State has No Power to Rescind Notification Providing for Rebate in Respect of Tax Payable: SC [Read Judgment]

The Supreme Court of India Civil Appellate Jurisdiction decided the seminal question involves in the appeals is about the power of the State to rescind notification providing for rebate in respect of tax payable under the Uttar Pradesh Trade Tax Act, 1948 and thus withdrawing the facility even in respect of industrial units, which had commenced production and had complied with the conditions for grant of such rebate in terms of Notification.

The fact of the case is that, the appropriate authority, to declare the goods having fly ash contents in a particular percentage or more would grant rebate on the tax levied under the Act. In due course, the feedback received by the Government was that neither any new industrial unit was established within the State nor the consumption of the fly ash had increased by the existing units. Resultantly, there was no extra disposal/consumption of fly ash which was being produced by the thermal power stations situated within the State of Uttar Pradesh. In other words, the avowed objective for issuing the notification to extend rebate did not fructify. In light of such feedback, the appropriate authority issued a fresh notification to rescind the earlier notification and instead to grant a revised rebate on the tax levied under the Act.

This notification was challenged before the High Court of Allahabad. The challenge was on the ground that the conditions specified in the notification resulted in causing discriminatory treatment to the producers and suppliers of the sale product imported from neighbouring States as opposed to the goods manufactured and produced in the State of Uttar Pradesh. Such dispensation contravened the constitutional provisions of Articles 301 and 304(a) of the Constitution of India. The High Court upheld the said challenge. The State of Uttar Pradesh carried the matter in an appeal against the said decision of the High Court, which eventually culminated with the judgment of Supreme Court, affirming the challenge, in State of Uttar Pradesh & Ors vs. Jaiprakash Associates Limited. This Court held that rebate of tax granted by the State Government only to the cement manufacturing units using fly ash as a raw material in the units established in the districts of the State of Uttar Pradesh is violative of the provisions contained in Articles 301 and 304(a) of the Constitution of India. The Court further declared that notification, therefore, would also apply to the cement manufacturing units of the neighbouring States who were using fly ash as raw material.

The appropriate authority of the State eventually took the decision on the said proposal, as a result of which notification came to be issued rescinding the earlier notification. This notification is the subject matter of challenge in the present proceedings. However, due to coming into effect of stated notification they have been denied of the rebate which they could have earned for ten years.

The respondent said that they had complied with all the conditions specified in the earlier notification availed the rebate facility and could have continued to avail of that facility for a period of ten years but that arrangement has been disrupted because of the issuance of the impugned notification. It was asserted that the State, in the exercise of its executive power, cannot resile from the promise it had made by inviting setting up of industry within the designated areas in the State of Uttar Pradesh and in the process, withdraw the rebate facility with retrospective effect.

While dismissing the Appeal, the division bench comprising of Justice A.M Khanwilkar and Justice Dinesh Maheshwari held that they reject the stand of the State Government about the supervening public interest and held that the notification cannot be construed as having retrospective or retroactive effect to whittle down the accrued rights in favour of such industrial units. The respondents and similarly placed persons would be entitled to a rebate for the relevant period prescribed in the notification and which would continue to remain until the expiry of the specified period, namely, ten years. The amount of rebate, however, would depend on the verification of their refund claim pending before the concerned authorities and would be subject to just exceptions including the principle of unjust enrichment. In view of the above, these appeals must fail.