Case Note & Summary
The case involves a challenge by the State of Maharashtra against a High Court judgment that quashed trade circulars and notices seeking to withdraw tax exemption benefits granted to Prism Cement Limited under the Package Scheme of Incentives 1993 (PSI 1993). The assessee, a public limited company, had been issued eligibility and entitlement certificates in 1998 entitling it to exemption from sales tax under both the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956 up to Rs. 273.54 crores or until 2012. The assessee availed these benefits for the assessment years 2002-2003 to 2004-2005. However, after the Finance Act, 2002 amended Section 8(5) of the CST Act with effect from 11.05.2002, the State issued trade circulars and notices under Section 38 of the BST Act seeking to revise the tax demand on the ground that the assessee had failed to comply with Section 8(4) of the CST Act requiring submission of declarations in Form 'C' or 'D'. The High Court allowed the writ petition, holding that the State Government retained the power to grant exemption under Section 8(5) even after the amendment, and that the amendment could not be applied retrospectively to affect accrued benefits. The Supreme Court, in this appeal, considered two main issues: whether the exemption granted under PSI 1993 could be withdrawn by the amendment to Section 8(5) of the CST Act, and whether the amendment could be applied retrospectively. The Court analyzed the provisions of Section 8 of the CST Act, noting that Section 8(5) contains a non-obstante clause overriding Section 8(1) and 8(4), and that the State Government has the power to grant exemption including dispensing with Form 'C' and 'D' requirements, as held in Shree Digvijay Cement Co. Ltd. v. State of Rajasthan. The Court further held that the amendment to Section 8(5) by the Finance Act, 2002 was prospective and could not take away the vested rights that had accrued to the assessee under the PSI 1993 prior to the amendment. The Court dismissed the appeals, affirming the High Court's judgment.
Headnote
A) Constitutional Law - Taxation - Retrospective Operation of Amendment - Finance Act, 2002, Section 8(5) of Central Sales Tax Act, 1956 - The amendment to Section 8(5) of the CST Act by the Finance Act, 2002 with effect from 11.05.2002 cannot be applied retrospectively to take away the exemption benefits that had already accrued to the assessee under the Package Scheme of Incentives 1993 prior to the amendment. The court held that vested rights cannot be defeated by a subsequent amendment unless the amendment expressly or by necessary implication has retrospective effect. (Paras 8, 15-16) B) Sales Tax - Exemption - Power of State Government - Section 8(5) of Central Sales Tax Act, 1956 - The State Government, in exercise of its power under Section 8(5) of the CST Act, has the authority to grant total or partial exemption from tax on inter-State sales, including the power to dispense with the requirement of furnishing declarations in Form 'C' or 'D' as mandated under Section 8(4) of the CST Act. The non-obstante clause in Section 8(5) overrides Section 8(1) and 8(4). (Paras 13-14) C) Sales Tax - Incentive Scheme - Package Scheme of Incentives 1993 - The PSI 1993, issued under Section 8(5) of the CST Act, granted tax exemption to industrial units in backward areas. The eligibility and entitlement certificates issued to the assessee created vested rights that could not be withdrawn by subsequent amendment to Section 8(5) of the CST Act. The court held that the State cannot unilaterally alter the terms of the scheme to the detriment of the beneficiary. (Paras 5-7, 16)
Issue of Consideration
Whether the exemption from tax granted under PSI 1993 issued under Section 8(5) of the CST Act as it existed at the relevant time read with eligibility and entitlement certificate could be withdrawn by the subsequent amendment to Section 8(5) of the CST Act by the Finance Act of 2002 with effect from 11.05.2002 as the assessee-respondent failed to fulfil the requirements of Section 8(4) of the CST Act which mandated for submission of declaration in Form 'C' or 'D'. Ancillarily, whether the aforesaid amendment could be applied retrospectively taking away the benefit which have accrued to the assessee-respondent prior to coming into force by the Finance Act 2002.
Final Decision
The Supreme Court dismissed the appeals, affirming the High Court's judgment that quashed the trade circulars and notices. The Court held that the amendment to Section 8(5) of the CST Act by the Finance Act, 2002 is prospective and cannot be applied retrospectively to take away the exemption benefits that had accrued to the assessee under the PSI 1993 prior to the amendment. The State Government's power under Section 8(5) to grant exemption includes dispensing with the requirement of Form C/D declarations.
Law Points
- Section 8(5) of CST Act overrides Section 8(1) and 8(4)
- State Government can grant exemption without requiring Form C/D
- amendment to Section 8(5) by Finance Act 2002 is prospective
- vested rights under PSI 1993 cannot be taken away retrospectively
