Jindal Poly Films Ltd. vs State of Maharashtra

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2013 Supreme(Bom) 1011

High Court of Judicature at Bombay
D.Y. CHANDRACHUD & A.A. SAYED, JJ.
M/s. Jindal Poly Films Ltd. & Others
Versus
The State of Maharashtra & Others
Writ Petition No. 313 of 2010 With Civil Application No.2227 of 2012 With Writ Petition Nos.7925 of 2012, 8431 of 2009, 10637 of 2009 With C.A.2472 of 2010, W.P.Nos.3909 of 2010, 5821 of 2010, 2889 of 2011 & 2890 of 2011 With Original Side Writ Petition Nos.1618 of 2011 & 1445 of 2010
Decided on : 10-06-2013

Advocates Appeared:
For the Petitioners:V. Sridharan, Senior Advocate with C.B. Thakkar, M.M. Vaidya, Haresh Jagtiani, Senior Advocate with Anil D'Souza, Suprash Jain, Ms. Meenu Daryanani i/b. Haresh Jagtiani & Associates, M.S. Bhandari i/b Smt. Pranjali Bhandari, Aspi Chinoy, Senior Advocate with Ms. Chandana Salgaonkar, Ms. Aarti Sathe, Kalpesh Turalkar, Advocates.
For the Respondents:D.J. Khambata, Advocate General with V.A. Sonpal, B.B. Sharma, AGP.

Headnote:Maharashtra Value Added Tax Act, 2002 - Sections 93(1), 93(2-A) and 93(1-B) [as amendment in 2009] - Validity of. - Sections 93(1), (2-A) and (1-B) as introduced by 2009 Amendment, laying down manner for computation of proportionate incentives, cannot be regarded as arbitrary. - The fact that a draft rule which had been formulated at an anterior point in time had not been converted into an operative piece of subordinate legislation cannot possibly override the power of the State Legislature to enact legislation which falls within its legislative competence. There can be no estoppel against the Legislature. It is legitimately open to the Legislature to enact validating legislation with retrospective effect to cure a deficiency which was noted in the judgment of the Court as a result of which the legislative intent of granting incentives pro rata could not be effectuated.
       The Legislature has stepped in to cure the deficiency. The validating legislation and the amendment lay down the manner in which proportionate incentives would be computed. Such a course of action is legitimately open and cannot be regarded as being arbitrary or as violative of Article 14 or 19(1)(g) of the Constitution. The principle of allowing pro rata incentives sub-serves the object of the legislation. If the Legislature has, as in the present case, determined that the purpose of the Package Schemes of Incentives of 1988 and 1993 should or would be achieved by allowing incentives to be computed on a proportional basis, that legislative assessment cannot be regarded as unconstitutional.
       For these reasons, it is to be concluded that there is no merit in the challenge to the constitutional validity of Maharashtra Act 22 of 2009 by Which inter alia the provisions of sub-sections (1), (1-A) and (1-B) came to be substituted by way of an amendment to Section 93. The Legislature has not transgressed the limitations on its constitutional power while enacting the validating legislation. (2004) 136 STC 132; (1991) 83 STC 59 - Disting.
       Maharashtra Value Added Tax Act, 2002 - Section 93(2) [as amendment in 2009] - Validity of. - Provision of Section 93(2) regarding liability to pay penalty with interest will operate only prospectively and not retrospectively. - Sub-section (2) of Section 93 has enacted that the benefit, if any, availed of by an eligible unit in contravention of sub-section (1) shall be and shall be deemed to have been withdrawn and the unit would be liable to pay tax, including penalty and interest, if any, in respect of the turnover of the sales and purchases in excess of the turnover arrived at under sub-section (1). The retrospective operation of the penalty with effect from 1st April, 2005 would, be harsh. A penalty is in the nature of a penal or quasi-penal exaction. A penalty cannot be imposed merely because it is lawful to do so. The imposition of a penalty for the period prior to the amendment of Section 93 with retrospective effect would be arbitrary.
       However, there is no merit in the challenge to the liability to pay interest. An assessee who has retained or availed of benefits to which he is not entitled in law, can legitimately be required to pay interest by the terms of a fiscal enactment.
       For these reasons the provisions of Section 93 (2) to the extent to which they contemplate the imposition of a penalty with retrospective effect would to that extent be arbitrary. The provision in regard to the imposition of a penally under Section 93 (2) would consequently operate only prospectively.

Judgment :

Dr. D.Y. Chandrachud, J.

The constitutional validity of the Maharashtra Value Added Tax (Levy, Amendment and Validation) Act, 2009 is challenged. The challenge, during the course of the hearing is to the retrospective operation of the amendment and validation which relates back to 1 April 2005 when the principal legislation came into force.

Package schemes of incentive

2. Since 1964, the Government of Maharashtra had introduced Package Schemes of Incentives to achieve a dispersal of industries outside the Bombay-Thane-Pune belt and to attract industries to underdeveloped and developing areas of the State. The Package Scheme of Incentives of 1964 was followed by amended schemes in 1969, 1973, 1976, 1979 and 1983. On 30 September 1988, the State Government notified a new package scheme of incentives for the period between 1 October 1988 and 30 September 1993 with a view to rationalize the scope, scale and mode of release of incentives and accelerate the dispersal of industries from the developed areas of the State to underdeveloped regions. The Package Scheme of Incentives of 1988 was succeeded by a scheme which was notified on 7 May 1993.

Scheme of 1988

3. Under the Package Scheme of Incentives of 1988, areas of the State were classified into groups. Group-A comprised of developed areas where no incentives were available; Group-B comprised of areas where some development had already taken place; Group-C of areas which were less developed than those in Group-B; Group-D of the least developed areas not covered by Groups-A, B and C; and 'No Industry Districts' notified by the Government of India. Paragraph 2.5 of the Scheme provided that existing/new units in areas covered by Groups-B, C, D or No Industry Districts which created on or after 1 October 1988 additional fixed capital investment for additional production or manufacturing facilities either for the manufacture of the same product or for diversification were eligible for incentives subject to a minimum stipulated threshold of additional fixed capital investment. The additional fixed capital investment had to exceed twenty five percent of the gross fixed capital investment and in the case of an expansion, the additional fixed capital investment had to result in an increase of the existing installed capacity by at least twenty five percent. Under paragraph 2.15, the expression “sales tax liability” was defined to include sales tax/additional tax/turnover tax payable by the eligible unit on the sale of finished products. Paragraph 5 provided that the sales tax incentive under Part-I of the Scheme could be by way of exemption or by way of deferral which was admissible to a new unit/pioneer unit as also in the case of expansion or diversification of units set up in Groups B, C or D or No Industry Districts. An exemption was available inter alia in respect of sales tax payable under the Bombay Sales Tax Act, 1959 on the sale of finished products of the eligible unit. The quantum of sales tax incentives was provided for in paragraph 5.2 of the Scheme. For eligible units undertaking expansion or diversification, the quantum was linked to a proportion of fixed capital investment and was for a stipulated period.

Scheme of 1993

4. The Package Scheme of Incentives of 1988 was succeeded by a Scheme of 1993 which was notified by a G.R. dated 7 May 1993. The object of the scheme was to achieve a dispersal of industries outside the Bombay-Thane-Pune belt and to attract them to the underdeveloped and developing areas of the State, particularly, regions away from Bombay-Thane-Pune belt.

Paragraph 3.8(I)(i)(c) of the Scheme provided as follows:

“3.8 Gross Fixed Capital Investment -

(I) Gross Fixed Capital Investment shall mean and include, in the case of -

-(i) New Fixed Assets – The value of new Fixed Assets acquired at site and paid for ; Explanation -

(a) …..............

(b) …..............

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2013 Supreme(Bom) 1011

Cases Referred (14)