Bombay HC refuses to comment on Constitutional Validity of Amendment to Sec 41 of the Bombay Sales Tax Act [Read Judgment]

Business Income - Bombay High Court 2 - Tax Scan

In a recent decision, the division bench of the Bombay High Court, in a petition challenging the constitutional validity of amendment to section 41 of the Bombay Sales Tax Act, made by the Maharashtra government through a notification. While disposing the case in favour of the petitioners on the basis of facts, the Court refused to comment on the constitutional validity of the said amendment.

The petitioners filed a writ petition before the High Court seeking a declaration that section 41D of the Bombay Sales Tax Act, 1959 amended by way of insertion by the Maharashtra Act No. XVI of 1995 called the Maharashtra Tax Laws (Levy and Amendment) Act, 1995 as also Rule 31AAA of the Bombay Sales Tax Rules, 1959 as ultra vires the constitution of India being beyond legislative competence of the Maharashtra State legislature, void and has no legal effect. The petitioners submitted that the Notification No. STR-1195/CR- 80/Taxation-I dated 31st May, 1996 are ultra vires the Constitution of India, beyond the legislative competence of respondent no. 1, violative of Articles 14, 19(1)(g), 265 and 300A of the Indian Constitution.

The assessee-company is registered under the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act. The assesssee is engaged in the business of manufacture and sale of jelly filled telephone cables, submersible insulated winding wires etc.in the year 1986, the assessee-company made an application to the Government of India, Ministry of Industry, Department of Industrial Development, for grant of Industrial Licence under the Industries (Development and Regulation) Act, 1951 for the expansion in manufacture of jelly filled telephone cables which was approved by the Government. In the year 1991, the Government re-endorsed the capacity of the petitioners’ industrial undertaking at village Urse, TalukaMaval, District Pune, for the manufacture of jelly filled telephone cables from 19(Tan) lakh CKM to 12(Twelve) lakh CKM.

Subsequently, the State of Maharashtra,in continuation of past policies, formulated a scheme popularly known as the Package Scheme of Incentives, 1983 with an object to achieve dispersal of industries outside the Bombay–Thane–Pune belt. Applications were invited from eligible units, as per which, the assessee-company also made an application after complying with the requirement of completing all initial effective steps.Thereafter, the assessee-company entered into two agreementswith the Government of Maharashtra in order to enable the petitioners to avail sales tax incentives by way of deferral under the Package Scheme of, 1983 in respect of their new unit at Pune and towards special capital incentives available to the petitioners under the Packaged Scheme of Incentives, 1983. Consequently, the assessee was given with eligibility certificates according to which the maximum entitlement of sales tax incentives by way of deferral was fixed at Rs. 1338.32 lakhs which are valid upto1st April, 1990 to 30thApril, 1995. Subsequently, the Deputy Commissioner of Sales Tax also issued a certificate of entitlement to the assessee. The terms and conditions set out in the certificate of entitlement with regard to the incentives are identical to those set out in the eligibility certificate.

The assessee challenged the assessment order passed against them before the Deputy Commissioner of Sales Tax (Appeals) in which the authority partly allowed the plea of the assessee.In the meanwhile, the Maharashtra Government retrospectively amended section 41D by way of insertion to the BST Act by Maharashtra Act XVI of 1995 called the Maharashtra Tax Laws (Levy and Amendment) Act, 1995. It is in this circumstance, the assessee preferred a writ petition before the High Court.

The court observed that the said notification cannot be applied in the case of the assessee. It was expressed by the Court that “We find much substance in the contentions of the petitioners. Once there was no embargo or prohibition on augmentation or increase in the production capacity and the expansion has been sanctioned, then, the impugned notice, which totally disregards all this, cannot be sustained. The petitioners have pointed out that there is a promise and contained in this package scheme of incentives, which promise can be culled out from the various terms and conditions. The petitioners have submitted and rightly so that they had availed sales tax incentives during the relevant period, namely, 1st April, 1991 to 31st March, 1992. The period of eligibility had not expired nor had the quantum fixed been achieved. It is in these circumstances that the assessing officer allowed the incentives claimed after duly examining the record. Even the appellate order confirms this position. Now, the third respondent desires to restrict the incentives availed of by the petitioners and levy interest under section 36(3)(b) and penalty under section 36(2)(c) read with Explanation II. Respondent no. 3 has observed that the incentives have to be restricted in view of the annual licence/registration/production capacity, which was never envisaged in the package scheme of incentives, the agreement entered in pursuance thereof, the eligibility certificate and the certificate of entitlement. That is why the petitioners have rightly submitted that the revisional powers cannot be exercised so as to defeat the scheme and such a scheme which contains clear assurances and promises on behalf of the State provided the petitioners fulfill the conditions thereof cannot be set at naught by the process undertaken.”

While concluding, the Court added that, “Therefore, after following the above principles and applying them to the present case, we do not think that any larger question much less about the legality and validity of the provisions needs to be considered. We are of the view that the petition must succeed without examining the issue as to whether section 41D and Rule 31AAA can be held to be unconstitutional and ultra vires Articles 14 and 265 of the Constitution of India. We are of the opinion that the amended provisions cannot be invoked and applied in the present factual controversy.”

Read the full text of the Judgment below.

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