arise. As the converted units and the original tax deferment units constitute two distinct and separate c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would submit that rule 67 does not contemplate repayment of the deferred tax immediately after expiry of the availment period; it is the illustration appended to the rule, inserted by the impugned G.O., that prescribes repayment at the end of the availment period; and the illustration cannot provide something not provided for under the Rules. Illustrations to a section/rule form part of the section/rule and help to elucidate the principle of the section/rule. (Dr. Mahesh Chand Sharma v. Smt. Raj Kumari Sharma AIR 1996 SC 869). The illustration to rule 67 forms part of, and helps to better understand, the said rule. It is necessary to note that, by G.O. Ms. No. 503 dated May 8, 2009, not only was the illustration to rule 67 substituted, but sub-rule (5) was also inserted thereto. Rule 67(5) makes it clear that the amount of tax deferment availed of in the first year of conversion shall be repaid in the succeeding month in which the period for which the unit is eligible for availment of incentives is completed. Since rule 67(5) stipulates that repayment of the deferred tax would commence on completion of the balance period of availment, the mode of repayment is prescribed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Commercial Taxes would submit that there is no hostile discrimination between dealers converted into the tax deferment scheme and dealers who were enjoying tax deferment from the beginning. Every differentiation is not discrimination. If the classification rests on a difference which bears a fair and just relation to the object for which it is proposed, it is constitutional. To put it differently, the means must have nexus with the ends. Even so, a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details, and a variety of factors, which the court will be reluctant and perhaps ill-equipped to investigate. In this imperfect world, perfection even in grouping is an ambition hardly ever accomplished. A power to classify being extremely broad, and based on diverse considerations of executive pragmatism, the judicature cannot rush in where even the Legislature warily treads. All these operational restraints on judicial power must weigh more emphatically where the subject is taxation. (Murthy Match Works [1974] 4 SCC 428) The tests of the vice of discrimination in a taxing law are, accordingly, less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, is governed by the law prevailing on the date on which the taxable event occurs; the taxable event, under the Act, is sale and not payment of tax and, as such, the law obtaining on the date of sale would govern the rights and obligations of the petitioner-assessees; deferment of tax alters the levy by postponing the liability to pay, and is a substantive right which gets vested on the sale being effected; even if the Government is held to have the power to treat the converted units differently, from the originally deferred units, the amendment cannot be given retrospective effect and must he held only to have prospective application. Sri A.V. Krishna Koundinya, learned Standing Counsel for Commercial Taxes, would submit that the power of the State to grant exemption would include the power to withdraw the same in public interest; the tax now sought to be recovered from the petitioners is the tax collected by them from their customers; on the specious plea that the deferred tax has been utilized in the development of their industry, the petitioners cannot postpone payment in view of the changed law; and the amended rule has not been given retrospective effect. While it is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime antecedent to its passing. (Maxwell on Interpretation of Statutes, 11th Edition, page 211; Rao Shiv Bahadur Singh v. State of Vindhya Pradesh AIR 1953 SC 394, Union of India v. Madan Gopal Kabra [1954] 25 ITR 58 (SC); AIR 1954 SC 158, State of Bombay v. Vishnu Ramchandra AIR 1961 SC 307, Sajjan Singh v. State of Punjab AIR 1964 SC 464 and Kapur Chand v. B.S. Grewal, Financial Commissioner, Punjab, Chandigarh AIR 1965 SC 1491). The distinction between retroactive legislation and retrospective legislation must be borne in mind. A retroactive legislation is one which deals with matters which occurred long prior to the passing of the legislation, and retrospective legislation is one which operates and is enforced in relation to such situations anterior to the passing of the legislation or the making of rules, but not with reference to actions and conduct long prior thereto. (B. Meenakshi v. Government of Andhra Pradesh [2002] 2 ALD 96). It is wrong to characterise the operation of a rule as retrospective only for the reason that it applies to assessees who have already received the benefit of tax deferment. G.O. Ms. No. 503 dated May 8, 2009 has been brought into force with effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .N. v. P. Krishnamurthy [2006] 4 SCC 517. The rules of natural justice are not applicable to legislative action, plenary or subordinate. (Sundarjas Kanyalal Bhatija v. Collector, Thane [1990] 77 STC 347 (SC); [1989] 3 SCC 396). Subordinate legislation cannot be questioned on the ground of violation of principles of natural justice on which administrative action may be questioned. (J.K. Industries Limited v. Union of India [2008] 143 Comp Cas 325 (SC); [2007] 13 SCC 673). A statutory rule cannot, therefore, be struck down for failure to record reasons or on the ground of non-application of mind. VIII. Promissory estoppel: It is contended on behalf of the petitioners that the State has gone back on its promise on two occasions; the first was when the State had promised, in G.O. Ms. No. 108 dated May 20, 1996, that the petitioners would be entitled to a tax holiday if they set up an industry; acting on this promise the petitioners had set up industries investing huge amounts; the second occasion was when the State, under section 69(1) read with rule 67, had assured that the tax holiday units, which were converted into tax deferment units, would be treated on par with the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he doctrine of promissory estoppel it is not necessary that the promisee, acting in reliance on the promise, should suffer any detriment. What is necessary is only that the promisee should have altered his position in reliance on the promise. The alteration of position need not involve any detriment to the promisee. (Motilal Padampat Sugar Mills Co. Ltd. [1979] 44 STC 42 (SC); [1979] 2 SCC 409). In order to invoke the doctrine of promissory estoppel it must be established that (a) a party has made an unequivocal promise or representation by word or conduct to the other party; (b) the representation was intended to create legal relations, or affect legal relationships to arise in future; (c) a clear foundation has been laid, in the petition, with supporting documents; and (d) the party invoking the doctrine has altered its position relying on the promise. The court will not apply the doctrine in the abstract. (State of Bihar v. Kalyanpur Cements Ltd. [2010] 28 VST 1 (SC)). While taxation is indeed a sovereign function, no distinction can be made between exercise of a sovereign function and a trading or business activity of the Government in so far as the doctrine of promiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the Supreme Court. It is, therefore, necessary to refer to them. In Union of India v. Indo-Afgan Agencies Ltd. AIR 1968 SC 718, the Textile Commissioner published a scheme called the Export Promotion Scheme providing incentives to exporters of woollen goods. M/s. IndoAfghan Agencies, a firm dealing in woollen goods at Amritsar, exported woollen goods to Afghanistan. The Deputy Director, in the office of the Textile Commissioner, issued an import entitlement certificate for a part of the exports only. M/s. Indo-Afgan Agencies submitted representations to the Deputy Director, and to the Union of India, requesting that they be granted an import entitlement certificate for the full value of the goods exported by them. Their representations failed to elicit any response, resulting in their invoking the doctrine of estoppel. In Motilal Padampat Sugar Mills Co. Ltd. [1979] 44 STC 42 (SC); [1979] 2 SCC 409, a news item, based on the statement of the Secretary, Industries Department, was published to the effect that the State of Uttar Pradesh had decided to exempt all new industrial units in the State from sales tax, for a period of three years, under section 4A of the U.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the said Government orders. In Vadilal Chemicals Ltd. v. State of Andhra Pradesh [2005] 142 STC 76 (SC); [2005] 6 SCC 292, an order was issued by the State Government granting tax deferment/tax holiday for new industries. The appellant set up a small-scale industry for production of liquor ammonia and commenced commercial production. The State Government granted a final eligibility certificate exempting them from sales tax. The Deputy Commissioner of Commercial Taxes issued notices informing the appellant that the assessing officer had irregularly allowed them sales tax exemption. He later passed an order confirming the demand. It is in this context that the Supreme Court held that the State, which is represented by Departments, should speak only in one voice and, having regard to the language of the Government order, it was the view expressed by the Department of Industries which must be taken to be that voice. The order of the Deputy Commissioner of Commercial Taxes was quashed. In Mahabir Vegetable Oils (Pvt.) Ltd. v. State of Haryana [2006] 145 STC 350 (SC); [2006] 3 SCC 620, the appellants were owners of solvent extraction plants. The State of Haryana announced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion against the appellant contrary to or inconsistent with the eligibility certificate, and the exemption order. In U.P. Power Corporation Ltd. v. Sant Steels Alloys (P) Ltd. [2008] 2 SCC 777, pursuant to the industrial policy of the State of U.P, the appellant-power corporation framed its tariff by way of two notifications whereby 33.33 per cent hill development rebate was allowed to new industrial units for a period of five years from the date of commencement of supply of electricity. The respondents established industries in the hill areas incurring huge investment, and entered into agreements with the appellant corporation. Subsequently, by two notifications, the concession which was given earlier was reduced from 33.33 per cent to 17 per cent. The Supreme Court held that a notification issued by the State Government, in exercise of its powers under section 49 of the Electricity Supply Act, 1948, for giving the benefit of exemption for hill areas was in the nature of delegated legislation; the State Government had invited entrepreneurs extending various benefits and thereby encouraging them to invest; the entrepreneurs, on the representations so made, had bona fide invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Pvt. Ltd. [1994] 94 STC 464 (AP); [1994] 18 APSTJ 139, a Division Bench of this court held (page 467 in 94 STC): . . . in Bombay Conductors and Electricals Ltd. v. Shri K. Chandramouli, Under Secretary to the Government of India [1984] 55 STC 162. There, it is held by the Full Bench of the Delhi High Court that where a law is made by legislation, the same is of legislative character and a subordinate legislation made by virtue of the power conferred under the taxing statute is also legislative in nature, once they are required to be published in the gazette. In the present case, the impugned G.O. was published in the gazette as per the provisions of the A.P. General Sales Tax Act. Therefore, it is to be held that passing of the impugned G.O. is a legislative act. When once it is of legislative nature, the doctrine of promissory estoppel is not applicable. . . (emphasis(1) supplied) The distinction between exercise by the Government of its statutory power of granting exemption from tax, and a statutory rule made in exercise of the powers conferred by plenary legislation, must be borne in mind. The nature of delegated legislation can be broadly classified as: (i) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te but must be satisfactorily established. The alteration of the petitioner's position acting upon such representation must also be pleaded with particularity and sufficiently supported with material. The court found that it had not been established that any prejudice had been suffered by the petitioner. As we have noted earlier, each of the respondents in these appeals has given a detailed account of how the monies which were otherwise payable on account of purchase tax have been expended on the milk shed areas and producers of milk. No dispute has been raised by the appellants to this. (emphasis(1) supplied). Unlike in Nestle India Ltd. [2004] 136 STC 35 (SC); [2004] 6 SCC 465 the affidavits, filed in this batch of writ petitions, lack details as to how the petitioners had altered their position and had rearranged their affairs on the assurance of the pre-amended illustration. No supporting material in this regard has been placed before this court. The contention, that the Government is not entitled to resile from its promise, by substituting the illustration to rule 67, is not tenable and necessitates rejection. IX. Notice of demand is arbitrary: The learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof of payment. The petitioners were also requested to note the date of payment for the year 2007-08 and arrange for payment within time. It is evident that, though the tax deferred for the year 2005-06 was payable in May, 2008 and the tax deferred for 2006-07 was payable in May, 2009, the petitioner had not paid the said deferred tax even till June 16, 2009 when the notice was issued. Consequent upon the amendment of rule 67, by G.O. Ms. No. 503 dated May 8, 2009, the tax deferred for the aforesaid two assessment years was already overdue. It is in such circumstances that the petitioners were called upon to repay the said amount immediately. It is not as if the deferred tax was collected at any time anterior to the date on which G.O. Ms. No. 503 dated May 8, 2009 came into force. It is only after G.O. Ms. No. 503 dated May 8, 2009 came into force was the notice issued on June 16, 2009 calling upon the petitioners to pay the tax deferred for the assessment years 2005-06 and 2006-07 which was payable by the petitioner in May, 2008 and May, 2009, respectively. The demand notice dated June 16, 2009 accords with the substituted illustration and rule 67(5) as notified in G.O. Ms. N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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