MVAT Act, 2002 - Amendments made by Maharashtra Act No.XXII of 2009 do not apply to units whose cumulative quantum of benefits for sales tax incentives have been fully utilized before expiry of eligibility period: HC
By TIOL News Service
MUMBAI, NOV 05, 2018: THE ISSUE IS - Whether the amendments made by Maharashtra Act No.XXII of 2009 does not apply to units whose cumulative quantum of benefits have been fully utilized before expiry of the eligibility period even if the incentive is computed in terms of amended Section 93 of the MVAT Act, 2002. YES IS THE VERDICT.
Facts of the case
The assessee company, engaged in the manufacturing of PVC plastic pipes, pipe fittings and other allied products, had a factory situated at Urse and was functional since 1980. Around 1994, the assessee company set up another factory in District Ratnagiri for manufacturing PVC Resins. This factory claimed the benefits of the Package Scheme of Incentives which was prevailing at the relevant time, known as PSI 1988 and an eligibility certificate under Part I of the 1988 Scheme was granted to the assessee by SICOM qua its Ratnagiri unit. By virtue of the eligibility certificate, the assessee was held eligible for maximum entitlement of sales tax incentives of Rs. 313,03,07,000/ - by way of exemption. The eligibility certificate was valid for a period of 10 years. The assessee was duly registered under the provisions of Maharashtra Value Added Tax Act, 2002 (MVAT Act, 2002) and the Central Sales Tax Act for both the places of business separately. In the year 1993, a new Package Scheme of Incentives substituted the existing Package Scheme of Incentives. The assessee made a further investment in its Ratnagiri unit to the tune of Rs.208.89 crore in August 2002 and accordingly made an application for availment of necessary incentives in terms of 1993 Package Scheme of Incentives. A fresh eligibility certificate was issued to the assessee. The certificate of Entitlement issued did not incorporate any condition whatsoever that availment of incentives should be on proportionate basis of increase in production capacity to the additional investment.
The assessee relied upon the eligibility certificate and the Entitlement certificate issued in its favour and claimed complete exemption from taxes for the entire turnover of sales made by it from Ratnagiri unit. It was claimed that assessee fully satisfied all the conditions of exemption imposed under the notification dated 1st April 2005 issued under the MVAT Act 2002 and necessary declarations were also duly made on the invoice as required in the notification. In the assessment order, the AO applied the provisions of Section 93 of the MVAT 2002 as retrospectively substituted by Maharashtra Act No.XXII of 2009 and only allowed the exemption to the extent of prorata turnover of 35%. The assessing authority rejected the claim of 100% exemption on the ground that the assessee had not produced any books of accounts and had not identified the goods manufactured by old and new units and there was no identification of goods. Resultantly, the assessee was assessed to VAT Tax at Rs.6,07,82,694/- and the claim was verified and finally allowed at Rs.10,30,85,904 and it was held that the assessment had resulted in excess amount which was refunded to the dealer. For the remaining amount, a demand notice was served on the assessee. On appeal, the FAA and Tribunal upheld the order of the AO. The Tribunal held that assessee was not entitled for full exemption, since Section 93 came to be amended with retrospective effect from 2009 and this amendment had been upheld by the High Court as well as the Apex Court and thus, the assessee was entitled to enjoy the benefits on prorata basis. Being aggrieved the assessee filed appeal before the High Court and submitted that the ceiling limit specified in the eligibility certificate/certificate of entitlement issued was already exhausted by March 2009 before Section 93 came to be amended and which was precisely done on 27th August 2009 and therefore, the substituted Section 93 could not be made applicable to such a situation and the precise legal submission was about the retrospective effect of the amended Section 93 of the MVAT Act.
High Court held that,
++ existing regime of the Bombay Sales Tax Act, 1959, empowered the State Government under Section 41 to grant Tax exemption either in full or in part in public interest. The Package Scheme of Incentives are a reflection of the exercise of said powers conferred on the State Government. The Package Scheme of Incentives of 1988 was succeeded by a scheme of 1993 and the object of this scheme was to achieve a dispersal of industries outside Bombay Thane Pune belt and attract them to the underdeveloped and developing areas of the State, particularly, regions away from Bombay Thane Pune belt. It is noted that the MVAT Act, 2002 came to be enacted by the State legislature and it came into force in the State of Maharashtra from 1.04.2005, which repealed the Bombay Sales Tax Act. Section 8(4) of the act empowered the Government to provide for exemption for payment of whole of tax in respect of class or classes or sales of goods effected by unit holding as defined in Section 88 to whom the incentives are granted under the Package Scheme of Incentives, by way of exemption of payment of Tax;
++ it can be seen that the assessee has paid full tax on sales from 1st April 2009 i.e. after exhausting the Cumulative Quantum of Benefits in terms of the eligibility certificate in March 2009. The life of the certificate was till May 2011 but since the ceiling limit was exhausted by March 2009 from April 2009, the assessee unit becomes liable for payment of sales tax. The returns were filed by the assessee for the years 2005-06 and he was also granted refund of Rs.5,65,39,588/- on 4th February 2006 and 1st March 2006. The assessment order which was passed and impugned for the years 2005-06, the Assessing Authority invoked and applied the provisions of Section 93 of the MVAT Act, 2002 as retrospectively substituted by Maharashtra Act No.XXII of 2009 and only allowed the exemption to the extent of prorata turnover of 35%. The First Appellate Authority maintained the order and held that since in light of the retrospective amendment made to the MVAT Act, 2002, the appellant Company will have to pay net amount by way of tax of Rs.48,50 crore in respect of the four years commencement from 1st April 2005 to 31st March 2009 along with interest and penalty. The Appellate Authority held that the dealer has taken full benefit of entitlement certificate for existing unit and is liable for pro-rata applicable for extension unit;
++ the State Government is empowered to grant exemption by virtue of Section 8 of the Bombay Sales Tax Act and Package Scheme of Incentives was an order conferring certain benefits and though it did not contain any restrictions and conditions like the pro-rata restriction, the statute MVAT Act, 2002 has settled in and restricted the benefits on prorata basis, with a retrospective effect which impliedly overrides all the exemptions which were granted under the Package Scheme of Incentives. The Appellate Authority held that on 1st April 2005, the said legislature had declared that both the deferral and exemption units under expansion will have to pay tax on part of their sales and granted power to the State Government to grant exemption from payment of tax to sales effected by exemption units, and on the same day, the State Government issued an exemption notification and the same do not contain a restriction of the one contemplated under Section 93 and the authority has held that the net effect is that Section 93 continues to operate but only against deferred unit. The dealer though had claimed 100% exemption without applying prorata and he has not produced any books of accounts nor has he enlisted the goods manufactured by his old and new units and there is no identification as a dealer is liable for prorata application. In this backdrop, the appellate authority confirmed the order passed by the Assessing Authority and held that the appellant is liable to pay an amount of Rs.2,91,84,575/-. This order was upheld by the Tribunal on more or less same grounds and the Tribunal concluded that there is no conflilct between Section 8(4) of the Bombay Sales Act and Section 93 of the MVAT Act, 2002 and they are independent provisions, mutually exclusive for units holding entitlement certificate and both operate in separate sphere;
++ the amendment inserted by Act No.XXII of 2009 would only govern those units where the Cumulative Quantum of Benefits has not yet lapsed without full utilization and is in the process of being availed. The eligibility availed under Section 93(1) is computed for a particular year and if there is excess availment, then, the benefits can be withdrawn. The challenge to the constitutional validity of Act No.XXII of 2009 was rejected by a Division Bench of court in case of Jindal Poly Films, which is upheld by the Apex Court and thus, upholding the retrospectivity of the amending enactment. The amendment of Section 93(1) being retrospective in the sense would make the provision applicable to the unit set up before the date of the said amendment, but in respect of sales which are made by such unit on or after 27th August 2009. Since the assessee has already exhausted the benefits of exemption before 27th August 2009, the assessee cannot be deprived of the said benefits in light of Section 93A which was inserted with effect from 27th April 2009. The amendment, thus would not apply to the sales already made between 1st April 2005 to 28th August 2009. A retrospectivity of a statute has to be tested in the backdrop of its nature;
++ a statute is not said to be retrospective in operation merely because a part of the requisite for its operation is drawn from a time antecedent to its passing. A situation which takes away or impairs any vested right acquired under the existing law or which creates a new obligation or imposes a new liability will be treated as retrospective. If the amendment which is made on 27th August 2009 applied to a unit to deprive it of all the exemptions of sale after 27th August 2009, then, the amendment would affect such vested right and not merely a future or contingent right and it would be retrospective in operation. The industrial unit like the assessee which has been set up before 27th August 2009 and fulfilled all the requirements of the scheme, which was prevailing, relating to enjoyment of certain sales tax benefits and if it had fulfilled all the requirements of the scheme, then, a vested right is created in favour of the unit to avail the exemption for a specified period and if on the basis of an amendment which deprives the unit of all such benefits, it would be retrospective in operation and would be against the spirit of a taxing statute. The orders passed by the Tribunal cannot be sustained and they suffer from a gross illegality. The assessee could not have been made to pay the tax for the sales affected from 1st April 2005 to 27th August 2009 and the assessment order is liable to be quashed and set aside. The substantial questions of law framed is answered in favour of the assessee.
(See 2018-TIOL-2342-HC-MUM-VAT)
