Madras HC Strikes Down TN Govt Notification Reducing VAT Exemption For Paper Board Companies [Read Order]

https://www.taxscan.in/tags/tax-demandMeta: Madras HC Strikes Down TN Govt Notification Reducing VAT Exemption For Paper Board Companies

In a recent ruling, the Madras High Court held that the Tamil Nadu Government could not retrospectively curtail or impose new conditions on a Value Added Tax(VAT) exemption already granted to paper board manufacturers, and struck down a government notification that sought to restrict such exemption.

Sennar Paper Boards Private Limited and another petitioner filed several writ petitions before the Madras High Court challenging Notification No. II(1)/CTR/75(b-2)/2007 dated 19 December 2007, issued through G.O.Ms.No.198 by the Commercial Taxes and Registration Department. The petitioners also challenged assessment orders passed for various assessment years, which relied on the impugned notification to deny VAT exemption.

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The petitioners were engaged in the manufacture of paper boards and had availed tax exemption benefits under an earlier notification issued in G.O.Ms.No.176 dated 28 December 2006. The 2007 notification sought to introduce additional conditions and restrictions that effectively reduced the scope of the exemption already granted. Based on this notification, the assessing authorities passed orders raising tax demands against the petitioners.

The petitioners’ counsel argued that once a valid exemption was granted, the State Government could not withdraw or restrict it by issuing a subsequent notification with retrospective effect. They argued that the power to issue exemption notifications did not include the power to impose new disqualifications or conditions after the exemption period had already commenced.

The State Government argued that exemption notifications must be strictly interpreted and that the impugned notification was issued to regulate the exemption. The government argued that the notification was within the powers of the State and that the assessments were valid.

The Division Bench of Justice Dr. Anita Sumanth and Justice Mummineni Sudheer Kumar observed that the issue raised in the present writ petitions was already covered by an earlier decision of the Madras High Court in VG Paper and Boards Ltd. v. State of Tamil Nadu, where the very same notification had been examined and declared invalid.

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The court explained that while exemption notifications are to be strictly construed, the government cannot add words or impose conditions by relying on assumed intent. The court further observed that the impugned notification travelled beyond the scope of the statutory powers under the TNGST Act and the TNVAT Act, particularly since it attempted to curtail exemption benefits retrospectively.

The court pointed out that such an exercise of power was not permitted under the law. In view of this, the Madras High Court quashed the impugned notification insofar as it applied to the petitioners and also set aside the assessment orders passed on its basis. The writ petitions were allowed, connected miscellaneous petitions were closed, and no order as to costs was made.

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