Supreme Court Held That Tax Exemption Benefits Accrued Under The Eligibility And Entitlement Certificates Could Not Be Taken Away Retrospectively Without Revoking The Certificates – The Requirement Of Submission Of Form ‘C’ And ‘D’ Applied Prospectively – Circulars And Notices Issued By Commissioner Quashed

The Amendment To Section 8(5) Of The CST Act By The Finance Act, 2002, Applied Prospectively And Did Not Affect The Exemptions Granted Before 11.05.2002. The Assessee Had A Vested Right In The Tax Exemption Granted Under The Package Scheme Of Incentives 1993. The Requirement Of Submitting Form ‘C’ And ‘D’ Applied Only To Transactions After The Amendment Came Into Force. The Circulars And Notices Issued By The Commissioner Of Sales Tax Were Invalid As They Sought To Impose A New Condition Retrospectively Without Revoking The Entitlement Certificate. The Supreme Court Dismissed The Appeals Filed By The State Of Maharashtra.

Acts & Sections Discussed:

• Constitution of India, 1950 – Article 226 – Writ Jurisdiction Of High Court
• Central Sales Tax Act, 1956 (CST Act) – Section 8(1), 8(2), 8(4), 8(5) – Exemption From Tax On Inter-State Sales
• Finance Act, 2002 – Amendment To Section 8(5) Of CST Act – Prospective Or Retrospective Effect
• Bombay Sales Tax Act, 1959 (BST Act) – Section 38 – Revision Of Assessment
• General Clauses Act, 1897 – Section 6 – Effect Of Repeal On Vested Rights

Subjects:

Tax Exemption – CST Act Section 8(5) – Retrospective Application – Finance Act 2002 – Package Scheme Of Incentives 1993 – Eligibility Certificate – Entitlement Certificate – Trade Circulars – Form ‘C’ And ‘D’ – Substantive Right – Vested Right – Revocation Of Exemption – Prospective Amendment

Nature Of The Litigation:

Appeal By The State Of Maharashtra Against The High Court’s Judgment That Quashed The Trade Circulars And Notices Issued By The Commissioner Of Sales Tax, Seeking To Withdraw Tax Exemption Benefits Availed By Prism Cement Limited

Who Approached The Court & Remedy Sought:

• Respondent: Prism Cement Limited, A Public Limited Company
• Relief Sought: Challenging The Legality Of Trade Circulars And Notices That Sought To Withdraw The Tax Exemption Granted Under The Package Scheme Of Incentives 1993

Reason For Filing The Case:

• The State Government Issued Trade Circulars And Notices Revising The Tax Exemption Benefits, Stating That The Assessee Had Failed To Comply With The Requirement Of Submitting Form ‘C’ And ‘D’ As Mandated By The Amended Section 8(5) Of The CST Act, Introduced By The Finance Act, 2002
• The High Court Quashed The Circulars And Notices, Holding That The Amendment Could Not Be Applied Retrospectively To Withdraw Exemptions That Were Already Granted

What Was Already Decided Until Now?

• The High Court Held That The Amendment Of Section 8(5) Of The CST Act By The Finance Act 2002 Applied Prospectively And Did Not Affect The Tax Exemptions Granted Prior To The Amendment
• The Circulars And Notices Issued By The Commissioner Of Sales Tax Were Quashed

Issues Before The Supreme Court:

a. Whether The State Government Could Withdraw The Tax Exemption Benefits Granted Under The Package Scheme Of Incentives 1993 By Applying The Finance Act 2002 Retrospectively?
b. Whether The Assessee Was Required To Submit Form ‘C’ And ‘D’ Even If The Eligibility And Entitlement Certificates Were Granted Prior To The Amendment?
c. Whether The Amendment To Section 8(5) Of The CST Act Restricted The State Government’s Power To Grant Exemptions Retrospectively?

Submissions / Arguments:

• Appellant (State Of Maharashtra):

  • The Amendment To Section 8(5) Made It Mandatory For The Assessee To Submit Form ‘C’ And ‘D’ To Avail The Tax Exemption
  • The Amendment Was Clarificatory In Nature And Should Apply Retrospectively
  • The Commissioner’s Circulars And Notices Were In Accordance With The Law

• Respondent (Prism Cement Limited):

  • The Eligibility And Entitlement Certificates Granted Prior To The Amendment Provided Absolute Exemption Without Any Condition Of Submitting Form ‘C’ And ‘D’
  • The Amendment Could Not Be Applied Retrospectively To Withdraw Benefits That Had Already Accrued
  • The Circulars And Notices Were Arbitrary And Violative Of Vested Rights

Ratio Decidendi:

a. A Substantive Right That Has Accrued To A Person Under A Tax Exemption Scheme Cannot Be Taken Away Retrospectively Without Revoking The Entitlement Certificate And Without Providing An Opportunity Of Hearing
b. A Legislative Amendment Is Presumed To Be Prospective Unless It Expressly Provides For Retrospective Application
c. The Requirement Of Submission Of Form ‘C’ And ‘D’ Under The Amended Section 8(5) Of The CST Act Was A New Condition That Could Not Be Imposed Retrospectively On Past Exemptions