IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION CIVIL APPELLATE JURISDICTION CIVIL APPELLATE JURISDICTION WRIT PETITION NO.1152 OF 1991 WRIT PETITION NO.1152 OF 1991 WRIT PETITION NO.1152 OF 1991 1. Tata Motors Ltd. formerly known ) as The Tata Company Ltd., ) having their registered office ) at ‘Bombay House", 24, Homi Mody ) Street, Mumbai - 400 001 and ) their works at Pune. ) ) 2. Shiavak Ratanshaw Vakil ) of Bombay Indian Inhabitant ) residing at Windmore, Cuffe ) Parade, Colaba, Bombay-400 005 )..Petitioners. V/s. 1. The State of Maharashtra ) ) 2. The Assistant Commissioner of ) Sales Tax (Assessment) I, Unit ) V, Pune City, Pune having his ) office at Tilak Bhavan. 14A, ) Navi Peth, Lal Bahadur Shastri ) Marg, Pune- 411 030. ) ) 3. The Deputy Commissioner of ) Sales Tax (Appeals), Pune, ) having his office at Kartar ) Singh Building Pune-Satara ) Road, Pune 411 037. ) ) 4. The Maharashtra Sales Tax ) Tribunal, having its office ) at Vikrikar Bhavan, Mazgaon ) Bombay. )..Respondents. Mr.G.S.Jetly, Senior Advocate with Mr.V.Sridharan, Advocate Mr.P.S.Jetly, Mr.H.N.Vakil and Ms.Vidya Shreekumar i/b. Mulla & Mulla for petitioners. Mr.Vinay Sonpal, Advocate for respondents. CORAM : CORAM : CORAM : H.L.GOKHALE, ACTING C.J. AND H.L.GOKHALE, ACTING C.J. AND H.L.GOKHALE, ACTING C.J. AND J.P.DEVADHAR, J. J.P.DEVADHAR, J. J.P.DEVADHAR, J. JUDGMENT RESERVED ON : 19TH DECEMBER, 2006. JUDGMENT RESERVED ON : 19TH DECEMBER, 2006. JUDGMENT RESERVED ON : 19TH DECEMBER, 2006. -= : 2 : =- JUDGMENT PRONOUNCED ON: 31ST JANUARY, 2007. JUDGMENT PRONOUNCED ON: 31ST JANUARY, 2007. JUDGMENT PRONOUNCED ON: 31ST JANUARY, 2007. JUDGMENT (PER J.P.DEVADHAR, J.) JUDGMENT (PER J.P.DEVADHAR, J.) JUDGMENT (PER J.P.DEVADHAR, J.) 1. This petition is filed mainly to challenge the constitutional validity of section 19 of the Maharashtra Sales, Profession, Luxuries and Sugarcane Tax Laws (Amendment levy and validation) Act, 1990 (‘1990 Act’ for short) whereby Rule 41C of the Bombay Sales Tax Rules, 1959 has been amended retrospectively. Rule 41-C was operative during the period from 19th January, 1976 till 30th June, 1981. 2. The petitioners have also challenged the orders passed by the Sales Tax Authorities under the Bombay Sales Tax Act, 1959 (‘Bombay Act’ for short) in Assessments relating to A.Y. 1979-80 to 1981-82, wherein the petitioners’ claim for full rebate / set off / refund under Rule 41-C of the Bombay Sales Tax Rules, 1959 (‘Bombay Rules’ for short) has been rejected. However, we do not consider it proper to adjudicate upon that issue because, admittedly, the Appeals have been filed by the petitioners against the said orders and the said appeals are pending before the Appellate Authorities constituted under the Bombay Act. Therefore, the only question to be answered in this petition is, whether Section 19 of the 1990 Act is constitutionally valid ? -= : 3 : =- 3. To appreciate the arguments of the counsel on both sides relating to the constitutional validity of section 19 of 1990 Act, it is necessary to refer to the relevant statutory provisions. 4. Article 286(3) of the Constitution provides that any State law in relation to imposition of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in interstate trade or commerce, shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as the Parliament may by law specify. 5. In chapter IV of the Central Sales Tax Act, 1956 (‘Central Act’ for short) the Parliament has specified the goods which are of special importance in interstate trade or commerce. Chapter IV of the Central Act consists of two sections namely section 14 and section 15. In section 14 the Parliament has specified the goods which are of special importance in the interstate trade or commerce (‘declared goods’ for short) and in section 15 of the Central Act, the Parliament has inter alia provided that the tax payable under every sales tax law of a State in respect of any sale or purchase of declared goods inside the State shall not exceed three per cent (four per cent with -= : 4 : =- effect from 1st July 1975) of the sale or purchase price thereof. 6. Iron & steel is declared by the Parliament to be goods of special importance in interstate trade and commerce and the same is specified at item (iv) in section 14 of the Central Act. The said item (iv) consists of (xvi) sub items enumerating iron and steel in different forms and shapes. Thus, ‘iron and steel’ enumerated in (xvi) sub items of item (iv) in Section 14 of the Central Act are declared goods and its sale / purchase within the State, under any State law has to be subject to the conditions set out under Section 15 of the Central Act. 7. In the Bombay Act, Schedule B sets out the goods declared by the Parliament to be of special importance in interstate trade and commerce in Section 14 of the Central Act and Sections 7 and 13 of the Bombay Act deal with the levy of Sales tax and purchase tax on the declared goods. Section 7 of the Bombay Act (prior to 1st July, 1981) to the extent relevant herein reads thus :- "S. 7. Single point levy of sales tax or general sales tax on Declared good. (1) There shall be levied a sales tax, on the turnover of sales of Declared goods specified in Part I of Schedule B at the rate set out against each of them in column 3 thereof, but after deducting from such turnover - -= : 5 : =- (i) sales of goods on the purchase of which the dealer is liable to pay purchases tax [under Sec. 14] (ii) re-sales of goods purchased by him on or after the appointed day from [ a Registered dealer, if a certificate as provided in Sec. 12 A is furnished, and], (iii) ---------- (2) ------------- (i) ---------- (ii) ---------- (iii) ---------- ‘Iron and steel’ in various forms and shapes which is declared goods specified in Section 14 of the Central Act are set out at Serial No.3 in Schedule B Part I of the Bombay Act. Serial No.3 in Schedule B, Part I of the Bombay Act (prior to 1st July, 1981) reads thus :- ------------------------------------------------------- Sr. Description of Rate of Rate of No. sales tax Purchase tax ------------------------------------------------------- 1 ------ ---- ----- 2 ------ ---- ----- 3 Iron and steel, that Three paise Three paise is to say, - in the in the rupee. rupee. (i) pig iron and cast iron, including in gotmoulds, bottom plates, iron scrap, cast iron scrap, runner scrap, and iron skull scrap. -= : 6 : =- (ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes) ; (iii) skelp bars, tin bars, sheet bars, hoebars, and sleeper bars; (iv) steel bars, rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil from as well as straight lengths); (v) steel structural (angles, joints channels, tees, sheet piling sections, Z sections, or any other rolled sections); (vi) sheets, hoops, strips, and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities, in straight length and in coil form, as rolled and in rivetted condition; (vii) plates both plain and chequered in all qualities ; (viii) discs, rings, forgings and steel castings; (ix) tool, alloy and special steels of any of the above categories ; (x) steel melting scrap in all forms -= : 7 : =- including steel skull, turning and borings ; (xi) steel tubes, both welded and seamless, of all diameters and lengths, including tube fittings ; (xii) tin plate, both hot dipped and electrolitic and tin- free plates ; (xiii)fish plate, bars, bearing plates bars, crossing sleepers bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails-heavy and light crane rails; (xiv) wheels, tyres, axles and wheel sets ; (xv) wire rod and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper ; (xvi) defectives, rejects, cuttings or end pieces of any of the above categories." 8. The petitioner No.1 a registered dealer under the Bombay Act and also under the Central Act is engaged in the manufacture and sale of motor-vehicle chassis and its parts. The raw materials required for the manufacture of motor vehicle chassis and its parts are iron & steel sheets, bars, tubes, etc. covered under the various sub items of iron and steel set out -= : 8 : =- at Serial No.3 in Schedule B, Part I of the Bombay Act. In the process of manufacturing motor vehicle chassis and its parts, iron & steel scrap is also generated. Motor vehicle chassis and its parts are covered under Schedule E of the Bombay Act, whereas, iron & steel scrap are covered under various sub-items of Serial No.3 in Schedule B, Part I of the Bombay Act. 9. Prior to 1976, the petitioners used to purchase the raw materials, namely, iron & steel bars, sheets, rounds, etc. on payment of tax at the rate specified at Column 3 & column 4 of Serial No.3 in Schedule B of the Bombay Act, and utilise the same in the manufacture of motor vehicle chassis and its parts covered under Schedule E of the Bombay Act. The manufactured goods, namely, motor vehicle chassis and its parts were sold on payment of sales tax at the rate prescribed under Schedule E of the Bombay Act. No sales tax was paid on sale of iron & steel scrap, because it was construed that in view of section 2(26) (iii) (as it then stood) of the Bombay Act such sale constituted ‘resale’ of iron & steel and, therefore, no tax would be payable. In other words, it was an accepted position that if a sub item of iron & steel purchased on payment of tax was converted into another sub item of iron & steel and sold, then, as per section 2 (26) (iii) of the Bombay Act, the sale of iron & steel in the converted form -= : 9 : =- would be a ‘resale’ of iron & steel and hence would not be taxed again. 10. On 19th January, 1976, the Apex Court delivered its judgment in the case of State of Tamil Nadu V/s. State of Tamil Nadu V/s. State of Tamil Nadu V/s. Pyare Lal Malhotra [37 STC 319] Pyare Lal Malhotra [37 STC 319] Pyare Lal Malhotra [37 STC 319]. In that case, the issue before the Apex Court was, whether sales tax was payable under the Tamil Nadu Sales Tax Act on sale of iron and steel sheets, bars, tubes etc. manufactured from raw materials such as iron and steel scrap on which sales tax has already been paid ? In that case, the Madras High Court took the view that if steel rounds, flats, angles or similar goods in other forms and shapes were manufactured from iron & steel scrap on which tax has been paid, then in view of section 15 of the Central Act, no tax can be levied on sale of steel rounds flats, angles, etc. because, both the manufactured goods as well as the raw materials were declared goods covered under item ‘iron & steel’ specified in Section 14 of the Central Act. Reversing the decision of the Madras High Court, the Apex Court held that each sub item of an item in section 14 of the Central Act is a separate taxable commodity and, therefore, tax would be payable on sale of steel rounds, flats angles, etc. even though the raw materials from which they were manufactured have already been taxed. -= : 10 : =- 11. As a result of the aforesaid decision of the Apex Court, conversion of iron and steel from one sub item into another sub item of ‘iron and steel’ specified at Serial No.3 in Schedule B, Part I in the Bombay Act (item iv in section 14 of the Central Act) was liable to be treated as manufacture and tax became payable on sale of manufactured iron and steel. In other words, on sale of manufactured iron and steel tax became payable even though the same were manufactured from a sub item of iron and steel on which sales tax / purchase tax has already been paid. 12. With a view to grant relief to such manufacturers of Schedule B goods from Schedule B goods on which tax has been paid, the State Government issued a Notification on 28th March, 1977 thereby inserting Rule 41-C into the Bombay Rules. The said Rule 41-C was made operative till 30th June, 1981 by Government Notification dated 25th June, 1981. Rule 41-C, relevant for the purposes herein, as amended in the year 1981, reads thus : "41C. Draw back, set off, etc. of tax paid by a manufacturer of goods specified in Schedule ‘B’:- In assessing the amount of tax payable in respect of any period after the 18th day of January, 1976 by a Registered dealer (hereinafter in this Rule referred to as the -= : 11 : =- "claimant dealer") the Commissioner shall, in respect of the purchases, made by the claimed dealer (during the period from 19th day of January, 1976 to the day immediately preceding the notified day) and purchases made by him prior to the 19th day of January, 1976 and held in stock on the 19th day of January, 1976 of goods specified in any entry of Schedule ‘B’, which were used by him in manufacture of goods specified in the same entry of Schedule ‘B’, for sale or export, grant him a drawback, set off or as the case may be, a refund of the aggregate of the following sums that is to say: a) a sum recovered from the claimant dealer, by other Registered dealer by way of sales tax or general sales tax; b) a sum paid or payable or purchased tax under Section 13 or 14; c) ............. 13. Thus, drawback, set off etc. under Rule 41-C was available provided :- a) the assessment relates to the period after 18th January, 1976, (b) the manufacturer had purchased raw materials specified in any entry of Schedule B and held in stock on 19th January, 1976 or purchased the said goods during the period from 19th January, 1976 to 30th June, 1981, and -= : 12 : =- (c) used the aforesaid goods in the manufacture of goods specified in the same entry of Schedule B for sale or export. 14. At this stage, we may note that this Court on 26th November, 1982 in the case of Shree Ram Steel Shree Ram Steel Shree Ram Steel Rolling Mills V/s. State of Maharashtra Rolling Mills V/s. State of Maharashtra Rolling Mills V/s. State of Maharashtra (decided on 26th November, 1982) reported in (53 S.T.C. 202 53 S.T.C. 202 53 S.T.C. 202) held that even after the decision of the Apex Court in the case of Pyare Lal Malhotra (supra) manufacture of mild steel ingots (a form of iron and steel set out at Serial No.3) into mild steel rounds (another form of iron & steel set out at Serial No.3) would constitute ‘resale in view of Section 2(26)(iii) of the Bombay Act read with Rule 3 (xviii) of the Bombay Rules. To overcome this anomaly, section 2(26) (iii) of the Bombay Act as well as rule 3 (xviii) of the Bombay Rules have been amended by Maharashtra Act 9 of 1984 with retrospective effect from 19th January, 1976. 15. As a result of the above amendment, during the period from 19/1/1976 to 30/6/1981 even under the Bombay Act, tax became payable on sale or export of Schedule B goods manufactured from Schedule B goods on which tax has been paid, however, in view of Rule 41-C, the manufacturer was entitled to avail the benefit of -= : 13 : =- drawback, set off etc. of tax paid on Schedule B goods used in the manufacture of Schedule B goods. 16. By Section 19 of 1990 Act, Rule 41-C has been amended retrospectively. Section 19 of the 1990 Act reads thus : "In Rule 41C of the Bombay Sales Tax Rules, 1959, after the words "manufacture of goods" the brackets and words "(not being waste goods or scrap Sales Tax goods or by-products)" shall be inserted and shall be deemed always to have been inserted." 17. Rule 41-C as amended by Section 19 of 1990 Act (to the extent relevant herein) reads thus:- "41C. Draw back, set off etc. of tax paid by a manufacturer of goods specified in Schedule B- In assessing the amount of tax payable in respect of any period after the 18th day of January, 1976 by a Registered dealer (hereinafter in this Rule referred to as the "claimant dealer") the Commissioner shall, in respect of the purchases, made by the claimed dealer (during the period from 19th day of January, 1976 to the day immediately preceding the notified day) and purchases made by him prior to the 19th day of January, 1976 and held in stock on the 19th day of January 1976 of goods specified in any entry of Schedule ‘B’, which are used by him in manufacture of goods [not being waste goods or scrap goods or by-products] specified in the same entry Schedule ‘B’ for sale or export, grant him a drawback, set off or as the case may be, a a refund of the aggregate of the following sum, that is to say:- -= : 14 : =- a) a sum recovered from the claimant dealer, by other registered dealer by way of sales tax or general sales tax; b) a sum paid or payable as purchase tax under Section 13 or 14; c) ............. (emphasis supplied) 18. Mr.Jetly, learned senior advocate appearing on behalf of the petitioners submitted that the retrospective amendment to Rule 41-C by Section 19 of 1990 Act is unreasonable and unconstitutional, because, firstly, similar retrospective amendment to Rule 41-E made by Section 26 of the Maharashtra Act 9 of 1989 has been declared by the Apex Court to be unreasonable and unconstitutional in the case of Tata Motors Limited Tata Motors Limited Tata Motors Limited V/s. State of Maharashtra V/s. State of Maharashtra V/s. State of Maharashtra reported in 136 STC 1 136 STC 1 136 STC 1. Secondly, Rule 41-C ceased to be operative from 30th June, 1981 and, therefore, it was not open to the legislature in the year 1990 to retrospectively amend rule 41-C which had ceased to be in operation from 1st July, 1981. Thirdly, Section 74 of the Bombay Act does not empower the State to amend the rules retrospectively and, therefore, the retrospective amendment to Rule 41-C is bad-in-law. 19. Elaborating his arguments Mr.Jetly submitted that during the relevant assessment years, that is, -= : 15 : =- during AY 1979-80 to 1981-82, the petitioners had purchased iron and steel sheets, bars, tubes etc. on payment of tax at the rate specified at Serial No.3 in Schedule B, Part I of the Bombay Act and used the same in the manufacture of motor vehicle chassis and its parts covered under Schedule E and also in the manufacture of iron and steel scrap specified at Serial No.3 in Schedule B, Part I of the Bombay Act. Motor vehicle chassis and its parts have been sold on payment of sales tax at the rate specified in Schedule E and similarly, iron & steel scrap have been sold by the petitioners on payment of sales tax at the rate specified at serial No.3 in Schedule B, Part I of the Bombay Act. Mr.Jetly submitted that in the light of Rule 41-C as it stood prior to its amendment, the petitioners had vested right to avail full set off of tax paid on purchase of iron and steel when used in the manufacture of Motor vehicle chassis / parts as well as manufacture of iron and steel scrap. In fact, the respondents had given proportionate set off even though the petitioners were entitled to full set off and appeals on that issue are pending before the appellate authorities. Therefore, the State could not have enacted law in the year 1990 so as to take away the vested right of the petitioners to claim full set off under Rule 41-C as originally enacted. -= : 16 : =- 20. Relying on the decision of this Court in the case of Commissioner of Sales Tax V/s. Burmah Shell Commissioner of Sales Tax V/s. Burmah Shell Commissioner of Sales Tax V/s. Burmah Shell Refineries Ltd. (41 STC 337) Refineries Ltd. (41 STC 337) Refineries Ltd. (41 STC 337) which is upheld by the Apex Court in the case of Commissioner of Sales Tax Commissioner of Sales Tax Commissioner of Sales Tax V/s. Bharat Petroleum Corporation Ltd. V/s. Bharat Petroleum Corporation Ltd. V/s. Bharat Petroleum Corporation Ltd. reported in 85 85 85 STC 220 STC 220 STC 220 as also the decisions of the Maharashtra Sales Tax Tribunal in the case of M/s.Supreme Metal M/s.Supreme Metal M/s.Supreme Metal Industries V/s. The State of Maharashtra Industries V/s. The State of Maharashtra Industries V/s. The State of Maharashtra delivered on 25th February, 1987 and the decision of the Tribunal in the case of Taparia Tools Ltd. V/s. The State of Taparia Tools Ltd. V/s. The State of Taparia Tools Ltd. V/s. The State of Maharashtra Maharashtra Maharashtra decided on 28th March, 1988, Mr.Jetly submitted that where a manufacturing process results in simultaneous production of two commodities, then, in the absence of any rule providing for apportionment of the tax paid on purchase of the raw materials used, full set off must be granted under Rule 41-C. He submitted that the aforesaid decisions have attained finality and thus it is judicially recognised that under Rule 41C, manufacturers like the Petitioners have a vested right to seek full set off of tax paid on raw materials. Therefore, the impugned Act which seeks to deprive the vested right accrued to the manufacturers like the petitioners is liable to be declared as arbitrary, illegal and contrary to law. 21. Mr.Jetly further submitted that Rule 41-C was operative from 19th January, 1976 to 30th June, 1981. -= : 17 : =- Thereafter, by inserting Rule 41E with effect from 1st July 1981, reliefs similar to Rule 41C were made available to the manufacturers. Rule 41-E was sought to be amended by making amendments which are similar to the amendment made to Rule 41-C by Section 19 of 1990 Act and the Apex Court in the case of Tata Motors (supra) has held that the amendment to Rule 41-E are invalid. Therefore, in the light of the decision of the Apex Court in the case of Tata Motors, the amendment to Rule 41-C by section 19 of the 1990 Act is liable to be declared as unconstitutional. 22. Mr.Jetly further submitted that there is no provision in the Bombay Act which permits the legislature and / or the State Government to withdraw drawback, set off, refund, etc. retrospectively. In the absence of any statutory provision, the impugned legislation which seeks to amend Rule 41-C retrospectively must be declared to be illegal and contrary to law. He submitted that by enacting section 74 in the Bombay Act the legislature has delegated the power to make rules to the State Government. Having done so, the legislature has no power to amend the rules retrospectively and withdraw the benefits which were legitimately due to the assessees. Similarly, even the State Government by retrospective legislation cannot curtail / vary / withdraw the concessions -= : 18 : =- already granted. 23. Mr.Jetly submitted that amendment