1 wp842-00 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.842 OF 2000 1. M/s.Prasad Power Control Pvt. Limited, a Private Limited Company having its registered office at A-5, Parvana Apartments, Sai Baba Nagar, Borivli (East), Mumbai – 400 092. 2. Shri B.P. Yadav, of Mumbai, Indian Inhabitant and a Director of Petitioner No.1 having his office at A-5, Parvana Apartments, Sai Baba Nagar, Borivli (East), Mumbai – 92 ......Petitioners Versus 1. Commissioner of Sales Tax, having his office at 8th Floor, Vikrikar Bhavan, Mazgaon, Nesbit Road, Mumbai – 400 010. 2. Deputy Commissioner of Salex Tax, (Incentive & Enforcement) having his office at 6th Floor, Vikrikar Bhavan, Mazgaon, Nesbit Road, Mumbai – 400 010. 3. Deputy Commissioner of Sales Tax, Thane Division, Thane. 4. Sales Tax Officer (E 205) Enforcement Branch, having his 2 wp842-00 office at 5th Floor, Vikrikar Bhavan, Mazgaon, Nesbit Road, Mumbai 10 5. Development Corporation of Konkan Limited, having its office at Warden House, 5th floor, Sir P.M. Road, Fort, Mumbai – 400 001. 6. State of Maharashtra, having its office at Mantralaya, Mumbai – 400 032 ......Respondents. Mr.P.C. Joshi i/by Mr.N.B. Shah for the petitioners. Mr.Vinay Sonpal, AGP for the respondents. CORAM : J.P. Devadhar & Smt. R.S. Dalvi, JJ. Judgment reserved On : 1st April 2011. Judgment delivered On : 8th June, 2011 ORAL JUDGMENT (Per J.P. Devadhar, J.) 1. The challenge in this Writ Petition is to the Constitutional validity of Section 41B of the Bombay Sales Tax Act, 1959 (“BST Act” for short) as also the constitutional validity of Rule 31AA of the Bombay Sales Tax Rules, 1959 (“BST Rules” for short) to the extent that the said provisions are made applicable retrospectively from 1st January 1980. The petitioners have also challenged the validity of the assessment orders passed on 2nd August 1999, 3rd August 1999 and 6th 3 wp842-00 August 1999 for the period 1994-1995, 1995-1996 and 1996-1997 respectively. However, Mr.Joshi, learned counsel appearing on behalf of the petitioners has not pressed the challenge to the said assessment orders as the petitioners have filed appeals against the said assessment orders before the Appellate Authority constituted under the BST Act and that the said appeals are pending. 2. The basic dispute raised in this Writ Petition is, when a unit is established as per the Government Resolution dated 30th September 1988 (‘1988 GR’ for short) which provides for a mechanism to calculate the notional sales tax liability of a unit covered under the 1988 Package Scheme of Incentives (“1988 Scheme” for short), whether a different mechanism for calculating the notional sales tax liability can be introduced with retrospective effect from 1st January 1980 by inserting Section 41B to the BST Act and inserting Rule 31AA to the BST Rules, so as to defeat the rights vested in the units established under the 1988 Scheme prior to the insertion of Rule 31AA ? 3. Section 41B of the BST Act inserted with effect from 1st May 1994 empowers the Commissioner of Sales Tax to determine the Cumulative Quantum of Benefits (“CQB” for short) received by any dealer to whom a Certificate of Entitlement under the Package Scheme of Incentives has been granted under Entry 136/E-3 of the Schedule to 4 wp842-00 the Notification issued under Section 41 of the BST Act at any time after 1st January 1980 in the manner prescribed by the Rules and if the CQB so calculated exceeds the relevant monetary ceiling, then recover the same with interest and penalty. Rule 31AA inserted to the BST Rules with effect from 24th March 1995 inter alia provides that in calculating the CQB in respect of any period commencing on or after 1st January 1980, no regard shall be had to the full or partial exemption from payment of tax on any account of any sale made against any declaration or certificate prescribed under the Act / Rules / Notification. In other words, by Rule 31AA, it is provided that the CQB availed by the units covered under any of the package scheme of incentives on or after 1st January 1980 shall be calculated by ignoring the full or partial exemption granted under the BST Act / BST Rules / Notifications issued under the BST Act. 4. According to the petitioners, Section 41B and Rule 31AA to the extent they are inconsistent with para 2.11 of the 1988 GR are bad in law. According to the Commissioner, the method of determining the CQB under Section 41B read with Rule 31AA is in consonance with the method prescribed under para 2.11 of the 1988 GR and, therefore, no fault can be found with either Section 41B or Rule 31AA. 5. The relevant facts are that, since 1964 the State 5 wp842-00 Government with a view to achieve dispersal of Industries outside the Bombay-Thane belt and to attract them to the under-developed and developing areas of the State had resolved to give a Package Scheme of Incentives to new units / expansion set up in the developing region of the State, under a Scheme popularly known as Package Scheme of Incentives. The first Package Scheme of Incentives introduced in the year 1964 was amended from time-to-time. The amended Schemes are commonly known as the 1969 Scheme, 1976 Scheme, 1979 Scheme, 1983 Scheme and 1988 Scheme. In the present case, we are concerned with the 1988 Scheme. 6. The 1988 Package Scheme of Incentives announced by the State Government as per 1988 GR was to remain in operation for a period of five years from 1st October 1988 to 30th September 1993. The units established under the 1988 Scheme could either opt for exemption from payment of tax for the period specified therein and upto the specified financial limit or opt for deferred payment of tax. 7. The petitioners, with a view to avail the exemption method prescribed under the 1988 Scheme, decided to set up a unit to manufacture electrical goods at Village Mahim, Taluka Palghar, District Thane. Accordingly, the petitioner No.1 applied for and obtained an eligibility certificate dated 3rd January 1992 from the implementing 6 wp842-00 agency, namely, the Development Corporation of Konkan Limited valid for seven years from 3rd January 1992 to 2nd January 1999, with a financial ceiling of Rs.22,64,971/- which was increased to Rs. 26,87,800/- by a corrigendum dated 5th November 1999. As per the said eligibility certificate, the petitioners were required to set up an industrial unit at Village Mahim, Taluka Palghar, District Thane to manufacture tower and tower accessories, marshaling boxes, L.T. & H.T. Fuses, switches and switch gear panels etc. and during the period from 3rd January 1992 to 2nd January 1999 the petitioners were entitled to purchase raw materials and sell the manufactured goods without payment of purchase tax / sales tax subject to the above financial ceiling. 8. After issuance of the Eligibility Certificate on 3rd January 1992, the State Government entered into an agreement with the petitioners on 7th January 1992 wherein the terms and conditions for grant of exemption from payment of sales tax / purchase tax on sales of finished goods and on purchase of raw materials required in the manufacture of the electrical goods at the petitioners unit at Mahim, Taluka Palghar, District Thane, were recorded. 9. Thereafter, the Deputy Commissioner of Sales Tax, Thane Division, Thane issued a certificate of entitlement dated 17th March 7 wp842-00 1992, wherein it is specifically recorded that the petitioner No.1 is entitled to claim exemption to the extent specified therein, in respect of sales and purchases made by the industrial unit at Mahim, Palghar during the period specified in the Entitlement Certificate in respect of goods falling under Entry 136 of the Notification issued under Section 41 of the BST Act. 10. At the relevant time, the sales tax / purchase tax on the electrical goods of all kinds was levied at 10% under Entry 44 of Schedule C, Part II of the BST Act. By inserting Entry 47 into the statutory notification issued under Section 41 of the BST Act, it was provided that with effect from 1st July 1981 sales by a registered dealer to the undertakings engaged in the generation or distribution of energy would be exempt from purchase tax / sales tax in excess of 4% subject to the conditions set out therein. During the period from 26th March 1987 to 30th September 1995, such exemption was restricted to the amount of sales tax exceeding 6%. With effect from 1st October 1995, such exemption was restored to the amount of tax exceeding 4%. Thus, on sale of electrical goods sales tax was payable at 10% as per the schedule to the BST Act, but when sales were effected to the undertakings engaged in the generation of electricity, sales tax / purchase tax was payable at 4% or at 6% as per the notification issued under Section 41 of the BST Act. 8 wp842-00 11. However, in respect of the units established in a backward area, as per the package scheme of incentives framed by the State Government total exemption was granted up to the specified period and upto a specified amount of tax. In the case of a unit established under the 1988 Scheme to manufacture electrical goods, total exemption was granted as per Notification entry 136(2)(a) and (b) under Section 41 of the BST Act. The said entry 136(2)(a) of the Notification provides that sale by a registered dealer, being an Industrial Unit set up in the developing regions of the State of Maharashtra and certificated by the relevant Regional Development Corporation as an eligible unit under the 1988 Scheme falling under the Package Scheme of Incentives and to whom a Certificate of Entitlement has been granted would be exempt from the whole of the sales tax. Similarly, Entry 136(2)(b) of the Notification issued under Section 41 of the BST Act provides that sales of any goods being raw materials by a registered dealer to a registered dealer referred to in Entry 136(2)(a) shall be exempt from whole of purchase tax. 12. Thus, the levy of sales tax / purchase tax on electrical goods of all types was at 10% as per the Schedule to the BST Act. However, by Entry 47 of the Notification issued under Section 41 of the BST Act, partial exemption was granted from payment of purchase tax 9 wp842-00 on purchase of raw materials and sales tax on sale of electrical goods when made to undertakings engaged in the generation or distribution of electrical energy. The exemption from payment of purchase tax / sales tax was in excess of 4% (from 1st July 1981 to 25th March 1987), in excess of 6% (from 26th March 1987 to 30th September 1995) and in excess of 4% from 1st October 1995 onwards. In other words, when a registered dealer purchased raw materials and on manufacture sold the electrical goods to undertakings engaged in the generation or distribution of electrical energy, as per Notification issued under Section 41 of the BST Act, the maximum sales tax / purchase tax payable by that dealer was 4% or 6% as the case may be, and, when sold to others the tax payable was at 10% as per Schedule entry in the BST Act. A unit covered under the 1988 Scheme was, however, totally exempted from payment of purchase tax on purchase of raw materials and sales tax on sale of finished electrical goods as per Entry 136(2)(a) and 136(2)(b) of the Notification issued under Section 41 of the BST Act. 13. In the present case, it is not in dispute that the petitioner’s unit is covered under the 1988 Scheme. It is not in dispute that the petitioners have fulfilled all the conditions set out in the Eligibility Certificate / Entitlement Certificate and accordingly the sales and purchases of raw materials effected by the petitioners during the period 10 wp842-00 specified in the Certificate (from 3rd January 1992 to 2nd January 1999) and upto the financial ceiling of Rs.26,87,800/- are totally exempt from payment of sales tax / purchase tax as per Entry 136(2)(a) and 136(2) (b) of the Notification issued under Section 41 of the BST Act. 14. The only dispute is in relation to the calculation of the cumulative quantum of benefits (CQB) received by the petitioners on the respective sales / purchases effected during the validity period of the Certificates issued under the 1988 Scheme till reaching the financial ceiling provided under the Entitlement Certificate. 15. Calculation of CQB, according to the petitioners was liable to be made as per para 2.11 of the 1988 GR by considering the maximum tax that would have been payable under the BST Act / BST Rules including the exemption provisions contained therein, if the petitioner’s unit was not covered under the 1988 Scheme. According to the Commissioner, the calculation of CQB was liable to be made as per para 2.11 of the 1988 GR read with Section 41B and Rule 31AA by considering maximum rate of tax levied under the Schedule to the BST Act by ignoring the exemption provisions contained therein. 16. Para 2.11 of the Government Resolution dated 30th September 1988 reads thus :- 11 wp842-00 “2.11 Notional Sales Tax Liability :- (a) Sales Tax / purchase tax / additional tax that would have been payable by the Eligible Unit on the purchases of raw materials and sales tax / turnover tax / additional tax that would have been payable by the Eligible Unit on the sales of finished products / by- products / scrap goods of the Eligible Unit under the Local Sales Tax Law but for an exemption under the 1988 Scheme and computed at the maximum rates of tax specified under the Local Sales Tax Law as applicable from time to time. For the purpose of the above clause, sales made on consignment basis within the State of Maharashtra or branch transfers within the State of Maharashtra shall also be deemed to be sales made within the State exigible to tax”. 17. Section 41B inserted to the BST Act by Maharashtra Act 29 of 1994 with effect from 1st May 1994 reads thus :- “41B. Calculation of cumulative quantum of benefits under Package Scheme of Incentives. (1) In order to determine whether the cumulative quantum of benefits received by any dealer to whom a Certificate of Entitlement has been granted by the Commissioner under entry 136 of the Schedule to the notification issued under Section 41, has at any time after the 1st January 1980 exceeded the relevant monetary ceiling under any Package Scheme of Incentives for any period whether before or after the date of commencement of the Maharashtra Tax Laws (Levy and Amendment) Act, 1994 (hereinafter, in this section, referred to as “the commencement date”), the Commissioner shall calculate the cumulative quantum of benefits in the manner prescribed in respect of all the relevant periods and the Package Scheme of Incentives. (2) If it is found that the cumulative quantum of 12 wp842-00 benefits so calculated in respect of any Eligible unit has exceeded the relevant monetary ceiling where such ceiling is provided in the Package Scheme of Incentives, then the Commissioner shall, require the dealer by order in writing to pay the tax, interest or penalty in respect of each relevant period and shall for the purpose of recovery of such tax, interest or penalty, serve on the dealer a notice. Provided that, no order under this section shall be passed without giving the dealer a reasonable opportunity of being heard. (3) The notice so issued, shall be deemed to be a notice issued under sub-section (4) of section 38 and the relevant provisions of this Act shall apply to such notice as they apply to a notice issued under sub-section (4) of section 38.” 18. Rule 31AA inserted to the BST Rules by Government Notification dated 24th March 1995 with effect from 24th March 1995 (to the extent relevant) reads thus :- “31AA. Calculation of the cumulative quantum of benefits.- (1) The cumulative quantum of benefits received by a dealer (hereinafter referred to as “the said dealer”) to whom a Certificate of Entitlement has been granted by the Commissioner under entry 136 of the Schedule to the notification issued under section 41 shall be calculated by the Commissioner in respect of any period commencing on or after the 1st January 1980 in the manner prescribed herein. (2) The cumulative quantum of benefits received by the said dealer to whom the said certificate has been granted under the 1979 Package Scheme of Incentives including the amended 1979 Package Scheme of Incentives and the 1983 Package Scheme of Incentives shall be the aggregate of the following sums, that is to 13 wp842-00 say,- (a) a sum equal to the amount of purchase tax which would have been payable on the purchases of raw materials to the Government by the said dealer under any of the provisions of the Act and the amount of additional tax in relation to such purchase tax which would have been payable to the Government if the exemption granted under the said entry was not available; (b) a sum equal to the amount of sales tax which would have been payable by a selling dealer not holding a Certificate of Entitlement on the sale of raw materials to the said dealer if the set off under rule 42AC is not admissible to the said dealer in respect of such purchases; Provided that during the period from 15th April, 1994 to 30th November, 1994, the calculation shall be made at the rate of tax applicable to such goods as reduced by 4% from the applicable rate of tax; (c) a sum equal to the amount granted as drawback, set-off or, as the case may be, refund under rule 42AC to the said dealer; (d) a sum equal to 4 per cent of the turnover of inter-State sales of finished products manufactured by the said dealer in the eligible unit and specified in the eligibility certificate granted to him by the implementing agency and if the inter- State sales of such products are generally liable for Central sales tax at a rate less than 4 per cent then a sum calculated at such lower rate on the said turnover; (e) a sum equal to the amount of tax (including sales tax, additional tax and turnover tax) which would have been payable to Government on any sales of products manufactured by the said dealer in the eligible unit and specified in the eligibility certificate granted to him by the implementing agency if the said dealer was not 14 wp842-00 holding the said Certificate of Entitlement and no regard was had or any deduction from the said turnover or full or partial exemption from payment of tax on any account of any sale made against any declaration or certificate prescribed under the Act, Rules or any notification issued under the Act or Rules; Provided that ........... Provided further that ........... Provided also that ................ (3) For the purpose of calculation of the cumulative quantum of benefits under the 1988 Package Scheme of Incentives, the provisions contained in sub-rule (2) shall apply mutatis mutandis with the qualification that the expression “finished products” shall be deemed to include by-products and scrap products generated during the process of manufacture in the eligible unit of products specified in the eligibility certificate granted to the said dealer. (4) ............... (5) In this Rule the expression “raw materials” shall have the same meaning as assigned to it in the Explanation II appended to the said entry 136.”. 19. Mr.Joshi, learned counsel for the petitioners submitted that the petitioners had set up a unit in the backward area based on the terms and conditions in the agreement including the method of calculating the CQB set out under the 1988 Scheme contained in the 1988 GR. Since Section 41B read with Rule 31AA seeks to introduce a different method of calculating the CQB, it amounts to taking away the rights vested in the petitioners under the 1988 GR and, therefore, the 15 wp842-00 provisions of Section 41B read with Rule 31AA must be held to be bad in law to the extent they are in conflict with para 2.11 of the 1988 GR. 20. Mr.Joshi submitted that in the case of petitioners, the CQB as per para 2.11 of the 1988 GR was liable to be calculated on the basis of the maximum sales tax / purchase tax that would have been payable if the petitioner’s unit was not covered under the 1988 Scheme. If the petitioner’s unit was not covered under the 1988 Scheme, then on purchase of raw materials and sale of electrical goods to undertakings engaged in the generation / distribution of electrical energy, the petitioners would have been liable to pay purchase tax / sales tax at 6% or 4% as the case may be as per the Notification issued under Section 41 of the BST Act and was liable to pay purchase tax / sales tax at 10% when sales were made to others. The submission is that as per para 2.11 of the 1988 GR, the “notional sales tax liability” computed cannot exceed the actual sales tax liability that would have been incurred by the unit if not covered under the 1988 Scheme. In support of the above contention, Mr.Joshi relied upon the decisions of this Court in the case of Varun Polymol Organics Limited V/s. State of Maharashtra reported in 97 STC 55 (Bom.), decision in the case of Multifilms Plastics Private Limited V/s. SICOM reported in 105 STC 458 (Bom.), decision of the Gujarat High Court in the case of ARDEEC Engg (Saurashtra) Private Limited V/s. State of Gujarat reported in 16 wp842-00 117 STC 178 (Guj.) and a decision of the Orissa High Court in the case of Luis Packaging Private Limited V/s. State of Orissa reported in (2010) 32 VST 481 (Ori.). 21. Relying on a decision of the Apex Court in the case of State of Bihar V/s. Suprabhat Steel Limited reported in 112 STC 258 (S.C.), Mr.Joshi submitted that since Rule 31AA inserted with effect from 24th March 1995 prescribes a method for calculating CQB retrospectively from 1st January 1980 contrary to the method prescribed in the Industrial Policy declared by the State Government on 30th September 1988, the Rule 31AA to the extent it prescribes a different method for calculating CQB must be held to be bad in law. He submitted that the right to avail the CQB as per para 2.11 of the 1988 GR was a vested right of the petitioners and the State Government could not divest that right by inserting Rule 31AA retrospectively from 1st January 1980. In support of the above contention, Mr.Joshi relied upon the decisions of this Court in the case of Tapti Oil Industries V/s. State of Maharashtra reported in 56 STC 193 (Bom.) and Olympic Oil Industries V/s. State of Maharashtra reported in 65 STC 191 (Bom.). 22. Mr.Joshi further submitted that when the State Government has specifically introduced Rule 31AA with effect from 24th 17 wp842-00 March 1995, the said Rule cannot be applied retrospectively. He submitted that the principles of promissory estoppel are applicable in the present case, as the petitioner’s have set up the unit in the backward area relying on the promise contained in the 1988 GR which is sought to be taken away arbitrarily by introducing Rule 31AA with retrospective effect from 1st January 1980. He submitted that a unit which is not covered under the package scheme of incentives when purchases raw materials / sells electrical goods, then the purchase tax / sales tax payable would be at 4% or 6% when sold to undertakings engaged in the generation / distribution of the electrical energy and at 10% when sold to others. The expression ‘maximum rate of tax’ in para 2.11 of the 1988